98 Civ. 2774 (LAP)
August 30, 1999
MEMORANDUM and ORDER
Plaintiffs Goodman Manufacturing Company, L.P. ("Goodman"), Goodman Holding Company ("Holding"), and Amana Company, L.P. ("Amana") (collectively, "plaintiffs") brought this action for various state law claims including breach of contract, tortious interference with contract and negligent misrepresentation. Defendants Raytheon Company ("Raytheon"), Alliance Laundry Holdings LLC ("Alliance"), Alliance Laundry Systems LLC ("Alliance Systems"), and Bain Capital Inc. ("Bain") (in the aggregate, "defendants"), now move pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss the first seven claims in the Second Amended and Supplemental Complaint (the "Complaint") for failure to state a claim on which relief can be granted. For the reasons set forth below, the motion is granted in part and denied in part.
In considering this motion, I have reviewed the following material: Memorandum of Defendant Raytheon Company in Support of Motion to Dismiss the Complaint ("Raytheon Mem."), Defendants Alliance Laundry Holdings, LLC, Alliance Laundry Systems LLC and Bain Capital, Inc.'s Memorandum of Law in Support of their Joint Motion to Dismiss the Complaint ("Alliance Mem."), Plaintiff's Memorandum in Opposition to Defendants' Motion ("Pl. Mem."), Reply Memorandum of Defendant Raytheon Company in further support of Motion to Dismiss Amended Complaint ("Raytheon Reply Mem."), Defendants Alliance Laundry Holdings LLC, Alliance Laundry Systems LLC and Bain Capital Inc.'s Memorandum in Support of their Joint Motion to Dismiss the Complaint ("Alliance Reply Mem."), Opening Memorandum of Defendants Raytheon Company, Alliance Laundry Holdings LLC, Alliance Laundry Systems LLC and Bain Capital Inc.'s Memorandum in Support of Motion to dismiss the Sixth and Seventh Claims for Relief of the Second Amended and Supplemental Complaint ("Raytheon 2d Mem."), and Plaintiffs' Memorandum of Law in Opposition ("Pl.2d Mem."), and Reply Memorandum of Defendants Raytheon Company, Alliance Laundry Holdings LLC, Alliance Laundry Systems LLC and Bain Capital Inc.'s Memorandum in Support of Motion to dismiss the Sixth and Seventh Claims for Relief of the Second Amended and Supplemental Complaint ("Raytheon 2d Reply Mem.").
I have not considered, however, those supplemental materials submitted by plaintiffs including, inter alia, the deposition testimony of various Raytheon officials. To consider them on a motion to dismiss the complaint pursuant to Rule 12(b)(6) would, of course, be improper.
BACKGROUNDI. The Making of the Agreement
On July 11, 1997, Raytheon, Raytheon Appliances, Inc. ("Raytheon Appliances"), Goodman and RAI Merger Ltd. Partnership ("RAI") entered into an agreement and plan of merger (the "Agreement"). The Agreement set forth the terms and conditions on which Raytheon agreed to sell, and Goodman agreed to buy, one of Raytheon's wholly-owned subsidiaries, Raytheon Appliances. (See Complaint ¶ 1). Raytheon Appliances owned and operated various appliances businesses, such as home appliances (including home laundry), commercial laundry appliances, home heating and air conditioning appliances. (See id. ¶ 30).
The merger liquidated Raytheon Appliances. Goodman acquired all of Raytheon Appliances' assets except the commercial laundry business, (see id. ¶ 32), which the Agreement classified as "Excluded Assets" and which were to be transferred or assigned to Raytheon, or to a subsidiary designated by Raytheon, at the closing. (See Agreement ¶ 2.6). Specifically, "Excluded Assets" included all "Commercial Laundry Intellectual Property" and all "Commercial Laundry Assets." The Agreement defined Commercial Laundry Assets to include, inter alia, "all of the capital stock of Raytheon Appliances S.A., Raytheon Commercial Receivables Corporation and Raytheon Commercial Appliances Finance Corporation" and assets and facilities owned by Raytheon Appliances through its commercial laundry division. (See Agreement Art. I; Complaint ¶ 38). The Agreement did not name a particular Raytheon division or subsidiary to receive the commercial laundry assets, (see Complaint ¶ 7), but Raytheon created a subsidiary, Raytheon Commercial Laundry LLC ("RCL"), for that purpose after the Agreement was signed but before the closing, (see id. ¶ 2). What remained of Raytheon Appliances after the commercial laundry assets were spun off was merged into RAI, the company which Goodman created specifically for that purpose. RAI subsequently became Amana.
Before the Agreement, Raytheon Appliances' home and commercial laundry businesses were not completely separate or distinct. (See id. 3). That is, Raytheon Appliances' commercial laundry division manufactured home style equipment as well as commercial equipment and it sold both home style and commercial products in the commercial market. (See id.). in addition, Raytheon Appliances sold home style laundry equipment manufactured by RAI's commercial laundry division in the residential market. (See id.). Plaintiffs allege that ancillary agreements were signed at the closing precisely because the commercial and residential laundry divisions were so thoroughly intertwined. For example, the parties executed cross-licensing agreements whereby each was permitted to use certain intellectual property owned by the other. Likewise, a supply agreement was entered into where the parties promised to furnish certain products to one another. (See id. ¶¶ 43, 44).
Having set forth the general context for this action, I now turn to those portions which the defendants seek to dismiss; that is, the claims relating to the Parent Noncompete provision and the Horizon washer.
II. Claims based on the Non-Compete Provision
At the center of this dispute is the Agreement's noncompete provision. Section 2.9(a) is labelled the "Parent NonCompete," and it reads, in its entirety:
For the period commencing on the Closing Date and terminating on the fifteenth anniversary of the Closing Date, Parent shall not, and shall not permit any of the Nonappliances Affiliates to, directly or indirectly, sell, market, advertise, distribute or service home laundry products and related service parts in the home retail distribution market, anywhere in the United States (the "Parent Non-Compete").
(Agreement ¶ 2.9(a), Ex. A to Raytheon Mem.). In the Agreement Raytheon is defined as the "Parent", and "Nonappliance Affiliates" are defined as any
affiliate of Parent (including Raytheon Commercial Appliances Receivables Corporation, Raytheon Commercial Appliances Finance Corporation and Raytheon Appliances, S.A.) other than the Company or the Acquired Subsidiaries.
(Agreement Art. I). Raytheon Appliances was the "Company" referred to in the definition above, and "Acquired Subsidiaries" were those affiliates transferred to Goodman under the Agreement. (See Agreement Art. I). Plaintiffs allege that Raytheon Commercial Appliances Receivables Corporation, Raytheon Commercial Appliances Finance Corporation and Raytheon Appliances, S.A. constitute "all the Raytheon commercial laundry affiliates that existed at the time the Agreement was signed." (Pl. Mem. at 17).
The Agreement also contained a Buyer Non-Compete provision that prevented Goodman or its affiliates from competing in specific sectors of the commercial laundry market in the United States. (See Agreement § 2.9(b)). Lastly, the Agreement established a mutual reduction of both non-compete provisions in the event that a court reduced one of the parties' obligations thereunder. (See id. § 2.9(c)).
Roughly a year after the closing, Raytheon put RCL up for sale in an alleged attempt to relieve itself of its obligation not to permit RCL to compete against Goodman in the home laundry business. (See Complaint ¶ 50). On or about February 21, 1998, Raytheon, RCL, Bain/RCL, LLC, and RCL Acquisitions entered into an Agreement and Plan of Merger (the "Bain Agreement") under which Raytheon agreed to sell RCL for $358 million to Bain/RCL, LLC. (See id. ¶ 51). Upon hearing this news, plaintiffs contacted Raytheon to ask if it would honor the non-compete provision of the Agreement. (See id. ¶ 52). Raytheon allegedly responded that it could relieve itself of the non-compete obligation as to any affiliate, including RCL, by selling such affiliate. (See id.). Shortly thereafter, Alliance (the company created by the Bain Agreement that had formerly been RCL) admitted that it planned to compete with plaintiffs in the home laundry market. (See id.).
Plaintiffs assert the following claims relating to the non-compete covenant. The first claim alleges a breach of contract claim by Raytheon alone for "permitting its affiliate to compete with plaintiffs . . . after the sale to Bain" and for failing to require Alliance and Bain to enter into a similar noncompete provision when those parties entered the Bain Agreement. (See id. ¶¶ 74-75). Plaintiffs also claim that Raytheon breached section 5.3 of the Agreement which is entitled "Further Assurances." (See id. ¶ 75). Plaintiffs' second claim seeks specific performance against Raytheon and Alliance to honor the non-compete provision. (See id. ¶¶ 76-77). The third claim asserts tortious interference with contractual relations on the part of Alliance and Bain for allegedly causing Raytheon to breach the non-compete provision. (See id. ¶¶ 78-81). Plaintiffs' fourth claim seeks a permanent injunction against Alliance to prevent it from competing in the home laundry market, (see id. ¶¶ 82-83), and the fifth claim seeks a declaratory judgment eliminating plaintiff's non-compete obligations under the agreement, (see id. ¶¶ 84-85).
III. Horizon Claims
Plaintiffs also assert claims for negligent misrepresentation and breach of contract against Raytheon and Alliance with respect to the Horizon washer ("Horizon"). Horizon is a "single-pocket" frontload washing machine for the residential laundry market. (See id. ¶ 56). Frontload washers apparently attract consumers because they are more efficient than topload washers — they use less water and energy. (See id.). Plaintiffs allege that the design and development of Horizon was an important part of Raytheon Appliances' business, and therefore, "from Goodman's perspective, it was an important part of the business being acquired." (Id. ¶ 57). in particular, Goodman envisioned that the Horizon washer would compete favorably against other popular frontload washers. (See id.).
After the Agreement was signed and roughly a week before the closing, high-level employees from Goodman, Raytheon and Alliance met to discuss whether Horizon's development had progressed to the point where it was ready for volume production (sometimes "RVP"). (See id. ¶ 58). At that meeting, Raytheon and Alliance employees represented that Horizon would be ready for volume production by September 15, 1997, a date that was subsequently amended to September 22, 1997. (See id. ¶ 60). in reliance on that representation, Goodman and Amana then "hired and/or retained additional personnel, purchased raw materials and parts, and entered into volume production of Horizon." (Id. ¶ 60). In reality, Horizon was never ready for volume production in 1997 or in 1998. (See id. ¶ 61). in addition, those individual consumers in the residential market who did purchase Horizon units experienced significant problems with them. (See id. ¶¶ 61-62).
There is some ambiguity in the Complaint regarding which of the defendants were present at the meeting. Specifically, the Complaint alleges the presence of "Alliance (then known as RCL or the Commercial Laundry Division)". (Complaint ¶ 58). it is not clear whether Alliance existed in September 1997, however. The Complaint is vague on this issue; it states that as part of Raytheon's sale of RCL to Bain on May 5, 1998, RCL was renamed Alliance. (See id. 54). Plaintiffs seem to allege that liability should nonetheless attach to Alliance because those RCL employees who were present at the meeting subsequently joined Alliance and are currently employed as its Chief Executive Officer and Vice President of Business Development. (See id. ¶ 58). need not decide this issue, however, because the Horizon claims are dismissed in their entirety on other grounds as explained below.
Plaintiffs sixth claim asserts a cause of action for breach of contract against Raytheon and Alliance for violation of the Agreement with respect to the Horizon washer. (See id. ¶¶ 86-87). Plaintiffs' seventh claim asserts that Raytheon and Alliance negligently misrepresented Horizon's ready-for-volumeproduction status. (See id. ¶¶ 88-89).
DISCUSSIONI. Motion to Dismiss Standard
In deciding this motion to dismiss, I must view the complaint in the light most favorable to plaintiffs. See Scheuer v. Rhodes, 416 U.S. 232, 237 (1974); Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 562 (2d Cir. 1985). I must accept as true the factual allegations stated in the complaint, Zinermon v. Burch, 494 U.S. 113, 118 (1990), and draw all reasonable inferences in favor of the plaintiffs. See Haines v. Kerner, 404 U.S. 519, 520-21 (1972); Hertz Corp. v. City of New York, 1 F.3d 121, 125 (2d Cir. 1993), cert. denied, 510 U.S. 1111 (1994). A motion to dismiss can only be granted if it appears beyond doubt that the nonmoving party can prove no set of facts in support of its claim which would entitle it to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957). At this stage of the proceedings "the issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheur v. Rhodes, 416 U.S. at 236.
On a 12(b)(6) motion, courts may ordinarily consider only facts alleged in the complaint and documents incorporated therein. See I. Meyer Pincus Assocs., P.C. v. Oppenheimer Co., Inc., 936 F.2d 759, 762 (2d Cir. 1991). However, a court may properly consider documents that were not attached to the complaint but which are nonetheless integral to it. See id. Such is the case here. Although plaintiffs did not submit the Agreement as an exhibit to the Complaint, the defendants properly introduced it as part of their motion attacking the pleading. The numerous references to the Agreement in the Complaint, as well as the importance of the Agreement's non-compete provision to this action, make the Agreement "integral." See id. Moreover, plaintiffs themselves included the Agreement as an exhibit to their opposition to defendants' motion to dismiss.
If the content of the Agreement submitted by defendants conflicts with allegations about that agreement made in the Complaint, the actual language of the Agreement controls. See International Audiotext Network, Inc. v. ATT, Co., 62 F.3d 69, 72 (2d Cir. 1995); National Football League Properties, Inc. v. Dallas Cowboys Football Club, Ltd., 922 F. Supp. 849, 852-853 (S.D.N.Y. 1996). However, any contractual ambiguities are to be resolved in plaintiff's favor. See International Audiotext Network, Inc., 62 F.3d at 72.
The legal principles governing this Court's role in contract disputes are well settled under New York law, which governs here. "The primary objective in contract interpretation is to give effect to the intent of the contracting parties as revealed by the language they choose to use." Sayers v. Rochester Tel. Corp. Supplemental Mgment. Pension Plan, 7 F.3d 1091, 1094 (2d Cir. 1993) (quotation omitted). The determination of whether a contract is ambiguous is a question of law reserved for the court. See id.; W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 162, 565 N.Y.S.2d 440, 566 N.E.2d 639 (1990).
Contract language is ambiguous if it is "capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.'" Sayers, 7 F.3d at 1095 (quoting Walk-In Medical Ctrs., Inc. v. Breuer Capital Corp., 818 F.2d 260, 263 (2d Cir. 1987)). Conversely, no ambiguity exists when the language employed has "a definite and precise meaning, unattended by danger of misconception in the purport of the contract itself, and concerning which there is no reasonable basis of opinion."Sayers, 7 F.3d at 1095.
A court should analyze clauses in the context of the entire agreement to avoid rendering an individual provision superfluous.See id. Parties to a contract may not create an ambiguity merely by urging different interpretations of the language in question.See Seiden Assocs. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992). If an ambiguity exists, however, extrinsic evidence of the parties' intent may be considered when construing the contractual language. See Sayers, 7 F.3d at 1094. Accordingly, the presence of an ambiguity in a contract would render dismissal of the Complaint at this stage improper.
A. Breach of Contract
Under New York law, the enforceability of a non-compete covenant depends in part upon the nature of the underlying contract. See DAR Assocs., Inc. v. Uniforce Svcs., Inc., 37 F. Supp.2d 192, 195 (E.D.N.Y. 1999). These restrictive covenants normally appear in two contexts: (1) the sale of a business; and (2) employment contracts. Restrictive covenants made in the course of the first category are routinely enforced to protect the good will paid for by the purchaser. See id. at 197;Purchasing Assocs. v. Weitz, 13 N.Y.2d 267, 246 N.Y.S.2d 600, 196 N.E.2d 245 (1963). The New York Court of Appeals has noted an
important distinction between the duty to refrain from soliciting former customers, which arises upon the sale of the `good will' of an established business, and [the] separate duty to refrain from competing with the purchaser, which may only arise out of an express agreement. . . . When a business is sold, the purchaser acquires no legal right to expect that the seller will refrain from engaging in a competing enterprise. Indeed, the seller remains free to pursue his own economic interests without restraint Unless the purchaser has managed to extract from him an express promise to refrain from competing.Mohawk Maintenance Co., Inc. v. Kessler, 52 N.Y.2d 276, 283, 437 N.Y.S.2d 646, 419 N.E.2d 324 (1981). Because the non-compete covenant here does not relate to good will, I decline the invitation to find an implied meaning that is not set forth in the Agreement. The non-compete will therefore be narrowly interpreted, see Dellwood Food, Inc. v. Kraftco Corp., 420 F. Supp. 424, 428 (S.D.N.Y. 1976), and its scope and breadth shall be determined by the express terms of the Agreement, see MGM Court Reporting Service, Inc. v. Greenberg, 74 N.Y.2d 691, 693, 543 N.Y.S.2d 376, 541 N.E.2d 405 (1989) ("The parties having thus negotiated and expressly defined the reach of the limitation on solicitation, a more general limitation may not be implied."). Having set forth the standards which a court should apply when interpreting a non-compete covenant in a contract governed by New York law, however, the standard for dismissing a breach of contract claim pursuant to a Rule 12(b)(6) motion remains the same. The Court of Appeals has instructed that to state such a claim "a complaint need only allege (1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of contract by the defendant, and (4) damages." Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996).
At the heart of Raytheon's motion to dismiss plaintiffs' breach of contract claim is its contention that the sale of RCL (the entity which received Raytheon Appliances' commercial laundry business) to Bain does not breach the clear terms of Parent Noncompete. In support of this argument, Raytheon points to the absence of any express provision in the Agreement (i) forbidding Raytheon from selling RCL to a buyer of its choice, (ii) binding the purchaser of RCL to the Agreement's non-compete provision, or (iii) encumbering the Commercial Laundry Assets with the non-compete obligation. Raytheon does not argue that RCL was not a Raytheon affiliate subject to the Parent Noncompete before the Bain Agreement. Rather, Raytheon argues that Parent Noncompete does not apply to RCL once it was sold to Bain and it became Alliance. Raytheon argues that the non-compete provision bars only Raytheon and its affiliates but not those "former affiliates of Raytheon once they have left the Raytheon fold." (Raytheon. Mem. at 7). To read the Agreement otherwise would, Raytheon contends, make each affiliate a signatory of the Agreement.
In response, plaintiffs rely principally on two cases for the proposition that Raytheon was obligated to bind the purchaser of its commercial laundry affiliate to the non-compete. In Conn Aire, Inc. v. J.C. Leasing, 1990 WL 209580 (6th Cir. 1990), defendants granted plaintiff Conn Aire exclusive rights to use defendant's terminal facility at the Nashville Metropolitan Airport for charter flights. The covenant not to compete provided that defendant "shall for the period of this Agreement not permit any other air charter service to use NJC's facilities." Five months after the agreements were made, defendant sold its terminal facility to another company without binding it to the non-compete covenant. The Sixth Circuit found that the defendant had breached the contract because it had voluntarily disabled itself from complying with the non-compete. In that case, the terminal facility was the asset by which competition could be accomplished. Citing the Restatement (Second) of Contracts, the Court stated that
Universal Studios Inc. v. Viacom Inc., 705 A.2d 579 (Del.Ch. 1997), also cited by plaintiffs, has limited precedential value for them. There, the Delaware Chancery Court declined to endorse plaintiff's argument of voluntary disablement after a lengthy bench trial.
where one party voluntarily acts to disable himself from performing his obligations under a contract, such act is a repudiation of his duties to render performance which discharges the other party's remaining duties to render performance.
1990 WL 209580, at *4. In finding that the sale constituted a repudiation of the contract, the Court rejected the argument that the defendant was required to bind its successors to the noncompete provision. The Court stated that a party does not have to pass on its entire duties under one contract to another party with whom it enters into an agreement. See id. at **4-5. To hold to the contrary would deny parties the ability to convey rights without conveying duties. Absent an express provision in the contract, the Court declined to impose such an obligation on the defendant. See id. Citibank (South Dakota), N.A. v. F.D.I.C., 857 F. Supp. 976 (D.D.C. 1994), involved factual circumstances similar to those inConn Aire. In Citibank, plaintiff Citibank purchased certain assets and assumed certain liabilities associated with the credit card businesses of three banks, the "BNE Banks." See 857 F. Supp. at 978. The agreement contained a four-year noncompete provision which prevented the BNE Banks from soliciting credit card business from former BNE cardholders. See id. Although the non-compete provision did not explicitly bind purchasers of specific assets from the BNE Banks, there was a general "successors" clause which bound successors and assignees to the agreement. See id. Roughly a year after the agreement, the BNE Banks became insolvent, and an FDIC receiver was appointed. Soon after that, the FDIC sold some of the BNE Banks' assets and liabilities, without the encumbrance of the noncompete provision, to Fleet Bank which then entered into competition with Citibank for its credit card customers. See id. Relying heavily on the holding of Conn Aire, the Court stated that "one cannot disable one's self from complying with a noncompetition agreement by alienating the asset or entity capable of competing without subjecting subsequent transferees to the non-compete obligation."Id. at 982. However, the Court did not determine whether this failure to bind subsequent transferees to the non-competition agreement was the breach of contract. Because the parties had agreed that the FDIC's operative breach occurred when it formally repudiated the Agreement, the Court based its holding on those grounds. See id. at 982 n. 6.
To the extent that plaintiffs' breach of contract claim is based on an obligation of Raytheon to bind purchasers of its affiliates to the non-compete provision, they have failed to state a claim. First, as stated above, New York courts narrowly construe non-compete provisions. A seller of a business is allowed to compete with his purchaser "unless the purchaser has managed to extract from him a express promise to refrain from competing." Mohawk Maintenance Co., Inc., 52 N.Y.2d at 283; see also MGM Court Reporting Service, Inc. v. Greenberg, 74 N.Y.2d 691, 693, 543 N.Y.S.2d 376, 541 N.E.2d 405 (1989). Here, the Agreement constrains only Raytheon and the Nonappliance Affiliates and it contains no express obligation to bind a purchaser of the affiliate possessing the commercial laundry business. Second, plaintiffs misconstrue the holdings of Conn Aire and Citibank. In Conn Aire, the Court explicitly rejected the argument that plaintiffs assert here. There, the Court's grant of summary judgment was based solely on the grounds that the defendant had voluntarily disabled itself from complying with the contract's obligations; furthermore, the Court stated that it would be error to find a breach of the Agreement for failure to bind the purchaser in the absence of an express obligation to do so. In Citibank, the Court did not decide whether the breach had occurred when the FDIC sold the BNE assets without binding the purchasers. Instead, the parties in that case agreed that the breach occurred when the FDIC communicated to Citibank that it would not adhere to the non-compete provision. Moreover, that case involved a covenant not to solicit customers; New York courts have viewed that agreement as one relating to "good will" and therefore have given it greater protection than the noncompete at issue here.
However, plaintiffs have properly stated a claim for breach of contract by repudiation. Plaintiffs have alleged facts that support the inference that Raytheon voluntary disabled itself from complying with the terms of the Parent Noncompete. Citibank and Conn Aire both stand for the proposition that
even absent explicit language binding the assignees of an asset to an agreement not to use that asset in competition with another, a party contracting not to compete can breach the agreement by disabling itself from complying with the non-compete obligation by alienating control of the asset thereby enabling the undesired competition.See Citibank, 857 F. Supp. at 982 n. 5. Raytheon argues that voluntary disablement cannot occur without a contractual provision binding subsequent transferees. But neither of the contracts at issue in Conn Aire or Citibank had such a provision. Raytheon also attempts to distinguish the holding in Citibank because there the breach stemmed from the FDIC's express repudiation of the non-compete covenant. Repudiation by words, however, has the same legal effect as by repudiation by conduct.See Restatement (Second) of Contracts § 250.
Raytheon also contends that Conn Aire is distinguishable because the non-compete provision in that case referred to a specific asset or entity. There, the non-compete referred to the defendant's terminal air facility. But I do not read the holding of that case so narrowly as to preclude plaintiffs from stating a claim entitling them to relief. The mere fact that RCL was not specifically designated by name in the Agreement was because it had not yet been created — that occurred shortly before the closing. (See Complaint ¶ 7). Here, the Parent Noncompete makes reference to Nonappliance Affiliates, and RCL qualified as a Nonappliance Affiliate before its sale to Bain. The crucial language for this issue is that the "defendant divested itself of the ability to perform its obligations under the covenant not to compete." Conn Aire, 1990 WL 209580, at *5. Here, plaintiffs have alleged facts from which a trier of fact could find that by selling RCL to Bain, Raytheon released the one Nonappliance Affiliate that had the capacity to "sell, market, advertise, distribute or service home laundry products and related service parts in the home retail distribution market, anywhere in the United States." (Agreement § 2.9). A trier of fact could then infer that Raytheon's sale of such a Nonappliance Affiliate was an attempt voluntarily to disable itself from complying with the terms of the Parent Noncompete. The parties have not cited, and research has not disclosed, a New York case on the issue of voluntary disablement. Based on the reasoning ofConn Aire and Citibank and the Restatement authority cited therein, I predict that New York Court of Appeals would adopt the holding in Conn Aire. See Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir. 1994) (stating that "where the substantive law of the forum state is uncertain or ambiguous, the job of federal courts is carefully to predict how the highest court of the forum state would resolve the uncertainty or ambiguity" and that in so doing, a court is free to consider decisions in other jurisdictions on the same issues.)
In so ruling, I decline plaintiffs' invitation to adopt an expansive construction of the Agreement in which Alliance (formerly RCL) qualifies as a Nonappliance Affiliate. By making such an argument, plaintiffs seek to construe the Parent Noncompete as binding in perpetuity on those Raytheon affiliates which existed at the time of the closing, regardless of their later status. The plain terms of the Agreement do not support such an interpretation. Plaintiffs argue that this construction would ensure that, consistent with the parties' intent, Raytheon's former commercial laundry division (spun off as RCL) and Raytheon's former home laundry division (sold to Goodman) will not compete with one another for 15 years. When the language of the contract is unambiguous, however, consideration of parol evidence about intent is impermissible. See W.W.W. Assocs. v. Giancontieri, 565 N.Y.S.2d at 443.
In the alternative, plaintiffs contend that the definition of Nonappliance Affiliate in the Parent Noncompete is ambiguous for precisely the same reasons; that is, because it "does not state that Raytheon's obligation is limited to current affiliates." (Pl. Mem. at 21). To demonstrate the alleged ambiguity, plaintiffs point to (1) the alleged incongruity between "Nonappliance Affiliate" in the Parent Noncompete and "affiliate" in the Buyer Noncompete; and (2) the definition of affiliate in the Cross License Agreement. First, the incongruity between "Nonappliance Affiliate" and "affiliate" in the noncompete covenants merely accounts for the difference between that part of Raytheon Appliances acquired by Goodman and that part retained by Raytheon (i.e., the commercial laundry business). Simply because the Agreement defines two separate and distinct terms differently does not in itself create an ambiguity. The parties established a definite and precise meaning for a Nonappliance Affiliate, and one that I find is not capable of more than one meaning. Second, the alleged ambiguity in the Cross-License Agreement refers to the definition of an affiliate of RCL. Under the Cross-License Agreement, which was entered into by Amana Company, L.P. and RCL, RCL does not cease to be a Raytheon affiliate after a sale of RCL by Raytheon. Plaintiffs categorize this definition of affiliate as "descriptive," meaning that "affiliate" status continues regardless of subsequent changes in the parent's ownership and control of the affiliate. However, the Cross-License Agreement specifically provides that "the Parent Non-Compete shall have the same meaning set forth in Section 2.9(a)" of the Agreement. (Cross License Agreement § IQ, attached as Ex. N to Addler Affid., dated July 24, 1998). I cannot agree that the existence of a different definition for "Affiliate of [RCL]" leads to the conclusion that Nonappliance Affiliate is susceptible to more than one meaning. Again, the fact that a different meaning exists for a separate and distinct term in a large, complicated merger agreement such as the one at issue here does not in itself create an ambiguity.
In sum, (1) I find the Agreement unambiguous with regard to the terms of the Parent Noncompete in that it does not bind a former NonAppliance Affiliate; and (2) plaintiffs have stated a claim for breach of contract on the grounds of Raytheon's voluntary disabling itself from complying with the Parent Noncompete. Accordingly, Raytheon's motion to dismiss the breach of contract claim is denied.
B. Specific Performance/Injunctive Relief
Plaintiffs also assert claims for specific performance and injunctive relief against Raytheon, Alliance and Alliance Systems, which Alliance and Alliance Systems now move to dismiss. To prevail on a claim for specific performance under New York law, one of the elements that a plaintiff must establish is the existence of a valid contract. See Travelers Int'l AG v. Trans World Airlines, 722 F. Supp. 1087, 1104 (S.D.N.Y. 1987) (citingNiagara Mohawk Power Corp. v. Graver Tank Mfrg. Co., 470 F. Supp. 1308, 1324 (N.D.N.Y. 1979)). Specific performance of a contract is generally appropriate when "(1) the contract is valid, (2) plaintiff has substantially performed under the contract and is willing and able to perform its remaining obligations, (3) defendant is able to perform its obligations, and (4) plaintiff has no adequate remedy at law." See id. Alliance and Alliance Systems argue that plaintiffs have failed to state a claim because no contract exists between them and plaintiffs; the parties to the Agreement are the sole entities against whom plaintiffs can seek relief for specific performance.
Plaintiffs respond that despite the Alliance defendants' status as non-signatories to the Agreement, they are nonetheless subject to the equitable enforcement of the noncompete. In so arguing, plaintiffs point to a leading commentary which states
[a]lthough cases are not frequent where direct enforcement of a positive contractual obligation can be given against one who has not entered into a contract unless a res is concerned to which equity can attach the character of a trust or something analogous, negative stipulations of such a character that they would not be enforced by injunction against the promisor may also be enforced by injunction against one who by his dealings with the promisor is inducing or forcing the latter to break them.
So where one has contracted not to engage in a certain business, others may be enjoined from employing him in that business or associating themselves in it with him.
(Pl. Mem. at 31-32 (quoting 11 Williston on Contracts, § 1453, at 1066-67 (3d ed. 1968)). Plaintiffs acknowledge that the cases supporting this proposition involve non-compete covenants between an employer and an employee. In that context, a subsequent employer is enjoined from hiring the employee although that new employer is not a party to the employment agreement which contains the non-compete. See Maltby v. Harlow Meyer Savage, Inc., 166 Misc.2d 481, 482, 633 N.Y.S.2d 926, 927, (N.Y.Sup.Ct. N.Y. Co.), aff'd, 223 A.D.2d 516, 637 N.Y.S.2d 110 (1st Dep't 1996). Plaintiff also cites cases involving land sales where specific performance is enforced against non-signatories of the purchase agreement. See Morrocoy Marina, Inc. v. Altengarten, 120 A.D.2d 500, 500, 501 N.Y.S.2d 701 (2d Dep't 1986). Although I recognize that this case differs from those examples proffered by the plaintiff in that here the non-compete clause relates to the sale of a business, I cannot find that plaintiffs can prove no set of fact under which they could obtain specific performance against the Alliance defendants.
Similarly, plaintiffs' claim for injunctive relief cannot be dismissed at this stage. The Complaint chronicles the extensive similarities between machines manufactured by Raytheon's commercial laundry division and its residential laundry division before the transactions with Goodman and Bain. (See Complaint ¶¶ 3-5, 42). Alliance now possesses those manufacturing facilities that had once belonged to Raytheon's commercial arm, and Alliance allegedly manufactures machines that are substantially identical to those which Amana now sells. Plaintiff argues that permitting Alliance to so operate will irreparably harm its business. "The destruction of a business has long been held to constitute the type of irreparable injury for which no adequate monetary remedy." Travellers Int'l AG, 722 F. Supp. at 1105. Balancing the hardships and equities of both parties, which is necessary to resolve this claim, would be singularly inappropriate at this stage of the proceedings.
Accordingly, the Alliance defendants' motion to dismiss the claim as to them is denied.
C. Tortious Interference with Contract
Under New York law, a party bringing an action for tortious interference with contract must allege that (1) a valid contract existed between the plaintiff and a third party; (2) defendant knew of this contract; (3) defendant intentionally induced breach of the contract or otherwise rendered performance impossible; and (4) plaintiffs suffered damages. See Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90, 94, 595 N.Y.2d 931, 612 N.E.2d 289 (1993);Enercomp, Inc. v. McCorhill Publ'g Co., 873 F.2d 536, 541 (2d Cir. 1989) (citing Guard-Life Corp. v. S. Parker Hardware Mfrg. Corp., 50 N.Y.2d 183, 189-91, 428 N.Y.S.2d 628, 406 N.E.2d 445 (1980)).
Defendants argue that the Complaint alleges that Bain and Alliance only had mere knowledge of the Agreement and that they derived only incidental benefit from Raytheon's repudiation. Defendants argue that plaintiffs have not pleaded any facts which allege that Bain or Alliance took affirmative steps to induce the breach of contract or that they engaged in any improper or wrongful conduct. (See Alliance Mem. at 15-17) (citing Yucyco, Ltd. v. Republic of Slovenia, 984 F. Supp. 209, 224-25 (S.D.N.Y. 1997). In support of that argument, defendants rely principally on the Court of Appeals decision in Enercomp, Inc. v. McCorhill Publ'g Co. In Enercomp, the Court found that there was no evidence in the record after a full trial that the defendant had taken any acts to encourage the breach of contract. See 873 F.2d at 541. Rather, the defendant was merely acting as a broker in negotiations for another party, and although he stood to benefit incidentally, absent any proof that he had undertaken "wrongful or improper conduct," he could not be held liable. Id. at 542. In response, plaintiffs cite Guard-Life Corp. v. S. Parker Hardware Mfrg. Corp. for the proposition that tortious interference can occur through the persuasion to breach alone. See 50 N.Y.2d at 194, 428 N.Y.S.2d 628, 406 N.E.2d 445.
The Complaint alleges that Bain and Alliance knew of the restrictions that the Agreement imposed on Raytheon and that they "caused and intended Raytheon to breach its contractual obligations to plaintiffs." (Complaint ¶ 80). Furthermore, plaintiffs allege
Raytheon could not have breached the Agreement and dishonored its non-competition obligation . . . without the active participation and inducement of Bain and Alliance, and their implementation of a transaction that entailed Raytheon's breach of its obligations to plaintiffs.
(Id. ¶ 81). As for an improper purpose or tortious intent, plaintiffs allege that "Bain and Alliance . . . intend to compete, and are currently competing or preparing to compete, with plaintiffs in the home laundry business, notwithstanding their awareness that such competition is expressly barred by the Agreement." (Id. ¶ 55). This last factual allegation, although awkwardly phrased, alleges more than mere awareness of the terms of the Agreement on the part of Bain and Alliance, cf. Yucyco, Ltd., 984 F. Supp. at 225 (dismissing for failure to allege "intentional procurement" of breach), but rather that Bain and Alliance were allegedly the "motivating force[s] behind [Raytheon's] breach," Sharma v. Skaarup Ship Management Corp., 916 F.2d 820, 828 (2d Cir. 1990), cert. denied, 499 U.S. 907 (1991). Taken in their entirety and read in a light most favorable to the plaintiffs, these allegations state a claim because they would demonstrate, if proven, that Bain and Alliance improperly caused Raytheon's failure to fulfill its contractual obligations. See Enercomp, Inc., 873 F.2d at 541.
In this case, Bain's purchase of the commercial laundry business allegedly caused the breach by voluntary disablement. That alleged fact distinguishes this case from Enercomp. InEnercomp, the parties who were sued for tortious interference with contract did not directly participate in the repudiation of the merger agreement but merely moved in quickly after the repudiation occurred to take advantage of it. See also MINA Investment Holdings, Ltd. v. Lefkowitz, 184 F.R.D. 245, 250 (S.D.N.Y. 1990) (declining, on motion to reconsider, to reverse prior holding granting dismissal of tortious interference with contract claim because plaintiffs had alleged only conspiracy to commit tortious interference with contract, the other alleged conspirator had breached the agreement on nine prior occasions, and thus the dismissed defendant could not be the "but for" cause of the breach) (emphasis added).
At this juncture, construing all allegations in a light most favorable to the plaintiffs, I cannot say that plaintiffs would not be entitled to relief under any set of facts that might be proved in support of their allegations in the Complaint. See Hishon v. King Spaulding, 467 U.S. 69, 73 (1984). Accordingly, defendants' motion to dismiss the fourth claim is denied. See Campbell v. Gates, 236 N.Y. 457, 141 N.E.2d 914 (1923) (denying dismissal of complaint which explained plaintiff's contractual relationship with a third party and which alleged that defendant "wrongfully, knowingly, intentionally, and maliciously induced, persuaded, and procured" the breach of that contract).
D. Declaratory Judgment
Plaintiffs fifth claim seeks a declaratory judgment against all defendants giving plaintiffs the right to compete in the commercial laundry market if the Court determines that Alliance or Systems has the right to compete in the home laundry market. (See Complaint ¶ 85). In other words, plaintiffs seek the eradication of their obligations under section 2.9(b). The basis for this claim is Section 2.9(c), (see Complaint ¶¶ 6, 41), which allows a court to reduce the duration of the parties' noncompete obligations if it finds them too onerous. Here, the Complaint does not allege that the duration is too onerous; rather, it is the general applicability of the Parent Noncompete that is the subject of this dispute, and plaintiffs do not say otherwise on this motion. Accordingly, there is no basis for the declaratory judgment sought in plaintiffs' fifth claim, and thus defendants' motion is granted.
Section 2.9(c) states
If it is held by a court of competent jurisdiction that the restrictions placed on Buyer or Parent by Section 2.9(a) or (b) are too onerous and are not necessary for the protection of Parent or Buyer, respectively, Buyer and Parent agree that any court of competent jurisdiction may impose lesser restrictions which such court may consider to be necessary or appropriate to properly protect Parent or Buyer, prospectively.
IV. Horizon Claims
A. Breach of Contract
As noted above, "to state a claim in federal court for breach of contract under New York law, a complaint need only allege (1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of contract by the defendant, and (4) damages." Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996).
Plaintiffs' breach of contract claim relating to the Horizon product alleges that Raytheon Appliances suffered an adverse material change to its business condition before the closing and that Raytheon failed to disclose it in breach of the Agreement. (See Complaint ¶¶ 61, 63). Although the Complaint does not expressly refer to a specific clause of the Agreement, which is not necessary under the pleading requirements of the Federal Rules of Civil Procedure, see Harsco Corp., 91 F.3d at 348, both parties agree that plaintiffs' claim invokes section 3.7. That section, which appears in that portion of the Agreement listing the seller's representations to the buyer, states
Absence of Certain Changes. Except as disclosed in Schedule 3.7, since December 31, 1996, (a) there has been no material adverse change in the Business Condition of the Acquired Business except for any change resulting from general economic, financial or market conditions . . . and (b) there has been no physical damage, destruction or loss that would, after taking into account any insurance recoveries payable in respect thereof, reasonably be expected to (x) have a material adverse effect on the Business Condition of the Acquired Business. . . .
Agreement § 3.7. "Business Condition" is defined in the Agreement as "business assets or financial condition." (Agreement § 3.1).
Although recognizing that plaintiffs seek to invoke section 3.7, defendants argue that the alleged statement about Horizon's ready-for-volume-production status ("RVP status") is a future prediction that, under the Agreement, the defendants were not required to disclose. Defendants first note that the definition of "Business Condition" does not include any language about the business' future prospects, only the present business assets of financial conditions as of the closing. (See Agreement § 3.1). Crucially, section 3.17 provides that Raytheon "is making no representation or warranty, whatsoever, express or implied, beyond those expressly given in the Agreement." (Agreement § 3.17). Also included in that section is the provision that Raytheon makes no representations as to "cost estimates, projections or other predictions," or as to the "condition, merchantability, or suitability" of any of the assets Goodman purchased. (Id.). Under New York law, when a contract "specifically disclaims the existence of any such warranties or representations, an action for breach of contract cannot be maintained [based on those warranties or representations]." Smith v. Fitzsimmons, 180 A.D.2d 177, 180, 584 N.Y.S.2d 692, 694 (4th Dep't 1992); see also Young v. Keith, 112 A.D.2d 625, 626, 492 N.Y.S.2d 489, 490 (3d Dep't 1985) (same). Furthermore, section 3.17 states that Goodman takes the laundry business "as is and where is." (Agreement § 3.17). in sum, defendants claim that the representation about RVP status falls under section 3.17 rather than 3.7, and to hold to the contrary would render section 3.17 superfluous and without effect. See Grumman Allied Indus., Inc. v. Rohr Indus. Inc., 748 F.2d 729, 736 (2d Cir. 1984).
In response, plaintiffs argue that section 3.7 does apply and that section 3.17 does not control or obviate it. According to plaintiffs, the alleged statement about RVP status qualifies as a Business Condition because "there is no reasonable meaning of a material adverse change in `business' or its `financial condition' that does not involve a business' future prospects." (Pl.2d Mem. at 21).
Because the thrust of plaintiffs' breach of contract claim clearly rests on the representation of future earnings or prospects of the Acquired Business, they have failed to state a claim entitling them to relief. Plaintiffs have failed to allege any facts that would invoke section 3.7 of the Agreement. Section 3.7 makes no express or implied warranty as to future events like RVP status, and section 3.17 expressly disclaims any warranties and representations that are not contained in the Agreement. Furthermore, plaintiffs expressly agreed in section 3.17 that they took Raytheon Appliances "as is and where is." As for plaintiff's theory that "future prospects" must be included in the definition of "financial condition," "business," or "assets," the parties failed to include such a meaning in the Agreement, and I decline the invitation to insert it by judicial construction.
At oral argument, plaintiffs' counsel argued for the first time that the representation, allegedly occurring mere days before the closing, should not be construed as a future prospect but rather as a statement of fact given the enormous amount of engineering, testing and the like required to make a washing machine RVP and the that the RVP date was said to be only ten days hence. Even if I were to read this explanation into the Complaint and construe it as one of fact, that still does not enable plaintiffs to withstand defendants' motion in light of the "as is" covenant in Section 3.17.
Since the parties limited the warranties and representations that make up the Agreement, I may not now change them but must instead hold Goodman to the deal it negotiated. See Harsco Corp., 91 F.3d at 346. Under that deal, Raytheon and Alliance cannot be held liable for the Horizon representations alleged. Accordingly, defendants' motion with respect to the sixth claim for breach of contract is dismissed.
Plaintiffs breach of contract claim against Alliance can be disposed of for many of the same reasons set out above. in addition, Alliance was not a signatory of the Agreement, and therefore plaintiffs cannot assert a breach of contract claim against it. See Crabtree v. Evelyn, 776 F. Supp. 155, 166 (S.D.N.Y. 1991). Plaintiffs attempt to circumvent this fact by making a passing allegation in their brief that the meeting with Raytheon and Alliance executives created an oral agreement. That allegation, however, is conspicuously absent from the Complaint. Moreover, such an oral agreement would be barred by the merger clause contained in section 12.4 which states
[t]his Agreement . . . and the Schedules and Exhibits hereto contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the Parties other than those set forth or referred to herein.
(Agreement § 12.4). Accordingly, defendants' motion for dismissal of the breach of contract claim against Alliance is granted.
B. Negligent Misrepresentation
Raytheon and Alliance also move to dismiss plaintiffs' negligent misrepresentation claim. Like the breach of contract claim discussed above, the negligent misrepresentation claim is based on the representation that Horizon would be RVP by September 15, 1997, which representation allegedly was made a few days before the closing on September 3, 1997. In order to prevail on such a claim in New York, a plaintiff must establish that
(1) the parties stood in some special relationship to imposing a duty of care on the defendant to render accurate information; (2) the defendant negligently provided incorrect information; and (3) the plaintiff reasonably relied upon the information given.Dimon Inc. v. Folium, Inc., No. 98 Civ. 6732 (LAK), 1999 WL 280424, *10 (S.D.N.Y. 1999) (citing Pappas v. Harrow Stores, Inc., 140 A.D.2d 501, 504, 528 N.Y.S.2d 404, 407 (2d Dep't 1988)). Defendants argue that because the parties were sophisticated and engaged in an arms' length business transaction, a special relationship as a matter of law cannot be established. Defendants' main focus for attacking the negligent misrepresentation claim, however, is that the disclaimers contained in Section 3.17 of the Agreement dictate that plaintiffs cannot establish the necessary element of reasonable reliance. Plaintiffs, of course, argue to the contrary. For the reasons that follow, defendants' motion is granted.
1. Special Relationship
The New York Court of Appeals has recognized that the duty to speak with care in a commercial context should be applied carefully because not all representations made by a seller of goods or provider of services will give rise to such a duty. See Kimmel v. Schaefer, 89 N.Y.2d 257, 263; 652 N.Y.S.2d 715, 675 N.E.2d 450 (1996). Liability for negligent misrepresentation is thus reserved for those persons or entities
who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified.Id. The precise contours of this special relationship escape easy definition, however. Courts have generally held that "the parties must enjoy a relationship of trust and reliance closer than that of the ordinary buyer and seller, and an "arm's length business relationship is not enough" to create that relationship.Dimon Inc., 1999 WL 280424, *10 (quoting Polycast Technology Corp. v. Uniroyal, Inc., No. 87 Civ. 3297 (JMW), 1988 WL 96586, *10 (S.D.N.Y. 1988)). The question, however, is one that is best left "for case-by-case analysis," Polycast Corp., 1988 WL 96586, *10, and the New York Court of Appeals has instructed that determination of whether or not a special relationship exists generally raises a question of fact, see Kimmel, 89 N.Y.2d at 264. Moreover, as this Court has observed, "those courts that have found, applying New York law, that no special relationship existed have typically done so, not at the pleading stage, but after trial, on the basis that plaintiffs have failed to carry their evidentiary burden." Gruber v. Victor, No. 95 Civ. 2285 (JSM), 1996 WL 492991, *18 (S.D.N.Y. 1996) (declining to grant summary judgment on those grounds).
For the reasons explained in the following section, I need not decide whether plaintiffs have properly alleged a special relationship, however, because plaintiff has failed to allege reasonable reliance.
2. Reasonable Reliance
Alternatively, Raytheon and Alliance seek dismissal of the negligent misrepresentation claim on the ground that plaintiffs cannot establish the necessary element of reasonable reliance.See Harsco Corp. v. Segui, 91 F.3d at 342; John Street Leasehold LLC v. F.D.I.C., No. 95 Civ. 10174 (JGK), 1996 WL 737196, at *7 (S.D.N.Y. 1996). In Harsco Corp. v. Segui, the Court of Appeals extended the rule announced by the New York Court of Appeals in Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 184 N.Y.S.2d 599, 157 N.E.2d 597 (1959). In Danann, the New York Court of Appeals held that where a party specifically disclaims reliance upon a particular representation in a contract, that party cannot subsequently claim that it was fraudulently induced to enter into the contract by the very representation that it has disclaimed reliance upon. See Harsco Corp., 91 F.3d at 345. InHarsco Corp., the Court of Appeals affirmed the dismissal of a negligent misrepresentation claim where a provision in a purchase agreement expressly stated that no representations other than those contained in a detailed representations section were part of the transaction. The Court evaluated the disclaimer in light of (1) the extensive representations that were part of the transaction; (2) the extended opportunity to confirm the disclosures in preliminary and confirmatory due diligence; (3) the sophistication of the parties; and (4) the arm's length nature of the transaction. See id. at 344. The Court found that the "exhaustive nature of the representations adds to the specificity of [the] disclaimer of other representations. We can see no reason not to hold Harsco to the deal it negotiated."Harsco Corp., 91 F.3d at 341.
Defendants Raytheon and Alliance argue that sections 3.17 and 12.4 preclude reasonable reliance on the part of the plaintiffs. As noted above, section 3.17 disclaims representations that are not expressly contained in the Agreement. Section 12.4 is a merger clause which states that the Agreement constitutes the entire agreement between the parties with respect to the subject matter thereof. Furthermore, that section provides that "there are no agreements, understandings, representations or warranties between the Parties other than those set forth or referred to herein." (Agreement § 12.4).
Section 3.17 states in its entirety that
[Raytheon] is making no representation or warranty whatsoever, express or implied, beyond those expressly given in this Agreement, including any implied warranty or representation as to condition, merchantability, or suitability of any of the properties or assets of the Acquired Business and it is understood that [Goodman] takes the Acquired Business as is and where is. it is understood that any cost estimates, projections or other predictions contained or referred to in the Schedules or in the offering materials that have been provided to Goodman shall not be deemed to be representations or warranties of [Raytheon].
The similarities between this case and the one in Harsco Corp. are strong indeed. Here, Raytheon's representations and warranties ran for eight pages, discussing such topics as Capitalization, Financial Statements, Undisclosed Liabilities, Litigation exposure, Properties and Sufficiency of Assets, Intellectual Property, Material Contracts, and Environmental matters. (See id. Art. III). Such extensive detail is similar to that found in Harsco. See 91 F.3d at 340-42, 344. As in Harsco, Goodman was given the opportunity to perform due diligence in the intervening months between the signing of the Agreement and the Closing. (See Agreement § 5.1). With respect to the sophistication of the parties and the arm's length nature of the transaction, there can be no doubt that those requirements have been met.
Recognizing the strength of the Court of Appeals' holding inHarsco Corp., plaintiffs essentially concede that Section 3.17 precludes their claim if they relied on the negligent misrepresentation only for the purpose of entering into the Agreement to purchase Raytheon Appliances. (See Pl. Mem.2d at 15). Instead, plaintiffs claim that the representations made at the September meeting were relied on for a purpose independent of the contract, namely the production and selling of Horizon units. Plaintiffs cite International Products Co. v. Erie R.R. Co., 244 N.Y. 331, 338, 155 N.E. 662 (1927) and Polycast Technology, 1988 WL 96586, at **12-13, as support for the proposition that a negligent misrepresentation claim may rest on statements which were relied on to take action independent of a contract. First, I do not agree with plaintiffs that International Products Co. andPolycast Technology provide the support for their independent action argument. In International Products, the Court held that action independent of entering into a contract was required to assert a negligent misrepresentation claim for which a plaintiff was induced to enter the agreement. See 244 N.Y. at 338. InPolycast Technology, the district court reviewed International Products and held that the holding of that case had lost its validity in the sixty intervening years. See Polycast Technology, 1998 WL 96596, at *12 (citing "several modern decisions [where] there was no real independent action"). Accordingly, those cases are not authority for a claimant, who took independent action subsequent to entering into a contract, to assert a negligent misrepresentation claim solely on such independent action.
Second, assuming arguendo that the independent action distinction is a valid one, plaintiffs have still failed to plead facts which allege reasonable reliance. Whether the action was taken for a different or independent purpose from the signing of the Agreement does not matter; plaintiffs cannot avoid their acknowledgement that they took the home laundry business "as is and where is." Whatever reliance plaintiffs put on the alleged representation about Horizon's RVP status, made days before the closing, it was not reasonable in light of the "as is" language.
Furthermore, I agree with defendants' argument that plaintiffs cannot properly separate the "purchase and postpurchase operation of the home-laundry business" in asserting this claim for negligent misrepresentation. (Raytheon 2d Reply Mem. at 6).
For these reasons, Raytheon and Alliance's motion to dismiss the negligent misrepresentation claim is granted.
CONCLUSIONFor the reasons stated above, defendants' motion is denied in part and granted in part. With respect to claims one through four of the Complaint, defendants' motion to dismiss is denied; with respect to claims five through seven of the Complaint, defendants' motion is granted.
Counsel shall attend a conference in Courtroom 12A, 500 Pearl Street on October 14, 1999 at 4:00 p.m.