Court Holds Text Message Inadmissible Evidence to Support Breach of Contract Claim

• Posted on: Jan 29 2020

Commercial transactions by their nature involve contracts. Sometimes, the parties involved in such transactions will dispute the meaning of their agreement. It may be that the language used is ambiguous; or the language is reasonably clear but is susceptible to different meanings; or although the language is clear, taken literally, it might not reflect the parties’ intent; or, as is often the case, an event has occurred that was not contemplated by the parties at the time of drafting, so the contract does not specifically provide for it. Needless to say, disputes over the terms and meaning of a contract can be frustrating and costly.

When parties enter into a contract, each assumes that their agreement accurately memorializes their intentions and understandings. For this reason, when a contract dispute arises, the courts look to the intent of the parties as expressed by the language they chose to put into their writing. Ashwood Capital, Inc. v. OTG Mgt., Inc., 99 A.D.3d 1 (1st Dept. 2012). A clear, complete document will be enforced according to its terms. Id. at 7. See also Am. Express Bank v. Uniroyal, Inc., 164 A.D.2d 275, 277 (1st Dept. 1990).

When the parties have a dispute over the meaning of their contract, the court first asks if the contract contains any ambiguity. Ashwood Capital, 99 A.D.3d at 7-8.  Since New York is a textual jurisdiction (where the courts look to the agreement itself to determine the meaning of the agreement), whether there is ambiguity “is determined by looking within the four corners of the document, not to outside sources.” Kass v. Kass, 91 N.Y.2d 554, 566 (1998). Thus, courts will examine the parties’ intentions as set forth in the agreement and give the language an interpretation that is sensible, practical, fair, and reasonable. Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009); Abiele Contr. v. New York City School Constr. Auth., 91 N.Y.2d 1, 9-10 (1997); Brown Bros. Elec. Contr. v. Beam Constr. Corp., 41 N.Y.2d 397, 400 (1977).

A contract is not ambiguous if, on its face, it is definite and precise and reasonably susceptible to only one meaning. White v. Continental Cas. Co., 9 N.Y.3d 264, 267 (2007). The “parties cannot create ambiguity from whole cloth where none exists, because provisions are not ambiguous merely because the parties interpret them differently.” Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680 (2015) (citation and internal quotation marks omitted).

“Whether or not a writing is ambiguous is a question of law to be resolved by the courts.” WWW Assocs., Inc. v Giancontieri, 77 N.Y.2d 157, 162 (1990). “[E]xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face.” Id. at 163. This rule is especially applicable where the parties are commercially sophisticated, and their contract contains a merger clause. Schron v. Troutman Sanders LLP, 20 N.Y.3d 430, 436 (2013) (“where a contract contains a merger clause, a court is obliged to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.”) (citation and quotation marks omitted).

Finally, since a “contractual provision that is clear on its face must be enforced according to the plain meaning of its terms,” Bank of N.Y. Mellon v. WMC Mortg., LLC, 136 A.D.3d 1, 6 (1st Dept. 2015) (citation omitted), courts may not “add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.” Id. (citations omitted). This is especially so “in commercial contracts negotiated at arm’s length by sophisticated, counseled business people.” Id.

In Castaldi v. Castle Restoration LLC, 2020 N.Y. Slip Op. 50086(U) (Sup. Ct., Suffolk County Jan. 22, 2020) (here), Justice Elizabeth H. Emerson of the Suffolk County Supreme Court, Commercial Division, addressed the foregoing principles in breach of contract case involving the purchase and sale of a company’s assets.

Castaldi v. Castle Restoration LLC

Background

The plaintiff, Robert Castaldi (“Castaldi”), was the president of Castle Restoration & Construction, Inc. (“Castle Inc.”). On March 15, 2012, Castle Inc. entered into an asset-sale agreement with defendant, Castle Restoration LLC (“Castle LLC,” the “LLC,” or the “Company”), which was owned by defendant Anthony Colao (“Colao”). Castle LLC agreed to purchase the majority of Castle Inc.’s assets, including its customer list and equipment, for $1.2 million. Simultaneously therewith, Castle LLC entered into a consulting agreement with Castaldi.

Under the consulting agreement, Castaldi agreed to perform consulting services on a part-time basis. Among other things, Castaldi agreed to solicit business opportunities for the Company and assist in the preparation of formal bids, quotations, and proposals. The term of the agreement was one year from March 16, 2012, through March 15, 2013, and it could be extended for an additional six months at the LLC’s option. If neither party terminated the agreement at the end of the term or extended term, it would automatically be extended on a month-to-month basis until either party elected to terminate it upon 30 days’ written notice to the other party.

The agreement provided for Castaldi’s compensation as follows: (a) under Section 5.1, Castaldi would receive commissions of 7½% of the gross amount of all contracts and purchase orders entered into by the Company as a result of Castaldi’s efforts (“Commission”); (b) under Section 5.2, Castaldi would receive Commissions with respect to contracts or purchase orders with clients as a result of Calstaldi’s efforts prior to the transaction (“Prior Dealings”); and (c) under Section 5.3, Castaldi would receive Commissions for any additional, repeat, or new work for which contracts or purchase orders were entered into with the same client(s) during the term of the agreement, regardless of whether Castaldi had any involvement in the procurement or negotiation of such repeat, additional or new business.

Pursuant to Section 5.5(c) of the agreement, Castle LLC agreed to furnish Castaldi with a monthly report of all payments and other items credited to his account. Castaldi never received any monthly reports, nor was he ever paid a commission. Consequently, he commenced the action, alleging breach of the consulting agreement.

The complaint contained two causes of action against Castle LLC for breach of contract and an accounting, respectively. The third cause of action sounded in fraudulent conveyance and alleged that defendants, Sato Construction Co., Inc. (“Sato”), Flag Waterproofing and Restoration, LLC, and Colao rendered Castle LLC insolvent and unable to satisfy Castaldi’s claims.

Following discovery, both sides moved for summary judgment. Defendants contended that they were entitled to dismissal of the complaint because Castaldi did not earn any Commissions under the consulting agreement. Castaldi contended that he was entitled to partial summary judgment on the first cause of action for breach of contract for Commissions earned in the amount of $1,139,098.30. Alternatively, he sought summary judgment on the issue of liability on the first cause of action.

The Court’s Decision

The Court granted Castaldi’s motion with regard to Section 5.2 of the consulting agreement but denied the motion as to Section 5.1.

The Court rejected Defendants’ contention that Castaldi terminated the consulting agreement in a text message that he sent to Calao in May of 2013 in which he stated, “[I] am finished.” Slip Op. at *2. The Court held that the text message was not authenticated and without evidentiary value:

The excerpt of the text message submitted by the defendants is undated and fails to identify either the sender or the recipient. The full text-message exchange submitted by the plaintiff is also undated and fails to identify the parties to the conversation, which is about setting up a meeting. Nothing therein refers to the parties’ consulting agreement or even identifies who said, “[I] am finished.” Accordingly, the unauthenticated text message is without evidentiary value. It is, therefore, insufficient to establish that the consulting agreement was terminated by Castaldi.

Id. (citing, among other cases, In the Matter of R.D., 58 Misc. 3d 780, 786-787 (Family Ct., N.Y. County Dec. 12, 2017) (discussing authentication of text messages)).

With regard to Castaldi’s claim for Commissions under Section 5.1 of the consulting agreement, the Court agreed with Defendants that Castaldi failed to perform any consulting services for the Company. Slip Op. at *2. The Court found that Defendants’ argument was supported by Castaldi’s deposition testimony. Id.

With regard to Commissions under Section 5.2 of the agreement, the Court held that Castaldi was entitled to receive $50,260.87. In reaching this conclusion, the Court noted that the meaning of Section 5.2 was disputed by the parties. Id. Castaldi claimed that he was entitled to a Commission under Section 5.2 as long as Castle LLC or a related entity entered into a contract or purchase order with someone on the Prior Dealings list. Defendants countered that Castaldi was entitled to a Commission under Section 5.2 only if someone on the Prior Dealings list entered into a contract or purchase order with Castle LLC (not any related entities) and Castaldi was personally involved in the negotiation or procurement thereof before he left the Company. Id.

Applying the rules of contract interpretation, the Court found that Section 5.2 applied only “to contracts or purchase orders on the Prior Dealing list entered into by Castle LLC.”

Section 5.2 provides that Castaldi shall be paid a commission if the Company enters into a contract or purchase order with a prospective client as a result of Castaldi’s Prior Dealings. The consulting agreement defines the “Company” as “Castle Restoration LLC,” and the words “or any of its affiliates, subsidiaries or related entities,” which are found in § 5.1, are not found in § 5.2. Under accepted canons of contract construction, when certain language is omitted from a provision, but placed in other provisions, it must be assumed that the omission was intentional. Accordingly, the court finds that § 5.2 only applies to contracts or purchase orders on the Prior Dealing list entered into by Castle LLC.

Id. at **2-3 (citations omitted).

The Court rejected Defendants’ contention that Castaldi had to demonstrate that he was personally involved in the negotiation or procurement of contracts or purchase orders on the Prior Dealings list in order to receive a commission. Id. at *3. “Section 5.2,” said the Court, “explicitly provides that ‘Prior Dealings’ are ‘proposals issued, bids submitted and discussions with prospective clients [that Castaldi had] for which no contracts or purchase orders had been issued by such prospective clients while he was associated with Castle Restoration and Construction Inc.’” Id. “Thus, any contracts or purchase orders that Castle LLC entered into that are on the Prior Dealings list are presumptively the result of Castaldi’s Prior Dealings for which he is entitled to a commission.” Id. Accordingly, concluded the Court, Castaldi “need only show that a contract or purchase order that Castle LLC entered into was on the Prior Dealings list in order to receive a commission therefor.”

The Court held that Castaldi was entitled to a commission in the amount of $50,260.87 for two contracts under § 5.2 of the consulting agreement. Castaldi contended that, after execution of the consulting agreement, Castle LLC and Sato entered into numerous contracts or purchase order with entities on the Prior Dealings list for which he was not paid any Commissions. Castaldi submitted a list of 15 contracts and purchase orders for which he claimed Commissions in the amount of $1,139,098.30. The Court found that the record supported the payment of Commissions in connection with two of the 15 projects – only those projects involved contracts entered into by Castle LLC. Id. Defendants did not dispute that Castle LLC entered into the two contracts or that they were on the Prior Dealings list. Id. Accordingly, the Court held that Castaldi was entitled to $50,260.87 in Commissions for both contracts under § 5.2 of the consulting agreement. Id.

Takeaway

This Blog has often discussed the probative value of emails, in particular in connection with a motion to dismiss under CPLR § 3211(a)(1) – dismissal due to documentary evidence. (E.g., here and here.) Castaldi highlights the authenticity concerns courts have with text messages – the electronic cousin of emails.

Castaldi also highlights the process courts use to apply the rules of contract interpretation where, as in that case, the parties dispute the meaning of their agreement.The Court rejected Defendants’

Tagged with: Breach of Contract, Business Litigation, Commercial Litigation, Contract Interpretation, Contract Litigation, Contractual Provisions, CPLR § 3211(a)(1), Emails, Text Messages