United States District Court, Southern District of New York
July 23, 1991
MORSE/DIESEL, INC., PLAINTIFF AND COUNTERCLAIM DEFENDANT,
FIDELITY AND DEPOSIT COMPANY OF MARYLAND, DEFENDANT, THIRD-PARTY PLAINTIFF AND COUNTERCLAIMANT, V. T. FREDERICK JACKSON, INC., THIRD-PARTY DEFENDANT, AND TIMES SQUARE HOTEL COMPANY AND MARRIOTT CORPORATION, ADDITIONAL DEFENDANTS ON COUNTERCLAIMS.
The opinion of the court was delivered by: Leisure, District Judge.
This diversity action is brought by plaintiff for damages
resulting from an alleged overpayment to its subcontractor in
connection with the Marriott Marquis Hotel project. Plaintiff
Morse/Diesel, Inc. ("Morse/Diesel"), alleges, in addition to
its breach of contract claim, fraud and breach of the covenant
of good faith and fair dealing.
Defendant Fidelity and Deposit Company of Maryland ("F & D")
asserted counterclaims of fraud and bad faith breach against
plaintiff and additional counterclaim defendants, Times Square
Hotel Company ("Times Square") and Marriott Corporation
("Marriott"). By order and opinion dated May 3, 1991, (the
"Opinion"),*fn1 this Court granted the motion of
Morse/Diesel, Times Square and Marriott (collectively, the
"counterclaim defendants") to dismiss with prejudice F & D's
counterclaims, and to strike F & D's ninth affirmative
defense. The court denied the counterclaim defendants' motion
for sanctions, as well as F & D's cross-motions for
bifurcation of plaintiff's claims and for a stay of discovery
F & D now moves for reargument of certain portions of the
Opinion pursuant to Local Civil Rule 3(j).*fn2 Specifically,
F & D moves the Court
for entry of an Order . . . 1) modifying [the
Opinion] to reflect that the dismissal of the
counterclaims against Morse/Diesel, Inc. is
without prejudice and with leave to replead and
that the striking of the Ninth Affirmative Defense
is with leave to replead; 2) modifying [the
Opinion] to delete the alternative ground for
dismissal of the counterclaims against Morse/Diesel
based upon failure to plead damages; and 3)
modifying [the Opinion] to reflect that the
dismissal of the counterclaims against [Times
Square] and Marriott Corporation is without
Defendant's Notice of Motion at 1-2.
Familiarity with the factual background of this action is
assumed, based on the Court's prior Opinion.
The standards governing motions for reargument are clear.
"`The only proper ground on which a party may move to reargue
an unambiguous order is that the court overlooked "matters or
controlling decisions" which, had they been considered, might
reasonably have altered the result reached by the court.'"
Schonberger v. Serchuk, 742 F. Supp. 108, 119 (S.D.N.Y. 1990)
(Leisure, J.) (quoting Adams v. United States, 686 F. Supp. 417,
418 (S.D.N.Y. 1988) (quoting Local Civil Rule 3(j))); see also
Moll v. U.S. Life Title Ins. Co., 700 F. Supp. 1284, 1286
(S.D.N.Y. 1988) (Leisure, J.); Bozsi Ltd. Partnership v.
Lynott, 676 F. Supp. 505, 509 (S.D.N.Y. 1987).
As this Court has previously held, "[t]he concerns reflected
by these standards are sound. The provision for reargument is
not designed to allow wasteful repetition of argument already
briefed, considered and decided." Schonberger, supra, 742
F. Supp. at 119; see also Ruiz v. Commissioner of Dep't of
Transp., 687 F. Supp. 888, 890 (S.D.N.Y.), aff'd, 858 F.2d 898
(2d Cir. 1988) ("The standard for granting a motion for
reargument is strict in order to dissuade repetitive arguments
on issues that have already been considered fully by the
Court."). Additionally, a party making a motion for reargument
may not, under Local Rule 3(j), advance new facts, issues or
arguments not previously presented to the Court. See Weissman
v. Fruchtman, 124 F.R.D. 559, 560 (S.D.N.Y. 1989) (Leisure,
J.); Ruiz, supra;
Morgan Guar. Trust Co. v. Garrett Corp., 625 F. Supp. 752, 756
In dismissing F & D's counterclaims for fraudulent
inducement and breach of the covenant of good faith and fair
dealing, as well as its ninth affirmative defense based on
fraud, the Court found that all of these claims arose from the
same basic fraud claim. The Court also based its dismissal of
the bad faith breach counterclaim on a finding of a lack of a
duty of good faith and fair dealing running from the obligee
of a bond, in this case, Morse/Diesel, to F & D, the surety on
F & D's first counterclaim, for fraud, asserted in pertinent
in the event of any determination that
Morse/Diesel relied upon any . . . representation
by F & D [that there would be no cost overrun],
then Morse/Diesel and the other counterclaim
defendants fraudulently induced F & D into
entering into the Reimbursement Agreement by
misrepresenting at the time that it was their
position, opinion and belief that [the
subcontractor's] cost to complete its work would
exceed the adjusted Subcontract balance.
Counterclaim ¶ 33.
The Court dismissed this counterclaim and the ninth
affirmative defense because of an admission in F & D's answer
that "Morse/Diesel believed . . . that [the subcontractor's]
cost to complete its Subcontract would exceed the Subcontract
price." Answer ¶ 30.
While F & D does not seek reargument of this ruling, it
seeks leave to replead its counterclaims on the basis of
Morse/Diesel's failure to disclose its reliance on F & D's
representation, rather than a misrepresentation on the part of
Morse/Diesel. This point was raised, without supporting
authority, in a few sentences of F & D's forty-seven page
brief in response to the motion to dismiss.
The counterclaim defendants assert the futility of the
proposed amendment. However, given the surprisingly cursory
manner in which both sides have treated the issue to date, the
Court will not rule on the legal sufficiency of the proposed
amended counterclaim at this stage.
Accordingly, the Court will modify its Opinion to permit the
repleading of F & D's counterclaim and affirmative defense
based on fraudulent inducement. Thus, the dismissal of Count
I of F & D's counterclaim against Morse/Diesel, Times Square
and Marriott is without prejudice.
F & D also requests a modification of the Court's alternate
ruling in the Opinion concerning F & D's failure to plead
damages. While F & D does not seek reargument of this ruling,
it points to its alternate demand for rescissionary relief on
its fraud counterclaim. This point was raised in one sentence
of F & D's original brief, also without authority.
Under New York law, fraud and rescission are separate causes
of action, which may be pleaded in the alternative even though
legally inconsistent. However, New York courts have held that
a plaintiff must elect his remedy. He cannot
recover damages for fraud and have rescission
too. This is because an award of damages for
fraud affirms the contract while penalizing the
fraudulent party for his breach. Rescission
vitiates the contract and places the parties in
status quo prior to the transaction.
Vitale v. Coyne Realty, Inc., 66 A.D.2d 562, 414 N.Y.S.2d 388,
393 (4th Dep't 1979).
Under this rule, the Court sees no reason for modification
of its ruling that F & D's failure to allege damages, an
essential element of a fraud claim, precludes its fraud
counterclaim. However, the Court hereby modifies its Opinion
to include a ruling that F & D may maintain a claim for
rescission based on fraudulent inducement, subject to an
adequate repleading of its fraudulent inducement theory.
As the counterclaim defendants point out, nothing in the
arguments presented by F & D supports a repleading of F & D's
second counterclaim based on breach of the covenant of good
faith and fair dealing. Accordingly, to the extent F & D seeks
modification of the Court's dismissal of its second
counterclaim, its motion is denied.
For the reasons set forth above, F & D's motion for
reargument of the opinion and order of this Court in this
action dated May 3, 1991, is granted in part and denied in
The order and opinion of May 3, 1991, is modified to dismiss
F & D's first counterclaim without prejudice as against all
The order and opinion of May 3, 1991, is further modified to
permit F & D to replead its first counterclaim and its ninth
affirmative defense in accordance with this memorandum order
and with the order and opinion of May 3, 1991.
F & D shall serve and file its amended answer and
counterclaims on or before August 23, 1991.
Nothing in this memorandum order should be understood to
modify the Court's opinion and order dated May 3, 1991, except
to the extent indicated above.