Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, a court may grant summary judgment if it appears "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). It is the substantive law that will determine what facts are material to the outcome of a case. See Anderson, 477 U.S. at 250.
Initially, the moving party has the burden of informing the court of the basis of its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). If the moving party satisfies its burden, the burden then shifts to the non-moving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). The Court must then resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). However, the non-moving party must do more than simply show "that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. Only when the Court concludes that no rational finder of fact can find in favor of the non-moving party should summary judgment be granted. Gallo v. Prudential Residential. Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994).
Here, Defendants seek dismissal of the Complaint for the following reasons: (1) Port Welding was not a party to the contract; (2) There is no evidence of intent to defraud or conspiracy to defraud; (3) Plaintiffs' prima facie tort claim is without support; (4) The Scaranos have no personal liability; (5) Plaintiff cannot recover for any breach of warranty; (6) Plaintiff's negligence claim is without support; (7) The liquidated damages clause is unenforceable; and (8) Punitive damages are not warranted.
The Court will address Defendants' arguments seriatim.
A. Port Welding's Contractual Liability
Port Welding and Steve Barber (hereinafter the "Port Welding Defendants") assert that they have no liability because Plaintiff only had a contractual relationship with Scarano Boat Building, and not with Port Welding. As Plaintiff properly notes, however, simply because Kahuna Group had a written contractual relationship with Scarano Boat Building does not preclude a contractual relationship with the Port Welding Defendants. This relationship may be based, inter alia, on an oral contract, functional privity, or Defendants' joint venture.
After reviewing the record here, it is clear that Plaintiff has put forth sufficient evidence to show that, under all of the aforementioned theories of contractual liability, genuine issues of material fact exist. For example, Todd Sanders states that he had an oral agreement for the Scarano and Port Welding Defendants together to design and build the boat. (Sanders Aff. P 14). Sanders also states that he understood the written agreement to encompass the Port Welding Defendants as well, particularly because Sanders was never told that the Port Welding Defendants were not part of the Scarano operation.
In their motion papers, the Port Welding Defendants incorrectly assert that the written contract precludes Plaintiff from offering evidence of an oral agreement between Kahuna Group and Port Welding. As the New York Court of Appeals has stated, "it has never been held that a written agreement between two parties excludes proof of an additional parol agreement between one of those parties and a third party." Traders' Nat'l Bank v. Laskin, 238 N.Y. 535, 542, 144 N.E. 784 (1924).
At a minimum, Plaintiff states that it considered Port Welding and Scarano to be joint venturers. Under New York law, a joint venture "is in a sense a partnership for a limited purpose, and it has long been recognized that the legal consequences of a joint venture are equivalent to those of a partnership." Gramercy Equities Corp. v. Dumont, 72 N.Y.2d 560, 565, 531 N.E.2d 629, 632, 534 N.Y.S.2d 908, 911 (1988). A joint venture exists where
the parties have so joined their property, interests, skills and risks that for the purpose of the particular adventure their respective contributions have become as one and the commingled property and interests of the parties have thereby been made subject to each of the associates on the trust and inducement that each would act for their benefit . . . .
Steinbeck v. Gerosa, 4 N.Y.2d 302, 175 N.Y.S.2d 1, 13, 151 N.E.2d 170, 178 (1958) (quoting Hasday v. Barocas, 10 Misc. 2d 22, 28, 115 N.Y.S.2d 209, 215 (Sup.Ct.N.Y.Co. 1952)).
Specifically, in order to form a joint venture (1) two or more persons must enter into an agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge, or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses. Itel Containers Int'l Corp. v. Atlanttrafik Express Serv. Ltd., 909 F.2d 698, 701 (2d Cir. 1990); Independent Energy Corp. v. Trigen Energy Corp., 944 F. Supp. 1184, 1201 (S.D.N.Y. 1996).
Here, Plaintiff cites to ample evidence supporting its theory of joint venturer liability. According to Plaintiff, the Scaranos approached Port Welding and secured their involvement in the project before Plaintiff contracted with either of them. In fact, Scarano Boat Building never even considered another fabricator other than Port Welding. (Sanders Aff. P 17, citing J. Scarano Dep. at 42-43). Moreover, the Scaranos introduced Steve Barber as their "fabricator." (Sanders Aff. P 10). According to Plaintiff, John and Rick Scarano and Steve Barber explained to Sanders that they did a lot of boat work together and that they had just built a steel crane barge together. Barber even took Sanders to a nearby building and gave Sanders a tour of his facilities. (Sanders Aff. P 12).
In addition, each defendant exercised control over the project and committed equipment and resources to its completion. The Scaranos devised the specifications and design of the vessel and did the painting and systems work. However, during the initial stages of the construction of the vessel all work was done by Port Welding, including all of the welding and fabrication services. Furthermore, Plaintiff asserts that the fee charged for the vessel was based on joint discussions between the Scaranos and Barber regarding cost of materials and the size and weight of the vessel; indeed, because the weight of the vessel was subject to significant variation, both parties shared in the risk of loss from the venture.
(Sanders Aff. P 17).
Finally, Plaintiff argues that it worked more closely with the Port Welding Defendants than the Scaranos. Sanders states that he worked with Steve Barber very day he was present at the site; and was even provided with the use of an office at Port Welding's facilities. (Sanders Aff. P 18). Moreover, Plaintiff made payments directly to Port Welding.
Based on the foregoing, the Court concludes that a genuine issue of material fact exists as to whether Port Welding had a contractual relationship with Kahuna Group. Thus, summary judgment is unwarranted on this issue.
B. Fraud and Conspiracy to Defraud
Defendants argue that summary judgment is appropriate as to Plaintiff's fraud claims because the representations made to Todd Sanders were true, and that, in any event, the representations were not made with the intent to deceive or to induce Kahuna to enter into a contract.
Under New York law, acts that give rise to a breach of contract claim may also support a distinct claim for fraud if the defendant misrepresents a presently existing fact. PI, Inc. v. Quality Products, Inc., 907 F. Supp. 752, 760-61 (S.D.N.Y. 1995) (citing cases). To recover under a fraud theory, plaintiff must prove the following elements: (1) misrepresentation of a material fact; (2) falsity of the representation; (3) scienter; (4) reasonable reliance; and (5) damages. May Dep't Stores Co. v. Int'l Leasing Corp., Inc., 1 F.3d 138, 141 (2d Cir. 1993); Mallis v. Bankers Trust Co., 615 F.2d 68, 80 (2d Cir. 1980).
Here, the record shows that genuine issues of material fact exist as to whether Defendants misrepresented a material fact, which Plaintiff relied upon to its detriment. Specifically, Todd Sanders alleges that John Scarano and Steve Barber represented to him that John Scarano was a naval architect, when in fact John Scarano had no naval architecture education.
(Sanders Aff. P 20). Sanders also alleges that "in spite of the repeated representations by the Scaranos and Steve Barber about how much they worked together in boat construction and design, it turned out that they had not worked together at all." (Sanders Aff. P 21, citing John Scarano Dep. at 30). Sanders also states that contrary to Defendants' representations to him, Scarano Boat building had not done any work on any steel vessel prior to the Kahuna project, (Sanders Aff. P 22, citing J. Scarano Dep. at 34-35), and Steve Barber was completely unfamiliar with Coast Guard regulations and American Bureau of Shipping standards concerning boat construction, (Sanders Aff. P 29, citing Barber Dep. at 268).
As to Defendants' intent to defraud, "to satisfy the scienter requirement, a plaintiff need not allege facts which show the defendant had a motive for committing fraud, as long as the plaintiff . . . adequately identifies the circumstances indicating conscious behavior by the defendants." Cosmas v. Hassett, 886 F.2d 8, 13 (2d Cir. 1989). The requisite strong inference as to fraudulent intent may be established by factual allegations that show Defendants had both motive and opportunity to commit fraud or that constitute strong circumstantial evidence of conscious misbehavior or recklessness. See In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 268-69 (2d Cir. 1993).
Based on a careful review of the record here, the Court concludes that a genuine issue of material fact exists as to the veracity of the representations made by Defendants and the intent with which they were made. Thus, Plaintiff's fraud and conspiracy to defraud claims are properly left for the trier of fact.
C. Prima Facie Tort
Defendants seek summary judgment with regard to Plaintiff's claim for prima facie tort on the basis that Defendants' allegedly wrongful acts were not motivated solely by malice.
The elements for prima facie tort are: (1) intentional infliction of harm; (2) resulting in special damages; (3) without excuse or justification; (4) by an act that would otherwise be lawful. Twin Laboratories, Inc. v. Weider Health & Fitness, 900 F.2d 566, 571 (2d Cir. 1990) (citing Burns Jackson Miller Summit & Spitzer v. Lindner, 59 N.Y.2d 314, 464 N.Y.S.2d 712, 720, 451 N.E.2d 459, 467 (1983)). The touchstone is "disinterested malevolence", meaning that Plaintiff cannot recover unless Defendants' conduct was not only harmful, but done with the sole intent to harm. Burns, 464 N.Y.S.2d at 721, 451 N.E.2d at 467-68. The Second Circuit has stated that motives other than disinterested malevolence, "such as profit, self-interest, or business advantage" will defeat a prima facie tort claim. Marcella v. ARP Films, Inc., 778 F.2d 112, 119 (2d Cir. 1985).
Here, Plaintiff has provided sufficient evidence to raise a genuine issue as to Defendants' "disinterested malevolence." As Plaintiff points out, Defendants' alleged tortious conduct continued past the point where they stood to gain financially from continuing to injure Plaintiff.
Defendants incorrectly assert that a claim for prima facie tort cannot be plead as an alternative claim for relief. While double recovery is not allowed, "'where a traditional tort remedy exists, a party will not be foreclosed from pleading, as alternate relief, a cause of action for prima facie tort.'" Hughes v. Patrolmen's Benevolent Ass'n, 850 F.2d 876, 882 (2d Cir. 1988) (quoting Freihofer v. Hearst Corp., 65 N.Y.2d 135, 490 N.Y.S.2d 735, 480 N.E.2d 349 (1985)).
D. Scarano Defendants' Personal Liability
John and Richard Scarano argue that as a matter of law they are not personally liable under the contract rider for return of deposit monies or for the graduated late penalty. The rider, dated March 17, 1993 (the "Rider"), states:
PERSONAL GUARANTEE : The undersigned personally guarantee, on behalf of the Builder, Scarano Boat Building, Inc., that they will be personally liable for the return of any deposit monies paid by the Owner in the event a default occurs requiring a refund.