Opinion
No. 22533–11.
2012-02-10
THEATRICAL SERVICES AND SUPPLIES, INC., Plaintiff, v. GAM PRODUCTS, INC., Defendant.
Campolo, Middleton & McCormick, LLP Bohemia, for Plaintiff. Bushell, Sovak, Ozer & Gulmi LLP, New York, for Defendant.
Campolo, Middleton & McCormick, LLP Bohemia, for Plaintiff. Bushell, Sovak, Ozer & Gulmi LLP, New York, for Defendant.
ELIZABETH H. EMERSON, J.
It is, ORDERED that this motion by the defendant for an order dismissing the complaint is granted to the extent of dismissing the third cause of action and the first cause of action insofar as it alleges breach of a purported oral agreement; and it is further
ORDERED that the motion is otherwise denied.
The plaintiff is a domestic corporation in the business of selling theatrical supplies. Its principal place of business is in Hauppauge, New York. The defendant, GAM Products, Inc. (“GAM”), is a manufacturer and distributor of specialty lighting products, including those used in the television, theater, and motion-picture industries. Its principal place of business is in Los Angeles, California. In 2007, the parties entered into negotiations that would lead to the plaintiff's becoming a distributor of GAM's products on the East Coast. It is undisputed that the parties executed a written distributor agreement dated September 1, 2007, which gave the plaintiff a non-exclusive right to sell GAM's products.
The written agreement, which provides that it is governed by the laws of the State of California, contains the following merger clause:
All understandings and agreements between the parties are contained in this agreement which supersedes and terminates all other agreements between the parties.
The plaintiff contends that, in addition to the aforementioned written agreement, the parties entered into an oral master-distributor agreement, as evidenced by e-mails dated May 24 and June 7, 2007. According to the plaintiff, the written agreement gave it the right to sell GAM's products to retail end-users, while the purported oral agreement gave it the right to sell GAM's products to small distributors on the East Coast who could not meet GAM's minimum purchase requirements and to whom GAM would not otherwise sell or distribute products. The plaintiff contends that, during the negotiations leading up to the oral agreement, it relied on representations made by GAM that it would not compete with the plaintiff for sales orders under $75 as well as other small purchases, that GAM would direct orders from small east-coast distributors and dealers (i.e., those with sales of less than approximately $10,000 per year) to the plaintiff, and that GAM would dedicate staff and resources to facilitate the plaintiff's transition to a wholesale master distributor.
In anticipation of becoming a master distributor, and as required by the terms of the parties' written agreement, the plaintiff ordered $30,000 worth of GAM merchandise, which it was subsequently unable to sell. The plaintiff contends that GAM fraudulently induced it to enter into the oral master-distributor agreement and that GAM breached both the oral and written agreements by selling its products to small dealers and distributors without regard to the minimum order requirements, by not requiring east-coast dealers and distributors to place their orders through the plaintiff, and by failing to provide sales support and training. The complaint contains causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and fraud in the inducement. GAM moves to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7) and CPLR 327(a).
New York, like California, applies the parol evidence rule to exclude evidence of any prior oral or written agreements and any contemporaneous oral agreements that contradict, vary, add to, or subtract from the terms of an agreement when, as here, the agreement has been reduced to an integrated writing ( see, Marine Midland Bank v. Thurlow, 53 N.Y.2d 381, 387; Prince, Richardson on Evidence § 11–101 [Farrell 11th ed] ). An integrated agreement is one that represents the entire understanding of the parties to the transaction (Morgan Stanley High Yield Securities, Inc. v. Seven Circle Gaming Corp., 269 F Supp 2d 206, 214 [SDNY] ). When an agreement contains a merger clause, it requires full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing (Primex Intl. Corp. v. Wal–Mart Stores, 89 N.Y.2d 594, 599). A merger clause accomplishes this objective by establishing the parties' intent that the agreement be considered a completely integrated writing ( Id. at 599–600). The parties' written agreement in this case clearly contains a merger clause, precluding any extrinsic proof to add to or vary its terms ( Id. at 600).
The plaintiff contends, without citing any authority therefor, that the parol evidence rule does not apply when, as here, there are two separate agreements. The plaintiff is correct that the parol evidence rule has no application to an oral contract separate from, and independent of, the written contract, even when the collateral contract was made contemporaneously with the written contract (Prince, Richardson on Evidence § 11–306 [Farrell 11th ed] ). However, before evidence of an alleged parol collateral contract is admissible, three conditions must exist: (1) the agreement must be collateral in form, (2) it must not contradict express or implied provisions of the written contract, and (3) it must be an agreement that the parties would not ordinarily be expected to embody in the writing ( Id., citing Mitchill v. Lath, 247 N.Y. 377).
Cases in which an agreement is found to be wholly independent and collateral are relatively rare (Prince, supra at 761) and distinguishable from this case. In Nationwide Mut. Ins. Co. v. Timon (9 A.D.2d 1018), the collateral agreement was embodied in a letter agreement that was not inconsistent with the written agreement and that covered a subject matter not incorporated in the written agreement. In J.W. Mays, Inc. v. Hertz Corp. (15 A.D.2d 105), the parol evidence was not offered to vary or contradict the terms of the written agreement or to show any express agreement or promise at all, but merely to establish a material element of an independent gratuitous bailment. The subject of the bailment (i.e., the storage of merchandise) was not expressly the subject of the written agreement ( see also, Dalton v. Hamilton Hotel Operating Co ., 242 N.Y. 481).
Here, the oral agreement covers the same subject matter as the written agreement, i.e., the plaintiff's sale and distribution of GAM's products, and would ordinarily be expected to be embodied in the writing. Additionally, the oral agreement contradicts the written agreement, which clearly gave the plaintiff a non-exclusive distributorship, by giving the plaintiff an exclusive distributorship over the entire eastern seaboard. Since the purported oral master-distributor agreement fails to meet the criteria enunciated by the Court of Appeals in Mitchill v. Lath (supra), the first cause of action is dismissed insofar as it alleges a breach thereof.
Liberally construing the complaint, accepting the alleged facts as true, and according the plaintiff the benefit of every possible favorable inference ( see, Leon v. Martinez, 84 N.Y.2d 83, 87), the court finds that it is legally sufficient to state a cause of action for breach of the parties' written agreement. The plaintiff alleges that the defendant failed to provide training sessions, conduct annual visits, and assign sales representatives, as required by the written agreement, and that it was damaged thereby. Accordingly, the court declines to dismiss the first cause of action insofar as it alleges a breach of the written agreement.
Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance ( see, Dalton v. Educational Testing Service, 87 N.Y.2d 384, 389). This covenant is breached when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party of the right to receive the benefits under their agreement ( see, Aventine Inv. Mgt. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513, 514). To state a claim for breach of the applied covenant of good faith and fair dealing, the plaintiff must show that the defendant sought to prevent performance of the contract or to withhold its benefits from the plaintiff ( Id. at 514).
Liberally construing the complaint, accepting the alleged facts as true, and according the plaintiff the benefit of every possible favorable inference ( see, Leon v. Martinez, 84 N.Y.2d 83, 87), the court finds that it is legally sufficient to state a cause of action for breach of the implied covenant of good faith and fair dealing. The plaintiff alleges that, in 2009, GAM changed its policies by accepting minimum purchase orders under $75 and by revoking all minimums for purchases made directly from GAM. The plaintiff contends that, by allowing small purchases to be made directly from GAM without penalty, GAM competed with the plaintiff for east-coast sales, thereby depriving the plaintiff of the benefits of their agreement. Accordingly, the court declines to dismiss the second cause of action.
The third cause of action, which alleges that GAM fraudulently induced the plaintiff to enter into the oral master-distributor agreement, is dismissed since evidence of that agreement is barred by the parol evidence rule.
CPLR 327(a) permits the court to stay or dismiss an action in the interest of substantial justice when the court finds that the action should be heard in another forum. Under CPLR 327(a) and the common-law doctrine of forum non conveniens, the court may stay or dismiss an action when it determines that, although it has jurisdiction over the action, the action would be better adjudicated elsewhere ( see, Islamic Republic of Iran v. Pahlavi, 62 N.Y.2d 474, 478–479). The burden is on the defendant to establish that the selection of New York as the forum will not best serve the ends of justice and the convenience of the parties ( see, Banco Ambrosiano v. Artoc Bank & Trust, 62 N.Y.2d 65, 74;Islamic Republic of Iran v. Pahlavi, supra at 479; Globalvest Mgmt.Co. v. Citibank, N.A., 7 Misc.3d 1023[A], at *4). It is well established that, unless the balance is strongly in favor of the defendant, the plaintiff's choice of forum should not be disturbed ( see, Waterways Ltd. v. Barclays Bank, 174 A.D.2d 324, 327).
The New York courts must consider and balance various competing factors when evaluating whether or not to retain jurisdiction over a particular action ( see, Islamic Republic of Iran v. Pahlavi, supra at 479). Although not every factor is necessarily articulated in every case, collectively, courts consider and balance the following factors: the existence of an adequate alternative forum, the situs of the underlying transaction, the residency of the parties, the state of incorporation, the potential hardship to the defendant, the location of documents, the location of a majority of the witnesses, and the burden on the New York courts ( Berger v. Spring Partners, 9 Misc.3d 1122[A] at *3; Globalvest Mgmt.Co. v. Citibank, N.A., supra at *4). The determination rests within the exercise of the court's sound discretion, and no one factor is controlling ( see, Islamic Republic of Iran v. Pahlavi, supra at 479).
GAM contends that the parties' agreement was negotiated and executed in California by Pascal Zandt, GAM's Vice President of Sales and Marketing, who resides in California, but no longer works for GAM, making him a non-party witness beyond the subpoena power of the New York courts. GAM contends that Zandt's testimony is essential because any alleged misrepresentations or omissions would have been made in communications between the plaintiff and Zandt. GAM also contends that California is an appropriate alternative forum that bears a substantial relationship to this litigation. California is GAM's principal place of business, the parties' written agreement requires the application of California law, and all of GAM's documents and witness are located in California.
The plaintiff contends, in opposition, that its principal place of business is in New York, that the actionable events occurred in New York, that all of its witnesses and evidence are located in New York, that GAM has an extensive presence in New York, that the application of California law does not warrant dismissal, that the action imposes no burden on the New York courts, and that there is no more convenient alternative forum.
Consideration of all of the relevant factors leads this court to conclude that the plaintiffs should not be deprived of their chosen forum. The plaintiff, as a New York resident, is presumptively entitled to utilize its judicial system for dispute resolution ( see, Broida v. Bancroft, 103 A.D.2d 88, 92). Although GAM is incorporated in California, this action does not involve the internal affairs of a foreign corporation ( Id at 90–92). There is evidence in the record that GAM has other distributors in New York, that it attended trade shows and sold its products in New York, and that its representatives traveled to New York to negotiate the contract that is the subject of this action. There has been no showing that the retention of this action would unduly burden the court. The Commercial Division has been successfully handling complex commercial and corporate litigation since 1993 ( see, Topps Co., Inc. Shareholder Litigation, 19 Misc.3d 1103[A] at *6). This court is perfectly capable of, and would not be unduly burdened by, applying the law of the State of California ( see, Continental Ins. Co. v. Garlock Sealing Tech. LLC, 23 AD3d 287, 288). Books and records (unless particularly voluminous) are portable, and it would not be significantly more burdensome to ask GAM's witnesses to travel to New York than to expect the plaintiff's witnesses to journey to California ( see, White Light Prods., v. On The Scene Prods., 231 A.D.2d 90, 99). Moreover, it is doubtful that Zandt will be called as a witness in view of the court's dismissal of the third cause of action for fraud in the inducement and the first cause of action insofar as it alleges a breach of the purported oral agreement. The court finds that, under these circumstances, GAM has not met its burden of establishing that the ends of justice and the convenience of the parties would best be served if this litigation were to proceed in California. Accordingly, the court declines to dismiss the remainder of the complaint.
In the absence of a proposed pleading accompanied by an affidavit of merit, the plaintiff's cursory request for leave to replead is denied ( see, Fletcher v. Schiller & Flexner, LLP, 75 AD3d 469, 470). Moreover, inasmuch as the dismissed claims are barred by the parol evidence rule, any repleading thereof would be palpably insufficient ( cf., Boakye–Yiadom v. Roosevelt Union Free School District, 57 AD3d 929, 931).
Finally, a motion to dismiss may be stayed or denied pending further discovery (CPLR 3211[d] ). To obtain such relief, the plaintiff is obligated to provide some evidentiary basis for its claim that further discovery would yield material evidence and demonstrate how further discovery may reveal material facts in the movant's exclusive knowledge (Rochester Linoleum & Carpet Ctr., Inc. v. Cassin, 61 AD3d 1201, 1202). The plaintiff has made no such showing. Accordingly, the motion is granted to the extent of dismissing the third cause of action and the first cause of action insofar as it alleges a breach of the purported oral agreement.