Opinion
No. 2024-51137 Index No. 650606/2022
07-29-2024
Colle Capital Partners LP and Colle Logistics Associates, LLC, Plaintiffs, v. Automaton, Inc., Michael Murphy, and Spencer Hewett, Defendants.
Peckar & Abramson, P.C., New York, NY (Robert H. Bell, Thomas J. Curran and Doris D. Short of counsel), for plaintiffs. Lundin PLLC, New York, NY (John M. Lundin and Niall D. Ó Murchadha of counsel), for defendant Michael Murphy. Law Office of Robert R. Viducich, New York, NY (Robert R. Viducich of counsel), for defendant Spencer Hewett
Unpublished Opinion
Peckar & Abramson, P.C., New York, NY (Robert H. Bell, Thomas J. Curran and Doris D. Short of counsel), for plaintiffs.
Lundin PLLC, New York, NY (John M. Lundin and Niall D. Ó Murchadha of counsel), for defendant Michael Murphy.
Law Office of Robert R. Viducich, New York, NY (Robert R. Viducich of counsel), for defendant Spencer Hewett
Gerald Lebovits, J.
Plaintiffs, Colle Capital Partners LP and Colle Logistics Associates (collectively, Colle), sue defendants Automaton, Inc.; Michael Murphy, a former employee of Automaton; and Spencer Hewett, Automaton's CEO. Colle is asserting breach-of-contract, fraud, and unjust-enrichment claims against Murphy and a fraud claim against Hewett. (See NYSCEF No. 172.)
In motion sequence 007, Murphy moves under CPLR 3211 (a) (7) and CPLR 3211 (a) (1) to dismiss all claims against him. (NYSCEF No. 166.) This motion is granted with respect to Colle's fraud and unjust-enrichment claims. With respect to Colle's breach-of-contract claim, the motion is granted as to the branch of the claim based on an alleged breach of § 13 of the underlying stock-sale-and-purchase agreement (Sales Agreement) between Colle and Murphy, and denied as to the branch of the claim based on an alleged breach of § 1 of the Sales Agreement.
In motion sequence 008, Hewett moves under CPLR 3211 (a) (7) and CPLR 3211 (a) (1) to dismiss the fraud claim against him. (NYSCEF No. 174.) This motion is granted.
BACKGROUND
Plaintiffs entered into the Sale Agreement with Murphy on May 14, 2021. (NYSCEF No. 169; NYSCEF No. 172 at ¶ 55). The Sale Agreement required Murphy to "sell, transfer, assign, convey and deliver" his 911,453 shares of common stock of Automaton, Murphy's former employer, to Colle. (NYSCEF No. 169 at § 1.) Colle was to pay Murphy for the shares in two installments; once payment was received, Murphy was to notify Automaton to transfer the shares from Carta, an online shares management system used by Automaton. (NYSCEF No. 169 at § 6; NYSCEF No. 172 at ¶ 74.) Automaton brokered the Sale Agreement. (NYSCEF No. 172 at ¶ 49.)
Murphy's shares are subject to Automaton's 2016 Stock Plan and Restricted Stock Award Notice. These agreements give Automaton the right of first refusal to purchase the shares and require approval from an Administrator, such as Automaton's Board, prior to sale. (NYSCEF No. 143; NYSCEF No. 152; NYSCEF No. 172 at ¶¶ 39, 40.)
Colle wired Murphy the first payment after Hewett executed a signed acknowledgement of the Sale Agreement's terms. (NYSCEF No. 172 at ¶¶ 60, 133.) Following the first payment, Hewett informed Colle that Automaton's Board did not approve the sale, despite his signature on the executed acknowledgement. (NYSCEF No. 172 at ¶ 68.) Colle communicated with Murphy, who asserted by email that Hewett had the authority to approve the sale and had done so through the executed agreement. (NYSCEF No. 170; NYSCEF No. 172 at ¶ 72 [emails]). Colle wired Murphy the second payment for the shares. Murphy informed Automaton that Colle had met its obligations under the contract and that Automaton could transfer the shares to Colle. (NYSCEF No. 172 at ¶ 74.)
Automaton and Hewett maintain that the Board did not approve the sale and that Automaton would not transfer the shares to Colle without this approval. (NYSCEF No. 172 at ¶¶ 81, 91.) Murphy contends he had no obligation to return Colle's payments if Automaton did not transfer the shares. (NYSCEF No. 173 at 2.)
Colle initially sued Automaton on February 8, 2022. On July 8, 2022, Colle filed an amended complaint (FAC) against Automaton. On January 31, 2023, Colle filed a second amended complaint (SAC) against Automaton, seeking to join Murphy and Hewett as defendants.
On October 25, 2023, this court heard oral argument on Automaton's motion to dismiss the SAC, and Colle's motion for leave to file a third amended complaint (TAC) and to join Murphy and Hewett as defendants. In October 2023, this court issued a decision delivered on the record dismissing the SAC and granting Colle leave to amend again and bring claims against the proposed defendants. (NYSCEF No. 135 tr. at 26:21-25.)
Automaton appealed the court's decision granting Colle leave to amend the TAC and to join Murphy and Hewett as defendants. The First Department affirmed the grant of leave to amend and to join Murphy as a defendant. (See Colle Capital Partners LP v Automaton, Inc., 225 A.D.3d 483, 483 [1st Dept 2024].) The First Department modified this court's decision, however, to deny leave to join Hewett as a defendant; the Court concluded that leave should have been denied because the only claim against Hewett (fraud) was impermissibly duplicative. (See id.)
I. Murphy's Motion to Dismiss Colle's Claims Against Him (Mot Seq 007)
Colle brings three claims against Murphy: (1) breach of contract; (2) fraud; and (3) unjust enrichment. (NYSCEF No. 172.) Murphy moves to dismiss all three claims against him under CPLR 3211 (a) (7) and 3211 (a) (1). (NYSCEF No. 166).
In deciding whether a plaintiff has sufficiently pleaded a cause of action under CPLR 3211 (a) (7), courts accept all facts as stated in the pleading and accord plaintiff "the benefit of every possible favorable inference." (Leon v Martinez, 84 N.Y.2d 83, 87 [1994].) A claim may be dismissed only if it can be shown that plaintiff does not have a cause of action within "any cognizable legal theory." (Id.)
Claims may be dismissed under CPLR 3211 (a) (1) only if "documentary evidence submitted conclusively establishes a defense... as a matter of law." (Leon, 84 N.Y.2d at 88.) Documentary evidence under CPLR 3211 (a) (1) must be "unambiguous and of undisputed authenticity." (Fontanetta v John Doe 1, 73 A.D.3d 78, 86 [2d Dept 2010].) This evidence must completely refute plaintiffs' factual allegations. (Goshen v Mut. LifeIns. Co., 98 N.Y.2d 314, 326 [2002].) Emails and affidavits can constitute documentary evidence if they "definitively dispose of plaintiff's claim." (Blonder & Co. v Citibank, N.A., 28 A.D.3d 180, 182 [1st Dept 2006].)
A. The Branch of Murphy's Motion Seeking Dismissal under CPLR 3211 (a) (7) of Colle's Breach-of-Contract Claim
Murphy moves first to dismiss Colle's breach-of-contract claim against him. To state a breach-of-contract cause of action, a plaintiff must allege (1) a valid contract; (2) plaintiff's performance of contractual obligations; (3) defendant's breach of contractual obligations; and (4) resulting harm to plaintiff. (See Harris v Seward Park Hous. Corp., 79 D3d 425, 426 [1st Dept 2010].)
Colle's contract claim is based on alleged breaches by Murphy of § 1 of the Sale Agreement (requiring Murphy to transfer the shares) and § 13 of the Agreement (requiring Murphy's cooperation to bring about the Agreement's purpose). (NYSCEF No. 177 at 13.) The motion to dismiss is denied with respect to the alleged breach of § 1 of the Agreement and granted with respect to the alleged breach of § 13 of the Agreement.
Colle sufficiently pleaded that Murphy breached § 1 of the contract. The parties do not dispute the validity of the Sale Agreement between Colle and Murphy. Colle performed its contractual obligations by paying Murphy for his shares of Automaton. (NYSCEF No. 172 ¶ 62, 74.) Section 1 of the Sale Agreement states that the "[s]eller will sell, transfer, assign, convey, and deliver" the shares to Colle. (NYSCEF No. 169 at § 1.) Neither party has shown that the shares were transferred or delivered. (NYSCEF No. 172 at ¶ 91.) Colle has lost funds (the share payments to Murphy) and has not received the shares in return. This loss constitutes harm to Colle. Colle's TAC states a breach-of-contract claim against Murphy under § 1 of the Sale Agreement.
Although the Sale Agreement envisions a process to transfer the shares in which Automaton, upon receiving confirmation that Colle has paid Murphy, will then transfer the shares to Colle (see NYSCEF No. 169 at § 6), this term of the contract does not purport to oust Murphy's express obligation under § 1 to undertake the sale and transfer of the shares to Colle.
Colle alleges that Murphy also breached his cooperation duty under § 13 of the Sale Agreement by "doing nothing to ensure his Shares were actually delivered to Colle." (NYSCEF No. 177 at 14.) Colle asserts that Murphy has a duty under the Sale Agreement to do all in his power to effectuate the Agreement's terms-including litigating against Automaton in the event of a failure to transfer. This assertion is unpersuasive.
Whether a party has complied with a cooperation provision in a contract is determined by looking at objective measures or definitions written into the cooperation provision itself. (See LC Footwear, L.L.C. v L.C. Licensing, Inc., 2011 NY Slip Op 33894(U), *18 [Sup Ct, NY County 2011].) Here, the language of the agreement does not support Colle's claims about the breadth of Murphy's cooperation obligation under § 13. That provision does not impose an express duty on Murphy to litigate against Automaton to bring about the transfer of the shares to Colle. Rather, it requires only that the parties "cooperate as may be reasonably necessary," and provides that "[e]ach party (including the Company) agrees promptly to execute any further documents or instruments reasonably necessary or desirable to carry out the purposes and intent of this Agreement." (NYSCEF No. 169 at § 13 (emphases added).) Section 13 thus requires the parties to make reasonable efforts, not all possible efforts, to execute documents promptly to further the transfer of shares. Colle provides no support for its suggestion that reasonable efforts should be read as encompassing a requirement that Murphy sue Automaton in the event that Automaton does not transfer the shares to Colle as the agreement envisions. Colle's TAC does not state a breach-of-contract claim under § 13 of the agreement.
B. The Branch of Murphy's Motion Seeking Dismissal under CPLR 3211 (a) (1) of Colle's Breach-of-Contract Claim
Murphy also moves to dismiss the breach-of-contract claim under CPLR 3211 (a) (1). (NYSCEF No. 166.) This branch of the motion fails for lack of documentary evidence conclusively refuting the claim.
Murphy also claims that even if he did breach the contract, ensuring the transfer of shares would be an impossible obligation for him to fulfill. (NYSCEF No. 173 at 11.) This argument, based upon the doctrine of impossibility-ordinarily an affirmative defense to a breach-of-contract claim-does not warrant dismissing the claim.
The impossibility doctrine is narrowly applied in New York. A defendant claiming impossibility must establish either the "destruction of the subject matter of the contract" or that the means of performance make such performance "objectively impossible." (Kel Kim Corp. v Central Markets, Inc., 70 N.Y.2d 900, 902 [1987].) Murphy must also show that the condition making performance impossible was due to an unforeseen-and unforeseeable-occurrence. (See id.) Murphy asserts that it is impossible for him to transfer the shares to Colle because the shares are "electronically registered with... the online share management system Automaton was using," and he has no access to or control over the transfer of shares from this platform. (NYSCEF No. 173 at 11.) No party to this lawsuit disputes this assertion. However, Murphy failed to argue, much less show, that this impossibility was not reasonably possible to have anticipated at contract formation.
The motion to dismiss the breach-of-contract claim under CPLR 3211 (a) (1) is denied.
C. The Branch of Murphy's Motion Seeking Dismissal of Colle's Fraud Claim
Murphy also moves to dismiss Colle's fraud claim against him. The motion is granted.
As a procedural matter, this court interprets the First Department's decision on the prior appeal as dismissing Colle's fraud claim as against all defendants-including Murphy. In that decision, the Court held that the fraud claim as outlined in the SAC duplicated the breach-of-contract claim against defendant Automaton. (See Colle Capital Partners, 225 A.D.3d at 483.) For that reason, the court said, the court erred in permitting Colle to join Hewett as a defendant, because Colle's only claim against Hewett sounded in fraud. (See id.) For the same reasons, Colle's fraud claim asserted against Murphy must also be dismissed.
For a fraud claim to be distinct from a breach-of-contract claim, it must involve a "knowing misrepresentation of material fact" that must induce the other party to act and suffer injury as a result. (Wyle Inc. v ITT Corp., 130 A.D.3d 438, 438-439 [1st Dept 2015].) But a plaintiff must also plead misrepresentations collateral to the contract, meaning "a breach of duty distinct from, or in addition to, the breach of contract." (Id.) Here, Murphy's duty under the contract included advancing the transfer of shares. (NYSCEF No. 169 at § 13.) For that reason, Murphy's statements are not collateral to the contract, but directly coincide with his obligations under it. Nor does Colle plead that Murphy's alleged fraud caused it damages "separate from [its] payment for shares that [it] never received" under the Sale Agreement. (See Colle Capital Partners LP, 225 A.D.3d at 483; compare NYSCEF No. 172 at ¶ 47 [TAC].)
Accordingly, the claim of fraud against Murphy is dismissed under CPLR 3211 (a) (7). Given this conclusion, the court does not reach the parties' other arguments about Colle's fraud claim against Murphy.
D. The Branch of Murphy's Motion Seeking Dismissal of Colle's Unjust-Enrichment Claim
Colle brings an unjust-enrichment claim against Murphy. (NYSCEF No. 172 at ¶¶ 148-157.) An unjust-enrichment claim sounds in quasi-contract, and therefore may be pleaded "in the absence of any agreement," or with respect to a matter outside the scope of an applicable agreement. (Goldman v Metro. Life Ins. Co., 5 N.Y.3d 561, 572 [2005].) Here, both parties acknowledge the existence of a valid contract that covers the subject of the dispute. The unjust-enrichment claim must necessarily be dismissed under CPLR 3211 (a) (7) as duplicative. (See id.) For this reason, the court does not consider Murphy's grounds for dismissal of the claim under CPLR 3211 (a) (1).
II. Hewett's Motion to Dismiss Colle's Claim Against Him (Mot Seq 008)
In motion sequence 008, Hewett moves to dismiss the claims against him under CPLR 3211 (a) (1) and CPLR 3211 (a) (7).
This court granted Colle leave to amend the fraud claim and to join Hewett. (NYSCEF No. 135 at Tr. 26:23-25.) Following Automaton's appeal of that decision, the First Department held that leave to amend the fraud claim was improperly granted and that "[l]eave to amend to join proposed defendant Hewett should, however, be denied insofar as the only claim against him (for fraud) has been dismissed." (Colle Capital Partners LP, 225 A.D.3d at 483.) Colle's fraud claim against Hewett is dismissed.
Accordingly, it is
ORDERED that the branch of Murphy's motion seeking dismissal of Colle's breach-of-contract claim against him is granted with respect to the portion of the claim based on § 13 of the Sale Agreement, and denied with respect to the portion of the claim based on § 1 of the Sale Agreement; and it is further
ORDERED that the branches of Murphy's motion seeking dismissal of Colle's fraud and unjust-enrichment claims against him are granted, and those claims are dismissed; and it is further
ORDERED that Hewett's motion seeking dismissal of Colle's claim against him is granted, and the complaint is dismissed as against Hewett; and it is further
ORDERED that the balance of the claims in the action are severed and shall continue; and it is further
ORDERED that Murphy serve a copy of this order with notice of its entry on all parties and on the office of the County Clerk (by the means set forth in the court's e-filing protocol, available on the e-filing page of the court's website, https://ww2.nycourts.gov/courts/1jd/supctmanh/E-Filing.shtml), which shall enter judgment accordingly.