The opinion of the court was delivered by: SIDNEY STEIN, District Judge
Dupont Flooring Systems, Inc. brought this action in 1998 to
recover $1.1 million allegedly due to it by Discovery Zone, Inc.
as a result of a breach of contract. Discovery Zone counter-sued
on six causes of action alleging, inter alia, the destruction
of its business and lost profits resulting from Dupont's failure
to perform under the contract. Plaintiff now moves pursuant to
Fed.R.Civ.P. 56 for summary judgment dismissing Discovery Zone,
Inc.'s fifth counter-claim for destruction of business and second
and sixth counter-claims sounding in fraud. For the reasons set
forth below, plaintiff's motion is granted.
Discovery Zone was a Delaware corporation that owned and
operated more than 300 "pay-for-play children's entertainment
centers" called "FunCenters." (Def. 56.1 State. ¶ 3). In March
1996, Discovery Zone went into Chapter 11 bankruptcy and emerged
in 1997. (Def. 56.1 State. ¶ 36). In 1998, this action was
initiated by plaintiff, and in 1999 Discovery Zone again went
into Chapter 11 bankruptcy, and subsequently entered Chapter 7
Before entering bankruptcy in 1999 Discovery Zone filed
counter-claims in this action seeking to recover $9 million in
damages based on Dupont's alleged failure to perform adequately pursuant to a contract by which Dupont was to
install flooring in certain of the FunCenters. In 2001, Discovery
Zone amended its counter-claims to seek over $20 million in
damages caused by the destruction of its business.
A. Discovery Zone's Emergence from Bankruptcy in 1997
Discovery Zone emerged from its first bankruptcy in 1997 with a
plan to reopen remodeled FunCenters with certain features that
had not been present in the original stores (Def. 56.1 State. ¶
4; Fontak Aff. ¶ 16), including laser tag and karaoke facilities.
Discovery Zone also planned to improve the quality of food served
and increase food sales revenues by installing Pizza Hut
franchises at the centers. (Not. Mot., Exh. F, ("Nicholson
Depo."), p. 14). Discovery Zone also reduced the number of stores
in its chain from 326 to 205. (Def. 56.1 State. ¶ 3). Because
Discovery Zone's most lucrative season typically extended from
Christmas day through April, Discovery Zone planned to remodel
prior to December 25, 1997. (Def. 56.1 State. ¶¶ 3, 4, 36).
Discovery Zone hired David Nicholson in 1997 as Vice President of
Design and Construction to oversee the implementation of the
renovation plans for the FunCenters. (Def. 56.1 State. ¶ 8).
The remodeling project was scheduled to take place in three
phases. (Plt. 56.1 State. ¶ 9; Nicholson Depo. p. 49). The first
phase was to include the installation of the "soft play"
equipment. During the second phase, the FunCenters would be
closed for the heavy construction. In the third and final phase
the phase that involved Dupont the flooring and other
incidentals would be completed. (Id.).
The third phase included Discovery Zone's plan to install a
special type of rubber flooring manufactured by Gerbert Limited
in three areas. (Def. 56.1 State. ¶¶ 5-7; Fontak Aff. ¶ 22, Exh.
F, 93-94). The first area would be a laser tag room that would
require drywall partitions extending to the ceiling and rubber flooring.
(Def. 56.1 State. ¶ 5). The panels were to be moveable, and
therefore installed on top of the flooring, so that the room
could be reconfigured to create different courses for laser tag.
(Def. 56.1 State. ¶ 6). Additionally, the same rubber flooring
would be installed in both the "toddler area" and in the area for
older children, known as the "cage." (Def. 561. State. ¶ 7).
B. Negotiations between Dupont and Discovery Zone
The negotiations between Dupont and Discovery Zone were
initiated in October of 1997 when Nicholson called Ronald Cassin,
Vice President of Dupont. (Def. 56.1 State. ¶ 8; Fontak Aff.
137). Discovery Zone claims that Cassin "falsely represented to
Mr. Nicholson at that time that Dupont was a national
organization of many years experience that could immediately
address the flooring work at all of the Discovery Zone fun
centers . . ." when in fact Dupont had only come into existence
that year. (Def. 56.1 State. ¶ 8). Discovery Zone further alleges
that Cassin sent Discovery Zone a list of forty-six national
retail chains and falsely claimed that he had "national
contracts" with those chains. (Def. 56.1 State. ¶ 9; Discovery
Zone Aff. Opp., Exh. 3).
Subsequently, Nicholson and Cassin met in White Plains, New
York. (Def. 56.1 State. ¶ 11). According to Dupont, at that
meeting, Nicholson told Dupont that Discovery Zone had already
hired architects, general contractors and suppliers, and that
Dupont would only be responsible for installing "Gerbert rubber
flooring" and vinyl tile, in coordination with those other
parties. (Fontak Aff. Exh. M, "Master Flooring Installation
According to Discovery Zone, at that meeting Dupont was told
the scope of the renovation project and "the critical nature of
having the work completed by December 22, 1997, the related advertising schedule, that time was of the
essence in the performance of the work, the anticipated quantity
of new flooring material involved, and the types of flooring
involved." (Def. 56.1 State. ¶ 11). Discovery Zone claims that
Dupont made further false representations about its ability to
manage the project at the meeting in White Plains. (Id.; Def.
56.1 State. ¶ 38).
C. The Flooring Installation Contract
On October 26, 1997, Nicholson signed a flooring installation
agreement prepared by Cassin. (Fontak Aff. Exh. M, "Master
Flooring Installation Proposal"). The Master Flooring
Installation Proposal ("Flooring Installation Plan") describes
the duties that Dupont contracted to perform. In that agreement,
Dupont agreed to "manage, supervise and perform all aspects of
the flooring project including the demolition of the old flooring
system and installation of the new flooring system, all in
conjunction with Discovery Zone's General Contractors, Architect
and Material Suppliers." (Def. 56.1 State. ¶ 13; Fontak Aff. Exh
M.). The plan provided that Dupont would be involved in this work
at 180 of the 205 Discovery Zone locations. (Fontak Aff. Exh. M).
The Master Flooring Installation Proposal establishes a
"cost-plus" pricing method whereby Dupont was to be paid for the
cost of labor, materials and installation plus an additional 10%
for overhead and 22% for profit and Dupont was to submit an
estimate particular to each location before beginning work.
(Fontak Aff. Exh. M).
Subsequent to that agreement, Dupont sent out a memorandum to
its branch offices stating that it needed to complete the work in
the Discovery Zone FunCenters by December 22, 1997, and that all
work would be completed within two weeks of commencement. (Def.
56.1 State. ¶ 15; Def. Aff. Opp., Exh. 5, 6). On November 19, Discovery Zone, Dupont and other parties
involved in the renovation of the FunCenters met in Chicago to
discuss the project. (Def. 56.1 State. ¶ 16). Discovery Zone
alleges that Dupont was further made aware at that meeting that
Dupont controlled the construction schedule because it had to be
the first party to complete its work before other elements of the
project could be completed. (Id.). At that meeting, Dupont was
also made aware of the importance of finishing the project before
Christmas because Discovery Zone expected to have its highest
revenues in the first quarter of the following year, and because
Discovery Zone was scheduling an advertising campaign to
coordinate with the start of the year, the FunCenter re-openings,
and certain movie openings. (Def. 56.1 State. ¶ 17).
Dupont hired David Alpy as Sales Account Manager to take charge
of the installation program. (Def. 56.1 State. ¶ 18). Discovery
Zone alleges that Alpy promised he would complete construction on
100 FunCenters by December 1997. (Id.). In December, general
contractors had begun working on 109 FunCenters (Def. 56.1 State.
¶ 19), and those locations were available to Dupont and "over
half had flooring material on hand at that time for Dupont."
(Def. 56.1 State. ¶ 19). Thus, Discovery Zone alleges that Dupont
could have begun flooring installation in at least fifty
locations in December. However, Discovery Zone alleges that
Dupont only began construction on twelve locations before 1998.
(Def. 56.1 State. ¶ 19). By February 1998, Discovery Zone alleges
that over 100 stores were available for Dupont to commence work,
but that only twenty-two renovation projects had been commenced
by Dupont. (Def. 56.1 State. ¶ 20). The parties further agree that Discovery Zone was responsible
for at least some of that delay. Nicholson of Discovery Zone
testified that in December 1997, he felt "there were enough
mitigating circumstances with respect to supply and with respect
to drawings that [Dupont] could be excused for the lack of
installed flooring at a lot of the Funcenters" prior to 1998.
(Fontak Aff. Exh. H at 187).
Sometime in February 1998, Dupont halted work because of unpaid
bills, and then discovered after an internal audit that the bill
it had submitted to Discovery Zone was inflated by 10%.
(Whitfield Aff. ¶¶ 41-42). Discovery Zone alleges that this
temporary halt in the work caused further damages.
Dupont made representations in March and April of 1998 that all
construction would be finished in May of that year. (Def. 56.1
State. ¶ 28). Those representations also turned out to be false
because work had not even begun on forty-three locations in May
1998. (Def. 56.1 State. ¶ 29). Where work had begun, it ...