Opinion
No. 5972–14.
10-02-2015
ProSource Technologies, LLC, Plaintiff, v. Housing Trust Fund Corporation and Moss Cape, LLC, Defendants.
Anthony Ostlund Baer & Louwagie P.A. (Richard T. Ostlund, Randy G. Gullickson and Steven C. Kerbaugh, of counsel), Minneapolis, MN, Bond Schoeneck & King, PLLC (Arthur J. Siegel, of counsel), Albany, Attorneys for Plaintiff. Venable LLP (Edmund M. O'Toole, Matthew T. McLaughlin and Benjamin P. Argyle, of counsel), New York, Carter, Conboy, Case, Blackmore, Maloney & Laird, P.C. (William J. Decaire, of counsel), Albany, Attorneys for Housing Trust Fund Corporation. Greenberg Traurig, LLP (Cynthia E. Neidl, of counsel), Albany, Attorneys for Moss Cape, LLC.
Anthony Ostlund Baer & Louwagie P.A. (Richard T. Ostlund, Randy G. Gullickson and Steven C. Kerbaugh, of counsel), Minneapolis, MN, Bond Schoeneck & King, PLLC (Arthur J. Siegel, of counsel), Albany, Attorneys for Plaintiff.
Venable LLP (Edmund M. O'Toole, Matthew T. McLaughlin and Benjamin P. Argyle, of counsel), New York, Carter, Conboy, Case, Blackmore, Maloney & Laird, P.C. (William J. Decaire, of counsel), Albany, Attorneys for Housing Trust Fund Corporation.
Greenberg Traurig, LLP (Cynthia E. Neidl, of counsel), Albany, Attorneys for Moss Cape, LLC.
RICHARD M. PLATKIN, J.
Plaintiff ProSource Technologies, Inc. ("ProSource") brings this commercial action alleging claims sounding in contract, quasi-contract and tortious interference with business and contractual relationships against defendants Housing Trust Fund Corporation ("HTFC") and Moss Cape, LLC ("Moss Cape"). Pending before the Court are defendants' pre-answer motions to dismiss the bulk of the claims alleged in plaintiff's Verified Amended Complaint ("Complaint").
The following facts are drawn from the Complaint and, except as otherwise noted, are assumed to be true for purposes of the instant motion practice.
In the aftermath of Hurricane Sandy, the United States Department of Housing and Urban Development ("HUD") provided recovery funds to the State of New York ("State"). These funds, which are administered through defendant HTFC, were allocated to the State beginning in March 2013.
One of HTFC's first tasks was to retain a firm on an emergency basis to manage recovery efforts. In early April 2013, HTFC initiated contact with ProSource, a Minnesota consulting firm that provides disaster, emergency management and other consulting services. At the time, ProSource was engaged in a storm recovery project in Cedar Rapids, Iowa. By April 18, 2013, ProSource had commenced work in New York State.
ProSource's initial efforts were focused on the Oakwood Beach Buy–Out Program ("Buy–Out Program"). Consistent with the urgent nature of the work, ProSource moved quickly to bring on staff. HTFC later determined that ProSource could be a "one stop shop" that managed other important recovery programs for the State, including the Rehabilitation Program, Acquisition Program, Relocation Program and Demolition Management Program.
On May 9, 2013, the members of HTFC adopted a resolution authorizing an emergency procurement with ProSource on a non-competitive basis. On June 10, 2013, HTFC and ProSource entered into a Contract for Services ("Contract"), pursuant to which ProSource agreed to provide a wide range of recovery services for an initial budget not to exceed $13,355,000. Under the Contract, payment was to be "made upon receipt of [ProSource's] invoice for services rendered with such documentation as may be required by HTFC" (Contract § 4[c] ). HTFC also was subject to a Prompt Payment Policy that required payments to vendors to be made within a prescribed period, subject to "tolling" based upon "[s]uspected improprieties of any kind".
To meet the State's aggressive recovery timeline, ProSource was directed to hire subcontractors. ProSource ultimately hired 28 subcontractors at a total cost of more than $16.6 million. Defendant Moss Cape, a small Alaskan firm, served as a subcontractor to a ProSource subcontractor in a limited role.
ProSource claims that HTFC urged it to hire three specific subcontractors, including IEM, Inc. ("IEM"), an alleged competitor. On July 26, 2013, ProSource subcontracted with IEM to provide several technical specialists to State agencies. Under the subcontract with ProSource, IEM agreed to certain non-competition obligations.
In June 2013, Governor Andrew M. Cuomo established the Governor's Office of Storm Recovery ("GOSR") within HTFC to centralize the State's recovery and rebuilding efforts. To meet the demand for expanded and expedited services, ProSource transferred key employees from other projects to New York. ProSource also recruited, hired, and trained numerous New York residents, with as many as 400 recovery workers on ProSource's payroll in New York.
HTFC issued a Request for Proposals ("RFP") on July 9, 2013, seeking a firm to handle on a competitive basis many of the services that ProSource was performing under the emergency procurement. Following release of the RFP, IEM allegedly approached ProSource to "partner" on a proposal. IEM is said to have expressed confidence in obtaining the award and to have told ProSource that it "will be working with [IEM] one way or another" (Complaint ¶ 48). Meanwhile, HTFC continued to rely upon the emergency Contract with ProSource to meet the State's ambitious recovery goals.
Though the RFP contemplated a contract award by August 12, 2013, that date passed without the selection of a vendor. Consequently, in recognition of ProSource's ongoing and expanded role, the HTFC board approved a resolution on September 13, 2013 authorizing a substantial increase in the Contract price. HTFC and ProSource formally amended the Contract on November 29, 2013 by executing a First Amendment to the Contract for Services ("First Amendment"), effective September 12, 2013. The First Amendment increased ProSource's allowable compensation to $55,401,839.31, based on cost projections through November 2014.
Beginning in Fall 2013, HTFC allegedly fell behind in paying its invoices to ProSource, with the outstanding balance under the Contract rising to about $45 million. And by early 2014, HTFC still had not selected a vendor under the RFP, with ProSource continuing to provide recovery services under the emergency Contract, as amended.
In late February 2014, ProSource was advised that it was not the low bidder on the RFP, but it could continue to participate in several recovery programs through 2014. IEM was announced as the winning bidder in March 2014. ProSource was told that IEM would take over management of the Rehabilitation Program by the end of June, and ProSource would continue in a transitional role until then. ProSource also allegedly was told that it would continue work on the Buy–Out program beyond July 1, 2014, assuming the transition to IEM went well.
ProSource's concerns over payment were the subject of several telephone conferences with HTFC/GOSR. ProSource was advised that a second Contract amendment was needed to make payment, but it should continue to perform pending formal authorization. A senior HTFC/GOSR official, James Rubin, also is alleged to have stated: "We have a lot of money that we want to pay you ... we want to pay you fairly. We also need your cooperation and those two things go hand in hand."
At some point, it became clear that IEM did not have the necessary staff and expertise to fully perform the work. "Instead, HTFC/GOSR and IEM decided that IEM would attempt to hire away many ProSource employees to be able to perform its contract with HTFC" (Complaint ¶ 80). After plaintiff informed HTFC that ProSource employees and subcontractors were subject to non-competition agreements, HTFC allegedly reversed its position on ProSource's continued involvement in recovery efforts.
On April 2, 2014, GOSR exercised its right to terminate the Contract without cause, effective July 1, 2014. At or about the same time, HTFC/GOSR presented ProSource with a proposed amendment to the Contract, allegedly on a "take it or leave it" basis. The proposal substantially increased the total contract price, but also included provisions intended to ensure that ProSource "cooperates in a smooth transition to the successor contractor", including a waiver of certain non-competition agreements by ProSource.
ProSource alleges that HTFC/GOSR created leverage to obtain the benefit of its trained workforce without the payment of compensation by: (1) putting it at risk of non-payment for services already rendered; (2) conditioning further payment upon ProSource allowing its employees to transfer to IEM; and (3) terminating the Contract. In other words, ProSource alleges:
It can be reasonably inferred from the above events that HTFC/GOSR, so long as it needed ProSource to accomplish its aggressive goals for storm recovery, political and otherwise, directed ProSource to continue to increase and develop its staff and to and expand its services under its emergency contract. It can be further inferred that HTFC/GOSR then held back and delayed payments of ProSource invoices so that it could use that leverage created thereby to force ProSource to transfer much of the business and staff ProSource had developed in order to allow a competitor favored by HTFC/GOSR to take over ProSource's role on significant aspects of the storm disaster recovery program.
(Complaint ¶ 83).
Under the Second Amendment of Contract for Services ("Second Amendment"), the maximum amount to be paid to ProSource was increased by $64 million, up to almost $120 million. In addition, HTFC agreed to use its best efforts to expedite interim payments of all allowable costs for ProSource's work through February 2014. As to subsequent work, HTFC committed to pay eighty percent of allowable costs under the authority's normal payment terms and the remaining twenty percent upon the satisfaction of certain discretionary criteria, including a "smooth transition" to the successor contractor and HTFC's "review of all expenses" under the Contract. The Second Amendment also required ProSource to waive its rights under non-competition agreements with employees and subcontractors. "Because it was left with no practical alternative but to sign the Second Amendment—at least if it wanted to get paid the millions of dollars owed to it and its subcontractors—ProSource signed the Second Amendment under duress" (Complaint ¶ 93).
As a result of IEM's inability to fully perform the work called for under the initial competitive procurement, GOSR issued a request for proposals ("RFP") in April 2014 seeking a contractor to manage the Buy–Out, Acquisition and Relocation Programs and the Demolition Management Program (collectively "Programs"). ProSource agreed to work with Moss Cape, a small contractor with only limited relevant experience, to submit a proposal in which Moss Cape would serve as prime contractor and ProSource as subcontractor. Accordingly, Moss Cape submitted a "Proposal for Community Development Block Grant–Disaster Recovery Housing Program Management and Related Services" ("Proposal") dated May 2, 2014. The Proposal, which was prepared almost exclusively by ProSource, was signed by Anthony Trujillo, a senior program manager for Moss Cape.
The Proposal allegedly "contained numerous statements and representations indicating that Moss Cape and ProSource had reached a binding agreement for ProSource to serve as the key subcontractor to provide about 80% of the services and be entitled to a commensurate portion of the fees generated" (Complaint ¶ 102). In particular, the Proposal: identified ProSource as a "team partner"; emphasized the importance of "[m]aintaining continuity of the NYS–ProSource working relationship" as a "fundamental element" of the "Moss Cape Teaming effort"; represented that "Moss Cape has an established relationship with ... ProSource"; and identified numerous ProSource employees in describing the "Team's key personnel".
Submitted as part of the Proposal was a "Teaming Agreement between Moss Cape, LLC and ProSource Technologies, LLC" ("Teaming Agreement"). This unsigned and undated document set forth provisions concerning the obligations of Moss Cape and ProSource with respect to submission of the Proposal. The Teaming Agreement further provided that, if selected as prime contractor, "Moss Cape will exert every effort to negotiate and award a subcontract to ProSource consistent with the requirements of the Prime Contract", with pricing to "be determined jointly by the parties" (Teaming Agreement ¶ 5, ¶ 16[a] ). "Under the subcontract, Moss Cape will issue to ProSource task orders or delivery orders for the task areas or activities set forth in Exhibit A attached [t]hereto" (id. ¶ 5). The Teaming Agreement also included mutual provisions for the protection of confidential or proprietary information, mutual covenants against the solicitation of the other party's employees, mutual disclaimers of reliance and a merger clause.
While acknowledging that the Teaming Agreement was not signed, ProSource alleges that "by submitting it as part of its Proposal to HTFC, Moss Cape represented that it was a binding contract to which ProSource and Moss Cape agreed and by which it intended to be bound" (Complaint ¶ 109). ProSource further alleges that "[t]he statements and representations in the [Proposal] were consistent with verbal agreement that ProSource and Moss Cape reached" (id. ¶ 108). Specifically, ProSource alleges:
In multiple meetings and conversations between ProSource executives and Moss Cape, including Senior Program Manager Anthony Trujillo and others, Moss Cape and ProSource agreed that if Moss Cape was awarded the prime contract for the [Programs], ProSource would participate as the key subcontractor to provide approximately 80% of the services and would receive approximately 80% of the fees generated by the contract consistent with the Proposal submitted to HTFC/GOSR, the precise amount to be determined by the actual hours and expenses incurred in providing the services.
(id. ¶ 108).
Moss Cape received notice on May 30, 2014 that it had been selected as one of two bidders to be awarded the new recovery contract. Moss Cape negotiated a prime contract with HTFC, with ProSource allegedly doing "virtually all of the work" and leading "virtually all of the discussions" (id. ¶¶ 118–119). Despite Moss Cape's stated willingness to work out a subcontract with ProSource, the prime contractor nonetheless engaged in "foot dragging and avoidance", which ultimately culminated with Moss Cape terminating negotiations on August 10, 2014 (id. ¶¶ 120–122). ProSource also alleges that Moss Cape hired certain of its employees who were subject to non-competition agreements at the behest of HTFC. According to ProSource:
... Moss Cape, a small and inexperienced company, would not have breached its contract and terminated its relationship with ProSource and hired ProSource employees in the face of non-compete agreements unless HTFC encouraged and/or required Moss Cape to do so. Not only had Moss Cape stated that HTFC was in agreement with its actions against ProSource but, when asked by ProSource why Moss Cape had delayed signing a subcontract with ProSource, stated on a number of occasions that Moss Cape had encountered a lot of politics' in dealing with GOSR/HTFC.
(Id. ¶ 124).
As of August 2014, ProSource claims an outstanding principal balance under the amended Contract of almost $21 million. ProSource commenced this action on November 20, 2014. Oral argument on the pending motions was held on July 31, 2015. This Decision & Order follows.
LEGAL STANDARD
On a motion to dismiss made pursuant to CPLR 3211(a)(7), "the Court must afford the pleadings a liberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of every possible inference" (EBC 1, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19 [2005] ). The Court's "sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail" (Polonetsky v. Better Homes Depot, Inc., 97 N.Y.2d 46, 54 [2001] [internal quotation marks omitted] ). However, the Court need not "accept as true legal conclusions or factual allegations that are either inherently incredible or flatly contradicted by documentary evidence" (1455 Washington Ave. Assoc. v. Rose & Kiernan, 260 A.D.2d 770, 771, 687 N.Y.S.2d 791 [3d Dept 1999] [internal quotation marks omitted] ).
Dismissal is warranted under CPLR 3211(a)(1) if documentary evidence conclusively establishes a defense as a matter of law (Haire v. Bonelli, 57 A.D.3d 1354, 1356, 870 N.Y.S.2d 591 [3d Dept 2008], citing Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 324 [2007] ; see Goshen v. Mutual Life Ins. Co. of NY, 98 N.Y.2d 314, 326 [2002] ; Angelino v. Michael Freedus, D.D.S., P.C., 69 A.D.3d 1203, 893 N.Y.S.2d 668 [3d Dept 2010] ). On such a motion, "affidavits submitted by a defendant do not constitute documentary evidence upon which a proponent of dismissal can rely" (Crepin v. Fogarty, 59 A.D.3d 837, 838, 874 N.Y.S.2d 278 [3d Dept 2009] ).
CONTRACT CLAIMS AGAINST MOSS CAPE
ProSource's third cause of action alleges that "Moss Cape has breached its legally binding contract with ProSource, specifically including the Teaming Agreement and the oral agreement between ProSource and Moss Cape" (Complaint ¶ 147). The breaches are alleged to include: (a) the exclusion of ProSource from participation in the prime contract; (b) the failure or refusal of Moss Cape "to enter into a final, executed subcontract with ProSource under which ProSource would provide approximately 80% of the services [under the prime contract] and a commensurate portion of the fees"; and (c) the hiring of ProSource employees subject to non-competition agreements (id. ¶ 147, 874 N.Y.S.2d 278 ). ProSource seeks to recover lost profits on the anticipated subcontract with Moss Cape and an unpaid balance of about $1.4 million for services rendered for the benefit of Moss Cape.
A. Legal Principles
To succeed in establishing a claim for breach of contract, ProSource bears the burden of establishing the formation of a valid contract, Moss Cape's breach of the contact and ProSource's own performance (see Clearmont Prop., LLC v. Eisner, 58 A.D.3d 1052, 872 N.Y.S.2d 725 [3d Dept 2009] ).
To show contract formation, the proponent of the contract must establish the parties' mutual assent and intention to be bound (Kowalchuck v. Stroup, 61 A.D.3d 118, 121, 873 N.Y.S.2d 43 [1st Dept 2009] ). The test is a purely objective one:
[T]he existence of a binding contract is not dependent on the subjective intent of [the parties].... [I]t is necessary to look, rather, to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds. In so doing so, disproportionate emphasis is not to be put on any single act, phrase or other expression, but, instead, on the totality of all of these, given the attendant circumstances, the situation of the parties, and the objectives they were striving to attain.
(Brown Bros. Elec. Contrs. v. Beam Constr., 41 N.Y.2d 397, 399–400 [1977] [citations omitted] ).
"[I]f the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed" (Scheck v. Francis, 26 N.Y.2d 466, 469–470 [1970] ). On the other hand, "[a]n unsigned contract may be enforceable when objective evidence establishes that the parties intended to be bound", considering the totality of their words and conduct (Brighton Inv., Ltd. v. Har–Zvi, 88 A.D.3d 1220, 1222, 932 N.Y.S.2d 214 [3d Dept 2011] [citation omitted] ).
The proponent of the contract must also establish its material terms with reasonable certainty (Cobble Hill Nursing Home v. Henry & Warren Corp., 74 N.Y.2d 475, 482 [1989] ). "[A] court cannot enforce a contract unless it is able to determine what in fact the parties have agreed to" (Matter of 166 Mamaroneck Ave. Corp. v. 151 E. Post Rd. Corp., 78 N.Y.2d 88, 91 [1991] ). The requirement of definiteness also "assures that courts will not impose contractual obligations when the parties did not intend to conclude a binding agreement" (Cobble Hill, 74 N.Y.2d at 482, 548 N.Y.S.2d 920, 548 N.E.2d 203 ).
"[A] mere agreement to agree, in which a material term is left for future negotiations, is unenforceable" (Joseph Martin, Jr., Delicatessen v. Schumacher, 52 N.Y.2d 105, 109 [1981] ). But where the contracting parties manifest a clear intent to bind themselves to future performance, the fact that some terms may be left open does not necessarily render the agreement unenforceable (Enercomp, Inc. v. McCorhill Pub., Inc., 873 F.2d 536, 546 [2d Cir1989] ).
B. Analysis
Even assuming the truth of the facts alleged in the Complaint and giving plaintiff the benefit of all reasonable inferences, the Court concludes that ProSource has failed to allege facts demonstrating the existence of a binding and enforceable contract with Moss Cape. Accordingly, the third cause of action must be dismissed.
1. The Teaming Agreement
The Court begins with the unsigned Teaming Agreement, which was submitted as an exhibit to the Proposal. ProSource alleges that, "by submitting [the Teaming Agreement] as part of its Proposal to HTFC, Moss Cape represented that it was a binding contract to which ProSource and Moss Cape agreed and by which it intended to be bound" (Complaint ¶ 109).
The Proposal does not, however, include any express representation that the Teaming Agreement is a binding contract. In fact, the Proposal specifically states the opposite. The Teaming Agreement is described in the Proposal as "pending", a term connoting a lack of finality and the need for future action. And while the Proposal represents that ProSource would serve as a "team partner" with which "Moss Cape has an established relationship", the Proposal does not state or imply that the unsigned and "pending" Teaming Agreement necessarily would form the basis of that relationship. Likewise, the Proposal's emphasis on ProSource's accomplishments and capabilities merely demonstrates the intention of the two companies to work together to deliver storm recovery services and does not speak to the specific understandings and agreements between them. Under the circumstances, ProSource has failed to allege facts giving rise to an objective demonstration of Moss Cape's intention to be bound by the unsigned Teaming Agreement.
And even if such a showing had been made, the Teaming Agreement lacks sufficient definiteness to be an enforceable contract. Under the Teaming Agreement, Moss Cape's only obligation as prime contractor would have been to "exert every effort to negotiate and award a subcontract to ProSource" (¶ 5). This is an unenforceable "agreement to agree" (Clifford R. Gray, Inc. v. LeChase Constr. Servs., LLC, 31 A.D.3d 983, 985, 819 N.Y.S.2d 182 [3d Dept 2006] ; Spectrum Research Corp. v. Interscience Inc., 242 A.D.2d 810, 811, 661 N.Y.S.2d 871 [3d Dept 1997] ). By establishing a process of negotiation directed at reaching agreement, the Teaming Agreement necessarily contemplates the prospect of those negotiations being unsuccessful. Moreover, any subcontract would have been subject to HTFC's right to reject it (see Teaming Agreement ¶ 5), which would have resulted in cancellation of the agreement (id. ¶ 18, 661 N.Y.S.2d 871 [b] ).
The Teaming Agreement also is missing any specification of the services to be rendered by ProSource and the compensation to be paid by Moss Cape for those services. The Teaming Agreement does not describe ProSource as performing "approximately 80 percent" of the contracted services or state that ProSource would receive a commensurate share of the fees earned by Moss Cape. Rather, the Teaming Agreement leaves the scope of work to Moss Cape's future discretion (¶ 5), and pricing to future negotiation between the parties (¶ 16 [a] ). And contrary to ProSource's contention, it has failed to demonstrate an objective basis for deriving these essential, missing terms from the Proposal (Clifford R. Gray, 31 A.D.3d at 985–986, 819 N.Y.S.2d 182 ; see Trianco, LLC v. IBM, 271 Fed Appx 198, 202 [3d Cir2008] ).
2. Oral Agreement
ProSource's allegations of a binding and enforceable oral contract fare no better. Even
construed in a light most favorable to ProSource and with the benefit of all reasonable inferences, the facts alleged in the Complaint do not objectively manifest Moss Cape's intention to be bound by any alleged oral agreements that preceded the Teaming Agreement.
Plaintiff's original complaint alleged that Moss Cape and ProSource "agreed to work together to submit a proposal for the [Programs]. It was agreed that Moss Cape, a minority-owned business, would bid as the prime contractor, with ProSource as subcontractor (Original Complaint ¶ 95). As amended, this allegation is recast from an agreement to submit a joint proposal into one by which Moss Cape contractually bound itself to subcontract to ProSource "approximately 80%" of the prime contract and to pay over to ProSource "approximately 80%" of the contract price" (Complaint ¶ 108).
But following this alleged oral agreement, the parties negotiated the Teaming Agreement, an unsigned and "pending" agreement-to-agree that itself is unsupported by objective manifestations of Moss Cape's assent and intention to be bound and that left open essential terms, including the work to be performed under the anticipated subcontract and the price to be paid. The Teaming Agreement negotiated by the parties also included a broad merger clause that, if effective, would supersede proof of any and "all previous arrangements or understandings between the parties" on the same subject matter (¶ 23), including the alleged oral contract. The parties then entered into negotiations on a subcontract after the award of the prime contract to Moss Cape, but those efforts were unsuccessful and did not result in mutual assent. And had an agreement been reached, it would have had to have been reduced to writing, made consistent with the terms of the prime contract awarded to Moss Cape, conformed to the applicable federal and State procurement rules and regulations, and then reviewed and approved by HTFC.
Viewed in light of the totality of these attendant facts and circumstances, any oral understandings between Moss Cape and ProSource preceding execution of the Teaming Agreement and the parties' failed subcontract negotiations cannot reasonably be viewed as manifesting Moss Cape's intent to be bound to pay ProSource "approximately 80%" of the contract price for performing "approximately 80%" of the work. This is particularly true in a case involving experienced and sophisticated commercial parties competing for a government contract award valued at tens (or hundreds) of millions of dollars. The contract alleged by ProSource plainly is one that the parties would be expected to embody in a formal writing (Allied Sheet Metal Works, Inc. v. Kerby Saunders, Inc., 206 A.D.2d 166, 170, 619 N.Y.S.2d 260 [1st Dept 1994] ).
In any event, the oral agreement fails for other, independent reasons. The alleged promise that ProSource would perform "approximately 80% of the services" and receive "approximately 80% of fees generated" lacks sufficient definiteness for judicial enforcement. Further, the oral agreement is barred by the statute of frauds, as it cannot be performed within one year of its making (General Obligations Law § 5–701[a][1] ; Sheehy v. Clifford Chance Rogers & Wells LLP, 3 N.Y.3d 554, 559–560 [2004], rearg. denied 4 N.Y.3d 795 [2005] ). In this connection, ProSource alleges that the oral agreement was intended to span the life of the prime contract, and the record shows that the RFP, the Proposal and the eventual prime contract all contemplated a prime contract award of more than one year. Further, there was nothing in the alleged oral agreement that made it terminable other than for cause, and the possibility of a for-cause termination cannot save the alleged agreement from the statute of frauds (D & N Boening v. Kirsch Beverages, 63 N.Y.2d 449, 457 [1984] ).
Contrary to ProSource's contention, the alleged oral agreement cannot be rendered sufficiently definite by resort to the Proposal, which was submitted after the alleged oral agreement.
Based on the foregoing, the Court concludes that third cause of action, alleging breach of contract against Moss Cape, must be dismissed in all respects. And in the absence of a contractual relationship, the fourth cause of action, alleging breach of the implied covenant of good faith and fair dealing, must also be dismissed.
QUASI–CONTRACT CLAIMS AGAINST MOSS CAPE
ProSource alleges four quasi-contractual causes of action against Moss Cape, sounding in promissory estoppel, implied contract, unjust enrichment and quantum meruit.
A. Promissory Estoppel
Plaintiff's fifth cause of action seeks recovery against Moss Cape under the doctrine of promissory estoppel. ProSource alleges that Moss Cape made clear and unambiguous promises to abide by the terms of the Teaming Agreement, to allow ProSource to provide about eighty percent of the services required by the prime contract and receive a commensurate portion of the fees, and to enter into a subcontract. ProSource claims to have reasonably and detrimentally relied upon these promises in providing assistance to Moss Cape, conducting storm recovery services following termination of the Contract, and refraining from submitting its own proposal in response to the RFP.
To establish a claim for promissory estoppel, ProSource must show that Moss Cape made "a clear and unambiguous promise upon which it reasonably and detrimentally relied" (Clifford R. Gray, 31 A.D.3d at 986, 819 N.Y.S.2d 182 ). Even where these elements have been adequately alleged, "the doctrine of promissory estoppel is limited to cases where the promisee suffered an unconscionable injury" (AHA Sales, Inc. v. Creative Bath Prods., Inc., 58 A.D.3d 6, 20–21, 867 N.Y.S.2d 169 [2d Dept 2008] [internal quotation marks omitted]; see Zuley v. Elizabeth Wende Breast Care, LLC, 126 A.D.3d 1460, 1460 [4th Dept 2015], amended 129 A.D.3d 1558 [2015] ).
ProSource's invocation of promissory estoppel fails because it has not alleged facts demonstrating a clear and unambiguous promise on the part of Moss Cape. For the reasons stated above, the Complaint does not allege objective manifestations of Moss Cape's assent to the unsigned Teaming Agreement or its intent to be bound by any of the oral discussions that preceded the Teaming Agreement and the failed subcontract negotiations. Further, any promise by Moss Cape to subcontract with ProSource would amount to no more than an unenforceable agreement to agree, and any reliance on such a promise would be unjustified as a matter of law under the attendant facts and circumstances (see supra ). Finally, the Complaint is devoid of factual allegations that, if credited, would establish an injury to ProSource that fairly can be characterized as "unconscionable".
In addition, the unsigned Teaming Agreement includes an express disclaimer of reliance and a broad merger clause that would preclude proof of any prior oral agreements.
B. Implied Contract
ProSource's sixth cause of action alleges that, even if the Teaming Agreement and oral agreement are not given force or effect, Moss Cape is bound by an implied contract. "An implied-in-fact contract would arise from a mutual agreement and an intent to promise, when the agreement and promise have simply not been expressed in words.' This type of contract still requires such elements as consideration, mutual assent, legal capacity and legal subject matter" (Maas v. Cornell Univ., 94 N.Y.2d 87, 93–94 [1999], quoting 1 Williston, Contracts § 1:5, at 20 [4th ed 1990] ). "[B]ased on the facts and circumstances surrounding the dispute as manifested in the acts and conduct of the parties, there must be an indication of a meeting of minds of the parties constituting an agreement' " (Berlinger v. Lisi, 288 A.D.2d 523, 524, 731 N.Y.S.2d 916 [3d Dept 2001], quoting 22A N.Y. Jur 2d, Contracts, § 591, at 33). "A contract may not be implied in fact from the conduct of the parties where it appears that they intended to be bound only by a formal written agreement" (Valentino v. Davis, 270 A.D.2d 635, 638, 703 N.Y.S.2d 609 [3d Dept 2000] [internal quotation marks and citation omitted] ).
The Court rejects ProSource's claim that a contract may be implied from the parties' conduct, including their submission of the Proposal and the interviews and negotiations leading to the award of the prime contract to Moss Cape. For the reasons stated above, the allegations of the Complaint fall short of demonstrating Moss Cape's assent to any specific agreement, express or implied, that obliged it to subcontract with ProSource to perform about eighty percent of the work required by the prime contract in exchange for about eighty percent of the contract value.
C. Unjust Enrichment/Quantum Meruit
ProSource alleges as a seventh cause of action that, as a result of Moss Cape's "use of [its] work and its representation that it had a binding contract with ProSource, Moss Cape has been and will be unjustly enriched at the expense of ProSource by keeping for itself payments from HTFC/GOSR that should have been paid to ProSource" (Complaint ¶ 167). The eleventh cause of action, sounding in quantum meruit, alleges that ProSource provided services in good faith at the behest of Moss Cape, including services for the Buy–Out Programs, and it had a reasonable expectation of being compensated for its performance.
"The theory of unjust enrichment lies as a quasi-contract claim. It is an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties concerned" (IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 142 [2009] [internal citations and quotation marks omitted] ). "A cause of action for unjust enrichment requires a showing that (1) the defendant was enriched, (2) at the expense of the plaintiff, and (3) that it would be inequitable to permit the defendant to retain that which is claimed by the plaintiff" (Clifford R. Gray, 31 A.D.3d 983, 988, 819 N.Y.S.2d 182, supra ). "A cause of action for quantum meruit requires a showing of a plaintiff's performance of services in good faith, acceptance of those services by a defendant, an expectation of compensation and proof of the reasonable value of the services provided" (Hyman v. Schwartz, 127 A.D.3d 1281, 1282 [3d Dept 2015] [internal quotation marks and citations omitted] ). Under either theory, the measure of recovery generally is limited to the reasonable value of the services rendered (Davis v. Cornerstone Tel. Co., LLC, 78 A.D.3d 1263, 1264, 910 N.Y.S.2d 254 [3d Dept 2010] ).
There is no dispute that ProSource has stated a cause of action in unjust enrichment and quantum meruit for the reasonable value of the services actually provided to Moss Cape for which Moss Cape was paid by HTFC. However, ProSource's pursuit of the "benefit of the bargain" through a claim to some portion of the revenues earned by Moss Cape under the prime contract "would ... improperly ... establish something like [ProSource's] expectation interest under the (failed) [contract], not the restitution (or sometimes reliance) interest that is the proper focus of quantum meruit " (Memorial Drive Consultants, Inc. v. ONY, Inc., 29 Fed Appx 56, 61 [2d Cir2002] [emphasis in original]; see Davis, supra ). Accordingly, the branch of the motion to dismiss so much of the quantum meruit and unjust enrichment claims seeking lost profits is granted and, as so limited, the causes of action otherwise survive.
Insofar as the causes of action for promissory estoppel and implied contract can be understood as seeking the same recovery, the claims are redundant.
CONTRACT CLAIMS AGAINST HTFC
ProSource alleges two contractual claims against HTFC. The first cause of action asserts that HTFC breached the Contract, as amended, by failing and refusing to pay an outstanding contract balance of more than $22 million. HTFC has not moved against this cause of action, recognizing that the claim "will likely be the subject of significant fact discovery".
The second cause of action, seeking recovery for breach of the implied covenant of good faith and fair dealing, is predicated upon allegations that HTFC delayed and denied contractual payments to ProSource "to gain leverage needed to force ProSource to turn many of its employees to IEM, and HTFC's undisclosed political motives for its actions against ProSource" (Complaint ¶ 144). HTFC contends that this cause of action is defeated by documentary evidence and, in any event, is redundant of the cause of action for breach of contract.
"[I]mplicit in every contract is a covenant of good faith and fair dealing" (New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318 [1995] ). "This covenant embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. While the duties of good faith and fair dealing do not imply obligations inconsistent with other terms of the contractual relationship, they do encompass any promises which a reasonable person in the position of the promisee would be justified in understanding were included" (511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 [2002] [internal quotation marks and citations omitted]; see Chase Equip. Leasing Inc. v. Architectural Air, L.L.C., 84 A.D.3d 439, 439, 922 N.Y.S.2d 69 [1st Dept 2011] ).
HTFC first argues that any claim regarding delayed or denied payments is barred by the terms of the Second Amendment and the authority's Prompt Payment Policy. More specifically, HTFC argues that if the Second Amendment is given force and effect, as all parties agree that it should, Section 3(b) required the withholding of any non-allowable costs and authorized the withholding of up to twenty percent of allowable costs, "payable upon satisfaction of the following, as determined in the reasonable discretion of HTFC: a. Acceptance of Services rendered and required deliverables; b. The smooth transition of Services from Contractor to successor contractor, including the transfer of data and other necessary information and/or documentation required for a successful transition; c. Satisfaction of all subcontractor invoices, obligations and debts; and d. HTFC's review of all expenses under this Contract for Services". HTFC also relies upon its Prompt Payment Policy, which authorizes delayed payments based upon suspected improprieties of any kind.
HTFC devotes a considerable portion of its opening brief to arguing that ProSource cannot establish the Second Amendment is not voidable as the product of economic duress. While the Complaint alleges that ProSource "signed the Second Amendment under duress" (¶ 93), ProSource disavows any claim or defense of economic duress in its opposition papers.
Even assuming that the Second Amendment and the Prompt Payment Policy authorized and/or directed the withholding or disallowance of certain payment requests submitted by ProSource, HTFC has made no conclusive showing that all of the payment delays and denials alleged in the Complaint were proper and that HTFC's discretionary authority was exercised in good faith, consistent with the reasonable expectations of the contracting parties.
The Court does see merit, however, in HTFC's alternative contention that the second cause of action should be dismissed as redundant of the claim for breach of contract. Insofar as ProSource alleges that delays or denials of payments constitute a breach of the Contract, the claim arises from the same facts as the first cause of action and demands the same damages (see Amcan Holdings, Inc. v. Canadian Imperial Bank of Commerce, 70 A.D.3d 423, 426, 894 N.Y.S.2d 47 [1st Dept 2010], lv denied 15 N.Y.3d 704 [2010] ; Logan Advisors, LLC v. Patriarch Partners, LLC, 63 A.D.3d 440, 443, 879 N.Y.S.2d 463 [1st Dept 2009] ).
In seeking to avoid dismissal, ProSource emphasizes its allegation that HTFC breached the implied covenant of good faith and fair dealing by exercising its discretionary withholding authority under the Second Amendment in an arbitrary and irrational manner and for an improper purpose (see Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 [1995] ). But the Second Amendment did not give HTFC unfettered discretion to withhold funds; rather, the plain text of the amendment calls for the authority's exercise of "reasonable discretion", an express promise that HTFC will not act arbitrarily, irrationally or without reasonable basis in withholding funds. Accordingly, ProSource has failed to state a distinct claim for breach of the implied covenant of good faith and fair dealing, and the second cause of action therefore is dismissed.
TORT CLAIMS AGAINST HTFC & MOSS CAPE
ProSource's eighth and ninth causes of action allege tortious interference with contract against Moss Cape and HTFC, respectively. ProSource claims that both Moss Cape and HTFC tortiously interfered with the contractual relationship between ProSource and its employees by inducing the breach of non-competition agreements. In addition, ProSource alleges that HTFC intentionally procured Moss Cape's breach of the Teaming Agreement and the alleged oral agreement with ProSource. Finally, the tenth cause of action alleges that HTFC tortiously interfered with ProSource's business relationship with Moss Cape.
A. Restrictive Covenants
ProSource alleges that it had non-compete agreements with its employees that generally prohibited them from engaging in competitive employment within the State (and any other state in which ProSource does business) for one year following the termination of their employment. According to the Complaint, "Moss Cape intentionally procured certain employees to breach [the non-competition] agreements without justification and hired these employees to work on the storm recovery programs for Moss Cape" (Complaint ¶ 172). ProSource similarly alleges that HTFC intentionally procured the breach of ProSource's non-competes with its employees without justification.
A claim for tortious interference of contract "requires the existence of a valid contract between the plaintiff and a third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom" (Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 424 [1996] ). For the reasons that follow, the Court concludes that ProSource cannot demonstrate that defendants intentionally procured the former ProSource employees' breaches of the covenants against post-employment competition.
1. Waiver
As part of the Second Amendment, ProSource agreed that it "shall cooperate at the reasonable direction of HTFC in the orderly transition of the Services to any successor" (§ 12[a] ). In furtherance of the parties' mutual objective of ensuring an orderly and successful transition from the emergency contract to the competitive award, the Second Amendment further provides:
[ProSource] understands that, following the end of employment with [ProSource], as a result of or during the aforementioned transition, separated employees may be eligible for employment with prospective employer [IEM]. In order to facilitate this transition and potential employment of its separated employees, [ProSource] agrees to waive its rights under employment or post-employment non-competition and/or non-solicitation covenants with its employees, IEM and other subcontractors.
(§ 12[e] ).
In interpreting this language, the Court must be "guided by basic principles of contract interpretation which instruct that a contract should be construed to give effect to the parties' intent as gleaned from the four corners of the document itself, provided that its terms are clear and unambiguous" (Elmira Teachers' Assn. v. Elmira City School Dist., 53 A.D.3d 757, 759, 861 N.Y.S.2d 195 [3d Dept 2008], lv denied 11 NY3d 709 [2008] ). Contract language must be interpreted in accordance with the plain and ordinary meaning of the words used (see South Rd. Assocs., LLC v. International Bus. Machines Corp., 4 N.Y.3d 272, 277 [2005] ; Elmira Teachers' Assn., 53 A.D.3d at 759, 861 N.Y.S.2d 195 ). In so doing, it is "important to read the document as a whole to ensure that excessive emphasis is not placed upon particular words or phrases" (South Rd., 4 N.Y.3d at 277, 793 N.Y.S.2d 835, 826 N.E.2d 806 ).
When the Second Amendment is read as a whole and due regard is given to its text, structure and purpose, and to the attendant circumstances of the contracting parties, it is apparent that the waiver of non-competition rights extends to the ProSource employees hired by Moss Cape. A principal objective of the Second Amendment was to facilitate a smooth transition to the contractor hired on a competitive basis to perform the recovery work undertaken by ProSource on an emergency basis. When the Second Amendment was executed, it was expected that IEM would serve in that capacity. However, it later "became apparent ... that IEM and its proposed subcontractors were not capable of handling the [Programs]" (Complaint ¶ 97), and Moss Cape ultimately was awarded some of the work.
Given the contracting parties' objective to allow ProSource employees to continue to participate in the State's recovery efforts despite the non-competition agreements, Moss Cape's undisputed role as a successor contractor to ProSource, and ProSource's clearly manifested intention to "to waive its rights under employment or post-employment non-competition and/or non-solicitation covenants with its employees, IEM and other subcontractors", the Court concludes that the tortious interference with contract claim must be dismissed insofar as it is predicated upon alleged breaches of the non-competition agreements by ProSource's employees and subcontractors.
This conclusion is not altered by ProSource's attempt to evade the consequences of its waiver by compelling employees to sign new non-competition agreements following the July 1, 2014 termination of the Contract.
2. Justification
Even if ProSource had not waived its right to enforce the post-employment covenants against competition, the Court further concludes that any interference by defendants was justified as a matter of law under the facts and circumstances alleged in the Complaint.
In upholding the pre-answer dismissal of a claim for tortious interference with contract against a State economic development authority, the Appellate Division, Third Department, employed the following analysis:
Whether conduct which interferes with another's contractual relations is improper, and thus actionable, is determined by reference to a number of factors, including the nature of the conduct itself, the motives of the interfering party and the interests which it acts to protect, the interest with which it interferes and the relationship between the parties. In the matter at hand, the chief factors are the competing interests of the parties and the social utility of those interests. While we recognize that the interest interfered with ... is deserving of substantial protection, nevertheless, in view of the circumstances prevailing here, we find defendants' conduct justified by overriding public interests.
Although defendants' actions were, in part, designed to preserve their funding, which is dependent on the political process, and the protection of one's own economic interests will rarely justify interference with another's executed contract, State agencies dispensing public funds, such as defendants, must be given leeway to influence the business practices of their beneficiaries in order to safeguard the public fisc ... [and] ensure that those funds are used in a manner consistent with the public policy of this State....
Taken together, these interests are sufficient to justify the use of persuasion, economic pressure or other conduct which is not immanently unlawful in an attempt to affect the business practices of the funded concern, at least to the extent that those practices ... bear on legitimate societal interests....
(MLI Indus. v. New York State Urban Dev. Corp., 205 A.D.2d 998, 999–1000, 613 N.Y.S.2d 977 [3d Dept 1994] [internal citations omitted] ).
HTFC, as the public corporation charged with leading New York's storm recovery effort and administering hundreds of millions of dollars in government funds, had a compelling interest in ensuring that trained workers continued to assist storm victims, thereby avoiding the delay and additional expenses attendant to hiring and training a new recovery workforce. Indeed, the Complaint alleges that ProSource "recruited, hired and trained over 400 employees (primarily local New York residents) to be dedicated full time to the timely completion of this important work for the victims of Hurricane Sandy" (Complaint ¶ 3). And as a prime recovery contractor to HTFC and successor contractor to ProSource, Moss Cape's hiring of former ProSource employees implicates similar considerations.
In contrast, the interests allegedly interfered with by defendants—the non-competition agreements executed by ProSource's employees—are ones that merit only limited protection under New York law. Covenants against competition "are not favored" and will be enforced only in limited circumstances (Morris v. Schroder Capital Mgt. Intl., 7 N.Y.3d 616, 620 [2006] ). "Undoubtedly judicial disfavor ... is provoked by powerful considerations of public policy which militate against sanctioning the loss of a [person's] livelihood' " (Reed, Roberts Assoc. v. Strauman, 40 N.Y.2d 303, 307 [1976], quoting Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 272 [1963] ). In its opposition papers and at oral argument, ProSource was unable to articulate a legitimate interest in preventing its workers from continuing to provide storm recovery services in New York State, other than as leverage for obtaining additional compensation from defendants.
Finally, the nature of the alleged tortious conduct—the hiring of employees subject to non-competition agreements that apparently were waived by ProSource and, in any event, of questionable enforceability—is not "immanently unlawful" (MLI Indus., 205 A.D.2d at 1000, 613 N.Y.S.2d 977 ).
Upon due consideration of the alleged tortious conduct, defendants' motives, the interests defendants acted to protect, the interests allegedly interfered with and the relationship between the parties, the Court concludes that ProSource is unable to establish, as a matter of law, that any interference by HTFC with non-competition agreements was improper or without justification.
B. HTFC's Alleged Interference with ProSource/Moss Cape Relationship
Finally, ProSource's tenth cause of action, styled as tortious interference with business relations, alleges that HTFC "knowingly interfered with ProSource's business relationship with Moss Cape and caused Moss Cape to end its business relationship with ProSource through extreme and unfair economic pressure and/or other dishonest, unfair, or improper means" (Complaint ¶ 182). To succeed on a cause of action for tortious interference with prospective contractual relations, a plaintiff must establish that the defendant directly interfered with a third party and that the defendant either employed wrongful means or "acted for the sole purpose of inflicting intentional harm on plaintiff[ ]" (Carvel Corp. v. Noonan, 3 N.Y.3d 182, 190 [2004] [internal quotation marks omitted] ).
Insofar as ProSource alleges that HTFC tortiously interfered with the contractual relationship with Moss Cape, the claim fails because ProSource cannot demonstrate a binding and enforceable contract between itself and Moss Cape (see supra ).
The Complaint fails to allege that HTFC engaged in sufficiently culpable conduct to state a claim for interference with ProSource's non-binding business relationship with Moss Cape. "Conduct that is not criminal or [independently] tortious will generally be ... insufficiently culpable' to create liability for interference with prospective contracts or other nonbinding economic relations" (id. ). Here, ProSource alleges only economic pressure on a matter in which HTFC has powerful economic and non-economic interests. This conduct falls well short of the types of "wrongful means" recognized at common law. Accordingly, the tenth cause of action therefore is dismissed.
Indeed, any subcontract would have been subject to HTFC's review and approval.
The Complaint's conclusory references to HTFC's alleged use of "dishonest, unfair, or improper means" is not sufficient to save the claim from dismissal.
CONCLUSION
Accordingly, it is
ORDERED that defendants' motions are granted, in accordance with the foregoing, and the second, third, fourth, fifth, sixth, eighth, ninth and tenth causes of action are dismissed; and it is further
ORDERED that defendant Moss Cape's motion to dismiss so much of the seventh and eleventh causes of action seeking lost profits is granted and, as so limited, the causes of action shall continue; and it is further
ORDERED that the parties shall confer regarding a schedule for discovery and the filing of a note of issue and, within thirty (30) days, either: (i) stipulate to a scheduling order, which shall be submitted to the Court for approval; or (ii) request a scheduling conference with the Court.
This constitutes the Decision & Order of the Court. The original Decision & Order is being transmitted to Moss Cape's counsel for filing and service. The signing of this Decision & Order shall not constitute entry or filing under CPLR Rule 2220. Counsel is not relieved from the applicable provisions of that Rule respecting filing, entry and Notice of Entry.