Opinion
16 Civ. 7907 (JFK)(HBP)
03-06-2019
MEDIA GLOW DIGITAL, LLC, et al., Plaintiffs, v. PANASONIC CORPORATION OF NORTH AMERICA, et al., Defendants.
REPORT AND RECOMMENDATION
Table of Contents
I. Introduction ........................ 1 II. Facts ........................... 1
A. The Millennium Contract ................ 1
B. The DoubleTree Contract ................ 7
C. Procedural History .................. 9 III. Analysis ........................ 10
A. Summary Judgment Standard .............. 10
B. Plaintiffs' Claims Against Panasonic ........ 13
1. Negligence ................... 13
a. Cognizable Duty of Care .......... 14
b. The Economic Loss Doctrine ........ 20
2. Negligent Misrepresentation .......... 26
a. Special Relationship ........... 27
b. The Negligent Misrepresentation Claim is Duplicative ...... 33
3. Fraud and Fraudulent Inducement ........ 35
4. Breach of Warranty ............... 37
5. Panasonic's Breach of Contract Counterclaim ............ 43
C. Plaintiffs' Claims Against ICON ........... 46
1. Breach of Contract .............. 46
2. Negligence and Professional Malpractice ............ 55
a. Cognizable Duty of Care .......... 56
b. Economic Loss Doctrine .......... 59
c. Lack of Expert Proof ........... 61
3. Negligent Misrepresentation .......... 63IV. Conclusion ....................... 65 V. OBJECTIONS ........................ 66 PITMAN, United States Magistrate Judge:
TO THE HONORABLE JOHN F. KEENAN, United States District Judge,
I. Introduction
By notice of motion dated April 6, 2018 (Docket Item ("D.I.") 139), defendant Panasonic Corporation of North America ("Panasonic") moves for summary judgment. By notice of motion dated April 5, 2018 (D.I. 164), defendants Icon Architectural Group, LLC, Icon Architectural Group, PLLC and Icon HD LLC (collectively "ICON") move for summary judgment. For the reasons set forth below, I respectfully recommend that both motions be granted in part and denied in part.
II. Facts
In principal part, this is an action arising out of defendants' alleged breaches of contracts to design, fabricate and install a large light-emitting diode ("LED") sign in New York's Times Square.
A. The Millennium Contract
In April 2010, plaintiff Media Glow Digital ("MGD"), an Oklahoma-based limited liability company, entered into a lease to build and operate a large LED sign on the facade of the Millen- nium Broadway Hotel on West 44th Street in New York City (Plaintiffs' Rule 56.1 Statement of Undisputed Facts Regarding Panasonic's Motion for Summary Judgment, dated Apr. 27, 2018 (D.I. 148) ("Pl. Rule 56 Stat.") ¶¶ 1, 15). In June 2011, MGD hired Lovell-Belcher to conduct a survey of the Millennium Broadway's facade, including the air rights of the adjacent Bow Tie building (the "Lovell-Belcher survey") (Pl. Rule 56 Stat. ¶ 60). Six months later, on December 5, 2011, MGD contracted with Panasonic to purchase a 7,000-square-foot LED sign to be installed on the facade of the Millennium Broadway Hotel, within the available air space (Pl. Rule 56 Stat. ¶ 82; Second Amended Complaint, dated May 8, 2017 (D.I. 33) ("SAC") ¶¶ 27-29).
Panasonic's Rule 56.1 Statement of Undisputed Facts is contained within Plaintiffs' Rule 56.1 Statement of Undisputed Facts along with plaintiffs' responses and plaintiffs' additional factual allegations. Thus, I shall make all factual citations to the appropriate paragraphs in Plaintiffs' Rule 56.1 Statement of Undisputed Facts.
This survey was conducted with respect to MGD's initial agreement with another LED sign manufacturer.
This agreement provided, in pertinent part, that:
• Panasonic [was to] provide a preliminary design package within 2 weeks of [the completion of a] detailed site survey . . . .
• Panasonic [was to] provide detailed drawings with revisions as required throughout the course of the project and a final document package certified by a registered P[rofessional] E[ngineer] in the state of New York.
• Panasonic [was to] follow state and local codes during [the] installation process.(Millennium Hotel, NYC LED Project Purchase Agreement, annexed to Declaration of Chad D. Hansen as Ex. 1, dated Apr. 27, 2018 ("Hansen Decl.") (D.I. 150-1) ("Millennium Contract") § 1.1). The Millennium Contract further provided that
Panasonic represents and warrants to [MGD] for the warranty period of twenty-four (24) months following substantial completion of the Integrated System that the Integrated System will be free from defects in workmanship and materials. Except as set forth in the immediately preceding sentence, the Equipment shall be covered solely by the standard within manufacturer's warranty (if any) included with such equipment when delivered. The warranties set forth in this paragraph are exclusive and are in lieu of all other warranties on the system, whether oral or written, express or implied, including the warranties of merchantability or fitness for a particular purpose or noninfringement, all of which are hereby waived by [MGD].(Millennium Contract § 4.1).
Finally, the Millennium Contract expressly limited Panasonic's liability to the "total dollar amount of any [MGD] purchase of equipment, integrated systems, or related services" and excluded lost profits and incidental or consequential damages (Millennium Contract § 5.1).
MGD agreed to a total contract price of $4,183,296.73, one-half to be paid upon execution of the contract, and the remainder payable at certain project milestones (Pl. Rule 56 Stat. ¶ 85). However, the contract was modified in February 2012 to reduce MGD's initial down payment to $100,000.00 with a subsequent payment of $798,000.00 that MGD alleges it paid prior to March 30, 2012 (Pl. Rule 56 Stat. ¶¶ 85-86).
Panasonic subcontracted fabrication of the sign components to a Chinese company, SZRetop Shenzhen ("Retop"), which, according to plaintiffs, had a poor reputation in the relevant industry (Pl. Rule 56 Stat. ¶¶ 167, 258; SAC ¶ 35). Panasonic also subcontracted the design, construction and installation of the sign to defendant ICON, a North Dakota-based firm with no experience in constructing or installing large LED signs in New York City (Pl. Rule 56 Stat. ¶¶ 164-65; SAC ¶¶ 36-37). MGD was aware of these subcontracts and did not object to them (Pl. Rule 56 Stat. ¶¶ 165, 167; SAC ¶¶ 38-39).
MGD provided the documents from the Lovell-Belcher survey to Panasonic, which, in turn, provided them to ICON (Pl. Rule 56.1 Stat. ¶¶ 183, 315). Relying on the Lovell-Belcher survey calculations, ICON designed the sign to be three-and-three quarters inches deep (Pl. Rule 56.1 Stat. ¶ 183). However, the Lovell-Belcher survey was incorrect and a sign of that depth would not fit within the Millennium Broadway Hotel's air space (Pl. Rule 56.1 Stat. ¶ 188; SAC ¶¶ 62-63). The parties dispute whether Panasonic was required to perform an independent air rights survey under the Millennium Contract (Pl. Rule 56.1 Stat. ¶ 183). Plaintiffs further allege that ICON's architect and engineer warned Panasonic that they believed the Lovell-Belcher survey's air space measurements were inaccurate (Pl. Rule 56.1 Stat. ¶ 183). However, the parties agree that neither Panasonic, nor ICON, performed an independent air rights survey for the Millennium project (Pl. Rule 56.1 Stat. ¶ 191).
An independent rights survey is not expressly required by the Millennium Contract. However, MGD maintains that the contract's reference to "detailed drawings" and a "final document package . . . would include an air rights survey or accurate air rights information" (Pl. Rule 56.1 Stat. ¶ 183).
The Millennium Contract provided that installation of the sign was to begin in March 2012, but Panasonic had not even ordered all of the components from Retop by that time (Millennium Contract § 2.1; SAC ¶¶ 33, 42-43). The project suffered additional delays thereafter. In April 2012, MGD submitted ICON's proposed design and installation procedures for review by a third-party engineer, as required by the Millennium Broadway Hotel (Pl. Rule 56.1 Stat. ¶ 359; SAC ¶ 45). ICON was allegedly unprepared and non-responsive during the review process, and the reviewing engineers found some of ICON's methods "unacceptable" (Pl. Rule 56.1 Stat. ¶ 364; SAC ¶ 46). On March 1, 2013, MGD instructed Panasonic to begin installing the sign upon completion of the review process, but ICON had still not applied for permits or hired the workforce necessary to install the sign (Pl. Rule 56.1 Stat. ¶ 365; SAC ¶ 49).
When MGD demanded a revised schedule, Panasonic proposed completion of the project between June and August 2013. Nevertheless, as of October 2013, defendants still had not finished the work (SAC ¶¶ 51, 57). In the meantime, the Millennium Broadway required MGD to sign a new long-term lease with a $1.6 million non-refundable pre-payment (Pl. Rule 56.1 Stat. ¶¶ 374, 377).
Panasonic contends that the lack of progress on the sign's installation was due to MGD's failure to obtain proper financing for the project (Pl. Rule 56.1 Stat. ¶¶ 101-10)
In October 2013, counsel for the Bow Tie building advised MGD that the sign, as designed, encroached on Bow Tie's air space (Pl. Rule 56.1 Stat. ¶ 188). MGD communicated this claim to Panasonic and ICON, and defendants responded that they had relied on the Lovell-Belcher survey, rather than obtaining their own survey (Pl. Rule 56.1 Stat. ¶¶ 189-93). MGD then commissioned another survey, which confirmed the errors in the Lovell-Belcher survey and the encroachment on Bow Tie's air space (Pl. Rule 56.1 Stat. ¶¶ 189-93). According to plaintiffs, Panasonic offered to "modify the existing sign to fit within the Millennium's air space," but no such re-design was ever created (SAC ¶ 64).
Panasonic maintains this notice was sent to MGD on November 8, 2013 (Pl. Rule 56.1 Stat. ¶ 188).
In early 2014, MGD abandoned the Millennium Broadway sign project; by that time, MGD alleges that it had paid more than $3 million to Panasonic and $3 million in rent and other expenses (Pl. Rule 56.1 Stat. ¶ 382; SAC ¶ 65).
B. The DoubleTree Contract
On June 12, 2014, plaintiff TSL, an Oklahoma-based limited liability company comprised of the principals of MGD, contracted with Panasonic to re-purpose the existing sign for installation on the facade of the DoubleTree Suites Hotel at the corner of West 47th Street and Broadway in New York (Pl. Rule 56.1 Stat. ¶¶ 112-22, 138; Purchase Agreement, annexed to the Declaration of Michael L. Simes as Ex. 16, dated Apr. 6, 2018 (D.I. 142-16) ("Simes Decl.") ("DoubleTree Contract")). Like the Millennium Contract, the contract for the DoubleTree sign limited the parties' liability as follows:
Except with respect to the indemnification obligations of the parties set forth above and for any damages incurred by customer as a result of a default by Panasonic under the purchase agreement which causes a default under the lease or the license agreement, in no event shall either party be liable, to the other party, or any third party, for indirect, special, incidental, punitive, or consequential damages, loss or expenses of any kind (including, but not limited to, business interruption, lost business, lost profits, or lost savings), even if such party has been advised of their possible existence, which arise under or by reason of the purchase agreement(DoubleTree Contract § 7). The DoubleTree Contract also provided that it "supersede[d] prior negotiations, representations or agreements" between Panasonic and plaintiffs (DoubleTree Contract § 1.1).
TSL entered a 20-year lease with the DoubleTree Suites on August 8, 2014 to commence on April 1, 2015, at a monthly rental rate of $60,000 (Pl. Rule 56.1 Stat. ¶¶ 135-36; SAC ¶¶ 74-75). Panasonic initially promised to complete the project by June 2015, but revised that promise to "substantial completion by August 2015" (SAC ¶¶ 76-77). Panasonic again subcontracted construction and installation of the sign to ICON.
Plaintiffs allege that they objected to this subcontracting, while Panasonic claims that plaintiffs were fully aware of the outsourcing and did not object.
Once again, defendants failed to build and install the sign properly and in a timely fashion. ICON finally completed the installation of the sign in October 2015 and Panasonic sent TSL its notice of final completion on December 3, 2015 (Pl. Rule 56.1 Stat. ¶¶ 150-51). However, the finished sign suffered from various visual defects that plaintiffs allege persisted well into 2018 (Pl. Rule 56.1 Stat. ¶ 153; SAC ¶¶ 82-92; 96). While plaintiffs concede that Panasonic has worked to remedy these defects and power outages, they maintain that the sign is still not substantially completed because these defects continue to occur (Pl. Rule 56.1 Stat. ¶ 154) Moreover, plaintiffs maintain that Panasonic was responsible for acquiring proper certifications under the contract, but the certifications were never issued (Pl. Rule 56.1 Stat. ¶¶ 348-49).
While this certification requirement appears in the Millennium Contract, it was not included in the DoubleTree Contract (Millennium Contract § 1.0; DoubleTree Contract).
C. Procedural History
Plaintiffs commenced this action on October 10, 2016, alleging breach of both the Millennium and DoubleTree Contracts (Complaint, dated Oct. 10, 2016 (D.I. 1) ("Compl.")).
On November 30, 2017, Panasonic moved for partial judgment on the pleadings, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, seeking dismissal of "all [c]ounts to the extent that they seek lost profits, incidental, indirect, consequential, special, punitive, or otherwise unrecoverable damages" (Notice of Motion for Partial Judgment on the Pleadings, dated Nov. 30, 2017 (D.I. 81) at 2). The Honorable John F. Keenan, United States District Judge, granted Panasonic's motion, finding that plaintiffs had failed to allege sufficiently that defendants were grossly negligent, and, thus, the contractual limitations on damages were enforceable. See Media Glow Dig., LLC v. Panasonic Corp. of N. Am., 16 Civ. 7907 (JFK), 2018 WL 2175550 at *5-*8 (S.D.N.Y. May 11, 2018) (Keenan, D.J.).
After Judge Keenan's decision, plaintiffs filed a motion seeking leave to file a third amended complaint. I denied that motion on December 10, 2018. See Media Glow Digital, LLC v. Panasonic Corp. of N. Am., 16 Civ. 7907 (JFK)(HBP), 2018 WL 6444934 (S.D.N.Y. Dec. 10, 2018).
Panasonic now seeks dismissal of plaintiffs' negligence, negligent misrepresentation, fraud and breach of warranty claims, and moves for summary judgment as to its breach of contract counterclaim against plaintiff TSL (Memorandum of Law in Support of Panasonic's Motion for Summary Judgment, dated Apr. 6, 2018 (D.I. 140) ("Pana. Memo.")). ICON seeks dismissal of plaintiffs' breach of contract, negligence, negligent misrepresentation and professional malpractice claims (Memorandum of Law in Support of Defendant ICON's Motion for Summary Judgment, dated Apr. 5, 2018 (D.I. 168) ("ICON Memo.")). The parties agree that all claims are governed by New York law pursuant to the choice of law provisions Millennium and DoubleTree Contracts.
III. Analysis
A. Summary Judgment Standard
The standards applicable to a motion for summary judgment are well-settled and require only brief review.
Summary judgment may be granted only where there is no genuine issue as to any material fact and the moving
party . . . is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). In ruling on a motion for summary judgment, a court must resolve all ambiguities and draw all factual inferences in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L.Ed.2d 202 (1986). To grant the motion, the court must determine that there is no genuine issue of material fact to be tried. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine factual issue derives from the "evidence [being] such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S. Ct. 2505. The nonmoving party cannot defeat summary judgment by "simply show[ing] that there is some metaphysical doubt as to the material facts," Matsushita Eiec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L.Ed.2d 538 (1986), or by a factual argument based on "conjecture or surmise," Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir. 1991). The Supreme Court teaches that "all that is required [from a nonmoving party] is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial." First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-89, 88 S. Ct. 1575, 20 L.Ed.2d 569 (1968); see also Hunt v. Cromartie, 526 U.S. 541, 552, 119 S. Ct. 1545, 143 L.Ed.2d 731 (1999). It is a settled rule that "[c]redibility assessments, choices between conflicting versions of the events, and the weighing of evidence are matters for the jury, not for the court on a motion for summary judgment." Fischl v. Armitage, 128 F.3d 50, 55 (2d Cir. 1997).McClellan v. Smith, 439 F.3d 137, 144 (2d Cir. 2006) (brackets in original); accord Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150-51 (2000); Estate of Gustafson ex rel. Reginella v. Target Corp., 819 F.3d 673, 675 (2d Cir. 2016); Cortes v. MTA N.Y.C. Transit, 802 F.3d 226, 230 (2d Cir. 2015); Deep Woods Holdings, L.L.C. v. Savings Deposit Ins. Fund of Republic of Turk., 745 F.3d 619, 622-23 (2d Cir. 2014); Hill v. Curcione, 657 F.3d 116, 124 (2d Cir. 2011).
Although the Court in Reeves was reviewing the denial of a motion for judgment as a matter of law pursuant to Fed.R.Civ.P. 50, the same standards apply to a motion for summary judgment pursuant to Fed.R.Civ.P. 56. Reeves v. Sanderson Plumbing Prods., Inc., supra, 530 U.S. at 150-51.
"Material facts are those which 'might affect the outcome of the suit under the governing law' . . . ." Coppola v. Bear Stearns & Co., 499 F.3d 144, 148 (2d Cir. 2007), quoting Anderson v. Liberty Lobby, Inc., supra, 477 U.S. at 248. "'[I]n ruling on a motion for summary judgment, a judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the [non-movant] on the evidence presented[.]'" Cine SK8, Inc. v. Town of Henrietta, 507 F.3d 778, 788 (2d Cir. 2007) (second alteration in original), quoting Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 298 (2d Cir. 1996).
Entry of summary judgment is appropriate "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "In such a situation, there can be 'no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, supra, 477 U.S. at 322-23, quoting Fed.R.Civ.P. 56; accord Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 486 (2d Cir. 2014) ("[W]here the nonmoving party will bear the burden of proof on an issue at trial, the moving party may satisfy its burden [on a summary judgment motion] by point[ing] to an absence of evidence to support an essential element of the nonmoving party's case." (inner quotations and citations omitted, last alteration in original)).
B. Plaintiffs' Claims Against Panasonic
1. Negligence
Panasonic moves for summary judgment on plaintiffs' negligence claim arguing that (1) there are no legal duties owed to plaintiffs independent of the contractual relationship between plaintiffs and Panasonic and (2) plaintiffs' claims are barred by the economic loss doctrine (Pana. Memo. at 8-11).
To state a claim for negligence under New York Law, a plaintiff is required to show that (1) defendant owed plaintiff a cognizable duty of care; (2) defendant breached that duty of care and (3) plaintiff suffered damages as proximate result of that breach. Lerner v. Fleet Bank, 459 F.3d 273, 286 (2d Cir. 2006); King v. Crossland Sav. Bank, 111 F.3d 251, 254 (2d Cir. 1997).
a. Cognizable Duty of Care
"It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated." Clark-Fitzpatrick, Inc. v. Long Is. R.R., 70 N.Y.2d 382, 389, 516 N.E.2d 190, 193, 521 N.Y.S.2d 653, 656 (1987); accord Bakal v. U.S. Bank, 747 F. App'x 32, 37 (2d Cir. 2019); Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., 30 N.Y.3d 704, 711, 94 N.E.3d 456, 460, 70 N.Y.S.3d 893, ___ (2018). "This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract . . . ." Clark-Fitzpatrick, Inc. v. Long Is. R.R., supra, 70 N.Y.2d at 389, 516 N.E.2d at 194, 521 N.Y.S.2d at 656-57, citing Rich v. New York Cent. & Hudson Riv. R.R., 87 N.Y. 382, 398 (1882). Where the parties' obligations to one another are defined by the contract, a party "cannot sustain a claim . . . based on negligence unless public policy impose[s] an additional duty . . . beyond those imposed by the contract . . . ." In re Mid-Island Hosp., Inc., 276 F.3d 123, 130 (2d Cir. 2002); see also Spinelli v. Nat'l Football League, 903 F.3d 185, 207 (2d Cir. 2018) (no fiduciary duty where parties deal at arms length in a commercial transaction absent extraordinary circumstances). If no additional legal duty beyond that defined in the contract exists, any negligence claim is merely "duplicative" of a breach of contract claim and must be dismissed. Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., supra, 30 N.Y.3d at 711, 94 N.E.3d at 460, 70 N.Y.S.3d at ___.
An independent duty of care may be imposed where a defendant "perform[s] a service affected with a significant public interest [and where the] failure to perform the service carefully and competently can have catastrophic consequences." Sommer v. Federal Signal Corp., 79 N.Y.2d 540, 553, 593 N.E.2d 1365, 1370, 583 N.Y.S.2d 957, 962 (1992); accord Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., supra, 30 N.Y.3d at 711, 94 N.E.3d at 460, 70 N.Y.S.3d at ___. "To determine whether a tort claim lies, [the court can] also evaluate[] the nature of the injury, how the injury occurred and the harm it caused." Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., supra, 30 N.Y.3d at 711, 94 N.E.3d at 460, 70 N.Y.S.3d at ___.
Plaintiffs' negligence claim against Panasonic is essentially identical to their breach of contract claim (SAC ¶¶ 126-33). However, plaintiffs maintain that Panasonic is not entitled to summary judgment because of the exception set forth in Sommer v. Federal Signal Corp. -- namely that a breach of the contracts in issue here could have "catastrophic consequences" (Plaintiffs' Memorandum of Law in Opposition to Panasonic's Motion for Summary Judgment, dated May 18, 2018 (D.I. 147) ("Pl. Pana. Memo.") at 11-12).
However, the facts here are clearly distinguishable from those in Sommer v. Federal Signal Corp., supra, 79 N.Y.2d 540, 593 N.E.2d 1365, 583 N.Y.S.2d 957. In Sommer, the Court ruled that a defendant fire alarm company owed an owner of a 42-story skyscraper an independent duty of care beyond contractual obligations because fire alarm companies "perform a service affected with significant public interest" and a failure to properly perform that service "can have catastrophic consequences." 79 N.Y.2d at 553, 593 N.E.2d at 1370, 583 N.Y.S.2d at 962. The Court held that the property owner's negligence claim was not duplicative of its breach of contract claim because the owner was "not seeking the benefit of its contractual bargain, but instead seek[ing] recovery of damages for a fire that spread out of control -- the sort of abrupt, cataclysmic occurrence" that allows for tort liability in addition to contractual liability. 79 N.Y.2d at 553, 593 N.E.2d at 1370, 583 N.Y.S.2d at 962. The Court went on to hold that denial of defendant's summary judgment motion was proper because there was a genuine issue of fact as to whether defendant was grossly negligent and, thus, whether the owner was not limited to contractual damages. 79 N.Y.2d at 553, 593 N.E.2d at 1370, 583 N.Y.S.2d at 962.
Conversely, plaintiffs' breach of contract and negligence claims against Panasonic stem from an alleged breach of a commercial agreement to manufacture and install an LED sign. The crux of plaintiffs' claims is that Panasonic improperly subcontracted manufacturing and installation work to ICON, that Panasonic's and ICON's numerous mistakes caused the project to be delayed over three years and that the LED sign that was ultimately installed suffered from multiple electrical and visual defects. There is no claim that any of the alleged defects in the sign gave rise to a risk to the safety of the public. Even taking all of plaintiffs' allegations as true, the creation and installation of the LED sign was not a service "with significant public interest," nor did its failure have the potential to create "catastrophic consequences" like those in Sommer. The only evidence plaintiffs offer in support of their assertion that Panasonic's breach of the Millennium and DoubleTree Contracts might have had catastrophic consequences is Panasonic's admission that it had discovered a welding issue during an initial inspection before the sign was installed (Pl. Pana. Memo. at 12; Pl. Rule 56.1 Stat. ¶ 363). As Panasonic correctly points out, this welding issue was discovered by Panasonic and repaired prior to the sign's installation, and is not the subject of any of plaintiffs' claims (see generally SAC).
Turning to the nature of the harm allegedly suffered by plaintiffs and the injuries for which they seek to recover, both contracts specifically state that plaintiffs are limited to economic damages. These alleged damages "were clearly within the contemplation of the [contracts and] [m]erely charging a breach of a 'duty of due care,' employing language familiar to tort law, does not, without more, transform a simple breach of contract into a tort claim." Clark-Fitzpatrick, Inc. v. Long Is. R.R., supra, 70 N.Y.2d at 390, 516 N.E.2d at 194, 521 N.Y.S.2d at 657. It is clear from the record that plaintiffs are "essentially seeking enforcement of the bargain [and] should proceed under a contract theory." Sommer v. Federal Signal Corp., supra, 79 N.Y.2d at 552, 593 N.E.2d at 1369, 583 N.Y.S.2d at 961.
As noted above, Judge Keenan already found that these limitations on damages are enforceable and ruled that plaintiffs are not permitted to recover consequential or punitive damages. Media Glow Dig., LLC v. Panasonic Corp. of N. Am., supra, 2018 WL 2175550 at *6.
Furthermore, unlike the defendant in Sommer, there is no evidence that Panasonic or ICON were grossly negligent. Inexplicably, plaintiffs still contend that Panasonic owed them an independent duty of care because it engaged in numerous acts of "gross negligence" throughout the Millennium and DoubleTree projects (Pl. Pana. Memo. at 15-20). This argument has already been rejected by both Judge Keenan and the undersigned. See Media Glow Dig., LLC v. Panasonic Corp. of N. Am., supra, 2018 WL 2175550 at *6 (Panasonic's alleged failures amounted to "breach of contract, not gross negligence"); Media Glow Dig., LLC v. Panasonic Corp. of N. Am., supra, 2018 WL 6444934 at *9 ("Defen- dants' alleged conduct . . . even at its worst, does not rise to the level of gross negligence . . . because defendants did not recklessly disregard the rights of plaintiffs, nor did they place anyone in physical danger.").
Finally, Plaintiffs argue that Panasonic breached a duty independent of its contract because as a general contractor, it was obligated "to follow the New York Industrial Code's safety regulations" and it did not (Pl. Pana. Memo. at 12). However, plaintiffs do not identify any specific regulation that Panasonic violated, nor do they cite to any authority suggesting that Panasonic's status as a contractor gives rise to an independent duty of care. Rather, they merely state that Panasonic failed to properly certify the LED sign pursuant to the New York Electric Code and then go on to discuss Panasonic's alleged breach of the contract to perform an independent air rights survey (Pl. Pana. Memo. at 12). This is insufficient to create a genuine issue of fact that Panasonic owed plaintiffs an additional legal duty outside of the obligations defined in the Millennium and DoubleTree Contracts.
Accordingly, Panasonic owed no legal duty to plaintiffs independent of its contractual obligations based on the nature of the services performed and the nature of the injuries alleged.
b. The Economic Loss Doctrine
Moreover, even if plaintiffs could establish such a duty, their negligence claim would nonetheless be barred under the economic loss doctrine. See Carmania Corp. v. Hambrecht Terrell Intern., 705 F. Supp. 936, 938 (S.D.N.Y. 1989) (Patterson, D.J) (establishing an independent legal duty is "only one of the dikes that New York courts have erected in their inevitable attempt to keep contract law from drowning in a sea of tort[;]" a party must also demonstrate that its damages go beyond "economic loss" to "recover in tort" (internal quotation marks and citations omitted)).
The economic loss rule provides that "no tort recovery can be had . . . for contractually based economic loss . . . ." Landtek Group, Inc. v. N. Am. Specialty Flooring, Inc., CV-14-1095 (SJF)(AKT), 2016 WL 11264722 at *17 (E.D.N.Y. Aug. 12, 2016) (Report & Recommendation), adopted at, 2016 WL 8671839 (E.D.N.Y. Sept. 16, 2016) (internal quotation marks and citations omitted); accord Wade v. Tiffin Motorhomes, Inc. 686 F. Supp. 2d 174, 187 (N.D.N.Y. 2009) ("[A]n owner of a product who suffers purely monetary harm to the product itself, due to a defect or in the manufacturing or installation of the product, is limited to only whatever remedy the owner may have in contract."). This rule restricts "plaintiffs who have suffered 'economic loss,' but not personal or property injury, to an action for the benefits of their bargain." Carmania Corp. v. Hambrecht Terrell Intern., supra, 705 F. Supp. at 938 ("If the damages suffered are of the type remedial in contract, a plaintiff may not recover in tort."); Bristol Village, Inc. v. Louisiana-Pacific Corp., 916 F. Supp. 2d 357, 365 (W.D.N.Y. 2013); accord Amin Realty, LLC v. K & R Constr. Corp., 306 A.D.2d 230, 231, 762 N.Y.S.2d 92, 93 (2d Dep't 2003). Thus, "[t]he economic loss rule reflects the principle that damages arising from the failure of the bargained-for consideration to meet the expectations of the parties are recoverable in contract, not tort." Bristol-Myers Squibb, Indus. Div. v. Delta Star, Inc., 206 A.D.2d 177, 181, 620 N.Y.S.2d 196, 198-99 (4th Dep't 1994).
Plaintiffs contend that Panasonic is not entitled to summary judgment on their negligence claim because the economic loss doctrine only applies in products liability cases where there is a sale of a defective product, not where there are allegations of negligent performance of contractual duties (Pl. Pana. Memo. at 18). Plaintiffs allege that because Panasonic was negligent in its duties to timely deliver and install an LED sign that was free from defects, its negligence goes beyond the mere sale of a faulty product (Pl. Pana. Memo. at 18).
Plaintiffs rely primarily on two cases in support of this assertion -- Consolidated Edison Co. v. Westinghouse Elec. Corp., 567 F. Supp. 358 (S.D.N.Y. 1983) (Lasker, D.J.) and Morse/Diesel, Inc. v. Trinity Indus., Inc., 655 F. Supp. 346 (S.D.N.Y. 1987) (Kram, D.J.), rev'd on other grounds, 859 F.2d 242 (2d Cir. 1988). Both cases endorse a limited exception to the economic loss doctrine and hold that a party may recover purely economic damages for "negligent performance of contractual services." Consolidated Edison Co. v. Westinghouse Elec. Corp., supra, 567 F. Supp. at 364; accord Morse/Diesel, Inc. v. Trinity Indus., Inc., supra, 655 F. Supp. at 359.
Plaintiffs' argument, however, is not persuasive. First, more recent decisions have expressly questioned the validity of Consolidated Edison Co. v. Westinghouse Elec. Corp., supra, 567 F. Supp. at 364. See Joseph v. David M. Schwarz/Architectural Servs., P.C., 957 F. Supp. 1334, 1340-41 (S.D.N.Y. 1997) (Haight, D.J.), abrogated in part on other grounds by Hydro Investors Inc. v. Trafalgar Power Inc., 227 F.3d 8, 18 (2d Cir. 2000) ("In opposition to these decisions, there is a substantial line of authority which squarely rejects the service/goods dichotomy, and which adopts a blanket rule against negligence suits where only economic loss is at stake."); Long Is. Lighting Co. v. Stone & Webster Eng'g. Corp., 839 F. Supp. 183, 187 n.5 (E.D.N.Y. 1993) (referring to the holding in Consolidated Edison as "outdated law"); Niagara Mohawk Power Corp. v. Stone & Webster Eng'g. Corp., 725 F. Supp. 656, 665 (N.D.N.Y. 1992) ("The holding of Consolidated Edison with respect to economic loss is in direct conflict with more recent decisions which hold that New York law does not recognize a negligence cause of action when economic loss alone is involved."); see also Shema Kolainu-Hear Our Voices v. ProviderSoft, LLC, 832 F. Supp. 2d 194, 207 (E.D.N.Y. 2010) (discussing the conflicts between courts on this issue). As one state court decision explained:
Plaintiff seeks to escape application of the economic loss rule on the ground that its damages did not result from product nonperformance, but from negligent performance of services. In our view, it is of no consequence whether the failure of the transformer to perform as promised was due to faulty installation or to the breakdown of the transformer itself. The economic loss rule reflects the principle that damages arising from the failure of the bargained-for consideration to meet the expectations of the parties are recoverable in contract, not tort (see, Bellevue S. Assocs. v. HRH Constr. Corp., 78 NY2d, supra, at 294-25; Syracuse Cablevision v. Niagara Mohawk Power Corp., 173 AD2d, supra, at 142; Hemming v. Certainteed Corp., supra). That principle extends beyond the relationship between consumers and manufacturers or suppliers of goods. The economic loss rule does not provide any basis for distinguishing between the liability of product manufacturers and product installers for damages relating to the expectations of contracting parties. Whether a product fails to perform as promised due to negligence in the manufacturing process or in the installation process, recovery in negligence is unavailable for purely economic loss. Thus, the economic loss rule serves to limit the liability of providers of services as well as providers of products (see, Key Intl. Mfg. v. Morse/Diesel, Inc., 142 AD2d 448, 451-452 [architects and engineers on construction project]; Lake Placid Club Attached Lodges v. Elizabethtown Bldrs., 131 AD2d 159, 162 [builder and architect of condominium development]). Id. pps. 180-187.Ellis v. Fleetpride Store No. 396, 24 Misc.3d 1248(A), 2009 WL 2915264 at *7 (text) (Watertown N.Y. City Ct. Aug. 17, 2009) (emphasis in the original).
Second, several more recent decisions have found that even where negligent performance of contractual services is alleged, the economic loss doctrine bars negligence claims where "the damages alleged were only cognizable in [the] contract." Carmania Corp., N.V. v. Hambrecht Terrell Intern., supra, 705 F. Supp. at 940, citing Key Intern. Mfg., Inc. v. Morse/Diesel, Inc., 142 A.D.2d 448, 536 N.Y.S.2d 792 (2d Dep't 1988); accord Rochester-Genesee Regional Trans. Auth. v. Cummins Inc., 09-CV-6370 (MAT), 2010 WL 2998768 at *10 (W.D.N.Y. July 28, 2010) ("Where the parties are under a contractual relationship, recovery of economic loss is not available regardless of whether the contract is for the provision of goods or of services."). As already determined by Judge Keenan, plaintiffs' recoverable damages are strictly limited to those economic damages set forth in the Millennium and DoubleTree Contracts. Media Glow Dig., LLC v. Panasonic Corp. of N. Am., supra, 2018 WL 2175550 at *6.
Third, courts have held that where the crux of a plaintiff's claim is a breach of contract based on the sale of a defective product, any breach of services related to the sale or installation of that product are "merely incidental" to the sale and, thus, should not be considered "negligent performance of contractual services." American Tel. & Tel. Co. v. New York City Human Res. Admin., 833 F. Supp. 962, 983 (S.D.N.Y. 1993) (Leisure, D.J.); accord Shema Kolainu-Hear Our Voices v. ProviderSoft, LLC, supra, 832 F. Supp. 2d at 207; TeeVee Toons, Inc. v. Gerhard Schubert GmbH, 00 Civ. 5189 (RCC), 2006 WL 2463537 at *17 (S.D.N.Y. Aug. 23, 2006) (Casey, D.J.).
In TeeVee Toons, Inc. v. Gerhard Schubert GmbH, supra, 2006 WL 2463537 at *1, plaintiffs asserted breach of contract, fraud and negligence claims against defendant for "improperly manufactur[ing] a packaging system" for audio and video cassettes. Like plaintiffs' allegations here, plaintiffs in TeeVee Toons alleged that defendant improperly designed, manufactured and installed the system, causing the project to be delayed for over two years. 2006 WL 2463537 at *1. The late Honorable William C. Casey, United States District Judge granted summary judgment in favor of defendant based on the economic loss doctrine. 2006 WL 2463537 at *17. Judge Casey found that defendant's "fail[ure] to adequately and prudently . . . install [the] system so that it would perform as it had been intended . . . [did not make] out a case for negligent performance of contractual services" because "the crux of [the] matter [was] the defective [system] and the breach of the" contract for the system. 2006 WL 2463537 at *17.
The crux of plaintiffs' complaint is that Panasonic sold them a defective LED sign and all other allegations as to the delays and mistakes in the installation of that sign are "merely incidental to the sale" of the sign. American Tel. & Tel. Co. v. New York City Human Res. Admin., supra, 833 F. Supp. at 983. Thus, "despite the installation service, the contract between [plaintiffs and Panasonic] remains one for sale of goods [and] [a]ccordingly, New York law precludes recovery by [plaintiffs] for economic loss under a negligent performance of contract claim." American Tel. & Tel. Co. v. New York City Human Resources Admin., supra, 833 F. Supp. at 983; see also Shema Kolainu-Hear Our Voices v. ProviderSoft, LLC, supra, 832 F. Supp. 2d at 207 ("The distinction between goods contracts and service contracts turns on whether the transaction, taken as a whole, is deemed to be a sale of goods . . . or is deemed to be predominantly service oriented." (internal quotation marks and citations omitted)).
Thus, Panasonic's motion for summary judgment as to plaintiffs' negligence claims should be granted.
2. Negligent Misrepresentation
Panasonic next moves for summary judgment on plaintiffs' negligent misrepresentation claim (Pana. Memo. at 11-14).
To state a claim for negligent misrepresentation under New York law, a plaintiff is required to show that (1) defendant had a duty, as a result of a special relationship, to give correct information; (2) defendant made a false representation that he or she should have known was incorrect; (3) the defendant knew that the plaintiff sought the information for a serious purpose; (4) plaintiff intended to rely and act upon it; and (5) plaintiff reasonably relied on it to his or her detriment. Cacchillo v. Insmed, Inc., 551 F. App'x 592, 595-96 (2d Cir. 2014) (summary order); Pure Diets India Limited v. Genco, 18 Civ. 3086 (VEC), 2019 WL 428834 at *7 (S.D.N.Y. Feb. 4, 2019) (Caproni, D.J.).
a. Special Relationship
Panasonic contends that its relationship with plaintiffs was "a garden-variety commercial arrangement" and, thus, there is no genuine issue of fact as to whether a special relationship existed sufficient to sustain a negligent misrepresentation claim (Pana. Memo. at 12). Plaintiffs, on the other hand, maintain that a special relationship existed because of "the trust and confidence [p]laintiffs placed in Panasonic after Panasonic represented its unique and special expertise" to provide them with a quality LED sign (Pl. Pana. Memo. at 19-20).
In order to determine whether a special relationship exists sufficient to sustain a negligent misrepresentation claim, the Second Circuit has held that New York law requires consideration of the following three factors: (1) "whether the person making the representation held or appeared to hold unique or special expertise;" (2) "whether a special relationship of trust or confidence existed between the parties;" and (3) "whether the speaker was aware of the use to which the information would be put and supplied it for that purpose." Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 103 (2d Cir. 2001) (internal quotation marks and citation omitted); accord @Wireless Enters., Inc. v. AI Consulting, LLC, 05 Civ. 6176 (CJS), 2006 WL 3370696 at *12 (W.D.N.Y. Oct. 30, 2006). Generally, a simple commercial relationship, such as that between a buyer and seller or franchisor and franchisee, does not constitute the kind of "special relationship" necessary to support a negligent misrepresentation claim. Dimon, Inc. v. Folium, Inc., 48 F. Supp. 2d 359, 373 (S.D.N.Y. 1999) (Kaplan, D.J). "An ordinary contractual relationship, without more, is insufficient to establish a 'special relationship.'" General Ins. Co. v. K. Capolino Const. Corp., 983 F. Supp. 403, 436 (S.D.N.Y. 1997) (Conner, D.J.), quoting Banque Arabe et Internationale D'Investissement v. Maryland Nat'l Bank, 819 F. Supp. 1282, 1293 (S.D.N.Y. 1993 ) (Ward, D.J.), aff'd, 57 F.3d 146 (2d Cir. 1995); see also Stern v. H. Dimarzo, Inc., 19 Misc.3d 1144, 867 N.Y.S.2d 20, 2008 WL 2369749 at *15 (text) (Sup. Ct. West. Cnty. June 11, 2008) ("The tort of negligent misrepresentation cannot be independently asserted within the context of a breach of contract action unless a special relationship exists between the parties and the alleged misrepresentation concerns a matter which is extraneous to the contract itself.").
A commercial relationship may become a special relationship, however, where "the parties enjoy a relationship of trust and reliance closer than that of the ordinary buyer and seller." Polycast Tech. Corp. v. Uniroyal, Inc., 87 Civ. 3297 (JMW), 1988 WL 96586 at *10 (S.D.N.Y. Aug. 31, 1988) (Walker, D.J.) (internal quotation marks and citations omitted). Generally, such a relationship requires "a 'closer degree of trust, confidence, or reliance,' such as that implied by a previous or continuing relationship between the parties . . . ." General Ins. Co. v. K. Capolino Const. Corp., supra, 983 F. Supp. at 436, quoting, Congress Financial Corp. v. John Morrell & Co., 790 F. Supp. 459, 474 (S.D.N.Y. 1992) (Patterson, Jr., D.J.). "Courts in this circuit have held that a determination of whether a special relationship exists is highly fact-specific . . . ." Century Pacific, Inc. v. Hilton Hotels Corp., 03 Civ. 8258 (SAS), 2004 WL 868211 at *8 (S.D.N.Y. Apr. 21, 2004) (Scheindlin, D.J.).
There is no evidence sufficient to support a finding of a "special relationship" between plaintiffs and Panasonic sufficient to sustain a negligent misrepresentation claim. The evidence concerning the parties' contracts and the surrounding circumstances demonstrates that this was an ordinary contractual relationship between a buyer and a seller for the manufacture and installation of an LED sign. See Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 788 (2d Cir. 2003); General Ins. Co. v. K. Capolino Const. Corp., supra, 983 F. Supp. at 436.
Plaintiffs allege that Panasonic "preyed upon" plaintiffs' lack of expertise in the "Times Square LED sign industry" and that plaintiffs relied on Panasonic's "unique and specialized expertise" to provide them with a high quality LED sign that complied with the proper rules and regulations and fit within the designated air space (Pl. Pana. Memo. at 19-20). Not only is there insufficient evidence to support plaintiffs' claim that Panasonic "preyed on" plaintiffs' lack of expertise, but the fact that Panasonic may have had more extensive knowledge about the manufacturing of LED signs than plaintiffs does not automatically give rise to a special relationship based on trust and reliance. See JP Morgan Chase Bank v. Winnick, 350 F. Supp. 2d 393, 402 (S.D.N.Y. 2004) (Lynch, then D.J., now Cir. J.) (no special relationship even though defendants were "far more knowledgeable about the fiber optic cable business" than plaintiff); Pacnet Network v. KDDI Corp., 25 Misc.3d 1203, 901 N.Y.S.2d 908, 2009 WL 2999200 at *4 (Sup. Ct. N.Y. Cnty. Sept. 16, 2009), aff'd, 78 A.D.3d 478, 912 N.Y.S.2d 178 (1st Dep't 2010) ("Even if [defendant] did have more expertise about the relevant technology than [plaintiff], this alone could not give rise to a special relationship ."); see also Brine v. 65th Street Townhouse LLC, 20 Misc.3d 1138, 867 N.Y.S.2d 372, 2008 WL 3915784 at *1, *5 (text) (Sup. Ct. N.Y. Cnty. Aug. 20, 2008) (contractor and architect defendants representing their "experience and expertise in constructing luxury homes" to plaintiff did not give rise to a special relationship independent of the parties' contract sufficient to support a negligent misrepresentation claim).
Moreover, courts have found that contractors, or companies similar to Panasonic, generally do not fall into the limited category of defendants who possess unique expertise or who are in a special position of trust to establish the requisite special relationship in negligent misrepresentation claims. See Air China, Ltd. v. Kopf, 473 F. App'x 45, 49 (2d Cir. 2012) (no special relationship between plaintiff and a developer and builder who had contracted to design and construct a residential facility because defendants did not "possess unique or specialized expertise [and] were not in a special position of confidence and trust with" plaintiff (internal quotation marks omitted)); Alley Sports Bar, LLC v. SimplexGrinnell, LP, 58 F. Supp. 3d 280, 294 (W.D.N.Y. 2014) (no "special relationship[] of confidence and trust" between plaintiff and licensed fire alarm contractor); Board of Educ. v. Grillo, 36 Misc.3d 1221, 959 N.Y.S.2d 87, 2012 WL 3101800 at *9 (Sup. Ct. Nassau Cnty. June 20, 2012) (no special relationship between plaintiff and general contractor, subcontractor or architect based on "special expertise" where plaintiff alleged misrepresentations in connection with a construction project); Pacnet Network v. KDDI Corp., supra, 25 Misc.3d 1203, 901 N.Y.S.2d 908, 2009 WL 2999200 at *1, *5 (no special relationship between plaintiff and defendant where defendant allegedly designed and manufactured a faulty submarine fiber optic telecommunications cable system); Brine v. 65th Street Townhouse LLC, supra, 20 Misc.3d 1138, 867 N.Y.S.2d 372, 2008 WL 3915784 at *5 (no special relationship between plaintiff and general contractor or architect based on "experience and expertise").
Thus, plaintiffs' negligent misrepresentation claim against Panasonic fails because they have not demonstrated the existence of a triable issue of fact as to whether the requisite special relationship existed between the parties independent of the Millennium and DoubleTree Contracts.
b. The Negligent Misrepresentation Claim is Duplicative
Plaintiffs' negligent misrepresentation claim is also improperly duplicative of their breach of contract claim. "[U]nder New York law contractual relationships generally do not support a negligent misrepresentation claim." Air China, Ltd. v. Kopf, supra, 473 F. App'x at 49, citing JP Morgan Chase Bank v. Winnick, supra, 350 F. Supp. 2d at 400. Where the parties' relationship is defined by contract and the alleged negligent misrepresentations stem from that contract, a negligent misrepresentation claim is impermissible. Sylhan, LLC v. Schwarzkopf Techs. Corp., 01-CV-4368 (JS)(ETB), 2002 WL 32605796 at *4-*5 (E.D.N.Y. Aug. 9, 2002) (dismissing plaintiff's negligent misrepresentation and fraud claims where defendant allegedly sold plaintiff an inferior quality product because the parties' relationship was defined by contract and the alleged misrepresentations stemmed from "the very essence of the contract"); General Ins. Co. v. K. Capolino Const. Corp., supra, 983 F. Supp. at 436 (plaintiff's "negligent misrepresentation claim cannot coexist with its breach of contract claims").
Thus, even if plaintiffs could establish that the "parties may have had a special relationship[,]" plaintiffs' negligent misrepresentation claim should still be dismissed because it is "duplicative of its breach of contract claim." Winthrop-University Hosp. Assoc. v. Sterling Servs. Group, L.C., 08-CV-1404 (JS)(ETB), 2009 WL 10709106 at *8 (E.D.N.Y. Mar. 31, 2009); accord Ixe Banco, S.A. v. MBNA Am. Bank, N.A., 07 Civ. 0432 (LAP), 2008 WL 650403 at *12 (S.D.N.Y. Mar. 7, 2008) (Preska, D.J.) ("Actions for . . . negligent misrepresentation will not lie when the factual underpinning for the claim is duplicative of a breach of contract claim."); Brine v. 65th Street Townhouse LLC, supra, 20 Misc.3d 1138, 867 N.Y.S.2d 372, 2008 WL 3915784 at *6 (defendants' motion to dismiss granted where plaintiff's "allegations for negligent misrepresentation are simply his breach of contract claims repackaged").
Plaintiffs contend that Panasonic misrepresented (1) its experience in designing, constructing and installing LED signs; (2) that it would design and manufacture the sign, but instead, subcontracted the work to ICON and Retop and (3) that the Millennium and DoubleTree signs would be installed within an agreed upon time frame (SAC ¶¶ 36, 41, 53; Pl. Pana. Memo. at 21-22). These "alleged misrepresentations, even if in fact false, and the complications and indignities allegedly suffered by [plaintiffs], even if real, [are] merely the slings and arrows of the contract dispute . . . and the remedy for such actions and injuries lies in contract law." General Ins. Co. v. K. Capolino Const. Corp., supra, 983 F. Supp. at 436-37.
Plaintiffs even argue that Panasonic's outsourcing its work to ICON and Retop was specifically prohibited by the Millennium Contract (Pl. Pana. Memo. at 21).
Thus, plaintiffs cannot maintain a negligent misrepresentation claim against Panasonic because it is impermissibly duplicative of their breach of contract claim.
3. Fraud and Fraudulent Inducement
Plaintiffs' fraud claims against Panasonic also fail for substantially similar reasons. Both parties concede that the "misrepresentations at issue [in plaintiffs' fraud claims] are the same as those that underpin [p]laintiffs' claim for negligent misrepresentation as stated above" (Pl. Pana. Memo. at 23; Pana. Memo. at 15-16).
"Where a fraud claim is premised on defendants' alleged breach of contractual duties, a plaintiff may maintain the fraud claim in one of three ways: (1) 'demonstrat[ing] a legal duty separate from the duty to perform under the contract'; (2) 'demonstrat[ing] a fraudulent misrepresentation collateral or extraneous to the contract'; or (3) 'seek[ing] special damages that are caused by the misrepresentation and unrecoverable as contract damages.'" Wiener v. Fireman's Fund Ins. Co., 14-CV-3699 (CBA)(JO), 2015 WL 13742025 at *4 (E.D.N.Y. June 15, 2015), quoting, Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996).
As discussed at length above, Panasonic did not owe plaintiffs a legal duty separate from the duty to perform under the Millennium and DoubleTree Contracts.
Turning to Panasonic's alleged fraudulent misrepresentations, similar to negligent misrepresentation, "[u]nder New York law, a plaintiff cannot maintain a claim for both fraud and breach of contract where the alleged fraudulent misrepresentations are to the underlying terms of the contract." Patell Indus. Mach. Co., Inc. v. Toyoda Mach. U.S.A., Inc., 93 Civ. 1572 (FJS), 1997 WL 10972 at *3 (N.D.N.Y. Jan. 9, 1997); accord LaRoss Partners, LLC v. Contact 911 Inc., 874 F. Supp. 2d 147, 163 (E.D.N.Y. 2012); Mexican Hass Avocado Importers Ass'n v. Preston/Tully Group Inc., 838 F. Supp. 2d 89, 98 (E.D.N.Y. 2012); Sylhan, LLC v. Schwarzkopf Techs. Corp., supra, 2002 WL 32605796 at *4-*5; see also Krantz v. Chateau Stores of Can. Ltd., 256 A.D.2d 186, 187, 683 N.Y.S.2d 24, 25 (1st Dep't 1998) ("[a] cause of action for fraud does not arise when the only fraud charged relates to a breach of contract." (internal quotation marks and citations omitted)). Panasonic's alleged misrepresentations that it would not subcontract work and that it would deliver a high quality LED sign within the agreed upon deadline that complied with proper air space rights are essentially "[i]nsincere prom- ises of future performance under a contract" and "are not collateral or extraneous [to the contract] and are insufficient to allege fraud." Mexican Hass Avocado Importers Ass'n v. Preston/Tuily Group Inc., supra, 838 F. Supp. 2d at 98; see also Sylhan, LLC v. Schwarzkopf Techs. Corp., supra, 2002 WL 32605796 at *4-*5 (defendant's alleged misrepresentation regarding the quality of a commercially contracted for product was "neither collateral nor extraneous to the contract, but [was] instead the very essence of the contract").
Finally, no special damages extraneous to the contract exist here, in light of Judge Keenan's prior decision. See Media Glow Dig., LLC v. Panasonic Corp. of N. Am., supra, 2018 WL 2175550 at *6 (limiting plaintiffs to those economic damages set forth in the contracts).
Thus, Panasonic's summary judgment motion as to plaintiffs' fraud claims should be granted.
4. Breach of Warranty
Panasonic next moves for summary judgment as to plaintiffs' breach of warranty claim. Plaintiffs' breach of warranty claim consists of two sentences in their second amended complaint: "Plaintiffs re-allege and incorporate by reference paragraphs 1 through 115 as if fully stated herein. The foregoing allegations constitute Panasonic's breaches of the warran- ties, express and implied, of all agreements and contracts between Plaintiffs and Panasonic" (SAC ¶¶ 116-17).
Section 4.1 of the Millennium Contract sets forth Panasonic's warranty to MGD for the Millennium Sign:
Panasonic represents and warrants to [MGD] for the warranty period of twenty-four months following substantial completion of the Integrated System that the Integrated System will be free from defects in workmanship and materials. Except as set forth in the immediately preceding sentence, the Equipment shall be covered solely by the standard written manufacturer's warranty (if any) included with such equipment when delivered. THE WARRANTIES SET FORTH IN THIS PARAGRAPH ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES ON THE SYSTEM, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGMENT, ALL OF WHICH ARE HEREBY WAIVED BY [MGD].(Millennium Contract § 4.1).
Section 5 and Section 6.2 of Exhibit A to the DoubleTree Contract sets forth Panasonic's warranty to TSL for the DoubleTree Sign:
Panasonic warrants to [TSL] that materials and equipment furnished under the Purchase Agreement will be of good quality. Panasonic further warrants that materials and equipment will conform to the requirements of the Contract Documents and will be free from defects. Materials or equipment not conforming to these requirements shall be considered defective. If required by [TSL], Panasonic shall furnish satisfactory evidence as to the kind and quality of materials and equipment. The foregoing warranties and obligations of Panasonic shall survive the final payment and also survive termination of the Purchase Agreement, but only to the extent that the Project Scope, at the time of termination, was substantially complete. Panasonic shall, at the time of final completion of the Project Scope and as a condition precedent to final payment to Panasonic, assign to [TSL] the manufacturer's warranties related
to the equipment, materials used. Panasonic shall deliver to [TSL] the warranties, project manuals, operating procedures, and other materials related to the Integrated System and materials included in Panasonic's Project Scope and as required by the Plans and Specifications. The warranties provided by Panasonic, and the obligations of Panasonic in connection with such warranties, are described in Exhibit A hereto.(DoubleTree Contract § 5; Ex. A to DoubleTree Contract § 6.2). The DoubleTree warranty was later amended to clarify that the commencement of the 24-month warranty would begin upon "the date of [s]ubstantial [c]ompletion" of the DoubleTree Sign (Amendment to Purchase Agreement, annexed to Simes Decl. as Ex. 17 (D.I. 142-17) ("Amendment One") § 1A).
* * *
Panasonic represents and warrants to [TSL] for the warranty period of twenty-four (24) months from the Commencement of Warranty Period defined below that the Integrated System will be free from defects in workmanship and materials. Except as set forth in the immediately preceding sentence, the Equipment shall be covered solely by the standard written manufacturer's warranty (if any) included with such equipment when delivered. EXCEPT AS OTHERWISE PROVIDED HEREIN OR IN SECTION 5 OF THE PURCHASE AGREEMENT, THE WARRANTIES SET FORTH IN THIS SECTION ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES ON THE INTEGRATED SYSTEM, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGMENT, ALL OF WHICH ARE HEREBY WAIVED BY [TSL].
It is clear from the face of the contracts that plaintiffs waived the implied warranties of merchantability and fitness for a particular purpose. See Martino v. MarineMax Northeast, LLC, 17-CV-4708 (DRH)(AKT), 2018 WL 6199557 at *4 (E.D.N.Y. Nov. 28, 2018) ("Warranties of merchantability and fitness for a particular purpose can be excluded by writing if the writing is conspicuous."); Warren W. Fane, Inc. v. Tri-State Diesel, Inc., 12-cv-1903, 2014 WL 1806773 at *9 (N.D.N.Y. May 7, 2014) ("Warranty disclaimers in all capital letters and [specifying] the warranties that are being disclaimed have been found valid." (internal quotation marks and citation omitted)); OZ General Contracting Co., Inc. v. Timesavers, Inc., 11-CV-724 (SJF)(ARL), 2012 WL 4344500 at *1 n.1 (E.D.N.Y. Sept. 21, 2012) ("A contractual disclaimer of the implied warranties of merchantability and fitness for a particular purpose is expressly permitted under the [Uniform Commercial Code] provided that the writing is conspicuous and, in regard to the implied warranty of merchantability, the language specifically mentions merchantability."); accord Emerald Equipment Sys., Inc. v. Gearhart Bros. Servs., LLC, 115 A.D.3d 1187, 1189, 983 N.Y.S.2d 152, 154 (4th Dep't 2014) (a "broad, express, and conspicuous disclaimer of all warranties set forth in [a written agreement] is fatal to . . . claims for breach of the implied warranties of merchantability and fitness for a particular purpose" (internal quotation marks omitted)).
However, there appears to be a genuine issue of material fact as to whether Panasonic breached the express warranty set forth in the DoubleTree Contract and whether this limited, express warranty failed its essential purpose.
Under the Uniform Commercial Code ("UCC"), a sales contract may limit the remedies available under express warranties to repair or replacement "so long as the remedy does not fail of its essential purpose, such as through the inability of the warrantor to repair defects." Demorato v. Carver Boat Corp, 304 F. App'x 100, 102 (3rd Cir. 2008) (applying New York law); accord Kraft v. Staten Island Boat Sales, Inc., 715 F. Supp. 2d 464, 475 (S.D.N.Y. 2010) (Sullivan, D.J., now Cir. J.). A limited remedy fails its essential purpose "whenever an exclusive remedy, which may have appeared fair and reasonable at the inception of the contract, as a result of later circumstances operates to deprive a party of a substantial benefit of the bargain." Cayuga Harvester, Inc. v. Allis-Chaimers Corp., 95 A.D.2d 5, 10, 465 N.Y.S.2d 606, 611 (4th Dep't 1983); accord Feliciano v. General Motors LLC, 14 Civ. 6371 (AT), 2016 WL 9344120 at *5 (S.D.N.Y. Mar. 31, 2016) (Torres, D.J.). "[A] buyer can lose a substantial benefit of the bargain where the warrantor is unable to repair the item or does not repair the defect within a reasonable time." Kraft v. Staten Island Boat Sales, Inc., supra, 715 F. Supp. 2d at 475, citing Roneker v. Kenworth Truck Co., 944 F. Supp. 179, 185 (W.D.N.Y. 1996); see also Cayuga Harvester, Inc. v. Allis-Chalmers Corp., supra, 95 A.D.2d at 10, 465 N.Y.S.2d at 611 (a buyer is not required to show that the seller acted negligently or in bad faith to establish a failure of a limited warranty).
Plaintiffs have submitted several email chains from February 2016 that outline the numerous failures and defects with the DoubleTree Sign (Panasonic February 1, 2016 Email, annexed to Hansen Decl. as Ex. 26 (D.I. 171-2) ("Feb. 1 Email"); Panasonic February 10, 2016 Email, annexed to Hansen Decl. as Ex. 96 (D.I. 171-4) ("Feb. 10 Email"); Panasonic February 19, 2016 Email, annexed to Hansen Decl. as Ex. 86 (D.I. 171-3) ("Feb. 19 Email")). On February 1, 2016, Panasonic acknowledged that one of their manufacturers in China was no longer manufacturing the "power supplies" necessary to repair the DoubleTree Sign's electrical defects and that it was working on finding an alternative solution (Feb. 1 Email). As of February 10, 2016, Panasonic admitted that it could not "provide a firm date [by which] the product reliability issues on [the DoubleTree Sign would] be 100% resolved" and that the "rate of failure [on the sign was] not improving" (Feb. 10 Email).
While Panasonic may ultimately be correct that it has not breached the DoubleTree Contract's express warranty because it has consistently offered to make repairs on the DoubleTree Sign, plaintiffs have at least raised a triable issue of fact as to whether Panasonic breached its warranty to provide a "good quality" LED sign "free from defects in workmanship and materials." See Kraft v. Staten Island Boat Sales, Inc., supra, 715 F. Supp. 2d at 475-76 (denying summary judgment because there was an issue of material fact as to whether defendant breached its limited express warranty and whether the limited express warranty failed in its essential purpose where plaintiff provided evidence of continued defects in the manufacturing and functioning of a power boat, despite defendant's repeated repairs). Moreover, whether Panasonic's limited express warranty to replace or repair "failed in its essential purpose is a question of fact for the jury to determine based on circumstances transpiring after the contract was formed." Kraft v. Staten Island Boat Sales, Inc., supra, 715 F. Supp. 2d at 476; accord Bristol Village, Inc. v. Louisiana-Pacific Corp., 170 F. Supp. 3d 488, 508 (W.D.N.Y. 2016).
Thus, Panasonic's motion for summary judgment as to plaintiffs' breach of warranty claim should be denied.
5. Panasonic's Breach of Contract Counterclaim
Finally, Panasonic moves for summary judgment on its breach of contract counterclaim against TSL because TSL has not paid its outstanding $1,990,219 balance to Panasonic for the manufacture and installation of the DoubleTree Sign (Pana. Memo. at 21).
"Under New York law, a breach of contract claim requires proof of (1) an agreement, (2) adequate performance by the plaintiff, (3) breach by the defendant, and (4) damages." Negrete v. Citibank, N.A., --- F. App'x --- , 2019 WL 80773 at *3 (2d Cir. Jan. 3, 2019); Fischer & Mandell, LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir. 2011). However, "a party's performance under a contract is excused where the other party has substantially failed to perform its side of the bargain or, synonymously, where that party has committed a material breach." Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 186-87 (2d Cir. 2007), citing Hadden v. Consolidated Edison Co. of N.Y., 356 N.Y.S.2d 249, 312 N.E.2d 445, 449, 34 N.Y.2d 88, 96 (1974); accord Innovative Biodefense, Inc. v. VSP Techs., Inc., 176 F. Supp. 3d 305, 317 (S.D.N.Y. 2016).
TSL alleges numerous material breaches of the DoubleTree Contract by Panasonic including persistent electrical and display defects in the DoubleTree Sign, improper subcontracting, inefficient supervision of the DoubleTree project and untimely installation of the DoubleTree Sign. TSL contends that these "material breaches" discharged TSL from its contractual payment obligations and forecloses summary judgment in favor of Panasonic (Pl. Pana. Memo. at 5-6). Panasonic maintains that TSL is obligated to pay the remaining balance regardless of any alleged breach on Panasonic's part because TSL "accepted the DoubleTree Sign" and, thus, it did not properly reject the product under the UCC to excuse payment (Reply Memorandum of Law in Support of Panasonic's Motion for Summary Judgment, dated May 18, 2018 (D.I. 158) at 9-10). Panasonic's argument is unavailing.
It is clear from the extensive record in this case that Panasonic was well aware of TSL's dissatisfaction with the DoubleTree Sign before, during and after its installation. Given that the product in question is a large-scale LED sign that was installed on a massive hotel facade in Times Square, it would have been impossible for plaintiffs to "reject" such a product in the traditional sense cited by Panasonic other than to make its dissatisfaction with the sign known. Thus, whether Panasonic in fact breached the DoubleTree Contract and, if so, whether this breach was so material as to excuse payment from TSL, are factual issues reserved for a jury to determine.
Because TSL raises genuine issues of material fact as to whether Panasonic's alleged breaches of the DoubleTree Contract discharged it of its contractual payment obligations, Panasonic is not entitled to summary judgment on its counterclaim.
C. Plaintiffs' Claims Against ICON
1. Breach of Contract
ICON moves for summary judgment on plaintiffs' breach of contract claim contending that plaintiffs were not intended third-party beneficiaries of ICON's contracts with Panasonic (ICON Memo. at 7). Plaintiffs do not allege that they are named parties to the contract between Panasonic and ICON; however, they maintain that the "functional equivalent of privity" existed between plaintiffs and ICON and, thus, they qualify as third-party beneficiaries (Plaintiffs' Memorandum of Law in Opposition, to the ICON Defendants' Motion for Summary Judgment, dated Apr. 27, 2018 (D.I. 173) ("Pl. ICON Memo.") at 5-10).
Under New York law, generally "[a]bsent a contractual relationship, there can be no contractual remedy." Suffolk Cnty. v. Long Is. Lighting Co., 728 F.2d 52, 63 (2d Cir. 1984); accord Hillside Metro Assoc., LLC v. JPMorgan Chase Bank, 747 F.3d 44, 49 (2d Cir. 2014); CVS Pharmacy, Inc. v. Press America, Inc., 17 Civ. 190 (GHW), 2018 WL 318479 at *5 (S.D.N.Y. Jan. 3, 2018) (Woods, D.J.). A contractual relationship may be established with a non-signatory third party if that party can show that it was an "intended third-party beneficiary" of the contract. Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., 30 N.Y.3d 704, 710, 94 N.E.3d 456, 459, 70 N.Y.S.3d 893, ___ (2018); see also Stapleton v. Pavilion Building Installation Sys., 09-CV-934S, 2017 WL 431801 at *2 (W.D.N.Y. Feb. 1, 2017), aff'd, 725 F. App'x 28 (2d Cir. 2018).
The New York Court of Appeals has long recognized a "limited exception" in construction cases known as "functional equivalent of privity" to establish a third-party beneficiary contractual relationship. See Town of Oyster Bay v. Lizza Indus., Inc., 22 N.Y.3d 1024, 1030, 4 N.E.3d 944, 948, 981 N.Y.S.2d 643, 647 (2013) ("Even if the plaintiff is not a party to an underlying construction contract, [a breach of contract] claim may accrue upon completion of the construction where the plaintiff is not a 'stranger to the contract,' and the relationship between the plaintiff and the defendant is the functional equivalent of privity."); City Sch. Dist. of City of Newburgh v. Hugh Stubbins & Assocs., 85 N.Y.2d 535, 539, 650 N.E.2d 399, 401, 626 N.Y.S.2d 741, 742 (1995); see also Stapleton v. Pavilion Building Installation Sys., supra, 2017 WL 431801 at *3 (this "limited exception is sometimes applicable in cases . . . where the owner of a property sues . . . a subcontractor with whom it had no direct contractual relationship"); Aktas v. JMC Dev. Co., 877 F. Supp. 2d 1, 27 (N.D.N.Y. 2012), aff'd, 563 F. App'x 79 (2d Cir. 2014).
The functional-equivalent-of-privity theory was recently addressed by the Second Circuit in Stapleton v. Barrett Crane Design & Eng'g., 725 F. App'x 28, 30-31 (2d Cir. 2018) (internal quotation marks omitted) (summary order), in which the Court explained the three-part test used to determine whether the functional equivalent of privity exists between a defendant and a non-signatory plaintiff:
Courts apply a three-part test to determine whether the functional equivalent of privity exists: (1) awareness that the [work product was] to be used for a particular purpose of purposes; (2) reliance by a known party or parties in furtherance of that purpose; and (3) some conduct by the defendants linking them to the party or parties and evincing defendant's understanding of their reliance.725 F. App'x at 30-31 (internal quotation marks omitted); accord Town of Oyster Bay v. Lizza Indus., Inc., supra, 22 N.Y.3d at 1030, 4 N.E.3d at 948, 981 N.Y.S.2d at 647; City Sch. Dist. of City of Newburgh v. Hugh Stubbins & Assocs., supra, 85 N.Y.2d at 539, 650 N.E.2d at 401, 626 N.Y.S.2d at 741; Bri-Den Const. Co. v. Kapell & Kostow Architects, P.C., 56 A.D.3d 355, 355, 867 N.Y.S.2d 437, 438 (1st Dep't 2008). Plaintiffs maintain that ICON knew that plaintiffs intended to use the LED sign for advertising, that plaintiffs relied on ICON to manufacture the LED sign properly and that there was "extensive" and "constant" contact between plaintiffs and ICON throughout the Millennium and DoubleTree projects (Pl. ICON Memo. at 6-10). Thus, plaintiffs contend, the functional equivalent of privity clearly existed between the parties under the factors laid out in Stapleton and Oyster Bay (Pl. ICON Memo. at 6-10).
However, five days prior to the Second Circuit's decision in Stapleton, the New York Court of Appeals issued its decision in Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., supra, 30 N.Y.3d at 704, 94 N.E.3d at 456, 70 N.Y.S.3d at ___, -- a breach of contract and negligence case, on which ICON heavily relies and with facts that are strikingly similar to the allegations here. In Dormitory Auth., the City of New York entered into a construction contract with the Dormitory Authority to finance and manage the construction and design of a forensic biology laboratory for the Office of the Chief Medical Examiner. 30 N.Y.3d at 707, 94 N.E.3d at 458, 70 N.Y.S.3d at ___. The Dormitory Authority subsequently entered into a subcontract with Perkins Eastman Architects ("Perkins") to build the laboratory. 30 N.Y.3d at 707, 94 N.E.3d at 458, 70 N.Y.S.3d at ___. The City later asserted a claim against Perkins for breach of contract and negligence, claiming that it was a third-party beneficiary under Dormitory Authority's subcontract with Perkins. 30 N.Y.3d at 709, 94 N.E.3d at 459, 70 N.Y.S.3d at ___.
The Court of Appeals ruled that summary judgment should have been granted in favor of Perkins. The Court held that although Perkins was aware that the laboratory was being built for the City for a specific purpose, the City was not a third-party beneficiary of the contract because "the Perkins contract [did] not expressly name the City as an intended third-party beneficiary nor [did it] authorize the City to enforce any obligations thereunder." 30 N.Y.3d at 710, 94 N.E.3d at 460, 70 N.Y.S.3d at ___. The Court essentially held that in the absence of express contract language, third parties are generally considered "mere incidental beneficiar[ies] with no right to enforce [a] particular contract[]" and no right to bring a subsequent breach of contract claim. 30 N.Y.3d at 710, 94 N.E.3d at 460, 70 N.Y.S.3d at ___. Moreover, the Court notably omitted any mention of surrounding circumstances in its analysis of whether the City qualified as a third-party beneficiary -- apparently, rejecting the applicability of the functional-equivalent-of-privity exception.
The Court never specifically mentioned the functional-equivalent-of-privity exception in its decision. However, in her dissent, Justice Jenny Rivera noted that the majority had essentially ignored the functional-equivalent-of-privity exception established in Oyster Bay:
With respect to the City's claim, the majority's standard is perilously close to requiring that a contract expressly name a nonparty as a third-party beneficiary. Yet this is not the law. A nonparty that is not a stranger to a contract, and whose relationship with the defendant is the functional equivalent of privity, may assert a breach.Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., supra, 30 N.Y.3d at 717, 94 N.E.3d at 465, 70 N.Y.S.3d at ___ (Rivera, J., dissenting) (internal quotation marks omitted), citing Town of Oyster Bay v. Lizza Indus., Inc., supra, 22 N.Y.3d at 1030, 4 N.E.3d at 948, 981 N.Y.S.2d at 647; see also Town of Huntington v. Long Is. Power Auth., 60 Misc. 3d 1222, 2018 WL 3940358 at *13-*14 (text) (Sup. Ct. Suffolk Cnty. Aug. 16, 2018) (discussing the impact of Dormitory Auth. and concluding it teaches that "courts should no longer consider the surrounding circumstances in determining who qualifies as an intended third-party beneficiary of a contract").
In light of the foregoing, there appears to be a conflict of law between the Second Circuit's decision in Stapleton and the New York Court of Appeals' decision in Dormitory Auth., and between the Court of Appeals' earlier decision in Oyster Bay and its more recent ruling in Dormitory Auth..
With respect to the first conflict, it is well settled under Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) that "a federal court sitting in diversity applies the law of the state in which it sits, and 'the views of the state's highest court with respect to state law are binding on the federal courts.'" Ray v. Watnick, 182 F. Supp. 3d 23, 31 (S.D.N.Y. 2016) (Rakoff, D.J.), aff'd, 688 F. App'x 41, quoting Wainwright v. Goode, 464 U.S. 78, 84 (1983); accord Erie R. Co. v. Tompkins, supra, 304 U.S. at 78 ("[T]he voice adopted by the State as its own (whether it be of its Legislature or of its Supreme Court) should utter the last word."); Zwolak v. Phoenix Steel Serv., Inc., 12-CV-9010, 2015 WL 5971128 at *6 (W.D.N.Y. Oct. 14, 2015) (applying New York state law in a breach of contract diversity case); NRW, Inc. v. Bindra, 12 Civ. 8555 (RJS), 2014 WL 4449779 at *5 (S.D.N.Y. Sept. 10, 2014) (Sullivan, D.J., now Cir. J.) (same). "The holdings of New York's highest court . . . presumptively control [and federal courts] are obligated to follow the Court of Appeals." Fabozzi v. Lexington Ins. Co., 601 F.3d 88, 91-92 (2d Cir. 2010); Levin v. Tiber Holding Corp., 277 F.3d 243, 253 (2d Cir. 2002) ("[T]his Court, sitting in diversity, must follow the holdings of the New York Court of Appeals."). Thus, it is clear that the Court of Appeals' holding in Dormitory Auth. controls here.
However, because the New York Court of Appeals never expressly overruled Oyster Bay in Dormitory Auth., both cases appear to remain good law. Thus, the issue becomes what rule should a federal court follow in a diversity action when there is an apparent conflict in the decisions of a state's highest court.
"[F]ederal courts must apply the most recent interpretation of state law in diversity cases." Middle Atl. Utils. Co. v. S.M.W. Develop. Corp., 392 F.2d 380, 384 (2d Cir. 1968), citing Vandenbark v. Owens-Illinois Glass Co., 311 U.S. 538, 543 (1941) ("[U]ntil such time as a case is no longer sub judice, the duty rests on the federal courts to apply state law under the Rules of Decision statute in accordance with the then controlling decision of the state's highest state court."); accord Lund v. Chemical Bank, 84 Civ. 1621 (RWS), 1990 WL 17711 at *2 (S.D.N.Y. Feb. 20, 1990) (Sweet, D.J.) (granting defendant's renewed motion for summary judgment based on an intervening Court of Appeals' decision that was issued after defendant's initial summary judgment motion); Green v. Santa Fe Indus., Inc., 576 F. Supp. 269, 270 (S.D.N.Y. 1983) (Duffy, D.J.), aff'd, 742 F.2d 1434 (2d Cir. 1964) ("While a case is sub judice, the most recent controlling decisions of the state should be applied."); see also Wood v. Eli Lilly & Co., 38 F.3d 510, 513 (10th Cir. 1994) (holding that federal courts must follow the more recent of two conflicting state court decisions); Baughn v. Eli Lilly and Co., 356 F. Supp. 2d 1166, 1176 (D. Kan. 2005) ("[T]he Court is faced with inconsistent Kansas Supreme Court decisions . . . [as] [n]either case has been overruled and both cases remain 'good law.' . . . However, the Court is bound to follow . . . the most recent case.").
The foregoing authorities dictate that I am bound to follow Dormitory Auth. in determining whether plaintiffs are intended third-party beneficiaries of the contract between ICON and Panasonic. In Dormitory Auth., the Court of Appeals held that a third party had the right to enforce a contract in only two situations: (1) when the third party is the only one who could recover for a breach of the contract or (2) when it is otherwise clear from the language of the contract that there was an intent to permit enforcement by the third party. 30 N.Y.3d at 710, 94 N.E.3d at 459, 70 N.Y.S.3d at ___ (internal quotation marks omitted), citing Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., 66 N.Y.2d 38, 45, 485 N.E.2d 208, 213, 495 N.Y.S.2d 1, 6, (1985). The Court went on to state that
With respect to construction contracts, we have generally required express contractual language state that the contracting parties intended to benefit a third party by permitting that third party "to enforce [a promisee's] contract with another" (Port Chester, 40 NY2d at 656). In the absence of express language, "[s]uch third parties are generally considered mere incidental beneficiaries" (40 NY2d at 656). This rule reflects the particular nature of construction contracts and the fact that -- as is the case here -- there are often several contracts between various entities, with performance ultimately benefitting all of the entities involved.Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., supra, 30 N.Y.3d at 710, 94 N.E.3d at 460, 70 N.Y.S.3d at ___.
Here, as in Dormitory Auth., plaintiffs do not meet either of the criteria required for third-party beneficiary status. First, plaintiffs are not the only entity that could recover under the contract; Panasonic can bring an action against ICON for breach of contract. Second, the contract does not expressly name plaintiffs as intended third-party beneficiaries, nor does it authorize plaintiffs to enforce any obligations thereunder (see Millennium Sign Contract Between Panasonic and ICON and DoubleTree Sign Contract Between Panasonic and ICON, annexed to Declaration of Michael R. Kuntz, dated Mar. 13, 2018 ("Kuntz Decl.") as Exs. A and B (D.I. 143-2 and 143-3) ("ICON Contracts")).
Thus, plaintiffs' breach of contract claim against ICON fails as a matter of law and summary judgment should be granted dismissing that claim.
2. Negligence and Professional Malpractice
However, the Court of Appeals' rejection of the functional-equivalent-of-privity exception Dormitory Auth. does not appear to extend to the negligence and professional malpractice context. The Court's refusal to consider the surrounding circumstances of the City's and Perkin's relationship was strictly limited to the Court's determination of whether the City qualified as a third-party beneficiary for purposes of its breach of contract claim. Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., supra, 30 N.Y.3d at 710, 94 N.E.3d at 460, 70 N.Y.S.3d at ___. Thus, Dormitory Auth. does not overrule the long line of negligence cases in which courts have relied on the three-part functional-equivalent-of-privity test to determine whether a defendant owed a plaintiff a "cognizable [non-contractual] duty of care." See Financial Guar. Ins. Co. v. Putnam Advisory Co., 783 F.3d 395, 405 (2d Cir. 2015); Bayerische Landesbank v. Aladdin Capital Mgmt. LLC, 692 F.3d 42, 59-60 (2d Cir. 2012); Williams & Sons Erectors, Inc. v. South Carolina Steel Corp., 983 F.2d 1176, 1182-83 (2d Cir. 1993); F.D.I.C. v. Hodge, 50 F. Supp. 3d 327, 346-47 (E.D.N.Y. 2014); In re Cavalry Constr., Inc., 07 Civ. 22707 (RDD), 2013 WL 5682741 at *3 (S.D.N.Y. Oct. 18, 2013) (Drain, B.J.); In re September 11 Prop. Damage and Bus. Loss Litig., 481 F. Supp. 2d 253, 260-61 (S.D.N.Y. 2007) (Hellerstein, D.J.); accord Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417, 425, 539 N.E.2d 91, 95, 541 N.Y.S.2d 335, 339 (1989); see also American Medical Distributors v. Macdonald Tuskey, 16 Civ. 6016 (VSB), 2018 WL 1478301 at *4 (S.D.N.Y. Mar. 23, 2018) (Broderick, D.J.) (applying the functional-equivalent-of-privity test in a negligence and malpractice case post-Dormitory Auth.); Greenstreet of New York, Inc. v. Davis, 166 A.D.3d 470, 471, 85 N.Y.S.3d 766, 767 (1st Dep't 2018) (same).
Thus, the remaining issue is whether plaintiffs have established that their relationship with ICON amounted to the functional equivalent of privity such that ICON owed them a cognizable duty of care that is sufficient to sustain a negligence and professional malpractice claim.
The elements of these two claims are essentially the same; professional malpractice is often considered to be "professional negligence." In re Tribune Comp. Fraudulent Conveyance Litig., 12 Civ. 2652 (DLC), 2019 WL 294807 at *14 (S.D.N.Y. Jan. 23, 2019) (Cote, D.J.); accord Hydro Investors Inc. v. Trafalgar Power Inc., supra, 227 F.3d at 15 ("Under New York law, professional malpractice[] is a species of negligence [and] as such," negligence is one of the required elements to establish a professional malpractice claim).
a. Cognizable Duty of Care
As discussed above, "courts apply a three-part test to determine whether the functional equivalent of privity exists: (1) awareness that the [work product was] to be used for a particular purpose or purposes; (2) reliance by a known party or parties in furtherance of that purpose; and (3) some conduct by the defendants linking them to the party or parties and evincing defendant's understanding of their reliance." Stapleton v. Barrett Crane Design & Eng'g., supra, 725 F. App'x at 30-31 (internal quotation marks omitted); Bayerische Landesbank v. Aladdin Capital Mgmt. LLC, supra, 692 F.3d at 60 ("[A] plaintiff that can satisfy these requirements will . . . be within the limits established under New York law for tort claims sounding in negligence that are brought by non-privy third parties.").
Here, ICON was fully aware that the LED sign was being manufactured for the benefit of plaintiffs, that plaintiffs relied on the services being provided by ICON and plaintiffs have presented evidence that ICON had significant contact with plaintiffs throughout the Millennium and DoubleTree projects (see Deposition Transcript of Michael Kuntz, annexed to Declaration of Chad D. Hansen as Ex. 1, dated Apr. 27, 2018 (D.I. 171-2) at 254-55 (ICON admitting that it was "a part of a number of communications back and forth [with plaintiffs] where [plaintiffs] were apprised of the status of [the] project over the years" and that ICON sent plaintiffs updated schedules for the completion of the Millennium and DoubleTree signs)).
Viewing the facts in the light most favorable to plaintiffs, plaintiffs have established a genuine issue of material fact that ICON owed them a cognizable duty of care pursuant to the functional-equivalent-of-privity doctrine. See In re Cavalry Const., Inc., 428 B.R. 25, 31 (S.D.N.Y. 2010) (Karas, D.J.), aff'd, 425 F. App'x 70 (2d Cir. 2011) (summary order) ("The essential element of [the functional equivalent of privity] doctrine is that the middle party works as the agent for the principal with the knowledge of all parties."); Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, supra, 73 N.Y.2d at 425, 539 N.E.2d at 95, 541 N.Y.S.2d at 339 (functional equivalent of privity existed where engineers entered into a subcontract with an architectural firm for a school construction project because the engineers "undertook their work in the knowledge that it was for the school district alone"); Board of Managers of Marke Gardens Condominium v. 240/242 Franklin Ave. LLC, 20 Misc.3d 1138, 872 N.Y.S.2d 689, 2008 WL 4058677 at *4 (text) (Sup. Ct. Kings Cnty Aug. 26, 2008) (functional equivalent of privity where "defendant Architect knew and intended that plaintiff . . . would benefit from its contract with the sponsor" of a condominium construction project).
Furthermore, as plaintiffs correctly point out, because ICON is a professional, licensed architect, it "must conform to the standard of skill and care that the law demands of professionals" and, therefore, an independent legal duty may arise in negligence actions against architects. See Carmania Corp. v. Hambrecht Terrell Intern., supra, 705 F. Supp. at 938, citing Glanzer v. Shepard, 233 N.Y. 236, 239, 135 N.E. 275, 276 (1922); accord American Mfrs. Mut. Ins. Co. v. Payton Lane Nursing Home, Inc., CV-05-5155 (AKT), 2010 WL 447382 at *11 (E.D.N.Y. Feb. 2, 2010) (architects have a "professional obligation to act with reasonable care" that may create a legal duty independent of any contractual obligations).
b. Economic Loss Doctrine
ICON maintains that even if plaintiffs establish that ICON owed them a duty of care, their negligence and professional malpractice claims must still be dismissed pursuant to the economic loss doctrine. As examined above, the economic loss rule provides that "no tort recovery can be had . . . for contractually based economic loss . . . ." Landtek Group, Inc. v. N. Am. Specialty Flooring, Inc., supra, 2016 WL 11264722 at *17; accord Wade v. Tiffin Motorhomes, Inc., supra, 686 F. Supp. 2d at 187; Carmania Corp. v. Hambrecht Terrell Intern., supra, 705 F. Supp. at 938.
However, in Hydro Investors Inc. v. Trafalgar Power Inc., supra, 227 F.3d at 18, the Second Circuit held that the economic loss doctrine does not apply in cases "involving liability for the violation of a professional duty." The Court went on to hold that recovery of pure economic damages must be allowed in such cases because "[t]o hold otherwise would in effect bar recovery in many types of malpractice actions." Hydro Investors Inc. v. Trafalgar Power Inc., supra, 227 F.3d at 18, citing 17 Vista Fee Assocs. v. Teachers Ins. & Annuity Ass'n., 259 A.D.2d 75, 83, 693 N.Y.S.2d 554, 560 (1st Dep't 1999); accord In re Tribune Comp. Fraudulent Conveyance Litig., supra, 2019 WL 294807 at *15 ("In cases where professional standards create a duty independent of contractual duties . . . the economic loss rule will typically not apply to limit the recovery of damages for economic loss."). Architects have specifically been included in this limited class of professionals who are required to comply with professional standards independently of any contractual obligations. See American Mfrs. Mut. Ins. Co. v. Payton Lane Nursing Home, Inc., supra, 2010 WL 447382 at *11 (architects have a "professional obligation to act with reasonable care"); Chubb Group of Ins. Companies v. Baisch Mechanical Piping, Inc., 01 Civ. 6281 (CJS), 2002 WL 31974576 at *2 (W.D.N.Y. Dec. 23, 2002) (economic loss rule did not apply where architecture firm was alleged to have failed to exercise reasonable care); Ridge Seneca Plaza, LLC v. BP Products, 06 Civ. 6333, 2011 WL 13213839 at *8 (W.D.N.Y. Mar. 28, 2011) (architects, engineers, lawyers and accountants are professionals who can be liable for "professional malpractice"); accord Chase Scientific Research, Inc. v. NIA Group, Inc., 96 N.Y.2d 20, 27, 749 N.E.2d 161, 165, 725 N.Y.S.2d 592, 596 (2001) (affirming that architects, engineers, lawyers, and accountants are "professionals").
Thus, the economic loss rule does not bar plaintiffs' negligence and professional malpractice claims against ICON.
c. Lack of Expert Proof
ICON next alleges that it is entitled to summary judgment on plaintiffs' professional malpractice claim because plaintiffs have not offered any expert testimony to prove ICON violated any professional standards of care (ICON Memo. at 20-22).
ICON also argues that plaintiffs' negligence and professional malpractice claims are improperly duplicative of their breach of contract claim (ICON Memo. at 14-17). However, since plaintiffs' breach of contract claim against ICON is now dismissed, this argument is now inapplicable.
"Unless the facts and circumstances of the case would permit a lay person to evaluate whether an architect's performance lived up to the accepted standards of practice in a given case, the plaintiff bears the burden to present expert evidence setting forth the appropriate standard of care." Wax NJ-2, LLC v. JFB Const. & Dev., 111 F. Supp. 3d 434, 446 (S.D.N.Y. 2015) (Nathan, D.J.); Conte v. Usalliance Fed. Credit Union, 01-CV-463 (EBB), 2007 WL 3355381 at *4 (D. Conn. Nov. 8, 2007) (expert testimony is required to support a professional malpractice claim against an architect "except where the jury is otherwise compe- tent to evaluate whether the defendant has deviated from the standard of care"); accord 530 East 89 Corp. v. Unger, 43 N.Y.2d 776, 777, 373 N.E.2d 276, 277, 402 N.Y.S.2d 382, 383 (1977).
ICON is correct that the report of plaintiffs' expert, Kevin Potts, is limited to the mistakes and shortcomings of Panasonic and does not address ICON's conduct. ICON is also correct that some of the acts of malpractice alleged by plaintiffs may very well be beyond the competence of a lay juror. However, other alleged acts of malpractice, such as the significant delays in completion allegedly caused by ICON, whether ICON was responsible for obtaining proper air space measurements, whether ICON applied for proper permits in a timely manner and whether the LED sign installed was properly functioning, may be issues that can be resolved by a lay jury without expert testimony. This will largely depend on what specific acts of malpractice plaintiffs are able to establish at trial. Thus, plaintiffs at a minimum have raised an issue of fact as to whether expert testimony is required to prove that ICON deviated from the required standard of care. See American Mfrs. Mut. Ins. Co. v. Payton Lane Nursing Home, Inc., supra, 2010 WL 447382 at *7 (summary judgment precluded where "at the very least, there exist[ed] an issue of material fact [as to] whether an expert [was] required" in an architect malpractice case); Oppenheim v. Mojo Stumer Assocs. Architects, P.C., 36 Misc.3d 1219, 959 N.Y.S.2d 90, 2012 WL 3064868 at *6 (text) (Sup. Ct. N.Y. Cnty. July 23, 2012) ("issues of fact . . . preclude[d] summary judgment on the issue of professional malpractice" where some of the alleged acts of architectural malpractice were beyond the competence of a lay juror and some were not). Contrary to ICON's contention, "it is not the law in New York that proximate cause in a professional malpractice case must be proven by expert testimony." Oppenheim v. Mojo Stumer Assocs. Architects, P.C., supra, 36 Misc.3d 1219, 959 N.Y.S.2d 90, 2012 WL 3064868 at *6.
Thus, ICON's summary judgment motion seeking dismissal of plaintiffs' negligence and malpractice claims should be denied.
3. Negligent Misrepresentation
Finally, ICON moves for summary judgment dismissing plaintiffs' negligent misrepresentation claim because plaintiffs have failed to allege any specific misrepresentation made by ICON.
As discussed above, one of the required elements of negligent misrepresentation is that a defendant made a false representation that he or she should have known was incorrect. Cacchilio v. Insmed, Inc., supra, 551 F. App'x at 595-96; Pure Diets India Limited v. Genco, supra, 2019 WL 428834 at *7. Plaintiffs' second amended complaint alleges that with respect to "the survey, design, construction, and installation of the Millennium Sign and the DoubleTree Sign . . . ICON supplied false information and failed to exercise reasonable care in obtaining and communicating the information"; plaintiffs fail to identify any specific misrepresentation that ICON made to them. (SAC ¶¶ 127, 129). Construed liberally, plaintiffs allege in their motion papers that ICON misrepresented the estimated completion dates for the Millennium and DoubleTree signs by sending plaintiffs updates and schedules throughout both projects that were inaccurate (Pl. ICON Memo. at 19-20).
However, inaccurate estimates regarding the completion dates of the Millennium and DoubleTree signs "are just the sort of representations about future events that cannot support a claim for negligent misrepresentation." Hydro Investors Inc. v. Trafalgar Power Inc., supra, 227 F.3d at 21-22 (affirming summary judgment because "energy output predictions were mere promises of future conduct as opposed to present representations of existing fact"). It is well established that "[p]romises of future conduct are not actionable as negligent misrepresentations." Murray v. Xerox Corp., 811 F.2d 118, 123 (2d Cir. 1987); Tianbo Huang v. iTV Media, Inc., 13 F. Supp. 3d 246, 262 (E.D.N.Y. 2014) (defendants' promise that a corporation would hold an initial public offering within one year was a representation about a future event and could not state a claim for negligent misrepresentation); accord Sheth v. New York Life Ins. Co., 273 A.D.2d 72, 74, 709 N.Y.S.2d 74, 75 (1st Dep't 2000) ("The purported misrepresentations relied upon by plaintiffs may not form the basis of a claim for . . . negligent misrepresentation since they are . . . opinions of value or future expectations."); Hargrove Inc. v. Lincoln First Bank of Rochester, 54 A.D.2d 1105, 1106, 388 N.Y.S.2d 958, 960 (4th Dep't 1976) ("The mere failure of defendant to abide by its commitment cannot be made the basis of an action in tort for misrepresentation.").
Given that plaintiffs have failed to allege any actionable misrepresentations on the part of ICON, ICON's motion for summary judgment on plaintiffs' negligent misrepresentation claim should be granted.
IV. Conclusion
Accordingly, for all the foregoing reasons, I respectfully recommend that (1) plaintiffs' claim against Panasonic for negligence be dismissed; (2) plaintiffs' claim against Panasonic for negligent misrepresentation be dismissed; (3) plaintiffs' claim against Panasonic for fraud and fraudulent inducement be dismissed; (4) Panasonic's motion for summary judgment on plaintiffs' breach of warranty claim be denied; (5) Panasonic's motion for summary judgment on its counterclaim for breach of contract against TSL be denied; (6) plaintiffs' claim against ICON for breach of contract be dismissed; (7) ICON's motion for summary judgment on plaintiffs' negligence and professional malpractice claims be denied and (8) plaintiffs' claims against ICON for negligent misrepresentation be dismissed. If accepted, this Report and Recommendation will close Docket Items 139 and 164.V.
OBJECTIONS
Pursuant to 28 U.S.C. § 636(b)(1)(c) and Rule 72 of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from receipt of this Report to file written objections. See also Fed.R.Civ.P. 6(a). Such objections and responses thereto shall be filed with the Clerk of the Court with courtesy copies delivered to the Chambers of the Honorable John F. Keenan, United States District Judge, 500 Pearl Street, Room 1930, New York, New York 10007 and to the Chambers of the undersigned, 500 Pearl Street, Room 1670, New York, New York 10007. Any requests for an extension of time for filing objections must be directed to Judge Keenan. FAILURE TO OBJECT WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. Thomas v. Arn, 474 U.S. 140, 155 (1985); United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983) (per curiam). Dated: New York, New York
March 6, 2019
Respectfully submitted,
/s/_________
HENRY PITMAN
United States Magistrate Judge Copies transmitted to: All Counsel