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Petrello v. White

August 7, 2007

ANTHONY G. PETRELLO AND CYNTHIA A. PETRELLO, PLAINTIFFS,
v.
JOHN C. WHITE, JR., WHITE INVESTMENT REALTY, LP., DEFENDANTS.



The opinion of the court was delivered by: Hurley, Senior District Judge

MEMORANDUM OF DECISION AND ORDER

INTRODUCTION

This case centers around an August 25, 1998 contract of sale (the "Contract") for 9.56 acres of waterfront property located in the Hamlet of Sagaponeck, in the Town of Southampton, New York. In a Memorandum and Order dated February 2, 2006, familiarity with which is presumed, this Court (1) granted Plaintiffs' motion for summary judgment seeking specific performance of the Contract and dismissal of Defendants' counterclaims for common law fraud, fraud in the inducement, breach of fiduciary duty, breach of constructive trust, and a declaratory judgment that the Contract is null and void; (2) denied Defendants' motion for judgment as a matter of law; (3) denied Defendants leave to amend to add a proposed sixth counterclaim and (4) granted Defendants leave to amend to add their proposed seventh and eighth counterclaims. Presently before the Court are motions by Plaintiffs Anthony Petrello ("Petrello") and Cynthia Petrello (collectively, "Plaintiffs") to dismiss counterclaims and by Defendants John C. White, Jr. ("White"), and White Investment Limited Partnership (collectively, "Defendants") to stay, reconsider, and vacate the February 2, 2006 Memorandum and Order.*fn1

For the reasons stated below, the Court grants Plaintiffs' motion to dismiss counterclaims, denies Defendants' motion for reconsideration and vacatur of the February 2, 2006 Order, and grants Defendants' motion for a stay pending appeal.

DISCUSSION

I. The Motion to Dismiss the Counterclaims

Plaintiffs have moved to dismiss the seventh and eighth counterclaims. These counterclaims are premised upon alleged breaches by the Plaintiffs of the settlement agreement entered into between the parties. Plaintiffs argue that these counterclaims are barred by the doctrine of election of remedies embodied in New York General Obligations Law §15-501(3) and cases decided thereunder. Defendants counter that election of remedies is inapplicable as their request for rescission of the Contract is not inconsistent with their claims under the settlement agreement - whether for specific performance or damages. Continuing, even assuming that the settlement agreement is an executory accord, Defendants maintain they have not made an election because they have not sought to enforce the underlying Contract.

As detailed in this Court's earlier decision, the settlementagreement was entered into during the course of a jury trail of this case before Judge Wexler. Generally, the settlement agreement provides the Contract was rescinded and in its place Plaintiffs were given the right to purchase three acres of the property plus a "buffer" lot and were required to pay $1,815,000.00 in cash at the closing. The settlement was conditioned upon approval of the lot lines by the Town of Southampton within nine months. If approval was not received within that time frame, Plaintiffs had the sole right to extend the time or terminate the agreement. Paragraph 8 of the settlement agreement provides:

If all the aforesaid approvals have not been finally approved by February 28, 2004, then this agreement shall terminate unless extended by the [Plaintiffs], at their option, for up to one additional year. If this agreement is thus terminated or the approvals not finally received (free of appeals) then the action shall be restored to this Court's calendar on the application in writing by either party. (See Defendants' Counterclaimants' Statement of Material Facts Pursuant to Local Civil Rule 56.1 (Docket No. 208.2 ) at ¶ 222 (emphasis added).)

The project documentation was not submitted to the Town of Southampton until the beginning of February, 2004. As a result, the Town did not approve the plans within the nine month time frame. Plaintiffs elected not to extend the term of the settlement agreement.

The suit then returned to this Court. Plaintiffs filed a Motion for Summary Judgment seeking specific performance of the August 25, 1998 Contract of sale. Defendants opposed the motion arguing for rescission of the Contract or imposition of a constructive trust. Additionally, Defendants thereafter filed a motion seeking (1) judgment as a matter of law as to Plaintiffs' request for specific performance and (2) leave to amend the answer to add counterclaims based on the settlement agreement. In its February 2, 2006 Memorandum and Order, the Court allowed the proposed seventh counterclaim alleging Plaintiffs' breach of the settlement agreement by failing to deliver acceptable subdivision documentation in a timely fashion and allowed the proposed eighth counterclaim alleging a breach of the covenant of good faith and fair dealing with respect to the settlement agreement. Both counterclaims sought compensatory and punitive damages. Neither counterclaim sought specific performance of the settlement agreement.

Section 15-501 of the New York General Obligations Law ("G.O.L.") provides in pertinent part:

1. Executory accord as used in this section means an agreement embodying a promise express or implied to accept at some future time a stipulated performance in satisfaction or discharge in whole or in part of any present claim, cause of action, contract, obligation, or lease, or any mortgage or other security interest in personal or real property, and a promise express or implied to render such performance in satisfaction or in discharge of such claim, cause of action, contract, obligation, lease mortgage or security interest.

3. If an executory accord is not performed according to its terms by one party, the other party shall be entitled either to assert his rights under the claim, cause of action, contract, obligation, lease, mortgage or other security interest which is the subject of the accord, or to assert his right under the accord.

N.Y. Gen. Oblig. Law § 15-501 (McKinney 2001).

"An accord and satisfaction is a method of discharging a contract or settling a claim arising from a contract or a tort by substituting for such contract or claim an agreement for the satisfaction thereof. . . ." City of Amsterdam v. Daniel Goldreyer, Ltd., 882 F. Supp. 1273, 1279-80 (E.D.N.Y. 1995). As its name suggests, an accord and satisfaction has two components: (1) the accord, which is the agreement that a stipulated performance will be accepted in lieu of an existing claim; and (2) the satisfaction, which is the performance of the substituted agreement. Denburg v. Parker Chapin Flattau & Klimpl, 82 N.Y.2d 375, 383-84 (1993) (citations omitted). An accord may be executory in that there is an agreement to perform in the future. Albee Truck Inc. v. Halpin Fire Equip. Inc., 206 A.D.2d 789 (3d Dept. 1994).

An accord and satisfaction must be distinguished from a substituted agreement. As the New York Court of Appeals has explained:

An accord is an agreement that a stipulated performance will be accepted, in the future, in lieu of an existing claim. . . . Execution of the agreement is a satisfaction. The distinctive feature of an accord and satisfaction is that the obligee does not intend to discharge the existing claim merely upon the making of the accord; what is bargained for is the performance, or satisfaction. If the satisfaction is not tendered, the obligee may sue under the original claim or for breach of the accord. . . .

By contrast, the parties may intend that a new agreement, though executory, will immediately discharge the existing obligation . . . . That is a substituted agreement . . . . Whether a particular arrangement is an accord or a substituted agreement hinges on the parties' intent, determination of which may be aided by certain presumptions. . . .

Denburg, 82 N.Y.2d at 383-84 (citations omitted). See C3 Media & Mktg Gr., LLC v. Firstgate Internet, Inc., 419 F. Supp. 2d 419, 434 (S.D.N.Y. 2005) ("Whereas an executory accord extinguished a claimant's prior claims upon performance of the accord, a substitute agreement extinguishes a claimant's prior claims upon execution of the agreement.") (quoting Frank Felix Assocs. v. Austin Drugs, Inc., 111 F.3d 284, 287 n.1 (2d Cir. 1977)).

Whether the parties intend an executory accord or a substituted agreement is ordinarily a question of fact. Frank Felix Assocs. v. Austin Drugs, 111 F.3d 284, 287 n.1 (2d Cir. 1997). Where, however, the parties have manifested their intent on the face of the document, a court may determine intent as a matter of law. Koening Iron Works Inc. v. Sterling Factories Inc., 1999 WL 178785, at *8 (S.D.N.Y. 1999); see also Rainbow v. Swisher, 72 N.Y.2d 106 (1988) (where contract is clear and unambiguous, the intent of parties must be gleaned from within the four corners of the contract). "Generally, it is assumed that one does not surrender an existing obligation for a promise to perform in the future. It is generally more reasonable to suppose that he bound himself to surrender his old rights only when the new contract of accord was performed." Albee Truck, 206 A.D.2d at 790 (internal quotations and citations omitted).

An executory accord may be evidenced by language preserving the claims until performance is tendered. Denberg, 82 N.Y.2d at 383; Koening Iron Works, 1999 WL 178785, at *7-8. A substitute agreement may be evidenced by language indicating that it supersedes and supplants the previous contract, completely replacing the old contract with the new. See Sudul v. Computer Outsourcing Servs., 917 F. Supp. 1033, 1047-48 (S.D.N.Y. 1996); Blair & Co. v. Otto V., 5 A.D.2d 276, 280 (1st Dept. 1958). "[F]ormalized papers with ...


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