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Summary Judgment Denied Because Contract Not Clear and Unambiguous and Fraud Not Collateral to The Contract

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  • Posted on: May 2 2022

By: Jeffrey M. Haber

In Wilsey v. 7203 Rawson Rd., LLC, 2022 N.Y. Slip Op. 02905 (4th Dept. Apr. 29, 2022) (here), the Appellate Division, Fourth Department considered principles of law familiar to readers of this Blog; namely, breach of contract and fraudulent misrepresentation.  

As we have noted in prior articles (e.g., here), “[t]he essential elements of a cause of action to recover damages for breach of contract are the existence of a contract, the plaintiff’s performance pursuant to the contract, the defendant’s breach of its contractual obligations, and damages resulting from the breach.”1 Under New York law, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.”2 It is the court’s function to determine whether a contract is clear and unambiguous on its face, i.e., “whether the agreement on its face is reasonably susceptible of more than one interpretation ….”3

To state a claim for fraud, a plaintiff must allege a material misrepresentation of fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.4 The allegations must be stated with particularity to satisfy CPLR § 3016(b).5 Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true.6 Conclusory allegations will not suffice.7 Neither will allegations based on information and belief.8 

Although, CPLR § 3016(b) provides that “the circumstances constituting the [fraud] shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.”9 Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied.10

Wilsey v. 7203 Rawson Rd., LLC

[Ed. Note: the background facts discussed below come from the parties briefing before the Appellate Division.]

Background

On October 11, 2017, plaintiffs entered into a Lot Reservation Agreement (the “Reservation Agreement) with RSM Development Co., LLC (“RSM”), whereby they paid RSM a $5,000.00 deposit to reserve property that they intended to build upon. The Reservation Agreement provided, among other things, that if plaintiffs failed “to sign a contract for new construction with” RSM by November 12, 2017, RSM would “return the deposit and be free to re-sell or reserve the [property] with a different buyer.” The agreement was silent about the return of the deposit after plaintiffs entered into a purchase contract for the property. 

On February 12, 2018, plaintiffs entered into a purchase and sale agreement with 7203 Rawson Rd., LLC to purchase the property at issue and construct a house thereon (the “Purchase Contract”) and paid 7203 Rawson a deposit in the amount of $20,000.00. Attached to the Purchase Contract was an addendum that specified certain changes / options for the construction. Pursuant thereto, plaintiffs paid 7203 Rawson a construction draw of $40,000. Notably, the transaction contemplated by the Purchase Contract was contingent on the “sale and transfer” of property in Honeoye Falls (Mendon), New York. Plaintiffs were unable to sell that property. As a result, on December 5, 2018, they cancelled the Purchase Contract.

Thereafter, plaintiffs demanded return of all deposits paid to defendants (e.g., the $5,000.00 deposit on the Reservation Agreement, the $20,000.00 deposit and $40,000.00 construction draw deposit on the Purchase Contract). Defendants returned the $20,000.00 deposit on the Purchase Contract but, based on an alleged oral modification of the agreements, declined to return the $5,000.00 deposit on the Reservation Agreement, and the $40,000.00 construction draw under the Purchase Contract. Defendants maintained that plaintiffs agreed that RSM would return the construction draw paid to RSM when the property was under contract with a new buyer. 

Plaintiffs alleged that the Purchase Contract prohibited oral modification. They further alleged that defendants falsely and fraudulently claimed that they had completed the changes / options contemplated in the addendum to the Purchase Contract. 

Plaintiffs filed suit, asserting three causes of action against defendants: (1) breach of contract for refusal to return the $5,000.00 deposit under the Reservation Agreement; (2) breach of contract as to the $40,000.00 deposit under the Purchase Contract; and (3) fraudulent misrepresentation for falsely claiming that custom changes / options had been completed, justifying retention of the $40,000.00 deposit for a construction draw. 

Following some discovery, plaintiffs moved for summary judgment. The motion court granted the motion without decision. Defendants appealed. The Appellate Division, Fourth Department unanimously modified the decision by denying the motion in its entirety.

The Court’s Ruling

The Court held that plaintiffs failed to satisfy their burden of proving “that their interpretation of the relevant contracts [was] the only reasonable interpretation thereof.”11 Under settled summary judgment principles, noted the Court, “the moving party has the burden of establishing that its construction of the [contract at issue] is the only construction [that] can fairly be placed thereon.”12 “Here,” concluded the Court, “plaintiffs did not meet their initial burden on those parts of the motion seeking summary judgment on the first and second causes of action” because plaintiffs “failed to submit sufficient evidence to establish that their interpretation of the relevant contracts is the only reasonable interpretation thereof.”13 Under New York law, where “ambiguity or equivocation exists and the extrinsic evidence presents a question of credibility or a choice among reasonable inferences, the case should not be resolved by way of summary judgment.”14 

The Court also held that summary judgment should not have been granted as to the fraudulent misrepresentation claim.15 First, the Court found that plaintiffs failed to allege a duty collateral to the agreements at issue. Rather, said the Court, plaintiffs were complaining about alleged misrepresentations that related to the performance under the contracts: “On this record, we conclude that, far from being collateral to the contract, the purported misrepresentation was directly related to a specific provision of the contract.”16

 Second, the Court held, without explanation, that plaintiffs failed to comply with CPLR § 3016 (b), which provides that plaintiffs alleging fraud must do so with particularity.17 

[Ed. Note: we have written about the particularity requirement on numerous occasions. E.g., here, here, here and here.]

Takeaway

Wilsey is interesting for a couple of reasons. 

First, there is no mention of the duplication doctrine. As we have seen in other cases, fraud claims that are alleged to be nothing more than a failure to perform contractual obligations are dismissed under the duplication doctrine. Indeed, New York courts will not permit a fraud-based claim to survive a motion to dismiss when the claim arises from a breach of contract. Accordingly, courts routinely dismiss fraud claims where “[t]he existence of a valid and enforceable written contract govern[s] a particular subject matter” and the recovery sought arises out of the same facts and circumstances.18 Duplication could have been a basis for the Court’s ruling in Wilsey.

Second, Wilsey is interesting because of the interplay between the initial burden a movant bears on summary judgment and the proof required in a breach contract action to satisfy that burden. “To grant summary judgment, it must clearly appear that no material and triable issue of fact is presented.”19 Summary judgment will not be granted “where there is any doubt as to the existence of a factual issue or where the existence of a factual issue is arguable.”20 On summary judgment, “facts must be viewed ‘in the light most favorable to the non-moving party’”.21 Importantly, the movant must make a prima facie showing of entitlement to judgment as a matter of law, “tendering sufficient evidence to demonstrate the absence of any material issues of fact.”22 

In a breach of contract action, to satisfy the initial burden on summary judgment, the movant must demonstrate with sufficient evidence (in admissible form) that its interpretation of the contract is the only reasonable interpretation thereof. In other words, the moving party must establish that its construction of the contract is the only construction that can fairly be placed thereon.23 The failure to do so will result in denial of the motion. In Wilsey, plaintiffs were unable to satisfy their initial burden.


Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

References

  1. Carione v. Hickey, 133 A.D.3d 811, 811 (2d Dept. 2015), lv. denied, 27 N.Y.3d 909 (2016) (internal quotation marks omitted).
  2. Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (2002).
  3. Nancy Rose Stormer, P.C. v. County of Oneida, 66 A.D.3d 1449, 1450 (4th Dept. 2009).
  4. Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 558 (2009).
  5. Id.
  6. Id. at 559-60.
  7. Id.
  8. See Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”).
  9. Pludeman v. Northern Leasing, Sys., Inc., 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted).
  10. Id. at 491-92 (internal quotation marks and citations omitted). 
  11.  Slip Op. at *2.
  12.  Id. (quoting Nancy Rose Stormer, 66 A.D.3d at 1450 (internal quotation marks omitted) (additional citations omitted).
  13. Id.
  14. Mohawk Val. Water Auth. v. State of New York, 159 A.D.3d 1548, 1550 (4th Dept. 2018) (citation and internal quotation marks omitted).
  15. Slip Op. at *2.
  16. Preston v. Northside Collision-Dewitt, LLC, 158 A.D.3d 1127, 1128 (4th Dept. 2018) (internal quotation marks omitted).
  17. Slip Op. at *2 (citing Maki v. Bassett Healthcare, 85 A.D.3d 1366, 1369-1370 (3d Dept. 2011), appeal dismissed, 17 N.Y.3d 870 (2011), lv. denied in part and dismissed in part, 18 N.Y.3d 870 (2012).
  18. Clark-Fitzpatrick v. Long Is., 70 N.Y.2d 382 (1987).
  19. Glick & Dolleck v. Tri-Pac Export Corp., 22 N.Y.2d 439, 441 (1968).
  20. Forrest v. Jewish Guild for the Blind, 3 N.Y.3d 295, 315 (2004) (citing, Glick, 22 N.Y.2d at 441).
  21. Vega v. Restani Constr. Corp., 18 N.Y.3d 499, 503 (2012) (quoting, Ortiz v. Varsity Holdings, LLC, 18 N.Y.3d 335, 339 (2011)).
  22. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986).
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