Opinion
01-CV-6217 (CJS)
September 4, 2003
J. William Ernstrom, Esq., Ernstrom Dreste, LLP, Rochester, New York, for THE PLAINTIFF
Rex S. Heinke, Esq., Paul W. Killian, Esq., Akin, Gump, Strauss, Hauer Field LLP, Washington, D.C., for THE PLAINTIFF
Paul J. Yesawich, III, Esq., Harris, Beach Wilcox, Pittsford, New York, FOR THE DEFENDANT
DECISION AND ORDER
INTRODUCTION
This is a diversity action involving a construction contract. Now before the Court is plaintiff's motion for certification of a permissive appeal pursuant to 28 U.S.C. § 1292(b). For the reasons that follow, the application is denied.
BACKGROUND
The facts of this case were set forth in exhaustive detail in a prior Decision and Order of this Court [#44]. See, Frontier-Kemper Constructors, Inc. v. American Rock Salt Co., 224 F. Supp.2d 520 (W.D.N.Y. Sep. 9, 2002). For purposes of the pending motion, it is sufficient to note the following facts. This action arises from a contract for the construction of the Hampton Corners Salt Mine Project in Mt. Morris, New York. Defendant American Rock Salt Company LLC ("ARSCo") is the owner of the site, and plaintiff Frontier-Kemper Constructors, Inc. and Flatiron Constructors LLC d/b/a Frontier-Kemper/Flatiron Joint Venture ("Frontier-Kemper"), is the contractor with whom defendant contracted to build the mine. On October 30, 1998, the parties signed a construction contract, which they agreed would be enforced in accordance with the laws of the State of New York. Thereafter, disputes arose primarily involving the scope of the work to be performed, and defendant withheld $3 million from plaintiff's progress payments as liquidated damages. On April 30, 2001, plaintiff commenced this action, seeking rescission of the contract, compensation in quantum meruit in excess of twenty seven million dollars, and punitive damages of at least ten million dollars. Plaintiff claimed that rescission of the contract was warranted on several different grounds, namely, fraud in the inducement, fraud during performance of the contract, mutual and/or unilateral mistakes of material fact, and material breaches of the contract by defendant. With regard to the fraud claims, plaintiff's theory was that defendant had entered into the contract, knowing that it was going to later insist on vastly expanding the scope of the work to be performed. Thereafter, defendant moved to dismiss the fraud claims, arguing that a plaintiff may not convert what is essentially a claim for breach of contract into a claim for fraud, merely by alleging that the defendant never intended to perform the contract. On September 9, 2002, this Court, relying primarily on the Second Circuit's decision in Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13 (2d Cir. 1996), dismissed the fraud claims.More than nine months later, on June 30, 2003, plaintiff filed the subject motion, pursuant to 28 U.S.C. § 1292(b), for permission to appeal the Court's dismissal of the fraud claims. Plaintiff contends that the Court's decision to dismiss the fraud claims "(1) cannot be squared with long-standing New York precedent; (2) presents a controlling question of law; and (3) raises a question that, if resolved now, would materially advance the ultimate termination of this litigation." PI. Memo of Law, p. 1. On August 11, 2003, counsel for the parties appeared before the undersigned for oral argument of the motion. The Court has thoroughly considered the parties' submissions and the arguments of counsel.
ANALYSIS
It is of course well settled that the federal courts of appeal have jurisdiction to review final decisions of the district courts. 28 U.S.C. § 1291. Here, plaintiff is seeking review of a non-final decision of the Court, pursuant to 28 U.S.C. § 1292(b), which states, in relevant part:
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order[.]
Read literally, § 1292(b) indicates that the district court must make the aforementioned findings in the very same order which is to be appealed. However, it is clear that litigants may seek the district court's permission to take the appeal after the issuance of the non-final order to be appealed. See, Fed.R.App.Proc. 5(a)(3)("[T]he district court may amend it order . . . to include the required permission or statement."). Section 1292(b) indicates that a motion for leave to appeal must be filed with the court of appeals within ten days after the district court issues an order approving the interlocutory appeal. See, Sperry Rand Corp. v. Bell Telephone Laboratories, Inc., 272 F.2d 29, 30 (2d Cir. 1959) (On Petition for Rehearing en Bane Nov. 12, 1959)("[T]he application for leave to appeal was timely inasmuch as it was made to us within 10 days of the order of the district judge that contained the § [sic] 28 U.S.C. § 1292(b) statement."). However, there is no specified time after the entry of the order to be appealed within which a party must seek the district court's permission to appeal.
Nonetheless, any delay in seeking the district court's permission must be reasonable. In Weir v. Propst, 915 F.2d 283 (7th Cir. 1990), the Seventh Circuit held that it was an abuse of discretion for the district court to grant a § 1292(b) certification where the party seeking to appeal waited two months before making the request:
Although the district judge has by virtue of Rule 5(a) the power to amend his interlocutory ruling [to include a § 1292(b) certification] . . ., it does not follow that the power was properly exercised in this case. The grant of a power is not a license to abuse it. The ten-day limitation in section 1292(b) is not to be nullified by promiscuous grants of motions to amend. An amendment that will have the effect of extending the limitation is proper only if there is a reason for the delay[.]Id. at 287; see also, Ferraro v. Secretary of Health and Human Servs., 780 F. Supp. 978, 979 (E.D.N.Y. 1992) (Denying requested for § 1292(b) certification in part because party waited "nearly two and a half months" after the district court issued its order before seeking certification.); but see, Crossland Fed. Sav. Bank v. Tulip Realty Assocs., No. 92 CV1632, 1995 WL 87358 (E.D.N.Y. Feb. 16, 1995) (Granting the plaintiff's § 1292(b) certification request filed more than four months after the district court entered its order, noting that, "certification in this case will not result in any significant prejudice, as [defendant] has taken no affirmative action before this court since the motion to dismiss was denied."). In Marisol v. Giuliani, 104 F.3d 524 (2d Cir. 1996), the Second Circuit took a more permissive approach to the issue than that taken by the Seventh Circuit in Weir. At the outset, Marisol v. Giuliani involved a slightly different issue than that presented here. In Marisol, the district court granted the defendant's request for a § 1292(b) certification, but, due to a miscalculation, the defendant then failed to seek leave from the Second Circuit within ten days, as required by Fed.R.App.P. 5(a). Subsequently, the district court recertified its order, for the purpose of re-starting the ten day filing period. The circuit court held that
a court of appeals may exercise jurisdiction over a petition to appeal from a recertified interlocutory order if jurisdiction over the appeal would serve judicial efficiency and thus advances the purposes of section 1292(b). To facilitate this inquiry, the court [should focus] on all events transpiring between the entry of certification orders that bear upon the utility of a section 1292(b) appeal . . ., [T]hat would allow a circuit court to accept an appeal in the situation we have here after considering a number of factors, including the length of the delay . . . the reasons given for failing to timely file in the circuit court, and any prejudice to the [opposing party] from the delay. . . . The focus of this inquiry, however, should be on ensuring that the goal of section 1292(b) — resolution of a controlling legal question that could advance the ultimate termination of the litigation — will still be satisfied by allowing an interlocutory appeal.Id. at 528. (Citations and internal quotations omitted). Thus, the Second Circuit's approach to recertification of a § 1292(b) order involves not only consideration of whether or not an interlocutory appeal would ultimately advance the termination of the litigation, but also includes careful consideration of the reasons for the delay, as well as any prejudice that might result. Although Marisol did not involve the exact issue presented here, the Court believes that Marisol's reasoning is applicable to the instant case.
Applying the Marisol factors, the Court finds that plaintiff's application should be denied as untimely. Plaintiff here waited more than nine months before asking the Court to grant a § 1292(b) certification, and has not offered any explanation for this delay. Moreover, there has been significant activity in this case since the Court entered its order back on September 10, 2002. In October 2002, the parties submitted a joint proposed scheduling order, which made no mention of an interlocutory appeal. Thereafter the plaintiff filed an amended complaint, which defendants answered. Subsequently, a motion to dismiss and a motion for partial summary judgment were filed, which motions are scheduled to be argued before the Court on October 30, 2003. Finally, and as will be discussed further below, the Court does not believe that certifying the order will advance the resolution of this action, since plaintiff has not established the necessary elements for a § 1292(b) certification. For all of these reasons, the application is denied as untimely.
Even assuming, arguendo, that the application was timely, the Court would nonetheless find that a § 1292(b) certification is not appropriate here. It is well settled that
[t]he granting or denial of certification for interlocutory appeal pursuant to 28 U.S.C. § 1292(b) lies largely in the discretion of the district judge. There are three criteria to be satisfied under § 1292(b): does the question (1) involve a controlling issue of law; (2) as to which there is a substantial ground for difference of opinion; and (3) that an immediate appeal may materially advance the ultimate termination of the litigation.Ferraro, 780 F. Supp. at 979 (citations and internal quotation marks omitted). When the circuit court of appeals has already ruled on an issue, there is no substantial ground for difference of opinion. See, Sloane Overseas Fund, Ltd. v. Sapiens Int. Corp. N.V., 1997 WL 16664 at *2 (S.D.N.Y. Jan. 16, 1997); Walker v. Eastern Air Lines, Inc., 785 F. Supp. 1168, 1174 (S.D.N.Y. 1992).
Here, plaintiff's argument is that the Second Circuit's decision in Bridgestone/Firestone is wrong because it does not reflect the law of New York. Plaintiff states:
A long line of New York cases holds that misrepresentations of present intention to perform-the type of misrepresentation [plaintiff] has alleged here-provide a viable basis for a fraud claim. Although the Second Circuit created its own formula for deciding when such claims may survive dismissal in [ Bridgestone/Firestone], the Bridgestone test (1) contravenes opinions of the New York Court of Appeals, none of which it discussed; (2) contradicts prior controlling decisions of the Second Circuit from which Bridgestone had no authority to depart; or (3) if even sound authority, means the representations in this case are collateral to the contract and, thus, actionable.
Pl. Memo of Law, p. 2. Essentially, plaintiff argues that with regard to a claim for fraudulent inducement, the defendant's promises need not be collateral to the contract, so long as they were made with the present intention not to perform. Id. at 7, 9. Plaintiff argues that decisions of the New York Court of Appeals and of the Second Circuit Court of Appeals support that view. See, e.g., Sabo v. Delman, 3 N.Y.2d 155, 160 (1957); Graubard Mollen Dannett Horowitz v. Moscovitz, 86 N.Y.2d 112 (1995); Perma Research and Dev. Co. v. Singer Co., 410 F.2d 572, 575 (2d Cir. 1969). However, in Bridgestone/Firestone, the Second Circuit examined New York cases and concluded that an intentionally false statement indicating an intent to perform under a contract
is not sufficient to support a claim of fraud under New York law. To maintain a claim of fraud in such a situation, a 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, 98 F.3d at 19 (citations omitted); see also, Telecom Int'l America, Ltd. v. AT T Corp., 280 F.3d 175, 196 (2d Cir. 2001)("[U]nder New York law, where a fraud claim arises out of the same facts as plaintiff's breach of contract claim, with the addition only of an allegation that defendant never intended to perform the precise promises spelled out in the contract between the parties, the fraud claim is redundant and plaintiff's sole remedy is for breach of contract.") (citations and internal quotation marks omitted). Subsequent decisions within this circuit have relied upon Bridgestone/Firestone in holding that a claim for fraudulent inducement will not lie unless the alleged misrepresentation pertains to a matter collateral to the contract. In Int'l Cabletel Inc. v. Le Groupe Videotron LTEE, 978 F. Supp. 483, 487-489 (S.D.N.Y. 1997), the court stated:
It is well settled under New York law that a contract action cannot be converted to one for fraud merely by alleging that the contracting party did not intend to meet its contractual obligations. It is equally well settled under state law that if a promise was made with a preconceived and undisclosed intention of not performing it, it constitutes a misrepresentation of a material existing fact. Any apparent tension between the two aforementioned principles of New York law has been reconciled through a rule, widely adopted by the state and federal courts, pursuant to which a false promise can support a claim of fraud only where that promise was collateral or extraneous to the terms [of] an enforceable agreement in place between the parties.
* * *
[A]ny confusion amongst the New York courts concerning the scope and applicability of the collateral promise rule must give way to the majority view-an overwhelming majority view — that a false promise, whenever made, cannot give rise to a fraud claim where that promise is directly incorporated into a written contract between the parties.
(Citations and internal quotations omitted). The Second Circuit has affirmed this view. See, Hudson Optical Corp. v. Cabot Safety Corp., 971 F. Supp. 108, 109 (E.D.N.Y. 1997)("Although a promise made with a preconceived and undisclosed intention of not performing it can give rise to a fraudulent inducement claim, the promise must be collateral or extraneous to the terms of the agreement, not merely a promise to perform under the express terms of the contract, even if made with no intention to abide by the stated intention.") (citations and internal quotation marks omitted), aff'd, 162 F.3d 1148 (2d Cir. 1998). Accordingly, the Court does not believe that there is substantial ground for difference of opinion on the point at issue. Instead, the Court believes that it is now settled that a claim for fraudulent inducement of a contract will not lie unless the alleged misrepresentation is collateral or extraneous to the contract. Here, the alleged misrepresentations are not collateral or extraneous to the contract, therefore the fraud claims were properly dismissed.
CONCLUSION
Accordingly, plaintiff's application [#65] for permission to take an interlocutory appeal pursuant to 28 U.S.C. § 1292(b) is denied.
SO ORDERED.