Opinion
Civil No. 01-0214 (JBS).
June 12, 2003
Steven J. Fram, Esquire, Kerri E. Chewning, Esquire, ARCHER GREINER, P.C., Haddonfield, New Jersey, Attorneys for Plaintiff.
Joseph Wolfson, Esquire, STEVENS LEE, P.C., Cherry Hill, New Jersey and Todd R. Legon, Esquire, S. Daniel Ponce, Esquire, WALLACE, BAUMAN, LEGON, FODIMAN, PONCE SHANNON, P.A. Miami, Florida, Attorneys for Defendant.
OPINION
This motion comes before the Court upon defendant Answerthink's motion for summary judgment on the complaint brought by plaintiff Interactive Logistics, Inc. d/b/a NFI Interactive ("ILI" or "NFI" or "Interactive"). Defendant Answerthink argues that it is entitled to summary judgment because plaintiff's tort claims (Counts II-V) are barred under the economic loss doctrine. Defendant also contends that plaintiff's fraud claims fail because it did not justifiably rely on any alleged misrepresentations by defendant and plaintiff ratified any fraudulent conduct, and that plaintiff's breach of fiduciary duty claim fails because no fiduciary relationship existed between the parties. Defendant maintains that it is also entitled to summary judgment on plaintiff's breach of contract and breach of the implied duty of good faith and fair dealing claims. For the reasons discussed herein, defendant's motion for summary judgment will be granted in part and denied in part.
I. BACKGROUND
Plaintiff Interactive's complaint against defendant Answerthink, filed January 16, 2001, arises out of an agreement by which defendant was to assist plaintiff in expanding its "e-Commerce" business and in enhancing its technological capabilities. In 1999, plaintiff Interactive, which provides third-party logistics services, such as trucking, warehousing, and shipping services, began considering expansion of its business to allow customers to transact business with it over the Internet. Plaintiff thus created a business plan which contemplated an increased volume of e-Commerce business, such as conducting business to business ("B2B") transactions and business to consumer ("B2C") transactions, in hopes of establishing itself in the "e-Commerce" field.
In late 1999, Sidney Brown, the CEO of Interactive, approached Morgan Stanley Dean Witter ("Morgan Stanley") to determine whether it was interested in investing in Interactive. Morgan Stanley then retained Answerthink in early 2000 to assess plaintiff's operations, including its business plan, its management structure, and its computer systems, to assist Morgan Stanley with its due diligence. (Compl. ¶ 10; Answer, ¶ 10.) Answerthink markets itself to potential clients as having the capability to define, design, build, and support "E-business" solutions in the five key areas of, as plaintiff alleges, E-business strategy, benchmarking, branding and marketing, Web development, and technology architecture and integration. (Compl. ¶ 11; Answer ¶ 11.) Answerthink is a publicly-traded company with approximately 1,200 employees in seventeen (17) offices in the United States and Europe, with a revenue for fiscal year 2000 of $311.1 million. (Answer, ¶ 12; Compl. ¶ 12.)
After studying plaintiff's business and technology systems, defendant issued a report to Morgan Stanley in February 2000 in which it concluded that plaintiff had certain weaknesses regarding major e-Commerce fulfillment areas, including order fulfillment, shipping and returns, warehousing, materials acquisition, customer service and planning/strategy, and that plaintiff's infrastructure was insufficient to support its proposed business plan. (Answerthink's Summary of Findings Recommendations, 2/14/00, Fram Verification Ex. 4, at 36.) Answerthink reported to Morgan Stanley that market leadership in the e-commerce field would be firmly established over the next 12-18 months, and that Interactive would have to change dramatically by upgrading major aspects of its business and IT capabilities if it were to become a competitor in the e-Fulfillment market before the end of 2000. (Id. at 40, 48; Answer, ¶ 14.)
Plaintiff, defendant and Morgan Stanley thereafter discussed the viability of defendant providing the consulting and technology work to upgrade plaintiff's management and technology systems to allow it to succeed in the e-Commerce fulfillment business. As part of these discussions Interactive and Answerthink negotiated the terms of a Consulting Agreement dated March 17, 2000, which the parties never eventually signed. (Draft Consulting Agreement, Fram Verification Ex. 5.) The draft Consulting Agreement stated that it "serves as the governing agreement for specific initiatives to be detailed in signed SOWs," or Statements of Work. (Id.) The draft Agreement provided, in part:
Answerthink agrees to use its best efforts and abilities in performing the Services, and to give Client the full benefit of Answerthink's knowledge, experience, judgment and expertise in rendering advice to Client on the matters and subjects requested under this Agreement and each applicable SOW. Each SOW will address the following: scope of work, proposed approach, deliverables, key assumptions, staffing, responsibilities of both parties, estimated project schedule and professional arrangements.
(Id.) In addition, the Warranty clause provided that "Answerthink warrants that the Services to be performed hereunder shall be performed in a timely and professional manner and in accordance with the highest professional standards for such Services[.]" (Id.)
Despite the unsigned Agreement, the parties did subsequently enter into three initial or "groundwork" SOWs in April 2000, as part of its "Platform for Growth" consisting of processes and technologies that were necessary to build the business. The SOWs were intended to prepare for the development and installation of plaintiff's new computer system projects, titled the "Program Management Office" project, the "Information Technology Design" project, and the "E-Fulfillment Rapid Initiation and Execution Design" project. (Answer, ¶ 17.) Upon the completion of these three projects, defendant proposed two SOWs in May 2000 for the actual creation of the new computer system. One project, titled "OASIS", provided for plaintiff and its customers to track the status of goods and orders, (OASIS SOW, Def.'s App. Ex. E), and the second project, "Release 1" or "Platform for Growth" SOW provided for "develop[ment of] the Technical Specification and Architecture for the systems, applications and services needed to support the "Platform for Growth." (Release 1/Platform for Growth SOW, Def.'s App. Ex. D, at 2.) The "Release 1/Platform for Growth" SOW, which defendant estimated would cost $1,311,000, (id. at 27), also stated that "[t]his release is intended to be available for servicing clients for the Christmas 2000 retail season." (Id. at 3.) The Release 1/Platform for Growth SOW and the OASIS SOW were both signed by June 13, 2000. (Id. at 37; OASIS SOW, Def.'s App. Ex. E, at 17.) The Release 1/Platform for Growth SOW provided for a "Project Checkpoint," at which point the parties would "[r]e-estimate/refine work plan based on original site requirements for adjustment." (Release 1/Platform for Growth SOW, Def.'s App. Ex. D, at 10.)
According to Interactive's Senior Vice President and Chief Technology Officer Paul Burpo, the full breadth of the e-commerce fulfillment would not be realized until completion of Release 2, a subsequent component to Release 1. (Burpo Depo. Tr. 4/24/02, Def.'s App. Ex. 3, at 134:15-22.)
At the "Project Checkpoint" in September 2000, defendant provided to plaintiff "re-estimates" of launching the Platform for Growth project, which were approximately double the original estimate. (Burpo Depo. Tr., Def.'s Br. Ex. 3, at 135.) Interactive's Senior Vice President and Chief Technology Officer Paul Burpo stated that he would have to check the numbers with Interactive President and COO Brian McHale, CEO Sidney Brown, and the board, but that Answerthink was not to cease work on the project. (Id. at 136; Burpo Verification, ¶ 6.) After discussions in September 2000 regarding the initial and current estimates of the costs of the project, plaintiff hired Price Waterhouse Coopers to assess the viability of the Answerthink project, however. (Engagement Letter, 10/30/00, Fram Verification Ex. 16.) Based in part on the PWC analysis, plaintiff decided to terminate the Platform for Growth project, and plaintiff advised defendants' representatives of this decision at a meeting on November 17, 2000.
Plaintiff states that defendant represented that the project would cost an additional $2,328,693, and that it would be completed by May 2001. Pl.'s Opp. Br. at 10.
Mr. Burpo, in his deposition testimony, states that after Donald Radacosky, a computer consultant at Answerthink, approached Burpo with a re-estimate of the Platform for Growth project that doubled the original estimate, he reviewed the numbers with other officers of Interactive and the board, and authorized Answerthink to continue the project subject to stoppage. See id. at 136.
Plaintiff filed this action on January 16, 2001, alleging claims of a violation of the New Jersey Consumer Fraud Act (NJCFA) (Count I), fraud (Count II), equitable fraud (Count III), negligent misrepresentation (Count IV), and breach of fiduciary duty (Count V), as well as plaintiff's claims of breach of contract (Count VI), and breach of duty of good faith and fair dealing (Count VII). In an Opinion filed December 18, 2001, this Court granted defendant's motion to dismiss plaintiff's NJCFA claim (Count I), but denied the motion as to plaintiff's breach of fiduciary duty claim (Count V).
Defendant Answerthink filed this motion for summary judgment on December 19, 2002. This Court held oral argument on the matter on February 21, 2003.
II. DISCUSSION
Answerthink contends that it is entitled to summary judgment because the economic loss rule bars plaintiff's tort claims, and that plaintiff's tort claims fail because plaintiff did not justifiably rely on any alleged misrepresentations made by defendant. Additionally, defendant argues that plaintiff's fraud claims fail because plaintiff ratified any alleged fraudulent conduct of defendant, and that plaintiff's claim of breach of fiduciary duty fails because no fiduciary relationship existed between the parties. Furthermore, defendant contends that plaintiff's breach of contract claim fails because the consulting agreement was never signed, defendant did not agree to the $1.3 million figure or that the Project for Growth would be completed by the 2000 holiday season, and that plaintiff itself committed prior breaches of the agreement. Lastly, defendant argues that plaintiff's claim of breach of the implied duty of good faith and fair dealing fails because defendant never agreed to deliver the Platform for Growth project for $1.3 million or for the 2000 holiday season.A. Summary Judgment Standard
Defendant moves for summary judgment pursuant to Rule 56(a), Fed.R.Civ.P. A court may grant summary judgment when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir. 1983). A dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In deciding whether there is a disputed issue of material fact, the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party.See Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080-81 (3d Cir. 1996). Once the moving party has carried its initial burden of establishing the absence of a genuine issue of material fact, the non-moving party must do more than rely only "upon bare assertions, conclusory allegations or suspicions."Gans v. Mundy, 762 F.2d 338, 341 (3d Cir. 1985), cert. denied, 474 U.S. 1010 (1985) (citation omitted). If the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment.Liberty Lobby, 477 U.S. at 249-50.
B. Economic Loss Doctrine
Defendant argues that the economic loss doctrine bars plaintiff's tort claims for fraud (Count II), equitable fraud (Count III), negligent misrepresentation (Count IV), and breach of fiduciary duty (Count V). Under the economic loss doctrine, contract law provides the exclusive remedy for claims of purely economic loss due to a defective product. See Spring Motors Distrib., Inc. v. Ford Motor Co., 98 N.J. 555, 579-80 (1985));see also Alloway v. Gen. Marine Indus., L.P., 149 N.J. 620, 629-30 (1997) (where the "harm suffered is to the product itself, unaccompanied by personal injury or property damage, . . . principles of contract, rather than of tort law [are] better suited to resolve the purchaser's claim") (citing Spring Motors, 98 N.J. at 580). The New Jersey Supreme Court in Spring Motors recognized that principles of contract may provide the better remedy where the injury is to the product itself:
[A] seller's duty of care generally stops short of creating a right in a commercial buyer to recover a purely economic loss. Thus viewed, the definition of the seller's duty reflects a policy choice that economic losses inflicted by a seller of goods are better resolved under principles of contract law. In that context, economic interests traditionally have not been entitled to protection against mere negligence.Id. at 579. The New Jersey Supreme Court determined in Spring Motors that the commercial buyer could recover for breach of warranty under the Uniform Commercial Code, but not in strict liability or negligence.
The Third Circuit viewed this holding as based on the differences between the public policies underlying tort law and contract law, stating that for consumers, "there is often no private allocation of the risk of loss . . . [and] in those circumstances, public policy will allocate the risk of loss to the better riskbearer through the doctrines of strict liability and negligence." Henry Heide, Inc. v. WRH Prods. Co., Inc., 766 F.2d 105 (3d Cir. 1985).
Defendant contends that the economic loss doctrine has been further extended to bar tort claims, citing to Unifoil Corp. v. Cheque Printers Encoders Ltd., 622 F. Supp. 268, 270 (D.N.J. 1985) (dismissing claims for negligent misrepresentation, intentional misrepresentation, and fraud in the performance of the contract); Werner Pfleiderer Corp. v. Gary Chem. Corp., 697 F. Supp. 808 (D.N.J. 1988) (barring negligence and fraud claims); and Hoke, Inc. v. Cullinet Software, Inc., Civ. No. 89-1319, 1992 WL 102715, at *2 (D.N.J. Mar. 18, 1992).
As plaintiff correctly notes, the New Jersey Appellate Division stated, however, that both Unifoil and Werner "were based on an overly expansive reading of Spring Motors, which is inconsistent with the provisions of N.J.S.A. 12A:1-103 and N.J.S.A. 12A:2-721 as well as with state decisional law."Coastal Group, Inc. v. Dryvit Sys., Inc., 274 N.J. Super. 171, 178 (App.Div. 1994). The Appellate Division in Coastal Group noted that the New Jersey statute specifically provides that actions for fraud and misrepresentation may be maintained alongside those for contract. Id.; see also Alloway, 149 N.J. at 639-40 ("In addition to the right to recover under the U.C.C., victims of fraud or unconscionable conduct possess substantial rights to recover for common-law fraud or for violations of various state and federal statutes."). In Coastal Group, a condominium project owner and developer filed suit against another contractor and material supplier, alleging breach of contract, fraud, misrepresentation, and violation of the Consumer Fraud Act. The Appellate Division determined that the trial court erred in dismissing plaintiff's fraud and misrepresentation claims as barred by the economic loss doctrine under Spring Motors. The Appellate Division explained that "Spring Motors only precludes claims brought under tort principles which are inconsistent with the remedies authorized under the UCC" and that "the UCC expressly preserves a buyer's right to maintain an action for fraud and misrepresentation" under N.J.S.A. 12A:1-103 and N.J.S.A. 12A:2-721. Coastal Group, 274 N.J. Super. at 177.
Plaintiff in that case did not appeal the dismissal of its negligence claim.
N.J.S.A. 12A:1-103 provides that "[u]nless displaced by the particular provisions of this Act, . . . the law relative to . . . fraud [and] misrepresentation . . . shall supplement [the UCC's] provisions." N.J.S.A. 12A:2-721 provides that "[r]emedies for material misrepresentation or fraud include all remedies available under [the UCC] for non-fraudulent breach."
Plaintiff's negligent misrepresentation claim, inasmuch as it asserts negligence on the part of defendant, is subject to dismissal under the economic loss doctrine. See Spring Motors, 98 N.J. at 579-80 (finding negligence claim barred under economic loss doctrine). "Courts in New Jersey have generally agreed . . . that only intentional torts are actionable under Spring Motors and have dismissed claims of negligent misrepresentation on that basis." See Lithuanian Commerce Corp., Ltd. v. Sara Lee Hosiery, 179 F.R.D. 450, 473 (D.N.J. 1998) (citing Hoke, supra, 1992 WL 102715, at *2).
Plaintiff in its negligent misrepresentation claim states, "To the extent the misrepresentations of AnswerThink referred to above [in Counts II and III] were not made with knowledge of their falsity, said misrepresentations were made negligently." Compl. ¶ 45.
At oral argument, plaintiff did not refute or otherwise respond to the argument that its negligent misrepresentation claim was barred by the economic loss doctrine. Furthermore, plaintiff's opposition does not specifically refute or refer to defendant's argument regarding the viability of plaintiff's claim of negligent misrepresentation, stating instead that "[m]ore recent decisions of this Court recognize that the economic loss doctrine does not preclude claims of fraudulent inducement to contract." Pl.'s Opp. Br. at 39.
Plaintiff's fraud claims, on the other hand, are not completely barred by the economic loss doctrine because such claims are based on plaintiff's inducement to contract, as well as performance of the contract. See Compl. ¶ 36. The trend in New Jersey courts appears to be that fraud claims based onperformance of the contract, rather than the inducement of a contract, are barred under the economic loss doctrine. See Bracco Diagnostics, Inc. v. Bergen Brunswig Drug Co., 226 F. Supp. 2d 557, 562-65 (D.N.J. 2002). In Bracco, the district court noted that the New Jersey federal and state decisions that have permitted a fraud claim to proceed with a breach of contract claim generally appear to have involved a fraud in the inducement of a contract or an analogous situation based on pre-contractual misrepresentations. Id. at 563 (citing cases). The district court in Bracco accordingly barred plaintiff's fraud claim because it was based on the performance of the underlying contract and therefore was not extrinsic to the underlying contract claim.
In this case, plaintiff's fraud claims are premised upon defendant's allegedly false and fraudulent representations throughout the course of negotiations with plaintiff and in written documents, including the following: plaintiff's business and technology systems were inadequate and insufficient to support expansion of its business; the project would be completed for $1.3 million and by the 2000 holiday season; and the major development work recommended by defendant was essential for the future success of plaintiff's business. Compl. ¶¶ 36-37. While the above misrepresentations regarding the timeframe and cost of the project may go to the terms of the contract, plaintiff also complains of defendant's representations about plaintiff's business and technological capabilities and the need to improve its systems relative to the advancement of competitors in the e-commerce field, asserting that it "reasonably relied upon said misrepresentations in agreeing to contract with Answerthink and proceed with the work outlined and described above." Id. ¶ 38.
Plaintiff asserts equitable fraud in Count III to the extent that the fraud asserted in Count II were not committed with fraudulent intent. Compl. ¶ 42. Both of these fraud claims are accordingly examined together in this section.
Moreover, in support of its fraud claims, plaintiff presents deposition testimony by CEO Sid Brown regarding the initial presentation Answerthink made to plaintiff, in which he states that "[n]ot only did [Answerthink] purport that they thought this was the system we should go to, but that they could help us get there quickly and that they had the expertise to do it." Brown Depo. Tr. 4/26/02, Fram Verification Ex. F, at 96-97. Brown additionally testifies:
[W]e brought these guys in. They were the so-called experts in this new platform, this new technology. I had guys that knew the Microsoft NT platform I think fairly well. So we were relying on the expertise of these people, whether they had that expertise or not. . . . I relied on the fact that these people represented they were experts in what they were doing. So we really had worked with them. I paid for the knowledge of educating them about our business, about where we were in the business. And we agreed that we were going to use them to bring us on board with this project.
Brown Depo. Tr. 4/26/02, Fram Verification Ex. F, at 194-95.
To the extent that plaintiff's fraud claims assert inducement to contract by defendant's misrepresentations about plaintiff's capabilities and other aspects regarding the necessity of the business development to be undertaken, as well as its own level of expertise, these claims will not be barred under the economic loss doctrine. To the extent that plaintiff complains of representations that were made "in various written documents," however, those claims go to the heart of plaintiff's breach of contract claims, and are accordingly barred by the economic loss doctrine.
In addition, plaintiff's breach of fiduciary duty claim is not barred by the economic loss doctrine, and it may be maintained alongside its breach of contract claim. See Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d 79 (3d Cir. 2001) (finding that fiduciary duty claim could be maintained because the tort is "the gist of" the fiduciary duty action while the Agreement is collateral"), cert. denied, 534 U.S. 1162 (2002). In Bohler-Uddeholm, the Third Circuit concluded that the fiduciary duty action would also pass the economic loss doctrine test because the harm plaintiff claimed to have suffered went beyond the Agreement and the benefits plaintiff was to receive under the contract, and because plaintiff asserted that defendant took advantage of his position as a fiduciary to plaintiff's detriment. Id. at 105 n. 12 (citing Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995)). See also United Int'l Holdings, Inc. v. Wharf (Holdings) Ltd., 210 F.3d 1207, 1226-27 (10th Cir. 2000) (holding under Colorado law that economic loss doctrine did not bar breach of fiduciary duty claim arising from parties' status as joint venturers, independent from the contract creating the venture), aff'd, 532 U.S. 588 (2001).
Defendant's citation to Stewart Title Guaranty Co. v. Greenlands Realty, LLC, 58 F. Supp. 2d 370 (D.N.J. 1999) is also not persuasive. In Stewart Title, defendant counterclaimed for breach of fiduciary duty, alleging that plaintiff assumed a fiduciary duty to protect defendant's title to the property by issuing the title policy contract to defendant. The district court granted plaintiff's motion for summary judgment, finding that defendant's claim sounds in contract, rather than tort, and that there was nothing in the record to suggest that plaintiff assumed any obligations or duties on defendant's behalf beyond that explicitly stated in the title insurance policy.
Unlike Stewart Title, this case involves a consulting agreement for Answerthink's services, which involved extensive negotiating concerning the nature of the consulting and other work that Answerthink would be engaged to perform for Interactive. The parties initially negotiated a contract in the form of a draft Consulting Agreement, which plaintiff asserts would have been the "governing agreement" for specific components of the project detailed in the SOWs, but this document was never signed. The parties did sign five Statements of Work (SOWs), however, that outlined specific projects, that is, the Program Management Office project, the Information Technology Design project, the E-Fulfillment Rapid Initiation and Execution Design project, Release 1 of the Platform for Growth project, and the SOW for completion of the Platform for Growth project. Defendant's general obligations and duties as consultants were not detailed in the confines of the SOWs, which described the individual projects to be completed, unlike the contract for insurance in Stewart Title. Because the duties and obligations stem from a relationship that was never explicitly spelled out in a signed contract between the parties, plaintiff's fiduciary duty claim does not sound in contract. Like Bohler-Uddeholm, the harm plaintiff claims to have suffered goes beyond the signed SOWs providing for discrete projects of the E-Commerce Fulfillment system. Plaintiff's fiduciary duty claim relates to the obligations the defendant owed as a consultant to plaintiff. Accordingly, plaintiff's claim sounds in tort, not contract, and the economic loss doctrine does not bar such a claim.
Thus, the Court finds that the economic loss doctrine bars plaintiff's negligent misrepresentation claim in Count IV, and plaintiff's fraud claims in Counts II and III to the extent that these allegations are based on performance of contract. The economic loss doctrine, however, does not bar plaintiff's breach of fiduciary duty claim in Count V, or its fraud claims in Counts II and III, to the extent that such claims allege fraud in the inducement to contract. Defendant's motion will be granted only as to the negligent misrepresentation claim in Count IV, and as to the fraud claims in Counts II and III based on performance of contract.
C. Plaintiff's Fraud Claims
1. Justifiable Reliance
Defendant asserts that plaintiff did not "justifiably rely" on any alleged misrepresentations by defendant, and therefore its fraud claims must fail. In order to establish fraudulent misrepresentation, a plaintiff must demonstrate (1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge as to whether it is true or false; (4) with the intention of misleading another party into relying on it; (5) justifiable reliance on the misrepresentation; and (6) the resulting injury was proximately caused by the reliance. See Richie Pat Bonvie Stables, Inc. v. Irving, 350 N.J. Super. 579, 589 (App.Div. 2002) (citation omitted). For plaintiff's equitable fraud claim, the above framework applies but does not require knowledge of the concealed material fact.See Barry L. Kahn Defined Benefit Pension Plan v. Township of Moorestown, 243 N.J. Super. 328, 337 (Ch.Div. 1990) (citingJewish Ctr. of Sussex County v. Whale, 165 N.J. Super. 84, 88 (Ch.Div. 1978), aff'd, 172 N.J. Super. 165 (App.Div. 1980),aff'd, 86 N.J. 619 (1981)).
Defendant also makes this argument in reference to plaintiff's negligent misrepresentation claim, but, as discussed above, that claim is barred by the economic loss doctrine,supra.
Defendant maintains that plaintiff did not rely on any alleged representations made by defendant because such representations are directly contradicted by the express terms of the signed SOWs, which referred to "estimates." In its fraud claim, however, plaintiff alleges that defendant engaged in fraud in not only the written agreements but also in the negotiations that preceded the parties' business arrangement. The portion of plaintiff's fraud claims based in performance of the contract are barred by the economic loss doctrine, as discussed above, therefore leaving plaintiff's fraud claims based on inducement to contract intact.
To the extent that defendant also makes this "estimates" argument with respect to plaintiff's breach of contract claim, that issue is discussed infra.
With respect to inducement to contract, plaintiff argues that defendant represented that it had actual experience in e-Commerce fulfillment projects for other customers, and that it had the personnel and resources necessary to complete the projects. Specifically, plaintiff claims in its complaint that it relied on defendant's misrepresentations regarding plaintiff's business and technological capability and of the need to improve those systems to effectively compete in the e-commerce arena. Compl. ¶ 36.
Plaintiff additionally argues that defendant represented that it could deliver a system by the Christmas 2000 deadline. To the extent that plaintiff argues that defendant breached the SOWs by not completing the project by such deadline, that issue is discussed infra.
Viewing the evidence in a light most favorable to plaintiff, a reasonable juror could conclude that plaintiff justifiably relied on defendant's representations regarding its technological capabilities, to its detriment. In this case, defendant's inexperience in managing technological projects of such magnitude finds support in the evidence. As defendant's project manager Mr. Radacosky indicated, he was not a technical expert, but provided help in the direction, process and in the understanding of the interplay between the technologies to ensure they met requirements. Radacosky Depo. 10/8/01, at 81, Fram Verification Ex. B. In addition, deposition testimony reveals that Mr. Radacosky had never before managed a project as large as plaintiff's project, which presented a team two and a half times larger than what he had previously worked on, and that he had no experience in transportation or logistics, nor with certain technologies such as JAVA/J2EE, Weblogic, Enterprise Java Beans, and the IBM Message Que Series Integrator ("MQSI"). Radacosky Depo. 5/20/02, at 325, Fram Verification Ex. C. Moreover, defendant's technical expert Bob Blackard had resigned in June 2000, Radacosky Depo. 10/8/01, at 87-88, Fram Verification Ex. B, and was replaced in fall 2000 by Rao Eswara, a technician who had worked on technical development on the OASIS platform but had much less experience. Id.
To the extent that defendant bases its argument on plaintiff's reliance on the terms of the SOWs, as opposed to the representations by defendant prior to contract, that aspect is discussed in the breach of contract discussion, infra. Contrary to defendant's assertion, plaintiff's fraud in the inducement claims are supported by the record evidence. Viewing the evidence in a light most favorable to plaintiff, where plaintiff relied on the representations that defendant had technological expertise and was fully capable of completing the project prior to signing on defendant for its consulting services, there is sufficient evidence from which a juror could conclude that plaintiff justifiably relied on the oral representations of defendant in entering into the SOWs.
Defendant also argues that plaintiff did not justifiably rely on defendant's misrepresentations because the decision to hire Answerthink was made by Morgan Stanley. Defendant submits evidence that Sid Brown, CEO of Interactive, solicited Morgan Stanley to raise funds, see Brown Depo., Def.'s App. Ex. 1 at 27-29; and that, after Answerthink's review of plaintiff's business, Morgan Stanley agreed to invest $25 million in exchange for equity in Interactive and that their agreement required plaintiff to achieve specific "milestones" which necessitated defendant's involvement in the project.
Defendant's argument fails in that plaintiff's fraud claims arise out of alleged misrepresentations made by defendant in the context of inducing plaintiff to contract with Answerthink in upgrading its technological and business capabilities, that is, the five SOWs. Plaintiff does not complain of alleged misrepresentations made by defendant in the context of Morgan Stanley's initial hiring of defendant; in fact, at that point, Morgan Stanley retained defendant to assess plaintiff's business and there was no issue regarding whether defendant was capable of undertaking a project to develop an e-commerce fulfillment computer system at that time. This provides no basis for granting summary judgment to defendant on plaintiff's fraud claims.
Because there is a genuine issue of material fact whether defendant fraudulently induced plaintiff to enter into a business arrangement with it, defendant's summary judgment motion as to the fraud and equitable fraud claims, based on fraud in the inducement, will be denied.
2. Whether Interactive Ratified Fraudulent Conduct
Defendant contends that plaintiff's fraud claims fail because plaintiff ratified any alleged fraudulent conduct of defendant. Answerthink cites to Citizens First Nat'l Bank of New Jersey v. Bluh, 281 N.J. Super. 86, 98 (App.Div. 1995), for the proposition that where a person allegedly defrauded has "full knowledge of all the relevant facts and full appreciation of what was being done" and nevertheless executes a renewal of his or her obligation, that person is said to have ratified the fraud and is estopped from asserting a claim thereon. In Citizens First, the plaintiff mortgagee bank filed for foreclosure against the property owner and junior lienholders, and the trial court dismissed the complaint and declared the mortgage void because the plaintiff had reason to know that the property might be held in trust. The Appellate Division determined that the mortgage, as an unauthorized transaction, could be ratified if "exacting standards" are met, and remanded to the trial court to examine the issue.
Plaintiff's fraud claims relate to fraud in the inducement into contract, not whether an unauthorized transaction could nevertheless be ratified, and thus Citizens First is inapposite. Although defendant contends that the plaintiff's approval to continue doing work at the project checkpoint constitutes ratification of its fraud claims, these arguments go to the heart of plaintiff's claim that defendant breached the contract by not completing the project by the Christmas 2000 season and by not completing the project within the $1.3 million estimated amount. In light of this, defendant's argument that plaintiff ratified defendant's fraud in this manner is thus not fatal to plaintiff's fraud claim. Defendant's motion will be denied on this ground.
B. Plaintiff's Claim of Breach of Fiduciary Duty
Defendant asserts that no fiduciary relationship existed between plaintiff and defendant. A fiduciary relationship exists between two parties under New Jersey law when "one person places trust and confidence in another who is in a dominant or superior position," or when one party is "under a duty to act for or give advice for the benefit of another on matters within the scope of their relationship." F.G. v. MacDonnell, 150 N.J. 550, 563, 564 (1997). A fiduciary relationship will exist if "the circumstances make it certain that the parties do not deal on equal terms, but on the one side there is an overwhelming influence, or, on the other, weakness, dependence or trust, justifiably reposed." In re Stroming's Will, 12 N.J. Super. 217, 224 (App.Div. 1951) (citations omitted).
Defendant maintains that, notwithstanding its knowledge of the e-commerce fulfillment industry, plaintiff likewise possessed significant expertise, and their negotiations were conducted at "arms-length." Although Morgan Stanley initially retained defendant to analyze plaintiff's business and technological capabilities during its due diligence phase, plaintiff and defendant engaged in extensive negotiations regarding the SOWs.See McHale Depo. Tr. 10/11/01, Def.'s App. Ex. 6, at 140. Interactive CEO Sid Brown testified that he, along with Brian McHale, Paul Burpo, and Tom Clayton engaged in negotiations with Answerthink regarding its consulting work. See Brown Depo. Tr. 4/26/02, Def.'s App. Ex. 1, at 110-11.
Defendant points out that plaintiff had its own IT department in place that had the ability to recognize and understand the services sought through its project with Answerthink. Mr. Burpo, in his deposition, testified, however, that while Interactive's IT department had the skills to develop in-house an e-commerce fulfillment system, it did not have the resources to do so, and that it needed "[m]ore programming resources, more networking resources, more administrative resources." Burpo Depo. Tr. 4/24/02, Def.'s App. Ex. 3, at 88. Defendant also maintains that plaintiff had already developed and implemented its own e-commerce fulfillment system utilized by its customer PlanetOutdoors.com. See Benton Depo. Tr. 10/9/01, Def.'s App. Ex. 7, at 72-73. Based on its own technological expertise, plaintiff was in an equal, if not superior, bargaining position with defendant during their negotiations.
Considering the company's backgrounds, defendant, a publicly traded company, has approximately 1,200 employees in 17 countries in the United States and Europe, with a revenue for fiscal year 2000 of $311.1 million. See Answer, ¶ 12. Plaintiff, on the other hand, is not a publicly traded company, has approximately 550 employees, and its gross revenue for the calendar year 2000 was approximately $80-90 million, while its net revenue for calendar year 2000 was approximately $30 million. See Brown Depo. Tr. 4/24/02, Def.'s App. Ex. 1, at 12-13. For the calendar year 2001, plaintiff's gross revenue was approximately $105 million, and its net revenue was approximately $40 million. See id. at 14.
The website of the "NFI family of companies" states that it has $400 million annual revenues and employs over 2,700 individuals. "About NFI" Webpage, Def.'s App. Ex. 8.
In this case, the parties are both companies with substantial numbers of employees and multi-million dollar revenues. The parties, represented by persons knowledgeable in the IT field, engaged in several negotiations leading up to their agreement to work with each other, and each had significant knowledge and expertise regarding the technological upgrades that were to take place pursuant to the Platform for Growth project.
On the other hand, due to Morgan Stanley's due diligence project, defendant gained substantial information about plaintiff's business, technological capabilities, weaknesses, and areas in need of improvement. Equipped with this information, defendant subsequently advised plaintiff about its potential to compete in the e-commerce fulfillment field and the necessity of improving its computer and IT systems in order to remain competitive. Defendant thereafter suggested that it could assist plaintiff in upgrading its computer and IT systems. After extensive negotiations, defendant's advice indeed resulted in an agreement for defendant's services, amounting to over a million dollars.
Here, the evidence does not point so overwhelmingly in favor of defendant such that it can be concluded as a matter of law that plaintiff and defendant were on equal bargaining terms, or that no one party held a position superior to the other. Viewing the evidence in a light most favorable to plaintiff, a reasonable juror could find that the extensive expertise in the field of development of e-business gave defendant the upper hand during their business negotiations in the development of plaintiff's computer and technological systems, to defendant's benefit, upon which plaintiff justifiably reposed trust, and that defendant breached its resulting fiduciary duty to plaintiff. Defendant's motion will be denied as to plaintiff's claim for breach of fiduciary duty.
C. Plaintiff's Breach of Contract Claim
Defendant argues that it is entitled to summary judgment on plaintiff's breach of contract because (1) the Consulting Agreement relied on by plaintiff was never signed by the parties; (2) defendant did not promise that the Platform for Growth would be completed for $1.3 million or that all work would be completed by the 2000 holiday season; and (3) plaintiff is precluded from prevailing on its breach of contract claim because it committed prior breaches of the parties' agreement.
Plaintiff's breach of contract claim (Count VI) asserts that the agreements between the parties required defendant: to use its "best efforts" in performing its work for plaintiff; to perform its work in accordance with "the highest professional standards for such services"; to deliver the Platform for Growth project for approximately $1.3 million; and to conclude all of its work by October 20, 2000 so that plaintiff could enjoy the benefit of defendant's work during the 2000 holiday season. Compl. ¶ 51.
Plaintiff submits that material issues of fact exist with respect to the nature and scope of the parties' responsibilities under the SOWs; which party breached; whether any of the alleged breaches by plaintiff were "material"; and the causal effect of any breaches on the progress of the project. See Pl.'s Opp. Br. at 30.
1. Consulting Agreement
Defendant maintains that the "best efforts" and "highest professional standards" clauses are taken from the Consulting Agreement that was never signed by the parties, and thus plaintiff cannot prevail on its breach of contract claim, as it relies on an Agreement that does not govern the parties' relationship. "`[I]t is axiomatic that before there can be a breach of contract there must be a contract.'" In re Alleghany Int'l, Inc., 954 F.2d 167, 175 (3d Cir. 1992) (quoting Weissman v. Cole Prods. Corp., 269 F.2d 340, 341 (7th Cir. 1959)). That is, no contract exists in the absence of a mutual intent to be bound. See Int'l Minerals Mining Corp. v. Citicorp North America, Inc., 736 F. Supp. 587, 594 (D.N.J. 1990) (finding no binding contract between the parties where the language of letter itself stated it was "not intended nor should be construed to be a commitment"); see also Air Master Sales Co. v. Northridge Park Co-Op, Inc., 748 F. Supp. 1110, 1114 (D.N.J. 1990) ("A contract is formed where the essential terms of an agreement have been communicated between the parties and there has been mutual assent to those terms.") (citing cases).
In this case, the parties do not dispute that the Consulting Agreement, which was to govern the parties' relationship in creating and implementing specific business initiatives, was never signed. S. Brown Aff. ¶ 7. In the negotiating process, when plaintiff requested that defendant make certain modifications to the draft Consulting Agreement, defendant declined to make such modifications, and the agreement was never signed. S. Brown Aff. ¶ 7. Although plaintiff indicated its belief that an agreement between the two parties had been reached, there is no evidence in the record that defendant itself believed the draft Consulting Agreement to be binding. By virtue of not having signed the agreement, defendant did not indicate an intent to be bound. Because there was no mutual intent to be bound, the Consulting Agreement does not constitute a binding contract between the parties.
Plaintiff contends that the parties entered into a series of contracts, or the OASIS and Release 1 SOWs, which specifically refer to and incorporate the Consulting Agreement and the prior oral and written "understandings" of the parties. Plaintiff cites to Wellmore Builders, Inc. v. Wannier, 49 N.J. Super. 456, 463 (App.Div. 1958), which states that "two or more writings which are all parts of one transaction relating to the same subject matter, are to be read and interpreted as one instrument, whether or not they refer to each other[,]" id. at 463, and Sutton v. Lienau, 225 N.J. Super. 293, 300 (App.Div.), certif. denied, 111 N.J. 650 (1988) ("[I]t is not necessary that all the terms of the contract be agreed to at one time, nor written down at one time, nor on one piece of paper."). As a result, plaintiff maintains that its breach of contract claims prevail because the SOWs included two key terms from the Consulting Agreement: 1) that defendant use its "best efforts and abilities" in performing under the SOWs; and 2) that defendant perform its services "in accordance with the highest professional standards."
The Sutton case, cited above, is inapplicable to this case.Sutton involved an option to purchase real estate embodied in a lease of that property, which constituted a contract for the sale of real estate that came within the Statute of Frauds. See Sutton, 225 N.J. Super. at 300 (citing N.J.S.A. 25:1-5). Under New Jersey law, the Statute of Frauds is invoked, inter alia, by sales of goods contracts, as well as purchases for land, under the Uniform Commercial Code. See, e.g., Custom Communications Eng'g, Inc. v. E.F. Johnson Co., 269 N.J. Super. 531, 539 (App.Div. 1993). As stated by the New Jersey Supreme Court, "the U.C.C. is the more appropriate vehicle for resolving commercial disputes arising out of business transactions between persons in a distributive chain." Spring Motors, supra, 98 N.J. at 571. Plaintiff has not demonstrated the applicability of the Statute of Frauds in this case, however. This case, unlike Sutton, involves the unusual consulting arrangement between plaintiff and defendant, wholly unlike the typical commercial transactions of goods, or contracts relating to land purchases, that the Statute of Frauds is intended to govern. Sutton, therefore, provides little guidance in this respect.
The statute referred to, N.J.S.A. 25:1-5, has since been amended in 1995 to delete subsection (a), (b), (d), and (e).See P.L. 1995, c. 360.
Wellmore Builders, also, is inapposite. In that case, the parties entered into an agreement, which provided in part for the parties to execute an instrument abrogating a previous agreement, as well as an "option" agreement. In considering plaintiff's suit to enforce the option agreement, the Appellate Division determined that it must actually consider all three previously signed agreements to arrive at a proper understanding of the arrangement between the parties. Unlike Wellmore Builders, the agreement between the parties that plaintiff in this case seeks to enforce was never actually signed by the parties. Wellmore Builders thus does not support plaintiff's position.
Furthermore, although the two SOWs relied upon by plaintiff are referred to as "Addendums" to the Consulting Agreement, these signed SOWs specifically contemplated that the parties might not have signed such agreement:
If a Consulting Agreement has not been executed by both parties hereto, either party may terminate this Statement of Work immediately upon the expiration of 30 days written notice except that answerthink may terminate this Agreement upon ten (10) days notice for any payment-related breach hereof. If a Consulting Agreement has been executed, the terms of the Consulting Agreement will govern the parties' termination rights.
Release 1/Platform for Growth SOW, at 37, Def.'s App. Ex. D; OASIS SOW, at 17, Def.'s App. Ex. E. In addition, the Release 1 SOW and the OASIS SOW specifically set forth the scope of work for discrete projects to be performed by defendant. Unlike the Consulting Agreement, these SOWs do not set forth the objectives of the business relationship between plaintiff and defendant. Even though the Release 1 SOW refers to itself as "an addendum to the Consulting Agreement . . . dated 4/9/00 between both parties[,]" Release 1 SOW, Fram Verification Ex. 2, at 1, plaintiff provides no authority for finding an agreement that was never signed by the parties to be binding by virtue of being referenced in a signed document. Thus, here, where the SOW itself specifically considered that the Consulting Agreement may not be consummated between the parties, the SOW did not incorporate the terms of the unsigned Consulting Agreement.
In his verification, Sid Brown states that "the Consulting Agreement was intended to serve as the `umbrella' agreement for specific projects that would be defined in separate Statements of Work." Brown Verification, ¶ 6. Paragraph 2 of the Consulting Agreement indicates it was intended to serve "as the governing agreement for specific initiatives to be detailed in signed SOW[s]." Consulting Agreement, Fram Verification Ex. 5, ¶ 2.
In addition, plaintiff cites to Emerson Radio Corp. v. Orion Sales, Inc., 253 F.3d 159, 163-64 (3d Cir. 2001), for the proposition that if the relevant terms in a contract are ambiguous, then the issue must go to a jury. This case is distinct from Emerson if only because the license agreement regarding trademark use in that case was signed and entered into by the parties, whereas the alleged contract in this case was never signed. Thus, due to lack of a signed Consulting Agreement,Emerson is inapposite to this case.
Because the Consulting Agreement was never entered into by the parties, it is not an enforceable contract binding upon the parties, despite being referenced in the Release 1/Platform for Growth and the OASIS SOWs. Thus, the claims of breach of contract based on the Consulting Agreement's "best efforts" and "highest professional standards" clauses fail. Accordingly, defendant's motion for summary judgment on plaintiff's breach of contract claim is granted, to the extent that plaintiff's claim is based upon the "best efforts" and "highest professional standards" clauses.
2. The SOW Terms Relating to Schedule and Costs
Defendant argues that the SOWs were not breached when the project was not completed by the Christmas 2000 season, and when the cost of the project grew beyond the $1.3 million as originally estimated, citing to Middlesex County Sewerage Auth. v. Borough of Middlesex, 74 N.J. Super. 591, 604 (Law Div. 1962) (citation omitted) ("An estimate is a mere approximation."),aff'd, 79 N.J. Super. 24 (App.Div. 1963). As that court stated, "The word `estimate' precludes accuracy, and its ordinary meaning is to calculate roughly or to form an opinion from imperfect data. The word `estimate' has no more certainty than the words `about' or `more or less.'" Middlesex County Sewerage Auth., 74 N.J. Super. at 604 (citations omitted).
In this case, the SOW states that professional fees are estimated at $1,311,000, Release 1/Platform for Growth SOW, Def.'s App. Ex. D, at 27, and that "[t]his release is intended to be available for servicing clients for the Christmas 2000 retail season." Id. at 3. The Release 1/Platform for Growth SOW gives an overview of, inter alia, the "estimated project schedule and professional fees and expenses," as well as a "Project Checkpoint" which provided an opportunity for the original estimates to be modified. Release 1/Platform for Growth SOW, Def.'s App. Ex. D, at 10. The SOW provides that the primary purpose of the Project Checkpoint was to "validate that the original approach, plans and estimates have not significantly changed." Id. at 11. However, the SOW envisioned that changes in estimates might be needed: "[I]n the case where significant differences exist, a revised estimate and plan will be developed and reviewed with the Change Management Team to determine the best course of action." Id.
Given that the SOW merely estimated the costs and schedule of the project, and additionally allowed for a "Project Checkpoint" to make further modifications if necessary, it cannot be concluded that the SOW definitively provided for the fixed cost of the project. Rather, the target date of Christmas 2000 holiday season and the estimated professional fees of approximately $1.3 million were mere estimates. Thus, plaintiff's claims that defendant breached the SOW by failing to complete the Platform for Growth project by the Christmas 2000 season or by failing to complete the project for $1.3 million as it had estimated, fail.
There is deposition testimony that prior to the 2000 holiday season, plaintiff directed defendant to immediately stop implementing the Lowes project and shift its focus to the requirements of the PlanetOutdoors.com project, Burpo Depo. Tr., Def.'s App. Ex. 3, at 77, thereby creating a significant increase in cost and delay of implementation of the project. This shift in focus from the Lowes project to the PlanetOutdoors.com project, and then an additional shift back to Lowes, is cited by defendant as a significant source of the resultant delay of the project.
Plaintiff, however, asserts that the cost estimate and Christmas 2000 clauses are "time is of the essence" clauses, and that defendant's noncompliance constitutes a material breach of the parties' contract, citing to Neptune Research Dev., Inc. v. Teknics Indus. Sys., Inc., 235 N.J. Super 522, 531 (App.Div. 1989), and Linan-Faye Constr. Co. v. Hous. Auth. of City of Camden, 995 F. Supp. 520, 523-24 (D.N.J. 1998)). "Time is of the essence" clauses tend to appear in real estate contracts, construction contracts and options contracts. See Linan-Faye, 995 F. Supp. at 423-24. In Linan-Faye, the "time is of the essence" clause was prominently contained within the contract. The district court determined that defendant's late payment was a material breach of the contract, stating that "[t]he phrase `time is of the essence' is a well-known and specialized term of art in contract law which makes manifest the parties' intent that tardy performance be treated as a material breach." Id. at 524. Because the terms in the SOWs in this case, which does not involve a real estate, options or construction contract, do not contain a "time is of the essence" clause, nor is plaintiff able to point to a substantial equivalent of such a clause,Linan-Faye provides no support for plaintiff's position.
Neptune also provides little guidance on this point. InNeptune, the court found that time was not of the essence in a contract between buyer and seller for delivery of manufacturing equipment because the contract had no "time is of the essence" clauses and there was nothing indicating that the time of performance was essential. However, the court determined that time was of the essence once the buyer indicated its intent to accept the seller's alternate equipment only if seller could deliver by a particular date. The court thus affirmed the trial court judgment allowing the buyer to recover its deposit, finding that the condition of "time is of the essence" could be implied from the surrounding circumstances where the buyer gave seller "one last chance" to perform by delivering the machine by a certain date.
Neptune presents circumstances allowing for more discrete acts of performance regarding time of delivery of equipment, unlike this case, where the terms provided for a "Project Checkpoint" to reevaluate the original estimate of $1,311,000 in costs and professional fees. The SOW also provided an estimate that the project would be completed by the Christmas 2000 season. At the Project Checkpoint, in September 2000, defendant reported that the Platform for Growth project would exceed the $1.3 million cost estimate, and that it would not be completed by end of October 2000. Defendant allegedly reported that the project would cost an additional $2,328,693, and that it would be completed by May 2001. Pl.'s Opp. Br. at 10.
Notably, plaintiff chose not to terminate the SOW at the Project Checkpoint, but opted instead to retain Price Waterhouse Coopers in October 2000 to assess the viability of the project.See Perino Letter, 10/30/00, Fram Verification Ex. 16. Price Waterhouse Coopers' assessment of November 21, 2000 reported that defendant had "grossly under-estimated" the amount of time and money necessary to complete the Platform for Growth Project. Unlike Neptune, plaintiff did not provide, at the Project Checkpoint, "one last chance" to defendant to perform. Rather, defendant continued to work, and plaintiff assessed the viability of the project. Unlike Neptune, these circumstances do not imply that a "time is of the essence" condition was applicable. Thus, plaintiff's argument that defendant breached the contract on the basis that the clauses containing the "Christmas 2000" date and the $1.3 million estimate are "time is of the essence" clauses fails.
Viewing the evidence in a light most favorable to plaintiff, no reasonable juror could conclude that defendant had breached either the Consulting Agreement or the SOWs. Accordingly, defendant's motion for summary judgment will be granted on plaintiff's breach of contract claim.
Defendant further argues that plaintiff is precluded from prevailing on its breach of contract claims because it had committed prior breaches by, inter alia, not providing to defendant the people and resources necessary, leading to confusion regarding the scope of work to be performed and further delays in building the e-commerce fulfillment system; approving the continued work of defendant at the Project Checkpoint; delaying the purchase of hardware and software necessary to operate the systems being built; and changing direction of the project at a critical stage. See Def.'s Br. at 23-24. Plaintiff counters, however, that the SOW specifically defined work that was "in scope" and work that was considered "out of scope"; that defendant's interpretation of the Release 1 SOW is contradicted by the language of the SOW; that Mr. Burpo allowed defendant to continue work at the Project Checkpoint stage subject to stoppage; and that any scope changes had to be in writing, under the language of all the SOWs.
Because plaintiff's breach of contract claim fails on the grounds discussed above, defendant's additional arguments, and plaintiff's counterarguments, regarding plaintiff's prior breaches of the agreement need not be addressed.
A. Plaintiff's Claim for Breach of Duty of Good Faith and Fair Dealing
Defendant argues that plaintiff's claim for breach of duty of good faith and fair dealing fails as a matter of law because the implied covenant of good faith and fair dealing cannot override an express term of the contract and plaintiff was fully aware that the time and cost figures were estimates, citing Wade v. Kessler Inst., 172 N.J. 327 (2002). Under New Jersey law, every contract contains an implied covenant of good faith and fair dealing. Id. at 340 (citing Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001); Bak-A-Lum Corp. v. Alcoa Bldg. Prod., 69 N.J. 123, 129-30 (1976)). Under this covenant, "`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[.]'" Wade, 172 N.J. at 340 (quoting Bak-A-Lum, 69 N.J. at 129 (internal quotation omitted)). While the implied duty of good faith and fair dealing cannot override an express term of the contract, a party's performance under a contract may breach the implied covenant even though it does not expressly violate a term of the contract. Wade, 172 N.J. at 341 (quotingWilson, 168 N.J. at 244). An allegation of bad faith or fair dealing, however, "should not be permitted to be advanced in the abstract and absent an improper motive." Wade, 172 N.J. at 341 (quoting Wilson, 168 N.J. at 251); see also Seidenberg v. Summit Bank, 348 N.J. Super. 243, 261 (App.Div. 2002) ("The last element of a maintainable cause of action based upon the implied covenant of good faith and fair dealing is bad faith or ill motive.").
Plaintiff submits that there is ample evidence from which a jury could conclude that defendant breached its duty of good faith and fair dealing by, inter alia, assigning to the project individuals who had no experience with key technologies that were recognized to be implemented as part of the project, and assigning to the project a project manager, Mr. Radacosky, who had no experience in the industry and insufficient knowledge of the technologies being implemented. Plaintiff additionally argues that defendant deliberately interpreted the scope of its obligations more narrowly than required by the contract; that defendant double billed plaintiff where defendant lost internal work product; that defendant falsely blamed plaintiff for delays in the project; and that defendant deliberately prolonged the project because defendant had encountered "a down business cycle." See Pl.'s Opp. Br. at 32; see also id. at 20.
As for plaintiff's argument that defendant assigned individuals with no experience with key technologies, defendant had to replace its original technical architect Bob Blackard, who left in June 2000, with Rao Eswara, who had been providing technical development for the OASIS platform. Radacosky Depo. 10/8/01, at 87-88, Fram Verification Ex. B. Because Eswara had no experience with the MQSI component, defendant had sent him to a training class. Id. The internal emails of defendant do indicate that defendant was repeatedly frustrated in its efforts to work with MQSI and that such frustration caused delay, see Internal Emails, Fram Verification Ex. 7. Moreover, it is true, as plaintiff points out, that Blackard's replacement, Eswara, had less experience in the technologies being implemented in the project. Radacosky Depo. 10/8/01, at 91, though Eswara was able to get the platform up and running and they were able to exchange messages in the environment. See id. at 89. Defendant subsequently assigned another consultant, Paul Cahill, to the project to help with the MQSI piece of the project. See id.
The evidence, as shown above, in the light most favorable to plaintiff, indicates that defendant assigned employees who did not have adequate experience in areas critical to the success of the project. In addition, the expert report of software consultant Edward Yourdon, Fram Verification Ex. 17, provides further support for the conclusion that the inexperience of Answerthink's employees was detrimental to the project. Yourdon, after reviewing documents, depositions, and transcripts in this case, concluded that defendant lacked sufficient experience in applications, project management, and technology, and utilized an inadequate estimating process leading to the grossly inaccurate estimate of time, cost and effort, as well as an inadequate risk-management process. Id. at 4, 28-29.
With respect to Mr. Radacosky, his deposition indicates that he had no experience working on technologies such as Java/J2EE, Weblogic, Enterprise Java Beans ("EJB"), and the IBM MQ Series Integrator ("MQSI"), nor in transportation nor logistics. See Radacosky Depo. 5/20/02, at 325, Fram Verification Ex. C. Radacosky, however, had worked as a project manager on other projects involving Java (though the project did not go beyond the requirements phase), Oracle Database, and XML (project was recommended and not implemented). See Radacosky Depo. 10/8/01, at 82-84, Fram Verification Ex. B. While Radacosky was not responsible for being the technical expert in the different phases of technology being used, he was responsible for working on the direction, process and in the understanding of the interplay between the technologies used to ensure they met the requirements. Id. at 80-81. Mr. Yourdon points to Mr. Radacosky's inexperience with project managing a group of 15 people, with the technologies of Java/J2EE, WebLogic, EJBs, and IMB MQ Series/Integrator. Id. at 28. Yourdon states that, in his opinion, an experienced project manager would have believed that it would have been extremely difficult, if not impossible, to develop and deploy the functionality envisioned for the Platform for Growth, and therefore would have placed more emphasis on risk management. Id. at 7. Thus, he opines, since Radacosky could not benefit from experience in identifying the warning signs, the discovery of the underestimation of the project took place so late that it was difficult to respond in a way as to maintain the original schedule. Id. at 8.
In addition, Yourdon attributes the demise of the project to Answerthink's estimating process that broke the overall project into small tasks and activities, but which had no basis for the time and cost estimates that it provided for each of these activities. Id. at 28. Due to this inexperience with the development of an e-fulfillment system, Answerthink had no credible metrics and statistics by which it could reliably estimate the number of hours or costs required for successful completion of the project. Id.
Viewed in the light most favorable to plaintiff, defendant's lack of experience proved detrimental in many ways, as shown above. Despite knowledge of this inexperience, defendant pushed forward in its representations to plaintiff that it had the capability and experience to complete the project. While it has been shown that defendant's employees attempted to remedy their problems with the MQSI software, bringing in an IBM Technical Specialist to help with its efforts, such actions may be found by a reasonable jury to fail to redeem defendant of its earlier representations to plaintiff.
With respect to plaintiff's assertion that defendant breached its duty of good faith and fair dealing by falsely blaming plaintiff for delays, the evidence demonstrates that the delivery of plaintiff's ordering of a single piece of equipment, a loner box in place for Oasis to come on line, was only a week late, causing cost overruns. See Burpo Depo. at 158, Fram Verification Ex. E. As for defendant's contention that plaintiff changed the scope from Lowes to Planet Outdoors then back to Lowes again, Mr. Burpo provides that the change "required less work of Answerthink and should have help[ed] expedite its progress on the project." Burpo Verification, ¶ 11. Moreover, Mr. Burpo adds, "the scope within Release 1 required Answerthink to deliver a system that worked for both Lowes and Planet Outdoors." Id. Whether defendant falsely blamed plaintiff for its performance delays likewise presents a factual issue which, if resolved in plaintiff's favor, would support its claim of breach of duty of good faith and fair dealing.
The Court notes that, although plaintiff bases its claim for breach of the duty of good faith and fair dealing in part on defendant falsely blaming plaintiff for project delays, certain actions were conducted after the SOWs were terminated, such as in the submissions for this motion, and thus may have less bearing on whether defendant acted in good faith under the SOWs.
Moreover, the nature of the delay is further informed by the testimony of Sid Brown of Interactive, who stated that, at the meeting which terminated Answerthink, "I may have said something about the fact that we had some other projects going on, and there would have been at times an issue about some people not being available, you know, when Answerthink wanted our people available. I might have said that. We probably had some blame on that end. If that was interpreted we were not without blame, that's probably what it was referring to." Brown Depo. at 226-27, Def.'s App. Ex. 1.
Furthermore, plaintiff raises the contention that defendant double-billed plaintiff when an Answerthink team billed Interactive to study its business processes and technology requirements during March and April. In its brief, plaintiff states that the team billed plaintiff, even though it was a completely different team than actually attempted the build part of the project. See Pl.'s Opp. Br. at 20. Plaintiff thus raises a question of fact regarding whether defendant breached its duty of good faith and fair dealing by double-billing plaintiff for certain services.
Based on this, a reasonable juror could conclude that defendant's actions, including going forward with the project while misrepresenting its capabilities, and without revealing to plaintiff its inexperience, had the effect of "destroying or injuring the right of" plaintiff to receive the fruits of the contract, see Wade, 172 N.J. at 340. A reasonable juror could also conclude that such actions as failing to reveal the true capabilities of the company, blaming plaintiff for delays and double-billing for work were not done in good faith. Accordingly, because there are genuine issues of material fact with respect to plaintiff's claim for breach of implied duty of good faith and fair dealing, defendant's motion for summary judgment will be denied on this ground.
III. CONCLUSION
For the reasons discussed above, defendant's motion for summary judgment will be granted with respect to plaintiff's negligent misrepresentation claim, breach of contract, and fraud and equitable fraud claims, to the extent such claims are based on performance of contract. Defendant's motion will be denied with respect to plaintiff's claims of breach of fiduciary duty, breach of the implied duty of good faith and fair dealing, and fraud and equitable fraud, to the extent based on inducement to contract. The accompanying Order will be entered.
ORDER
THIS MATTER having come before the Court upon defendant Answerthink, Inc.'s motion for summary judgment of plaintiff Interactive Logistics, Inc.'s claims; and the Court having considered the parties' submissions, and the Court having heard oral argument on February 21, 2003; and for the reasons discussed in the Opinion of today's date; and for good cause shown;IT IS on this __ day of June, 2003, hereby
ORDERED that defendant's summary judgment motion [Docket Items 41-1, 42-1] will be, and hereby is, GRANTED in part with respect to plaintiff's claims for negligent misrepresentation (Count IV), and breach of contract (Count VI), as well as plaintiff's fraud and equitable fraud claims, to the extent plaintiff bases such claims on fraud in the performance of contract; and DENIED in part with respect to plaintiff's claims for breach of fiduciary duty (Count V), breach of the implied duty of good faith and fair dealing (Count VII), and plaintiff's fraud (Count II) and equitable fraud (Count III) claims, to the extent such claims are based on fraud in the inducement to contract.