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Emails, Breach of Contract and the Statute of Frauds

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  • Posted on: Jul 15 2020

In today’s article, we examine ASV Techs., Inc. v. Sterling Natl. Bank, 2020 N.Y. Slip Op. 32208(U) (Sup. Ct., N.Y. County July 7, 2020) (here). ASV involved the Statute of Frauds and the impact emails can have on the court’s analysis in deciding whether the Statute of Frauds will bar a breach of contract claim.

Background

AVS involved an alleged breach of a computer program end-user license agreement (“EULA”) between plaintiff, AVS Techs., Inc., and the predecessor-in-interest of defendant, Sterling National Bank (“Sterling”). 

ASV is a software technology company that markets signature verification and check fraud detection software for use in the banking industry. In 2003, AVS entered into an End User License Agreement (“2003 EULA”) with Hudson Valley Bank (“Hudson”), Sterling’s predecessor-in-interest. The 2003 EULA granted Hudson a three-year license to copy and use ASV’s eBank Discovery program, which was customized for Hudson’s use and included all necessary hardware and software to run the program.

Upon termination of the 2003 EULA, the parties entered a new EULA, which took effect August 31, 2006 (“2006 EULA”). The 2006 EULA allowed Hudson to continue to use the eBank Discovery software program for a fee of $2,000 per month. The 2006 EULA provided for an initial term of three years with automatic one-year renewals, subject to Hudson’s power to terminate upon ninety days written notice. ASV alleged the 2006 EULA remained in effect through December 31, 2014.

In January 2015, ASV sent Hudson a new EULA, which ASV intended would “supersede or supplant the 2006 EULA” (the “2015 EULA”). Under the 2015 EULA, Hudson would continue to pay a monthly license fee of $2,000 but would also pay an “additional $833 per month for license use of [ASV’s] 310/312 custom module”, a new custom add-on module. The 2015 EULA provided for an initial term of three years with automatic two-year renewals. The 2015 EULA stated that “[b]y installing, copying or otherwise using the SOFTWARE PRODUCT, you agree to be bound by the terms of this EULA.” The parties did not sign the 2015 EULA.

ASV alleged that Hudson manifested its acceptance of the 2015 EULA by continuing its use of ASV’s software products, as per a mode of acceptance stated in the contract. As a “courtesy,” ASV claimed to have deferred the $833 per month payments for license use of the 310/312 custom module.

Sterling succeeded Hudson by reason of a merger in May 2015 and assumed Hudson’s contractual rights and obligations to ASV. By letter dated May 8, 2016, Sterling sent ASV a notice of termination of the 2006 EULA, effective August 30, 2016. ASV alleged that the termination was “ineffective and void” and the 2015 EULA did not expire until October 1, 2017. Subsequently, ASV billed Sterling “for the work performed at [Sterling’s] specific request and served Sterling with a written demand to cease use of ASV’s software and return all proprietary hardware, software, and support manuals.”

ASV commenced the action for breach of contract, alleging that Sterling breached the 2015 EULA by (1) failing to make required payments for the 310/312 custom module for the period of June 1, 2015 to October 30, 2017, and (2) refusing to return ASV’s proprietary hardware, software, and support manuals despite revocation of the license.

Sterling moved to dismiss the amended verified complaint, pursuant to CPLR 3211 (a) (1) and (7), on the grounds that: (1) the 2015 EULA was unsigned and, therefore, void and nonbinding in accordance with the Statute of Frauds and the written terms of the 2006 EULA; (2) Sterling properly terminated the 2006 EULA; and (3) the documentary evidence submitted in support of the motion refuted ASV’s argument of a breach.

The Court granted the motion.

The Court’s Decision

On a motion to dismiss under CPLR 3211 (a) (7), the court must “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory.” Leon v. Martinez, 84 N.Y.2d 83, 87-88 (1994). “[B]are legal conclusions, as well as factual claims which are either inherently incredible or flatly contradicted by documentary evidence” cannot survive a motion to dismiss. Summit Solomon & Feldesman v. Lacher, 212 A.D.2d 487, 487 (1st Dept. 1995) (citation omitted).

To prevail on a CPLR 3211 (a) (1) motion to dismiss, the movant has the “burden of showing that the relied upon documentary evidence ‘resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff’s claim.’” Fortis Fin. Servs. v Filmat Futures USA, 290 A.D.2d 383, 383 (1st Dept. 2002) (citation omitted). “A cause of action may be dismissed under CPLR 3211 (a) (1) ‘only where the documentary evidence utterly refutes [the] plaintiff’s factual allegations, conclusively establishing a defense as a matter of law.’” Art and Fashion Group Corp. v Cyclops Prod., Inc., 120 A.D.3d 436, 438 (1st Dept. 2014) (citation omitted). “The documents submitted must be explicit and unambiguous” (Dixon v. 105 West 75th St. LLC, 148 A.D.3d 623, 626 (1st Dept. 2017) (citation omitted)), and their content “essentially undeniable” (VXI Lux Holdco S.A.R.L. v. SIC Holdings, LLC, 171 A.D.3d 189, 193 (1st Dept. 2019) (citation omitted)). Correspondence through letters and emails may be properly considered by the court[s] [in the First Department] as documentary evidence under CPLR 3211 (a) (1). See Tozzi v. Mack, 169 A.D.3d 547, 548 (1st Dept. 2019); Art and Fashion Group, 120 A.D.3d at 438.

The Court found that Sterling National satisfied the foregoing standards.

1. Statute of Frauds

Under General Obligations Law § 5-701(a) (1), “[e]very agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith … if such agreement, promise, or undertaking by its terms is not to be performed within one year of the making thereof ….” A contract that is unsigned, and by its own terms, “terminable within one year only upon a breach by one of the parties” is void under the Statute of Frauds. D & N Boening, Inc. v. Kirsch Beverages, Inc., 63 N.Y.2d 449, 456 (1984).

The Court found that the Statute of Frauds barred recovery because the 2015 EULA was unsigned and not capable of performance within one year. Slip Op. at *5-*6. The Court noted that, by its terms, the 2015 EULA would remain in effect for a minimum of three years, at which point Sterling could terminate by providing ASV with ninety days written notice. Sterling had no option to terminate the 2015 EULA as a matter of right prior to October 1, 2017 – a point that ASV conceded. Id. at *5. Thus, said the Court, “Sterling had no ability to perform the 2015 EULA within a year of its creation.” Id. 

The Court rejected ASV’s argument that Hudson had manifested its acceptance of the 2015 EULA by acknowledging receipt of the 2015 EULA and through its subsequent performance by continuing to use the ASV software. The Court explained that “this alleged mode of acceptance [was] insufficient to remove the 2015 EULA from the Statute of Frauds unless ‘there [was] a note, memorandum or other writing sufficient to indicate that a contract ha[d] been made, signed by the party against whom enforcement is sought ….’ or the parties’ partial performance [was] ‘unequivocally referable’ to the 2015 EULA.” Id. at *6 (citing GOL § 5-701 (b) (3) (d) and Anostario v. Vicinanzo, 59 N.Y.2d 662, 664 (1983)).

A. Insufficient Written Evidence of a Contract

ASV argued that emails exchanged between the parties evidenced Hudson’s acceptance of the 2015 EULA. The Court found the argument unavailing. One of the emails relied upon by ASV, noted the Court, was sent “prior to any alleged acceptance of the 2015 EULA.” Slip Op. at *6. Therefore, there could be no acceptance of the 2015 EULA by this email. Id.

A string of emails sent days after the alleged agreement in January 2015 was entered did “not convey Hudson’s clear agreement or acquiescence to the 2015 EULA,” noted the Court. Id. Although the law permits the courts to piece together writings (such as emails) to determine whether the Statute of Frauds applies, they must clearly evidence an agreement to be bound by the terms in the writings. Kelly v. P & G Ventures 1, LLC, 148 A.D.3d 1002, 1003 (2d Dept. 2017) (citations omitted). The Court found that the emails “merely communicated” an intention to send the 2015 EULA up the chain for review. Slip Op. at *7.

The Court further found that the emails did not satisfy the requirements of the Statute of Frauds because their content did not “meet all the requirements of the governing statute.” Id. (citing Naldi v. Grunberg, 80 A.D.3d 1, 3 (1st Dept. 2010). “[A]t least one writing, the one establishing a contractual relationship between the parties, must bear the signature of the party to be charged ….” Id. (quoting Scheck v. Francis, 26 N.Y.2d 466, 471 (1970)). The Court held that the automated signature block of the employee at Hudson did not meet this standard because it was not made “with intent to authenticate the information therein.” Id. (quoting Scheck, 26 N.Y.2d at 471). See also Parma Tile Mosaic & Marble Co. v. Estate of Shoff, 87 N.Y.2d 524, 526-28 (1996).

B. No Unequivocal Partial Performance

ASV argued that an agreement, although unsigned, may be enforceable when the parties’ conduct or performance demonstrates objective evidence that the parties reached a binding agreement. See Flores v. Lower E. Side Serv. Ctr., 4 N.Y.3d 363, 365-66 (2005) (written but unsigned agreement is enforceable where general contractor has performed work and received payment in accordance with alleged agreement); Brown Bros. Elec. Contractors, Inc. v. Beam Constr. Corp., 41 N.Y.2d 397, 398-99 (1977) (parties’ “course of conduct” established the existence of a binding agreement). ASV asserted that Hudson, and therefore, Sterling, accepted the 2015 EULA through their subsequent performance, and that the parties conducted themselves in a manner that amounted to unequivocal performance under the 2015 EULA.

Under the Statute of Frauds, “[t]he doctrine of part performance may be invoked only if plaintiff’s actions can be characterized as unequivocally referable to the agreement alleged.” Anostario, 59 N.Y.2d at 664. “[T]he actions alone must be ‘unintelligible or at least extraordinary,’ explainable only with reference to the oral agreement.” Id. (citations omitted). The Court found that “neither parties’ alleged performance [was] unequivocally referable to the 2015 EULA because it [could] be alternatively explained through continued adherence to the terms of the 2006 EULA.” Slip Op. at *8.

ASV claimed that installing the 310/312 custom module to Sterling’s existing signature verification and check fraud software was evidence of its performance under the 2015 EULA. The Court rejected the argument because the 2006 EULA obligated ASV to provide Sterling with “updates and modifications to the Software” and offered “full product upgrades and support assuring ASV customers will always have the best available technology.” Id. at *8-*9. Further, observed the Court, “[a]ny customization or modification of the Software and any other services not specifically provided for in th[e] Agreement … shall be deemed consulting services for which Licensee agrees to pay Licensor in accordance with Licensor’s then current hourly rates.” Id. at *9. Therefore, concluded the Court, “ASV’s installation of the 310/312 custom module [was] not ‘explainable only with reference to the [2015 EULA]’ because the performance [could be] logically be referenced to the 2006 EULA.” Id. (quoting Anostario, 59 N.Y.2d at 664).

2. Explicit Intent to be Bound Only by a Written and Signed Document

The Court also found that any oral agreement surrounding the 2015 EULA would be void due to “Sterling’s explicit and expressed intent to not be bound to any agreement absent a written and signed document.” Id. at *10. The Court explained that “[t]he 2006 EULA state[d] that the document comprise[d] the ‘entire agreement’ and [could] only be ‘amended by a writing executed by both Licensee and Licensor.’” Id. Such language, said the Court, was “documentary evidence of Sterling’s clear intent not to be bound by the terms of any unsigned agreement.” Id. (citing Scheck, 26 N.Y.2d at 469-70). “Courts should give ‘considerable weight’ to explicit statements that a party does not intend or desire to be bound by oral agreements,” noted the Court. Id. (quoting R. G. Group, Inc. v Hom & Hardart Co., 751 F.2d 69, 75 (2d Cir. 1984).

Takeaway

In a prior post (“Does An Agreement Really Have To Be In Writing?”), we said that “[i]n a perfect world, all contracts would be reduced to writing and signed by both parties, so that courts could determine the rights and obligations of the parties to the agreement.” Here. “Unfortunately, we do not live in a perfect world. Id. Therefore, it is always best for people to reduce their agreements to a writing that is signed by all involved parties. If they do not have a written agreement, it does not necessarily mean that they cannot enforce their agreement, but it does mean that there are many impediments to overcome to convince a court to enforce it. AVS highlights those impediments.

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