Opinion
No. 02 CIV. 111 (DLC)
February 20, 2003
William F. Mueller, Matthew A. Schiappa, Clement, Mueller Tobia, P.A., Morristown, New Jersey, Attorneys for Plaintiff.
Larry Krantz, Krantz Berman LLP, New York, New York, Attorneys for Defendant.
OPINION AND ORDER
The counterclaim defendant in this action, EasyLink Services Corporation ("EasyLink"), brings this motion under Rule 59, Fed.R.Civ.P., to amend the judgment issued following the bench trial held on December 9, 2002. Plaintiff India.com, Inc. ("ICI") sued its former employee and advisor Sandeep Dalal ("Dalal") for damages and a declaration that it owed him no money. Dalal filed counterclaims against ICI, its parent EasyLink and India Holdings, Inc., the corporate vehicle created by EasyLink to sell certain assets of ICI. The opinion issued on December 9 ("December 9 Opinion") denied ICI's claims and found EasyLink liable to Dalal as a third party beneficiary to a contract executed by India Holdings, Inc..
In this motion, EasyLink contends, among other things, that under New York law Dalal cannot be a third party beneficiary. EasyLink had not previously presented the authority on which it now relies or even presented this argument in its trial submissions. The defendant contends that EasyLink has waived its right to assert these new arguments and that, in any event, the December 9 Opinion was well founded. For the following reasons, EasyLink's motion is granted and the Judgment entered on December 17 is vacated.
Background
This action arises from the ashes of another casualty of the crash of the dot.com market. In May 2000, EasyLink formed ICI, an internet services company with offices in Bombay, India and New York City. ICI provided various services through its internet portal including information related to India, web consulting services and the sale of hardware and software. After suffering heavy losses with ICI, EasyLink decided in March 2001 to sell its subsidiary.
The defendant, who had been employed by India.com, was hired by EasyLink as an advisor to facilitate the sale of ICI. By May 2001, EasyLink, with the assistance of the defendant, had found a buyer, Business India ("BI"), a media company based in India. On October 26, EasyLink and BI signed a Stock Purchase Agreement 2 ("SPA"). The SPA contained a provision which expressly denied the creation of any third party beneficiary rights under the contract. On this same date, the defendant and EasyLink signed their third broker agreement. The third broker agreement provided that the defendant would be paid a commission in the event that the transaction with BI closed pursuant to the SPA.
Section 12.5 of the SPA is entitled "No Third Party Beneficiaries" and provides:
Neither this Agreement or any provision hereof nor any Schedule, exhibit, certificate or other instrument delivered pursuant hereto, nor any agreement to be entered into pursuant hereto or any provision hereof, is intended to create any right, claim or remedy in favor of any person or entity, other than the parties hereto and their respective successors and permitted assigns and any other parties indemnified under Article XI.
On December 19, prior to the closing of the sale, EasyLink sent a letter to BI terminating the SPA. The December 9 Opinion found that this termination was a breach of the SPA. The termination letter explained that EasyLink was terminating the sale because BI had not obtained, by the deadline specified in the SPA, the appropriate approvals from Indian banking authorities. EasyLink informed BI, however, that it still wanted to pursue the transaction and offered new terms for the sale. On December 20, the defendant told EasyLink that he believed that he was entitled to his full commission fee, since the transaction would have closed but for delays created by EasyLink in the closing of the transaction. The defendant told EasyLink that he would not facilitate or participate in any further negotiations unless his fee was paid.
On January 3, 2003, EasyLink filed this action under the name of its subsidiary. The complaint alleged claims for breach of contract, breach of fiduciary duty, tortious interference with economic opportunity, misrepresentation, and breach of the covenant of good faith and fair dealing, and sought a declaratory judgment that it owed no fee to Dalal. Dalal asserted counterclaims of breach of contract, promissory estoppel, quantum meruit, tortious interference with contract, third party beneficiary under the SPA, and breach of the covenant of good faith and fair dealing.
In accordance with the Individual Practices of this Court in civil bench trials, and without objection, the parties submitted the direct testimony of their trial witnesses by affidavit as well as their documentary evidence in advance of trial. These documents were submitted on November 23 along with their Findings of Fact and Conclusions of Law. On December 6, the parties notified the Court that they had agreed not to cross-examine each others' afffiants. At the trial held on December 9, the parties made their objections to each others' evidentiary submissions, and presented their summation argument based on the trial record.
The December 9 Opinion denied all of EasyLink's affirmative claims on the ground that it had not presented any legal theories of recovery and had not sufficiently established facts to support recovery under any of these claims. Dalal only pressed at trial those theories of recovery that were based on a breach of the broker agreement and his rights as a third party beneficiary under the SPA. The claim for breach of contract was denied on 4 the ground that the third broker contract required a closing of the transaction and that the transaction had not in fact closed pursuant to the SPA.
The December 9 Opinion found that EasyLink had improperly terminated the SPA and was liable to Dalal as a third party beneficiary. The December 9 Opinion held that the identification of the defendant as a broker within a schedule of the SPA was sufficient to establish him as a third party beneficiary under the contract. It also determined that a conflict existed between the provision of the SPA negating third party rights and the disclosure schedule identifying the defendant as a broker. Applying rules of contract construction, the December 9 Opinion held that the specific language of the schedule outweighed the general language of the provision negating third party rights. A final judgment for the defendant and against counterclaim defendant EasyLink was entered on December 17 and awarded Dalal $931,364.00.
Discussion
EasyLink argues that the December 9 Opinion should be amended, since there is authority under New York law — authority which it did not offer in its trial submissions — that establishes that a third party may not enforce any rights under a contract where there is a clause in the contract expressly negating such third party rights. The defendant contends that EasyLink has waived its right to assert any new legal arguments and that, in any event, the December 9 Opinion was legally 5 correct.
New York law follows the modern test set forth in the Restatement (Second) of Contracts to determine whether or not a nonparty has enforceable rights under the contract as a third party beneficiary. Levin v. Tiber Holding Corp., 277 F.3d 243, 248-49 (2d Cir. 2002); Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., 66 N.Y.2d 38, 44 (1985). Section 302 of the Restatement (Second) explains that "[u]nless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary." Restatement (Second) of Contracts: Contract Beneficiaries § 302 (1981) (emphasis supplied). "Under New York law, where a provision in a contract expressly negates enforcement by third parties, that provision is controlling." Morse/Diesel, Inc. v. Trinity Industries, Inc., 859 F.2d 242, 249 (2d Cir. 1988); Bd. of Managers of the Alexandria Condo. v. Broadway/72nd Assocs., 729 N.Y.S.2d 16, 18 (1st Dep't 2001); Baltia Air Lines, Inc. v. CIBC Oppenheimer Corp., 709 N.Y.S.2d 54, 55 (1st Dep't 2000); Edward B. Fitzpatrick, Jr. Constr. Corp. v. County of Suffolk, 525 N.Y.S.2d 863, 866 (2d Dep't 1988).
The defendant is not entitled to enforce his rights under the SPA as a third party beneficiary because the SPA expressly negates the creation of any rights for third party beneficiaries. The language of the negating clause is clear and explicit and the authority under New York law is equally clear and explicit.
The defendant's attempt to undermine this conclusion by invoking the decisions in Cauuf and Gordon fails. Cauff, Lippman Co., v. Apogee Finance Group, Inc., 807 F. Supp. 1007, 1020 (S.D.N.Y. 1992); Edward S. Gordon Co. v. Blodnick, Schultz Abramowitz, P. C., 540 N.Y.S.2d 816, 816 (1st Dep't 1989). As EasyLink correctly notes, these cases simply establish that, in the absence of a negating clause, a broker specifically identified in a contract may be considered a third party beneficiary.
Because the language of the SPA negating the rights of third parties is unambiguous, it is unnecessary to reach the parties' respective arguments about the resolution of ambiguity in the contract. County of Suffolk v. Long Island Lighting Co., 266 F.3d 131, 138 (2d Cir. 2001).
The defendant also contends that EasyLink has waived its right to raise any legal argument to challenge the third party status of the defendant, since it did not offer any legal argument on this point before or during the trial. The standard for a motion to alter or amend a judgment under Rule 59(e), Fed.R.Civ.P., is the same as the standard for a motion for reconsideration under Local Civil Rule 6.3. See Cohen v. Koenig, 932 F. Supp. 505, 506 (S.D.N.Y. 1996). Thus, a motion pursuant to Rule 59(e) should be granted only where the moving party demonstrates that the Court has overlooked factual matters or controlling decisions that were presented to it on the underlying motion and that could change the conclusion reached by the court. See Local Rule 6.3; Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995). Courts narrowly construe this standard and apply it strictly against the moving party so as to "dissuade repetitive arguments on issues that have already been considered fully by the court." Caleb Co. v. E.I. DuPont De Nemours Co., 624 F. Supp. 747, 748 (S.D.N.Y. 1985). Generally, the moving party may not "advance new facts, issues or arguments not previously presented to the Court." Morse/Diesel, Inc. v. Fidelity Deposit Co. of Maryland, 768 F. Supp. 115, 116 (S.D.N.Y. 1991). The decision to grant or deny the motion, however, is within the sound discretion of the district court. See Devlin v. Transportation Communications Int'l Union, 175 F.3d 121, 132 (2d Cir. 1999). In the exercise of its discretion, the district court may consider newly submitted legal authority. Shrader, 70 F.3d at 257.
The defendant's argument that EasyLink has waived its argument under Rule 59(e) is unavailing. One of the purposes of the Rule is to allow a party to bring to a court's attention controlling decisions that had not been previously considered and that would alter the underlying judgment. Shrader, 70 F.3d at 257. This is precisely what EasyLink has done. Conclusion For the reasons stated, the judgment entered for the defendant on December 17, 2002 is vacated. A declaratory judgment, that the plaintiff does not owe the defendant any fee or other compensation arising from the failed sale of India.com to Business India, is hereby entered in favor of plaintiff. The remaining claims of both the plaintiff and the defendant/counterclaimant are dismissed with prejudice. The February 3, 2003 Order is also vacated and the defendant is hereby ordered to remit to EasyLink the $250,000 which EasyLink 8 had been required by the February 3 Order to pay to the defendant's attorneys. The Clerk of Court is ordered to issue an amended judgment to reflect these rulings.
SO ORDERED: