Summary
sustaining breach of contract claim premised on good faith negotiation clause
Summary of this case from 119 Spring LLC v. 119 Spring St. Co.Opinion
Argued March 19, 1986
Decided May 8, 1986
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, Orest V. Maresca, J.
Frederick A.O. Schwarz, Jr., Corporation Counsel (June A. Witterschein, Leonard Koerner, Steven Anderson and Jeffrey Schanback of counsel), for appellant.
Charles G. Moerdler, Mark E. Klein, Elizabeth A. Mullins and Elizabeth A. Sherwin for respondent.
MEMORANDUM.
The order of the Appellate Division should be affirmed, with costs (see, 111 A.D.2d 49). The certified question is answered in the affirmative.
Defendant appeals from an order denying its motion to dismiss plaintiff's first and second causes of action sounding in contract. The motion is based solely on CPLR 3211 (a) (7), failure to state a cause of action.
Plaintiff's complaint alleges that defendant, acting through its Department of Housing Preservation and Development (HPD), after considering its response to the city's request for proposals, entered into designation agreements selecting plaintiff exclusively to negotiate the terms and conditions of a land disposition agreement (LDA) for the sale and development of the city's Washington Street Urban Renewal Areas and that by the terms of that agreement the defendant undertook to cooperate with plaintiff in developing the LDA for eventual submission and approval of the agreement and approval of the sale of the land to plaintiff by the Board of Estimate. Plaintiff further alleges that it performed all the terms and conditions imposed upon it by the designation agreements but that defendant failed to perform its part of the contract when, without good cause and acting in bad faith, it "dedesignated" plaintiff. Plaintiff alleges that it expended substantial sums of money in negotiating with HPD, and in preparing the LDA and it seeks damages for the sums so expended and for damages resulting from the loss of the sites.
We agree with the Appellate Division majority that the causes of action are sufficiently pleaded. The claims rest upon alleged breach of the obligation undertaken by defendant to cooperate with plaintiff so that it could prepare the necessary LDA not only for HPD and Uniform Land Use Review Procedure approval but also for subsequent submission to the Board of Estimate. That being so, it is immaterial that the city might, for legitimate reasons, have refused to continue negotiations, that only the Board of Estimate was authorized to finally approve the LDA or convey the sites, or that HPD could "dedesignate" plaintiff before the LDA was ever approved by it or the Board of Estimate. These considerations might well be pertinent to a motion addressing the merits but are not dispositive on a motion addressed to the face of the pleadings. The allegation is that defendant acted without cause and for improper motives in "dedesignating" plaintiff in violation of its good-faith contractual obligation to cooperate.
It is doubtful that plaintiff can establish a right to recover damages resulting from defendant's failure to sell the sites or to approve an LDA since no agency with the authority to act on behalf of the city in doing so was bound by the designation agreement. What the city did undertake to do, however, acting through HPD, was to cooperate with plaintiff in the extensive and expensive preparations and negotiations leading to submission and approval of the LDA. It is no answer that the contract provided that defendant could terminate the contract for various reasons or that plaintiff undertook the planning at its "sole risk, cost and expense". Plaintiff did not assume the risk of bad faith by defendant or of its unexcused breach of its contract obligation. Similarly immaterial on a motion addressed to the sufficiency of the pleading is defendant's claim that plaintiff cannot recover all of the items of damage claimed.
Judges MEYER, SIMONS, KAYE and HANCOCK, JR., concur; Judge TITONE dissents and votes to reverse in an opinion in which Judge ALEXANDER concurs; Chief Judge WACHTLER taking no part.
Order affirmed, with costs, and question certified answered in the affirmative in a memorandum.
Plaintiff is a joint venture of construction and real estate interests. It seeks damages from defendant City of New York arising out of the alleged breach of "letters of agreement to negotiate" with the Department of Housing Preservation and Development (HPD), in which plaintiff was designated as the tentative developer of certain property in the Washington Street Urban Renewal Area (WSURA) and in which HPD agreed to exclusively negotiate with plaintiff for 90 days regarding the ultimate disposition of that property.
In its first and second causes of action, plaintiff contends that the city was contractually obligated by the letters of negotiation to bring plaintiff to the Board of Estimate, for approval, as purchaser and developer of the urban renewal property, and to grant plaintiff tax abatements for the property. Plaintiff claims that it is entitled to damages amounting to $600,000,000 for the moneys it expended during negotiations, as well as the profits it lost and the tax abatements which will never be granted, when, as a result of a change in land use policy, HPD terminated negotiations and no agreement for the sale of the property to plaintiff was reached.
Under the letters the city specifically "retain[ed] the right to terminate negotiations at any time". Further, plaintiff specifically recognized and acknowledged that it was undertaking steps at its "sole risk, cost and expense", and that, ultimately, the land disposition agreements might never be approved by the Board of Estimate, as required by law (General Municipal Law § 507; New York City Charter § 67 [4]).
Special Term denied the city's motion to dismiss the first two causes of action for legal insufficiency. The Appellate Division, First Department, affirmed, Presiding Justice Murphy dissenting, and granted leave to appeal. I would reverse.
It is evident that the letters of negotiation left open major elements of the potential real estate transaction that plaintiff now seeks to culminate through litigation and were simply the parties' written memorialization of their intent to negotiate the terms for the purchase and development of the urban renewal property (see, Scheck v Francis, 26 N.Y.2d 466, 470; Schwartz v Greenberg, 304 N.Y. 250, 254). "Negotiations look to the future; they are the deliberations which take place between the parties touching a proposed agreement * * * A promise to negotiate at a future time is not a contract" (Royce Haulage Corp. v Bronx Term. Garage, 185 Misc. 892, 894 [App Term]; see, Underhill Constr. Corp. v New York Tel. Co., 44 N.Y.2d 666, affg 56 A.D.2d 760). Indeed, "it is rightfully well settled in the common law of contracts in this State that a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable" (Martin Delicatessen v Schumacher, 52 N.Y.2d 105, 109; see also, Willmott v Giarraputo, 5 N.Y.2d 250, 253).
The Appellate Division majority found that "the designation agreements did impose the implied obligations of good faith, cooperation and fair dealing implicit in any contract. Upon a breach of these obligations, the law does afford a remedy. These were not mere agreements to agree" (111 A.D.2d, at p 52), and the adoption of that finding by this court begs the question. As Judge Weinfeld put it, "A commitment to good faith negotiations does not carry with it a surrender of one's right to decide not to enter into another contract with a party" (Candid Prods. v International Skating Union, 530 F. Supp. 1330, 1337; see also, Oil Trading Assoc. v Texas City Refining, 303 F.2d 713, 715; Mocca Lounge v Misak, 94 A.D.2d 761, 763).
Clearly the courts would not be empowered to direct the city to continue negotiations with the plaintiff or direct the Board of Estimate to approve a final sale and development of the sites (cf. Candid Prods. v International Skating Union, supra, at p 1337). Nor could damages be assessed against the city for terminating a project which its agencies were indisputably entitled to terminate (see, Citizens Comm. v Lindsay, 507 F.2d 1065, 1072). Plaintiff, as the designated developer, theoretically could have gone all the way to Board of Estimate approval, been disapproved, and had no breach of contract action against the city because nothing obligated the Board of Estimate to approve any arrangement for land disposition. Why is plaintiff better off now?
The record amply supports Presiding Justice Murphy's observation in dissent below, that "in light of the city's change in utilization policy, it is inconceivable that any such approval would be forthcoming" (111 A.D.2d, at p 54).
That change in policy resulted from a study instituted for the purpose of ascertaining methods by which the city could promote the best use of city-owned land such as would forestall the loss of back office jobs that would result from threatened relocations in the financial and securities industries. As a preventative measure, the report recommended that the city set aside large parcels of city-owned land for direct sale to companies wishing to construct their own back office space without the added expense and delay that the use of a developer might entail. Negotiations were terminated with plaintiff as a direct result of the study and the change in land-use policy.
Rochester Park v City of Rochester ( 38 Misc.2d 714, affd 19 A.D.2d 776), relied upon heavily by plaintiff and the courts below, is plainly distinguishable, and in any event not binding. There, the contract sought to be enforced had been fully approved by the City Council, the relevant governing body (38 Misc.2d, at p 716), and appears to have been quite specific in creating presently enforceable duties and obligations upon the City of Rochester, rather than a mere agreement to agree (see, 38 Misc.2d, at pp 715-716).
It should also be noted that the designation letters explicitly state that the developmental planning of the sites was to be undertaken at plaintiff's "sole risk, cost and expense". Thus, irrespective of the other contractual terms, plaintiff cannot, as a matter of law, obtain recompense for such expenses.
For these reasons, I would reverse the order of the Appellate Division and grant the city's motion to dismiss the first and second causes of action.