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TOWN OF HAVERSTRAW v. COLUMBIA ELECTRIC CORPORATION

December 4, 2002

TOWN OF HAVERSTRAW, PLAINFIFF,
V.
COLUMBIA ELECTRIC CORPORATION AND HAVERSTRAW BAY, LLC, DEFENDANTS.



The opinion of the court was delivered by: William Conner, United States District Judge.

OPINION AND ORDER

Plaintiff Town of Haverstraw (the "Town") brings this action against defendants Columbia Electric Corporation and Haverstraw Bay, LLC (collectively "Columbia") alleging, inter alia, breach of contract and fraud, and seeking punitive damages on the fraud claim. Columbia now brings this motion to dismiss the fraud claim and the Town's prayer for punitive damages, pursuant to FED. R. Civ. P. 12(b)(6). For the reasons stated below, Columbia's motion is granted.

BACKGROUND

The following statement of facts is based on the allegations in plaintiff's Amended Complaint, which, for the purposes of this motion, we assume to be true.*fn1 The Town is the owner and operator of a municipal sanitary landfill located in West Haverstraw, New York. (Am. Complt. ¶ 8.) The Town was subject to an Order on Consent in connection with another lawsuit in which it was required to implement a plan for the closure of the sanitary landfill in conformity with the requirements of the New York State Department of Environmental Conservation ("DEC"). (Id. ¶ 9.) The Town had already submitted plans for the closure of the landfill to the court and hired a construction company to finish the construction work when Columbia advised the Town of its interest in developing, building and operating a combined cycle electric generating plant facility ("Power Plant") on the western portion of the landfill. (Id. ¶¶ 10-12.) This new project called for modifications of the plan for closure of the landfill that had, by that time, been approved by the court and the DEC. (Id. ¶ 13.)

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.

DISCUSSION

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 [1][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).

II. Fraud

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 ...


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