Opinion
947 CA 18-02114
11-08-2019
David SCHEER, Plaintiff-Appellant-Respondent, v. ELAM SAND & GRAVEL CORP., Defendant-Respondent-Appellant.
BOYLAN CODE, LLP, ROCHESTER (ROBERT MARKS OF COUNSEL), FOR PLAINTIFF–APPELLANT–RESPONDENT. WOODS OVIATT GILMAN LLP, ROCHESTER (F. MICHAEL OSTRANDER OF COUNSEL), FOR DEFENDANT–RESPONDENT–APPELLANT.
BOYLAN CODE, LLP, ROCHESTER (ROBERT MARKS OF COUNSEL), FOR PLAINTIFF–APPELLANT–RESPONDENT.
WOODS OVIATT GILMAN LLP, ROCHESTER (F. MICHAEL OSTRANDER OF COUNSEL), FOR DEFENDANT–RESPONDENT–APPELLANT.
PRESENT: CENTRA, J.P., CARNI, NEMOYER, TROUTMAN, AND WINSLOW, JJ.
MEMORANDUM AND ORDER It is hereby ORDERED that the order so appealed from is unanimously modified on the law by denying the motion in its entirety and reinstating the complaint and as modified the order is affirmed without costs.
Memorandum: In this action for breach of contract, plaintiff appeals and defendant cross-appeals from an order that, inter alia, granted that part of defendant's motion seeking dismissal of the complaint pursuant to CPLR 3211(a)(1) and denied that part seeking costs and attorney's fees.
Plaintiff leased land to defendant, a mining company, for a term of 20 years, subject to defendant's right to terminate the lease on six months' written notice "should [it] determine that there are insufficient recoverable [m]inerals from the [p]remises to permit [it] to make a profit." The lease also contained a provision allowing the prevailing party in any dispute to recover costs and attorney's fees. Defendant terminated the lease approximately 16 months after it was executed, claiming that there were insufficient recoverable minerals for it to make a profit. Plaintiff requested documentation supporting defendant's profitability determination. In response, defendant sent plaintiff a "resource evaluation" and the opinion of an accountant, both dated after defendant's termination notice. Plaintiff thereafter commenced this action asserting a single cause of action based on a breach of the implied covenant of good faith and fair dealing. Plaintiff alleged that the minerals were sufficient for defendant to make a profit, that defendant made its decision to terminate the lease before obtaining an expert analysis, and that defendant's experts ignored the presence of recoverable minerals on the premises.
Plaintiff contends on appeal that Supreme Court erred in granting that part of the motion seeking to dismiss the complaint pursuant to CPLR 3211(a)(1). We agree, and we therefore modify the order accordingly. "A motion to dismiss pursuant to CPLR 3211(a)(1) will be granted if the documentary evidence ‘resolves all factual issues as a matter of law, and conclusively disposes of the [plaintiff's] claim[s]’ " ( Baumann Realtors, Inc. v. First Columbia Century–30, LLC, 113 A.D.3d 1091, 1092, 978 N.Y.S.2d 563 [4th Dept. 2014] ). "Although a lease may constitute documentary evidence for purposes of CPLR 3211(a)(1)," we conclude that the termination clause in the lease submitted by defendant in support of its motion failed to "utterly refute ... plaintiff's allegations or conclusively establish a defense as a matter of law" ( Lots 4 Less Stores, Inc. v. Integrated Props., Inc., 152 A.D.3d 1181, 1182–1183, 59 N.Y.S.3d 628 [4th Dept. 2017] [internal quotation marks omitted] ).
Although a party has an absolute right to terminate a contract pursuant to an unconditional termination clause (see Big Apple Car v. City of New York, 204 A.D.2d 109, 111, 611 N.Y.S.2d 533 [1st Dept. 1994] ; see also Center Green v. Boehm, 247 A.D.2d 869, 869, 668 N.Y.S.2d 521 [4th Dept. 1998] ), the termination clause here was conditional inasmuch as defendant had the discretion to terminate the lease only if it made a determination prior to termination that there were insufficient minerals for it to make a profit. Because the lease contemplated an exercise of discretion, the implied covenant of good faith and fair dealing included a promise to exercise that discretion in good faith, not arbitrarily (see Dalton v. Educational Testing Serv., 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977, 663 N.E.2d 289 [1995] ; 1–10 Indus. Assoc. v. Trim Corp. of Am., 297 A.D.2d 630, 631–632, 747 N.Y.S.2d 29 [2d Dept. 2002] ). The documentary evidence submitted by defendant did not conclusively establish that it acted in good faith when it terminated the lease.
We are mindful that the implied covenant of good faith and fair dealing "is not without limits, and no obligation can be implied that ‘would be inconsistent with other terms of the contractual relationship’ " ( Dalton, 87 N.Y.2d at 389, 639 N.Y.S.2d 977, 663 N.E.2d 289 ). Contrary to the court's conclusion, however, defendant's obligation to make a good faith profitability determination before terminating the lease is entirely consistent with the express language of the lease. The court accurately stated and defendant correctly asserts that the lease neither requires defendant to "justify its profitability determination" nor gives plaintiff the right to "assess that determination and veto it." Nevertheless, the contract does require that defendant make a profitability determination in the first instance, which is consistent with an implied requirement that defendant make that determination in good faith.
Defendant's alternate contention that the court should have granted the motion insofar as it sought to dismiss the complaint pursuant to CPLR 3211(a)(7) is not properly before us because defendant raised it for the first time in its reply brief (see Murnane Bldg. Contrs., LLC v. Cameron Hill Constr., LLC, 159 A.D.3d 1602, 1605, 73 N.Y.S.3d 848 [4th Dept. 2018] ).
Because defendant is not a prevailing party on its motion to dismiss, we reject its contention on its cross appeal that it is entitled to recover costs and attorney's fees under the lease at this juncture of the litigation (see Chainani v. Lucchino, 94 A.D.3d 1492, 1494, 942 N.Y.S.2d 735 [4th Dept. 2012] ; see generally The Wharton Assoc., Inc. v. Continental Indus. Capital LLC, 137 A.D.3d 1753, 1755, 29 N.Y.S.3d 717 [4th Dept. 2016] ).