Opinion
604224/2007.
June 11, 2009.
Motion sequence numbers 004 and 005 are consolidated for disposition.
In motion sequence number 004, defendants PPG Industries, Inc., PPG Industries Securities, Inc., PPG Canada, Inc., PPG Industries Ohio, Inc., and PPG Industries de Mexico, S.A. de C.V. (together, PPG or defendants) move to dismiss plaintiffs' first (Fraud), second (Fraudulent Inducement), third (Fraudulent Concealment), fourth (Negligent Misrepresentation) and Sixth (Rescission) causes of action, and to strike plaintiffs' demands for restitution and for punitive and exemplary damages (CPLR 3211 [a] [1] and [7]).
In motion sequence number 005, plaintiffs Project Gamma Acquisition Corporation and 3217926 Nova Scotia Company (plaintiffs), along with third-party defendants Platinum Equity, LLC (Platinum Equity), Platinum Equity Capital Partners II, L.P. (Platinum Capital), Platinum Equity Partners II, LLC (Platinum Partners), and Platinum Equity Advisors, LLC (Platinum Advisors) (together, with plaintiffs, the Platinum entities) move to dismiss: defendants'/third-party plaintiffs' first (Declaratory Relief) and second (Breach of Contract) causes of action, to the extent that these claims are asserted against third-party defendants Platinum Equity, Platinum Partners, and Platinum Advisors; and defendants'/third-party plaintiffs' third (Breach of Contract), fourth (Breach of Contract), fifth (Commercial Disparagement), sixth (Prima Facie Tort), and seventh (Civil Conspiracy/Acting in Concert/Aiding and Abetting) causes of action against all of the Platinum entities (CPLR 3211 [a] [1] and [7]).
BACKGROUND
The instant dispute arises out of the parties' negotiation and subsequent execution of an Asset Sale Agreement (the ASA), pursuant to which plaintiffs agreed to purchase PPG's Automotive Glass Services (AGS) business.
Plaintiffs' Amended Complaint
According to plaintiffs' amended complaint, PPG is the owner and operator of AGS, a business division engaged in manufacturing and distributing glass products and related services to automotive manufacturers, aftermarket customers, and insurers. In 2007, PPG decided to sell this division. To attract potential purchasers, PPG prepared and circulated a "Confidential Memorandum" (CM) containing information about AGS's business operations and financial performance. The CM allegedly touted AGS's "blue chip" portfolio of customers and included forecasts of projected revenue and earnings for 2008.
Plaintiffs allege that, after reviewing the CM, they entered into negotiations with PPG to purchase ASG. In response to plaintiffs' requests for additional information, PPG made certain other information and documents available for their review in a separate "data room" at PPG's facilities. In addition to the 2008 forecasts, these documents allegedly identified AGS's twenty largest customers, projected sales to those customers, identified certain possible future contracts that had yet to be awarded, and projected potential future revenues from those possible contracts. The documents also set forth the amount of certain Canadian pension liabilities that the buyer of the business would assume upon purchase. Plaintiffs allege that, although they were allowed to review the documents in the data room, they were not permitted to copy or print the documents for further review or analysis. Plaintiffs further allege that, during their due diligence, PPG restricted their access and ability to speak with the existing AGS management team.
Nevertheless, plaintiffs allege that, in reliance on the accuracy and completeness of the financial and operating information and revenue forecasts provided by PPG, plaintiffs agreed to purchase AGS for $500 million. The parties executed the ASA on September 12, 2007.
Plaintiffs allege that
[PPG was] aware that the 2008 forecasts were particularly critical to [p]laintiffs' valuation of AGS and their decision to enter into the [ASA] because the forecasts estimate the profitability of the company in the first year of ownership and establish the Company's revenue and earnings trends.
(Amended Complaint, ¶ 9).
Plaintiffs contends that, to further induce plaintiffs to enter into the agreement, PPG expressly represented and warranted, within the ASA itself, (1) that AGS had not experienced any events, changes or occurrences that had, or would reasonably be expected to have had, a "Material Adverse Effect" on its business ( see Purchase Agreement, Section 2.15 [j]); and (2) that none of AGS's twenty largest customers had canceled, terminated or otherwise materially altered its relationship with AGS or PPG, or had notified PPG of such intent ( id, Section 2.20 [a]). The complaint alleges that plaintiffs relied on these representations and warranties in entering into the ASA.
Initially, the closing date for the transaction was set for November 15, 2007, but it was later moved to November 30, 2007. However, the ASA provided that the closing was subject to fulfillment of the conditions precedent set forth in Section 6.4 of the agreement. Specifically, section 6.4.1 provided that,
[t]he representations and warranties in Section 2 shall be true and correct in all material respects . . . when made and at and as of the Closing with the same effect as though made at and as of such time
( id.). Section 6.4.4 provided that,
[s]ince December 31, 2006, no event shall have occurred, and no circumstance shall exist, which, individually, or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect
( id).
In addition, section 8.4 (a) (ii) of the agreement provided that the ASA could be terminated by either party
if the Closing shall not have taken place on or before December 31, 2007 or such later date as the parties may have agreed to in writing, provided that the non-occurrence of the Closing is not attributable to a breach of the terms hereof by the party seeking termination
( id.). The ASA further provided that if,
as of the date of such termination the conditions set forth in Sections 6.2, 6.4.1 and 6.4.4 would have been satisfied if the Closing had occurred on such date, then the Purchaser shall be obligated to pay to the Sellers an amount equal to $25 million
( id., Section 8.4 [d] [the "break-up fee"]).
Plaintiffs allege that, shortly after signing the ASA, but prior to the scheduled closing, they discovered that PPG had misrepresented and concealed a number of material facts to induce plaintiffs to execute the ASA and acquire AGS at a vastly inflated price. Specifically, plaintiffs allege that, contrary to PPG's express representations and warranties, they learned that one of AGS's twenty largest customers previously had notified PPG that it intended to reduce its purchase volumes significantly in 2008. Plaintiffs also allegedly discovered that PPG had experienced a number of other materially adverse changes and events, which had rendered unreliable PPG's projected forecasts of revenues and earnings for 2008.
Plaintiffs allege that when they advised PPG of their concerns regarding the accuracy of the 2008 forecasts, PPG provided plaintiffs with revised forecasts, in which the projected earnings and revenues, upon which plaintiffs had relied in valuing the business, were substantially reduced. In analyzing these revised forecasts, plaintiffs allegedly learned that PPG had failed to disclose that it had lost a number of the possible future contracts that were identified in the original forecasts, and had been deferring significant amounts of important and necessary maintenance at its fabrication plants. Plaintiffs also allegedly learned that PPG had understated, substantially, the amount of the Canadian pension liabilities to be assumed by the buyer of the business. Plaintiffs determined that, due to the reduced revenues, profitability and cash flows revealed by these revised forecasts, plaintiffs would be required to undertake extensive restructuring steps beyond those already planned, in addition to incurring millions of dollars in additional repair and maintenance costs. Plaintiffs allege that, had defendants disclosed accurate information prior to execution of the ASA, plaintiffs would not have entered into the agreement or would have reduced the proposed purchase price to reflect the true value of the Company.
In their first cause of action (fraud), plaintiffs allege: that PPG knew that the express representations and warranties contained in section 2.20(a) and 2.15(j) of the ASA were false when made; that PPG made these representations and warranties to induce plaintiffs to rely upon them; and, that plaintiffs reasonably relied on these representations and warranties in entering the ASA. In their second cause of action (fraudulent inducement), plaintiffs allege that PPG knowingly and intentionally made a "series of false and misleading representations" regarding the true financial condition and business operations of AGS, upon which plaintiffs relied in entering into the ASA. In their third and fourth causes of action (fraudulent concealment and negligent misrepresentation), plaintiffs allege that, by virtue of PPG's possession, control, and superior knowledge of information not readily available to plaintiffs during their due diligence, PPG had a duty to impart complete and accurate information to plaintiffs about AGS's financial condition and business operations, and that PPG knowingly, intentionally, and/or negligently concealed certain material information to induce plaintiffs to execute the ASA.
In their fifth cause of action (breach of contract), plaintiffs allege that PPG breached various representations and warranties contained in the ASA, including, but not limited to, those in sections 2.15(j), 2.20(a), and 6.4 of the agreement. In their sixth cause of action (rescission), plaintiffs allege that PPG's knowingly false and misleading representations and omissions substantially defeated the expectations of the parties to the ASA. Finally, in their seventh cause of action (declaratory judgment), plaintiffs seek a judicial determination, inter alia: that PPG failed to fulfill the condition precedents to closing contained in section 6.4 of the ASA; that plaintiffs were justified in terminating the ASA or, in the alternative, that the ASA is subject to rescission; and, that plaintiffs are not obligated to pay the $25 million termination fee set forth Section 8.4 (d) of the ASA.
PPG's Amended Counterclaims and Amended Third-Party Complaint
PPG alleges that plaintiffs are wholly-controlled and dominated subsidiaries of Platinum Equity, which created plaintiffs for the sole purpose of purchasing AGS. PPG further alleges, on information and belief, that: plaintiffs are mere shell acquisition vehicles with no significant assets; have no genuine independent corporate existence with respect to matters such as corporate formalities; have been undercapitalized and intermingle funds with the other Platinum entities; and, share ownership, officers, directors, office space, etc., with the other Platinum entities ( see Amended Counterclaims/Amended Third-Party Complaint, ¶¶ 25-29). PPG further alleges that Platinum Equity similarly controls and dominates the other Platinum entities named as third-party defendants, and that together, these entities exercise total dominion and control over plaintiffs.
PPG alleges that plaintiffs' true purpose in abruptly terminating the ASA and commencing this action, was to damage PPG and thereby create negotiating leverage through which they could obtain more favorable purchase terms and avoid having to pay the $25 million break-up fee. To accomplish these goals, plaintiffs allegedly conspired with, acted in concert with, and aided and abetted the other Platinum affiliates in all of the alleged conduct.
PPG alleges that, contrary to plaintiffs' contentions, PPG made copious amounts of information about AGS available to all potential bidders throughout the bidding process, including the CM and documents made available for review in its data room. PPG notes that, as a precondition to receiving any of this evaluation material, all potential bidders were required to sign a Confidentiality Agreement in which they expressly disclaimed any representation or warranty regarding, or reliance on, the forecasts or projections contained therein. PPG alleges that Platinum Advisors executed the Confidentiality Agreement on behalf of Platinum Equity on March 9, 2007 (Davies Aff., Exh. A). This Confidentiality Agreement provides, in pertinent part, that:
[a]lthough [PPG] has endeavored to include in the Evaluation Material information known to it that it believes to be relevant for the purpose of your investigation, you understand that neither the Company nor any of its representatives or advisors have made or make any representation or warranty as to the accuracy or completeness of the Evaluation Material. You agree that neither the Company nor its representatives or advisors shall have any liability to you or any of your representatives or advisors resulting from the use of the Evaluation Material
( id.).
Additionally, PPG alleges that the CM, which was distributed to all potential bidders, also contained express advisories and disclaimers regarding any representations or warranties therein. Specifically, the CM states that,
[a]ny estimates and projections contained herein have been prepared by the management of PPG and involve significant elements of subjective judgment and analysis, which may or may not be correct. Accordingly, there can be no assurance that such estimates or projections may be realized. Actual results may differ materially. Neither PPG, its affiliates nor [its Financial Advisor"], makes any representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained in this memorandum or any other written or oral communication transmitted or made available to a recipient, and nothing contained herein is, or shall be relied upon as, a promise, representation, or warranty, whether as to the past or the future. Only those representations and warranties that are made in a definitive sale agreement between PPG, you and any other parties thereto, when, as, and if executed, and subject to such limitations and restrictions as may be specified in such sale agreement, will have any legal effect. This memorandum does not purport to contain all of the information that may be required to evaluate such transaction, and any recipient hereof should conduct its own independent analysis of the Company and the data contained or referred to herein. This memorandum shall not be deemed an indication of the current state of affairs of the Company nor shall it constitute an indication that there has been no change in the business or affairs of the Company since the date hereof. PPG, . . . and their respective affiliates expressly disclaim any and all liability based in whole or in part, on such information and errors therein or omissions therefrom
( id., Exh. B). The CM further provides that
[n]either PPG nor [its Financial Advisor] expects to update or otherwise revise the memorandum (including without limitation, the estimates and projections) or other materials supplied herewith
( id.)
PPG alleges that, on June 18, 2007, after having reviewed the evaluation materials, Platinum Equity, through Platinum Advisors, sent PPG a letter of intent setting forth the general terms and conditions upon which they, together with Platinum Capital, would be willing to acquire AGS. The letter proposed a purchase price of between $600 and $650 million. However, on August 3, 2007, following completion of its due diligence, Platinum Equity submitted a "final" offer, in which it reduced the proposed purchase price to between $425 and $450 million. In the cover letter, Platinum Equity indicated that the price reduction was due to various factors that allegedly had come to light during its "significant amount" of due diligence, as well as to the substantial disruptions then occurring in the leverage finance markets ( id.). As justification for the decrease, Platinum Equity cited declining revenues and decreasing volumes between 2006 and 2007, and its anticipation of further non-contractual price-downs consistent with this trend. The letter also cited plaintiffs' belief that certain cost assumptions had been understated, contributing to overstated forecast earnings in each of the next three years.
In its cover letter, Platinum Equity indicated that it had devoted a significant amount of resources, and had engaged a host of functional experts and outside professionals, in its evaluation and due diligence of AGS. This due diligence had included, inter alia, reviewing the offering memorandum and information in the data room, a full day management presentation and three days of additional discussions with AGS's management team, site visits, a two-day audit work-paper review, and "numerous detailed diligence calls in various business and functional areas including finance, operations, legal, tax, accounting, environmental, human resources and information technology" ( see Amended Third-Party Complaint, Exh. 3).
After receiving Platinum Equity's "final" offer, PPG entered into discussions with a higher bidder, but was unable to come to any agreement. Sometime thereafter, PPG received a further revised bid from Platinum Equity, in which it increased its proposed offering price to $500 million.
On September 12, 2007, the parties executed the ASA at the purchase price of $500 million. That same day, Platinum Capital executed a Limited Guaranty (Guaranty), in which it guaranteed plaintiffs' obligation to pay the $25 million break-up fee provided by section 8.4 (d) of the ASA.
Under the terms of the ASA, the parties expressly
acknowledge[d] and agree[d] that the Sellers are not making any representation or warranty whatsoever, express or implied, except those representations and warranties expressly set forth in Section 2 of this Agreement and the schedules thereto, and that, subject to the foregoing, the Acquired Assets being acquired by each Purchaser at Closing are being acquired by such Purchaser on an "as is, where is" basis and in their then present condition
( see ASA § 3.7). Additionally, the ASA provided that
[t]his Agreement . . . is the entire agreement of the parties with respect to the subject matter hereof and supersedes all other prior agreements, understandings, documents, projections, financial data, statements, representations and warranties, oral or written, express or implied, between the parties hereto and their respective affiliates, representatives and agents in respect of the subject matter hereof (including, without limitation, the Confidential Memorandum dated March 9, 2007 . . .); provided, however, that this Agreement shall not be deemed to supersede the Confidentiality Agreement, the terms and conditions of which the parties hereto expressly reaffirm, unless and until Closing has occurred
( id., § 8.2 [emphasis in original]). The parties also agreed that
[i]t is the explicit intent and understanding of each of the parties hereto that neither party nor any of its affiliates, representatives or agents is making any representation or warranty whatsoever, oral or written, express or implied, other than those set forth in Section 2 and 3, and neither party is relying on any statement, representation or warranty, oral or written, express or implied, made by the other party or such other party's affiliates, representatives or agents, except for the representations and warranties set forth in such section. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE ASSETS OF THE BUSINESS AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, IT IS UNDERSTOOD THAT THE PURCHASER TAKES THE ASSETS OF THE BUSINESS "AS IS" AND "WHERE IS." The parties agree that this is an arm's length transaction in which the parties' undertakings and obligations are limited to the performance of their obligations under this Agreement. Each Purchaser acknowledges that it is a sophisticated investor, that it has undertaken a full investigation of the Business, and that it has only a contractual relationship with the Sellers, based solely on the terms of this Agreement, and that there is no special relationship of trust or reliance between any Purchaser and the Sellers
(id., § 8.3).
However, on November 12, 2007, prior to the scheduled closing, PPG received a letter from Platinum Equity proposing that PPG agree to a price reduction of $90 million and to share in certain additional post-closing costs of the business, later quantified in the amount of $70 million. The letter premised the proposed price modifications upon the reduced revenues/earnings and additional costs that PPG allegedly had disclosed in the revised 2008 forecasts, and on other information provided to plaintiffs following execution of the ASA.
PPG refused to modify the price terms, and all further discussions and attempts to settle this dispute were unsuccessful. PPG alleges that it remained committed to closing and proposed several alternative closing dates; however, plaintiffs failed to respond to its overtures. Then, on December 26, 2007, PPG received a letter from plaintiffs stating that they were terminating the ASA, ostensibly pursuant to section 8.4 (a) (ii). That same day, plaintiffs commenced the instant action.
PPG alleges that, following the commencement of this suit, the Platinum entities deliberately and intentionally distributed plaintiffs' complaint to the media. PPG alleges that the complaint, with its bogus allegations of fraud and misrepresentation, was intended to disparage and injure PPG, and thereby create negotiating leverage through which the Platinum entities could obtain AGS at a bargain price. PPG alleges that, thereafter, a spokesperson for Platinum Equity made further disparaging comments in extra-judicial statements to the media on December 26, 2007, December 31, 2007, and January 10, 2008, when he stated that Private Equity was still interested in acquiring AGS, as long as the terms "fairly reflect the state of the business" ( see Amended Counterclaims/Amended Third-Party Complaint, ¶ 132). PPG contends that the spokesperson's statements were nothing less than a way of accusing PPG, by insinuation and innuendo, of dishonesty in the conduct of its business. PPG further alleges that this accusation, in combination with the allegations of fraud and misrepresentation and disclosure of confidential information in the complaint, undermined PPG's competitive position and generated concern among its customers and employees.
PPG alleges that, on January 9, 2009, following the Platinum entities' termination of the ASA, PPG demanded return of all the confidential information it had provided to the Platinum entities in connection with AGS transaction, as provided under the terms of the ASA and Confidentiality Agreement. PPG alleges that, to date, none of its material has been returned.
In its first counterclaim/third-party cause of action (declaratory judgment), PPG seeks a judicial determination that the Platinum entities are jointly and severally liable for breaching the ASA, the Confidentiality Agreement, and the Guaranty, and for all of the alleged subsequent tortious conduct. In the second counterclaim/third-party cause of action (breach of contract), PPG alleges that the Platinum entities have breached the ASA and the Guaranty, by failing to pay the $25 million break-up fee. In the third counterclaim/third-party cause of action (breach of contract), PPG alleges that the Platinum entities, by repudiating the ASA, have caused PPG to sustain monetary damages in addition to the $25 million break-up fee. In the fourth counterclaim/third-party cause of action (breach of contract), PPG alleges that the Platinum entities have breached the Confidentiality Agreement and ASA, by disclosing confidential financial information and by failing to return all confidential materials upon request.
In the fifth counterclaim/third-party cause of action (commercial disparagement), PPG alleges that the Platinum entities have defamed and disparaged PPG: (1) by asserting, and then disseminating to the media, their bogus fraud and misrepresentation claims; (2) by needlessly disclosing certain highly confidential financial information regarding AGS in their complaint; and, (3) by making the gratuitous, extra-judicial comments to the media accusing PPG, by insinuation and innuendo, of dishonesty. In the sixth counterclaim/third-party cause of action (prima facie tort), PPG alleges that the Platinum entities maliciously, malevolently, and without any excuse or justification, have inflicted harm upon PPG for the purpose of obtaining more favorable purchase terms and to avoid having to pay the break-up fee. Finally, in the seventh counterclaim/third-party cause of action (civil conspiracy/acting in concert/aiding and abetting), PPG alleges that, by all of the foregoing conduct, the Platinum entities have caused PPG damages in addition to, and wholly apart from, the damages suffered in the first through sixth causes of action.
The Motions
PPG now moves to dismiss plaintiffs' first, second, third, fourth and sixth causes of action, and to strike plaintiffs' demands for restitution and for punitive and exemplary damages (Mot. Seq. 004).
The Platinum entities now move to dismiss PPG's first and second causes of action against the non-signatory Platinum affiliates, and to dismiss the remaining causes of action against all of the Platinum entities (Mot. Seq. 005).
DISCUSSION
On a motion to dismiss under CPLR 3211 (a)(7), this court must accept all of the facts alleged as true, accord the pleader the benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory ( Leon v Martinez, 84 NY2d 83). Nevertheless, allegations consisting of bare legal conclusions, as well as factual claims either inherently incredible or clearly contradicted by documentary evidence, are not entitled to such consideration ( Tal v Malekan, 305 AD2d 281 [1st Dept], lv denied 100 NY2d 513).
Dismissal, pursuant to CPLR 3211 (a) (1), is warranted where the documentary evidence conclusively establishes a defense to the asserted claims as a matter of law ( Leon v Martinez, 84 NY2d at 88).
Motion Sequence Number 004
PPG argues that all of plaintiffs' fraud and negligent misrepresentation claims must be dismissed, as the documentary evidence conclusively establishes that the Platinum entities disclaimed reliance on any of the extra-contractual projections and forecasts contained in the evaluation materials, and released PPG from any tort liability resulting from their use of those forecasts and projections. PPG additionally argues that, to the extent that plaintiffs seek to base these causes of action on the falsity of the representations and warranties contained within the ASA itself, the claims are merely duplicative of plaintiffs' breach of contract claim. PPG argues that plaintiffs' attempt to rescue their deficient tort claims by making vague allegations of "superior knowledge" and concealment must fail, as PPG had no duty to speak as a matter of law. Finally, PPG argues that plaintiffs' claims for rescission and restitution fail, as those claims are entirely derivative of plaintiffs' deficient fraud and misrepresentation claims.
To plead a cause of action for fraud, plaintiffs must allege "a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury" ( Lama Holding Co. v Smith Barney, Inc., 88 NY2d 413, 421; see also Channel Master Corp. v Aluminum Ltd. Sales, 4 NY2d 403). Where, as here, the alleged fraud relates to a contract, plaintiff must plead misrepresentations that were collateral and extraneous to, and allege the breach of a duty separate from, the contract itself ( see RGH Liquidating Trust v Deloitte Touche LLP, 47 AD3d 516 [1st Dept], lv dismissed 11 NY3d 804; Coppola v Applied Elec. Corp., 288 AD2d 41 [1st Dept 2001]).
Plaintiffs argue that PPG has misconstrued their complaint, because their fraud claims are not based on the alleged extra-contractual representations contained in the CM and the evaluation materials, but upon the express representations and warranties contained within section 2 of the ASA itself. Plaintiffs argue that their reliance on these contractual representations and warranties, which PPG allegedly knew were false when made, was not released by any of the merger clauses or disclaimers in the ASA, or any other agreement. Rather, plaintiffs contend that PPG explicitly agreed that plaintiffs could rely on such representations and warranties within the ASA. Plaintiffs additionally argue that their fraud claims are not duplicative of their breach of contract claim, because the contractual representations and warranties involved representations of present fact, not mere promises of future intent, and their fraud claims seek different relief from their contract claim.
Moreover, plaintiffs argue that their fraudulent concealment and negligent misrepresentation claims are properly stated, as PPG had a contractual duty to disclose full and accurate information under the terms of the ASA. Plaintiffs argue that, by virtue of PPG's possession and control of the evaluation material and the conditions and restrictions that PPG imposed upon plaintiffs' review and access to such material, PPG possessed "superior knowledge" not readily available to plaintiffs during their due diligence.
To the extent that plaintiffs have based their fraud claims on the 2008 forecasts of projected earnings and revenues contained in the CM and on the evaluation materials provided in PPG's data room, these claims fail to state a cause of action. Where a party specifically disclaims reliance on a representation in a contract, the party cannot subsequently assert that it was fraudulently induced to enter the contract by the very representation it has disclaimed ( Danann Realty Corp v Harris, 5 NY2d 317). Any allegation that plaintiff justifiably relied on the forecasts and projections in the CM, or the evaluation materials provided in the data room, is directly belied by the express and specific disclaimers of such reliance that are contained in both the Confidentiality Agreement and the ASA ( see Valassis Communications, Inc. v Weimer, 304 AD2d 448 [1st Dept 2003], lv denied 2 NY3d 794).
To the extent that plaintiffs' fraud causes of action are based on the falsity of the representation and warranties contained in the ASA itself, these claims are merely duplicative of plaintiffs' breach of contract cause of action.
"It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated . . . This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract . . ."
( Non-Linear Trading Co., Inc., v Braddis Assocs., Inc., 243 AD2d 107, 116 [1st Dept 1998], quoting Clark-Fitzpatrick, Inc. v Long Is. R. R. Co., 70 NY2d 382, 389-390). Here, the alleged fraudulent representations, on which plaintiffs claim to have relied, are the very contractual representations and warranties upon which plaintiffs assert their breach of contract claim and are neither collateral nor extraneous to the ASA, but an essential element thereof. Our courts have held that, where, as here, the only fraud alleged to have occurred is by virtue of, and arising out of, the breach of the representations and warranties contained within the agreement itself, the claim is properly dismissed as duplicative of the breach of contract claim ( see Varo, Inc. v Alvis PLC, 261 AD2d 262 [1st Dept 1999], lv denied sub nom. IMO Indus., Inc. v Alvis PLC, 95 NY2d 767; see also ESBE Holdings, Inc. v Vanquish Acquisition Partners, LLC, 50 AD3d 397 [1st Dept 2008]; J.E. Morgan Knitting Mills, Inc. v Reeves Bros., Inc., 243 AD2d 422 [1st Dept 1997]). The fact that plaintiffs might seek different remedies from those sought in their breach of contract claim "does not alter the nature of the underlying cause of action" ( ESBE Holdings, Inc., id. at 399).
Plaintiffs' cause of action for fraudulent concealment also must be dismissed. Where a fraudulent concealment is alleged, a plaintiff must, in addition to the other elements of fraud, plead that the defendant had a duty to disclose material information and failed to do so ( P. T. Bank Cent. Asia v ABN AMRO Bank N. V., 301 AD2d 373 [1st Dept 2003]). Generally, absent a fiduciary relationship between the parties, a duty to disclose arises only where one party has superior knowledge that is not readily accessible to another, and that party knows the other party is acting on the basis of mistaken knowledge ( see Jana L. v West 129th St. Realty Corp., 22 AD3d 274, 277 [1st Dept 2005] [under "superior facts" doctrine, a duty to disclose arises where one party's superior knowledge of essential facts renders a transaction without disclosure inherently unfair]; see also Kimmell v Schaefer, 89 NY2d 257).
Here, the parties expressly acknowledged in the ASA that "this is an arm's length transaction . . . and that there is no special relationship of trust or reliance between any Purchaser and the Sellers" (ASA, § 8.3). Plaintiffs further acknowledged that they are sophisticated commercial buyers who had conducted their own full investigation of the business before executing this transaction ( id.). Although plaintiffs contend that PPG's control of the evaluation material gave rise to a duty to disclose, plaintiffs acknowledge that they agreed to execute the ASA in spite of the conditions and restrictions that PPG allegedly placed on their access to the material and to the AGS management team during their due diligence. Our courts have held that:
where, as here, a party has been put on notice of the existence of material facts which have not been documented and [it] nevertheless proceeds with a transaction without securing the available documentation or inserting appropriate language in the agreement for [its] protection, [it] may truly be said to have willingly assumed the business risk that the facts may not be as represented. Succinctly put, a party will not be heard to complain that [it] has been defrauded when it is [its] own evident lack of due care which is responsible for [its] predicament
( Rodas v Manitaras, 159 AD2d 341, 343 [1st Dept 1990]; see also Permasteelisa, S.p.A. v Lincolnshire Mgt., Inc., 16 AD3d 352, 352 [1st Dept 2005]). In any event, plaintiffs' allegation that they justifiably relied on the completeness or accuracy of PPG's evaluation materials is belied by both the statements included in the CM and Confidentiality Agreement, which advised plaintiffs that PPG did not guarantee the completeness or accuracy of the information contained therein, as well as by plaintiffs' own specific disclaimers of reliance thereon.
In addition, plaintiffs' cause of action for negligent misrepresentation must be dismissed, as the claim is not viable absent a fiduciary or other special relationship between the parties ( see Tradewinds Fin. Corp. v Refco Sec., Inc., 5 AD3d 229 [1st Dept 2004]). Generally, "a fiduciary relationship does not exist between parties engaged in an arm's-length business transaction" ( Dembeck v 220 Cent. Park South, LLC, 33 AD3d 491, 492 [1st Dept 2006]; see also HF Mgt. Servs. LLC v Pistone, 34 AD3d 82 [1st Dept 2006]). As indicated above, here, the ASA expressly provided that the parties' relationship was one solely at arm's length.
PPG's motion to dismiss plaintiffs' sixth cause of action also is granted. A claim for rescission of a contract must be based either on mutual mistake or fraudulently induced unilateral mistake ( see Goldberg v Manufacturers Life Ins. Co., 242 AD2d 175 [1st Dept], lv dismissed in part, denied in part 92 NY2d 1000).). Here, there is no allegation of mutual mistake. As this court has dismissed plaintiffs' fraud claims for failing to state a cause of action, there is no basis on which to sustain the claim for rescission.
Finally, PPG's motion to strike plaintiffs' demand for punitive and exemplary damages is granted. Where a lawsuit has its genesis in the contractual relationship between the parties, a claim for punitive damages requires allegations of egregious tortious conduct independent of a breach of contract and aimed at the public generally ( New York Univ. v Continental Ins. Co., 87 NY2d 308). Plaintiffs' complaint lacks any such allegations.
Motion Sequence Number 005
The Platinum entities argue that PPG's breach of contract causes of action should be dismissed against those Platinum entities that were non-signatories to the ASA or Guaranty, as PPG has failed to allege facts sufficient to show that these entities were the "alter egos" of plaintiffs, or aided and abetted plaintiffs' breach of contract. In any event, the Platinum entities argue that PPG waived its right to sue these non-signatories under the terms of the Guaranty, which expressly provides that:
the Sellers shall not have any right of recovery against, and that no personal liability shall attach to, any . . . general partner, limited partner . . . or affiliate of any Guarantor (other than any affiliate that is a Guarantor), . . . whether by or through attempted piercing of the corporate (or limited liability company) veil, [or] by or through a claim by or on behalf of the Sellers, including a claim to enforce this limited guaranty, . . . except for the Sellers' rights to recover from the Guarantors under and to the extent provided in this limited guaranty
( see Villar Aff., Exh. B: Limited Guaranty at 2).
The Platinum entities argue that PPG's third cause of action, which seeks damages in addition to the break-up fee, must be dismissed, as any such claim is barred by the liquidated damages provisions contained in the ASA. Moreover, the Platinum entities argue that PPG is precluded from recovering additional monetary damages by section 8.15 (a) of the ASA, which provides that
THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES . . . ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY
( id. [uppercase in original]).
With respect to PPG's tort claims, the Platinum entities argue that PPG's fifth cause of action for commercial disparagement/defamation should be dismissed, because such claim is barred by the litigation privilege and Civil Rights Law § 74, and because PPG has failed to plead the essential elements of a claim for disparagement/defamation. The Platinum entities further contend that PPG has failed to plead the essential elements of its sixth cause of action for prima facie tort, and that PPG's seventh cause of action for civil conspiracy/acting in concert/and aiding and abetting, cannot be pleaded as an independent cause of action. The Platinum entities additionally contend that PPG waived and released its rights to assert these claims under the ASA and Guaranty.
The Platinum entities argue that this court should dismiss PPG's fourth cause of action, alleging breach of the Confidentiality Agreement and related provisions of the ASA, as PPG has failed to identify the particular provisions of these agreements that were breached, or the resulting damages. Further, insofar as this claim is based on plaintiffs' alleged disclosures of confidential information in the complaint, the Platinum entities argue that the claim is barred by the litigation privilege. The Platinum entities argue that, in light of the foregoing, PPG's first cause of action, which seeks declaratory relief, must be dismissed against the non-signatory entities, as PPG has alleged no justiciable controversy with respect to these third-party defendants.
Generally, a cause of action for breach of contract will not be stated against an entity that is not a party to a contract. Nonetheless, PPG argues that the motion to dismiss its contract causes of action against the non-signatory Platinum entities should be denied, because contractual liability can be imputed to these entities under a "veil piercing" or "alter ego" theory. PPG argues that its allegations that Platinum Equity, together with the other Platinum entities, totally dominated and controlled plaintiffs and used their domination and control as a means to commit wrongs against PPG, are sufficient to sustain these causes of action, as there is no requirement to plead these theories of liability with any particularity. PPG argues that contractual liability can also be imposed upon these non-signatory entities based upon its allegations that these entities conspired with and aided and abetted plaintiffs' breach of contract.
While a non-signatory can be held liable for a contractual breach under a veil piercing or alter ego theory, "[t]hose seeking to pierce a corporate veil . . . bear a heavy burden of showing that the corporation was dominated as to the transaction attacked and that such domination was the instrument of fraud or otherwise resulted in wrongful or inequitable consequences" ( TNS Holdings v MKI Sec. Corp., 92 NY2d 335, 339; Matter of Morris v New York State Dept. of Taxation Fin., 82 NY2d 135, 141).
Parent and subsidiary or affiliated corporations are, as a rule, treated separately and independently so that one will not be held liable for the contractual obligations of the other absent a demonstration that there was an exercise of complete dominion and control ( see. Meshel v Resorts Intl. of N. Y., 160 AD2d 211, 213 [1990]), but "[e]vidence of domination alone does not suffice without an additional showing that it led to inequity, fraud or malfeasance" ( TNS Holdings, 92 NY2d at 339)
( see Sheridan Broadcasting Corp. v Small, 19 AD3d 331, 332 [1st Dept 2005]). A party seeking to pierce the corporate veil must allege "particularized statements detailing fraud or other corporate misconduct" sufficient to show that such veil piercing is warranted ( Sheridan, 19 AD3d at 332; Sheinberg v 177 E. 77, 248 AD2d 176, 177 [1st Dept], lv denied 92 NY2d 844).
Here, PPG has failed to allege facts sufficient to suggest that, through their alleged domination of plaintiffs, Platinum Equity and/or the other Platinum entities "abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against [PPG] such that a court in equity will intervene" ( Matter of Morris, 82 NY2d at 142). The fact that plaintiffs may have been created by Platinum Equity for the sole purpose of purchasing AGS does not give rise to "an inference of abuse . . . where a corporation was formed for legal purposes or is engaged in legitimate business" ( TNS Holdings, Inc., 92 NY2d at 339-340). Further, even though PPG's allegations are sufficient to show Platinum Equity's involvement in negotiating the ASA and Guaranty, such fact alone does not provide a sufficient basis on which to impose contractual liability against Platinum Equity, as PPG was aware when it executed these agreements that it was contracting solely with plaintiffs and the Guarantor ( see id. at 340), and agreed to contractual terms that limited its recourse against the other Platinum entities.
PPG's conclusory allegations that plaintiffs and the Platinum affiliates acted in concert, or aided and abetted each other in breaching the ASA and Guaranty, also fail to provide a sufficient basis on which to impose such liability. To the extent that PPG seeks to assert a claim against Platinum Equity based on its participation in and alleged inducement of its subsidiaries' breach of contract, the pleadings fail to contain the requisite allegations that Platinum Equity intentionally procured the alleged breach without economic justification ( see Levine v Yokell, 258 AD2d 296 [ 1st Dept 1999]; Spectacolor, Inc. v Banque Nationale de Paris, 207 AD2d 726 [1* Dept 1994]; see also Felsen v Sol Cafe Mfg. Corp., 24 NY2d 682; WMW Machinery Co., Inc. v Koerber AG, 240 AD2d 400 [2d Dept 1997]). PPG's allegations, with respect to the other non-signatory entities, fail to particularize any specific misconduct by these entities in relation to the alleged breaches.
In the alternative, PPG argues that dismissal of its second cause of action should be denied to the extent that this contract claim is asserted against Platinum Partners, because the documentary evidence establishes that Platinum Partners signed the Guaranty in its capacity as general partner of Platinum Capital and thus is a signatory to that agreement. However, as a provision of that Guaranty, PPG expressly agreed that it would have no right of recovery against any general partner or affiliate of any Guarantor, "including a claim to enforce this limited guaranty" ( see Villar Aff., Exh. B: Limited Guaranty at 2). Under the Guaranty, PPG's recourse lies solely against the Guarantor.
The Platinum entities' motion to dismiss PPG's third cause of action, which seeks damages in addition to the break-up fee, is granted. While PPG acknowledges that the parties agreed to waive their rights to recover "punitive, exemplary, lost profits, consequential or similar damages" arising out of or relating to the ASA ( see ASA, 8.15 [a]), PPG contends that there is nothing in the language of this section, or of section 8.4 (d), that expressly limits PPG's right to recover any "compensatory" damages it may have incurred, above and beyond the break-up fee.
Rather, PPG notes that in section 8.4 (c) of the ASA, the parties expressly contemplated the existence of additional remedies in the event of such breach.
Section 8.4 (c) of the ASA provides that:
[s]ubject to the provisions of Article 7, nothing in this Section 8.4 shall be deemed to release either party from any liability for any breach by such party of the terms and provisions of [the ASA] or to impair the right of either party to compel specific performance by the other party of its obligations under [the ASA]
( id.). However, section 7.2.5 in Article 7, further provides that:
[t]he obligation of the Purchaser to make payment to Sellers under the circumstances set forth in Section 8.4 (d) shall be the sole and exclusive remedy of the Sellers prior to the Closing . . . for . . . any failure or breach of any covenant, obligation, condition or agreement to be performed by the Purchaser
( id.). As PPG is seeking damages arising out of plaintiffs' alleged breach of their obligation to proceed to closing, the break-up fee is PPG's exclusive monetary remedy for such breach.
The Platinum entities' motion to dismiss PPG's fifth cause of action for commercial disparagement/defamation is granted. The elements of a cause of action for defamation/disparagement are '"a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard and it must either cause special harm or constitute defamation per se'" ( see Salvatore v Kumar, 45 AD3d 560, 563 [1st Dept 2007], lv denied 10 NY3d 703, quoting Dillon v City of New York, 261 AD2d 34, 38 [1st Dept 1999]). To the extent that PPG's cause of action is based on the allegations of fraud and misrepresentation contained in plaintiffs' complaint, or other statements made in the course of, and pertaining to, this litigation, dismissal is warranted, as such statements, when made in the course of judicial proceedings, are absolutely privileged if at all pertinent to the litigation ( Lacher v Engel, 33 AD3d 10, 13 [1st Dept 2006], citing Youmans v Smith, 153 NY 214, 219). Our courts have held that this absolute privilege rule is broad and liberal, and is "'complete irrespective of the motive with which [the statements] are used'" ( Mosesson v Jacob D. Fuchsberg Law Firm, 257 AD2d 381, 383 [1st Dept], lv denied 93 NY2d 808, quoting Marsh v Ellsworth, 50 NY 309, 311-312). "[A]ll that is required for a statement to be privileged is a minimal possibility of pertinence or the simplest rationality" ( id.); any doubt should be resolved in favor of relevancy and pertinency ( id.). As this court finds that the complaint's allegations of fraud and misrepresentation were clearly pertinent to this litigation, they are protected by this absolute privilege.
Additionally, New York's Civil Rights Law § 74 creates a fair reporting privilege that forbids the maintenance of a civil action "against any person, firm or corporation, for the publication of a fair and true report of any judicial proceeding" ( id.). Our courts have held that section 74 protects not only the entity which publishes the report, but also individuals who communicate publically about a lawsuit, whether to the media or through another public forum ( see Cordell-Reeh v Nannies of St. James, Inc., 13 AD3d 140 [1st Dept 2004] [statements to media describing allegations in complaint]; Hudson v Goldman Sachs Co., 304 AD2d 315 [1st Dept 2003], lv denied 2 NY3d 707 [statements to newspaper]; Hughes Training Inc, Link Division v Pegasus Real-Time Inc., 255 AD2d 729 [3rd Dept 1998] [memorandum describing lawsuit posted on employer bulletin board |; Mulder v Donaldson, Lufkin Jenrette, 208 AD2d 301 [1st Dept 1995] [statement to newspaper]; Branca v Mayesh, 101 AD2d 872 [2nd Dept], affd 63 NY2d 994 [distribution of pleadings at bar association seminar]). The protections of this statute are afforded as long as the statement is a substantially accurate description of the allegation ( see McRedmond v Sutton Place Restaurant and Bar, Inc., 48 AD3d 258 [1st Dept 2008]). Our courts have afforded the privilege to a party's distribution of the pleadings to the media ( see Fishof v Abady, 280 AD2d 417 [1st Dept 2001]).
Nevertheless, PPG argues that the privilege afforded by Civil Rights Law § 74 is not applicable in the instant circumstances, because the Platinum entities acted with malice and in bad faith by needlessly disseminating the complaint so that the fraud allegations would have maximum visibility, rather than targeting the complaint's distribution to some audience that conceivably might have a legitimate interest in the subject matter. While our courts have declined to extend the protection afforded by Civil Rights Law § 74 to a plaintiff that initiates an action maliciously and in bad faith, for the purpose of disparaging or injuring the defendant ( Williams v Williams, 23 NY2d 592), the exception carved out by Williams is inapplicable here, as PPG has not allege that plaintiffs instituted this action solely for the purpose of avoiding liability for defamation ( Cordell-Reeh, 13 AD3d at 141, citing Coyle v 203 W. 102nd St. Apt. Corp., 293 AD2d 377 [1st Dept 2002]).
In any event, even if plaintiffs' distribution of the complaint should not be afforded the protection of section 74, dismissal of this cause of action would still be warranted, as PPG has failed to plead all of the essential elements of a defamation claim. Our courts have held that, in addition to alleging "the particular words complained of" (CPLR 3016 [a]), a cause of action for defamation must allege the time and place of the false statement, and specify to whom it was made ( see Bell v Alden Owners, Inc., 299 AD2d 207 [1st Dept 2002], lv denied 100 NY2d 506; Vardi v Mutual Life Ins. Co. of NY, 136 AD2d 453 [1st Dept 1988]). PPG's vague allegations, that each of the Platinum entities acted in concert, conspired with, and aided and abetted each other in connection with distributing the complaints to the media, fail to specify the time, place, or to whom the complaints were distributed, and thus are insufficient.
To the extent that PPG seeks to assert its defamation claim on the "extra-judicial" comments of the Platinum Equity spokesperson, i.e., that Platinum Equity was still very interested in acquiring AGS, but on terms that "fairly reflect the state of the business," the claim also fails to state the requisite elements of such cause of action. While special damages need not be pled or proven when a statement is defamatory "per se" ( see Liberman v Gelstein, 80 NY2d 429, 435), where a statement is defamatory by innuendo, rather than on its face, special damages must be pleaded ( see Luisi v JWT Group, Inc., 128 Misc 2d 291, 294 [Sup Ct, NY County 1985]; Idema v Wager, 120 F Supp 2d 361 [SD NY 2000], affd 29 Fed Appx 676 [2nd Cir 2002]). As PPG has alleged that the Platinum Equity spokesperson's statements were defamatory by innuendo or insinuation, PPG was required to plead special damages. PPG's allegations of damage, i.e., that plaintiffs' statements and disclosures of confidential information have undermined PPG's competitive position and generated concern among customers and employees of the AGS business, fail to particularize the loss of something having pecuniary or economic value ( Liberman, 80 NY2d at 434-435), and thus are insufficient to plead special damages.
The Platinum entities' motion to dismiss PPG's cause of action for prima facie tort is granted. The requisite elements of this cause of action are: (1) the intentional infliction of harm, (2) which results in special damages, (3) without any excuse or justification, (4) by an act or series of acts which would otherwise be lawful ( Freihofer v Hearst Corp., 65 NY2d 135, 142-43; Curiano v Suozzi, 63 NY2d 113, 117 (1984); Burns Jackson Miller Summit Spitzer v Lindner, 59 NY2d 314). As indicated above, PPG's pleadings fail to allege special damages with the required specificity, and thus are insufficient ( Vigoda v DCA Productions Plus Inc., 293 AD2d 265 [1st Dept 2002]). Additionally, to plead a prima facie tort, PPG must allege that the sole motivation for the Platinum entities' alleged conduct was "disinterested malevolence" ( Curiano, 63 NY2d at 117; Burns Jackson Miller Summit Spitzer, 59 NY2d at 333). PPG's repeated allegations, that the Platinum entities acted in order to create negotiating leverage so that they could acquire AGS at a better price, are contrary to an allegation of "disinterested malevolence" ( see Meridian Capital Partners, Inc. v Fifth Ave. 58/59 Acquisition Co. LP, 60 AD3d 434 [1st Dept 2009]).
The Platinum entities' motion to dismiss PPG's seventh cause of action is granted, as New York does not recognize civil conspiracy to commit a tort as an independent cause of action ( Shared Communications Services of ESR, Inc. v Goldman Sachs Co., 23 AD3d 162 [1st Dept 2005]; Bell v Alden Owners, Inc., 299 AD2d 207 [1st Dept 2002], lv denied 100 NY2d 506). In any event, this cause of action merely reiterates the allegations made in the prior contract and tort causes of action, and fails to allege any further ground on which to recover "additional damages."
However, the Platinum entities' motion to dismiss PPG's fourth cause of action, alleging breach of the Confidentiality Agreement and the confidentiality provisions in the ASA, is denied. Even if this court determined that PPG's claim, insofar as it is based on the Platinum entities' disclosure of confidential information in the complaint, would be barred by the litigation privilege, PPG also has alleged that the Platinum entities failed to return all confidential materials, as required under those agreements. While PPG's pleadings do not identify the particular provisions that were breached by the Platinum entities with respect to this cause of action, PPG has produced copies of the relevant agreements containing such provisions. Further, PPG seeks not only monetary damages in its prayer for relief, but the return of all confidential materials, as well. Having considered the evidentiary material submitted in support of these motions, this court finds that PPG's cause of action for breach of these agreements is sufficiently stated.
Finally, as this court has dismissed all of PPG's tort claims, and all of PPG's contract claims with respect to the non-signatory Platinum entities, PPG's first cause of action, seeking declaratory relief, will be dismissed with respect to these entities, as well.
Accordingly, it is
ORDERED that the defendants' motion to dismiss plaintiffs' first, second, third, fourth, and sixth causes of action, and plaintiffs' demands for restitution and for punitive and exemplary damages (motion sequence number 004) is granted, and these causes of action are dismissed; and it is further
ORDERED that the plaintiffs'/third-party defendants' motion to dismiss (motion sequence number 005) is granted to the extent of dismissing the third-party plaintiffs' first and fourth causes of action, insofar as these claims are asserted against third-party defendants Platinum Equity, LLC and Platinum Equity Partners II, LLC; the third-party plaintiffs' second cause of action, insofar as this claim is asserted against Platinum Equity, LLC, Platinum Equity Partners II, LLC, and Platinum Equity Advisors, LLC; and, the defendants'/third-party plaintiffs' third, fifth, sixth, and seventh causes of action against plaintiffs and all third-party defendants, and the motion is otherwise denied; and it is further
ORDERED that defendants are directed to serve an answer to the plaintiffs' complaint, and plaintiffs/third-party defendants are directed to serve an answer to defendants' counterclaims/third-party plaintiffs' third-party complaint, within 10 days after service of a copy of this order with notice of entry.