Columbia and the Town entered into a Letter of Intent ("LOI") which set
in place procedures regarding further investigation by the parties of the
feasibility of Columbia's project. (Id. ¶ 15.) One particular
provision stated that Columbia would reimburse the Town on a monthly basis
for all reasonable third-party (i.e., out-of-pocket) costs incurred by
the Town in performance of its responsibilities under the LOI in
accordance with the attached budget. (Id. ¶ 15.) This budget covered
the costs of engineering, permitting and legal expenses up to $150,000
(id., Ex. C) and expired June 1, 2000. (Id. ¶ 17.)
After the LOI was executed, the Town began creating an 8.167-acre
subdivided parcel on the landfill property for Columbia in addition to
working with Columbia to develop a plan for modification of the closure
plan that would accommodate the Power Plant and conform to DEC
requirements. (Id. ¶¶ 18-19.) From the beginning, and included in the
LOI, the parties agreed that, subject to approval, Columbia would pay the
additional costs of the modification of the closure plan once they were
approved. (Id. ¶ 20, Ex. D.)
Around February 2000, Columbia pressed the Town to complete the
engineering of the modified landfill closure plan so that implementation
of the plan could commence. (Id. ¶ 21.) At a meeting on February 8,
2000, attorneys for the Town asked what would happen if Columbia decided
to back out of the project. Robert Svendsen, Project Manager for
Columbia, replied that Columbia would pay for the costs incurred in
developing and implementing the modified closure plan. (Id. ¶ 22.) By
April of 2000, the DEC approved the modified plan and Columbia pressed the
Town to begin construction, which it did at the end of April. (Id. ¶
25.) At a Town meeting on April 24, 2000, a resolution formally
authorized payment of the change order for the construction and it was
stated that Columbia would pay for these modification costs. (Id. ¶¶
26-27.) On May 12, 2000, the parties held a final negotiating meeting and
agreed that Columbia would pay all costs associated with the
modification, totaling $2,344,142.62. (Id. ¶ 29.)
The construction, which began at the end of April, proceeded. (Id.
¶ 32.) A letter from Columbia dated June 15, 2000 informed the Town
that it did not authorize work to proceed and that the Town was
proceeding at its own risk. Another letter from Columbia dated June 30,
2000 informed the Town that Columbia might not proceed with the project.
However by then, the Town could not stop work as it would cost too much
to go back to the original plan or make a new plan. (Id. ¶¶ 34-35.)
Since June 15, 2000, Columbia has not actively participated in the
project and has refused to reimburse the S2,344,142.62 that the Town spent
modifying the closure plan.
I. Standard on Motion to Dismiss
As previously noted, on a motion to dismiss pursuant to Rule 12(b)(6),
the court must accept as true all of the well pleaded facts and consider
those facts in the light most favorable to the plaintiff. See cases
cited, supra note 1. On such a motion, the issue is "whether the claimant
is entitled to offer evidence to support the claims." Scheuer, 416 U.S.
at 236. A complaint should not be dismissed for failure to state a claim
"unless it appears beyond doubt that the plaintiff can prove no set of
facts in support of his claim which would entitle him to relief." Padavan
v. United States, 82 F.3d 23, 26 (2d Cir. 1996) (quoting Hughes v. Rowe,
449 U.S. 5, 10 (1980)). Generally, "[c]onclusory allegations or legal
conclusions masquerading as
factual conclusions will not suffice to
prevent a motion to dismiss." 2 JAMES WM. MOORE ET AL., MOORE'S FEDERAL
PRACTICE § 12.34 [b] (3d ed. 1997); see also Hirsch v. Arthur
Andersen & Co., 72 F.3d 1085, 1088 (2d Cir. 1995). Allegations that
are so conclusory that they fail to give notice of the basic events and
circumstances of which the plaintiff complains, are insufficient as a
matter of law. See Martin v. New York State Dep't of Mental Hygiene,
588 F.2d 371, 372 (2d Cir. 1978).
It is well settled under New York law that a claim for fraud predicated
on a breach of contract cannot be asserted simply because a party did not
intend to honor its express contractual agreement. John Paul Mitchell
Sys. v. Quality King Distrib. Inc., No. 99 Civ. 9905, 2001 WL 910405, at
*4 (S.D.N.Y. Aug. 13, 2001); Four Finger Art Factory, Inc. v. Dinicola,
No. 99 Civ. 1259, 2000 WL 145466, at *4 (S.D.N.Y. Feb. 9, 2000); First
Bank of the Americas v. Motor Car Funding Inc., 690 N.Y.S.2d 17, 21
(App. Div. 1999) ("A fraud claim should be dismissed as redundant when it
merely restates a breach of contract claim, i.e., when the only fraud
alleged is that the defendant was not sincere when it promised to perform
under the contract."). However, a false statement of intention is
sufficient to support an action for fraud, even if that false statement
relates to a contractual agreement. Graubard Mollen Dannett &
Horowitz v. Moskovitz, 86 N.Y.2d 112, 122 (1995). These seemingly
inconsistent legal principles were reconciled by the Second Circuit Court
of Appeals which stated that to maintain a fraud claim arising out of a
breach of contract, the plaintiff must either: "(i) demonstrate a legal
duty separate from the duty to perform under the contract; or (ii)
demonstrate a fraudulent misrepresentation collateral or extraneous to
the contract; or (iii) seek special damages that are caused by the
misrepresentation and unrecoverable as contract damages."
Bridgestone/Firestone, Inc., v. Recovery Credit Servs., Inc., 98 F.3d 13,
20 (2d Cir. 1996). Chief Judge Winter rationalized that the Appellate
Division cases state the general principle of law (that fraud claims
cannot be maintained simply because a party did not intend to honor the
agreement), while the individual Court of Appeals' decisions apparently
to the contrary should be read as fact-specific exceptions. Cougar
Audio, Inc., v. Reich, No. 99 Civ. 4498, 2000 WL 420546, at *6 n. 4
(S.D.N.Y. April 18, 2000).
The Town alleges that Columbia misrepresented that it would pay for all
additional costs associated with the modified closure plan. The damages
caused by this misrepresentation are apparently identical to the damages
caused by the alleged breach of contract: the $2,344,142.62 in which the
Town expended in altering the construction plans and in the construction
itself. Thus, the fraud claim is based on an alleged false promise to
perform the contract obligations; this claim cannot survive unless it fits
into one of the three exceptions stated in Bridgestone/Firestone.
Alta-Medine v. Crompton Corp., No. 00 Civ. 5901, 2001 WL 170666, at *3
(S.D.N.Y. Feb. 21, 2001).
The Town argues that the statements made by Columbia reassuring them
that all extra costs associated with the development and implementation
of the modified closure plan were separate and independent from its
breach of contract because it induced the Town to begin performance and
irrevocably commit itself to the modified closure plan without an
executed site development agreement in place. The Town concludes by
stating that the specific
misrepresentation of Columbia's intention to
pay the extra costs was separate from its breach of the alleged agreement
to pay such expenses. The statement on which the Town bases its fraud
claim is the exact statement that the Town claims created the contract or
at least a supplement to the original agreement. Even though the breach
of contract claim and the fraud claim are pleaded in the alternative, it
does not follow that the fraud claim is collateral to the alleged breach
of contract. Alta-Medine v. Crompton Corp., No. 00 Civ. 5901, 2001 WL
428249, at *1 (S.D.N.Y. April 26, 2001) (". . . . . . the alternative
pleadings rule does not permit a plaintiff to treat fraud and contract as
interchangeable claims, and whether a plaintiff asserts contract claims
is immaterial since the fraud claim must stand on its own.").
In support of its argument, the Town cites numerous cases that allowed
oral misrepresentations made outside a contract to sound in fraud.
However, the Town's reliance is misplaced as those cases dealt with
dissimilar facts. Deerfield Communications Corp. v. Chesebrough-Ponds,
Inc., 68 N.Y.2d 954, 956 (1986); Munn v. Marine Midland Bank, N.A.,
960 F. Supp. 632, 643 (W.D.N.Y. 1996). For example, fraud claims have
been permitted where they are based on a misrepresentation that induced
the other party to enter into the contract. Cougar Audio, 2000 WL
420546, at *6 (distinguishing Deerfield Communications because the
plaintiff in Cougar Audio did not allege that defendant's statements
induced plaintiff to enter into a contract); N.Y. Univ. v. Cont'l Ins.
Co., 87 N.Y.2d 308, 316 (1995) (citing examples of conduct sufficiently
collateral to state a claim in tort including fraudulently inducing the
plaintiff to enter into the contract and engaging in conduct to defeat the
contract, but noting that when a party is simply trying to enforce its
bargain, a tort claim will not lie).
Here, the Town does not contend that they were induced to enter into a
contract based on extraneous misrepresentations, but instead that in
reliance on Columbia's performance of its contractual obligations, they
were induced to change plans, begin construction and incur great costs.
In a recent case, the Southern District of New York discussed a similar
instance where the plaintiff did not allege that the statements induced
plaintiff to enter into a contract, but instead induced plaintiff to
introduce defendant to clients and precluded them from procuring an
alternate source of funding. Alta-Medine, 2001 WL 170666, at *3. The
court rejected the argument, stating that the claim sounded in contract,
not fraud, as the introduction to clients was "part and parcel" of its
obligation under the alleged contract. Id. Similarly, in the present
case, changing plans and beginning construction was "part and parcel" of
the alleged contract.
The Graubard case, cited by the Town, does seem to break with the rule
that there is no fraud where a plaintiff alleges merely that the
defendant never intended to perform. The court explained this break by
pointing to subsequent Court of Appeals decisions reaffirming the general
rule, but placing it in the context of inducing plaintiff to enter into a
contract. Ray Larsen Associates, Inc. v. Nikko Am., Inc., No. 89 Civ.
2809, 1996 WL 442799, at *4 (S.D.N.Y. Aug. 6, 1996) (distinguishing
Graubard because plaintiffs alleged no misrepresentation by defendant
that induced plaintiff to enter into agreement).
Other cases relied on by the Town are similarly unavailing as they did
not involve complaints with breach of contract claims. Channel Master
Corp. v. Aluminum Ltd. Sales, 4 N.Y.2d 403, 409 (1958); Sabo v. Delman,
3 N.Y.2d 155, 159 (1957) ("Before discussing the relevant law, it is well
to bear in mind that the complaint before us neither asserts a breach of
contract nor attempts to enforce any promise made by defendants."). In
fact, the Northern District of New York Court specifically distinguished
Sabo on the basis that Sabo did not deal with simultaneous claims for
breach of contract and fraud. OHM Remediation Servs. Corp. v. Hughes
Envtl. Sys. Inc., 952 F. Supp. 120, 123 (N.D.N.Y. 1997). The court went
on to explain that the fraud claim could be maintained simultaneously
with the breach of contract claim if the fraud claim was based on an
agreement not integrated into the contract at issue, such as a
collateral oral agreement. Id. (emphasis added). Papa's-June Music, Inc.
v. McLean, 921 F. Supp. 1154, 1162 (S.D.N.Y. 1996) ("Because the only
fraud alleged arises out of the same facts that serve as the basis for
the breach of contract claim, [plaintiff] has failed to state a claim for
fraud on which relief can be granted."). Here, the Town did not plead
that a fraud claim is collateral to the breach of contract claim.
Consequently, there is no cognizable tort claim.*fn2
III. Punitive Damages
The New York Court of Appeals has recognized that,
punitive damages have been allowed in cases where
the wrong complained of is morally culpable, or is
actuated by evil and reprehensible motives, not only
to punish the defendant but to deter him, as well as
others who might otherwise be so prompted, from
indulging in similar conduct in the future. . .
Walker v. Sheldon, 10 N.Y.2d 401, 404 (1961). The Walker court stated
that to warrant punitive damages in fraud and deceit actions, a defendant
must exhibit fraud evincing a "high degree of moral turpitude," and
demonstrating "such wanton dishonesty as to imply a criminal indifference
to civil obligations." Id. at 405. The Court of Appeals went further and
established a two-part test to determine the propriety of awarding
punitive damages in a claim arising from a breach of contract case: 1) the
conduct constituting, accompanying, or associated with the breach of
contract must be actionable as an independent tort for which compensatory
damages are ordinarily available; and 2) the conduct must be sufficiently
egregious under the Walker standard, i.e., egregious tortuous conduct
aimed at the public in general, to warrant the additional imposition of
exemplary damages. Rocanova v. Equitable Life Assurance Soc'y of the
U.S., 83 N.Y.2d 603, 613 (1994); N.Y. Univ., 87 N.Y.2d at 316; Reuben H.
Donnelley Corp. v. Mark I Mktg. Corp., 893 F. Supp. 285, 292 (S.D.N.Y.
1995) (Conner, J.).
Because the Court has found that no independent tort claim exists,
there is no legal basis for awarding the Town punitive damages. The
motion to dismiss the punitive damages claim is granted.
For the above stated reasons, the motion of defendants Columbia
Electric Corporation and Haverstraw Bay, LLC to dismiss the Town of
Haverstraw's fourth count of fraud pursuant to FED. R. Civ. P. 12(b)(6)
as well as the prayer for punitive damages is granted in its entirety.
Defendants' request for reasonable attorney's fees and costs are denied.