Claimant's motion to dismiss defendant's counterclaim or, alternatively, to strike certain requests for damages was denied.
|Claimant(s):||M/A-COM, INC. and TYCO ELECTRONICS CORPORATION|
|Claimant short name:||M/A-COM|
|Footnote (claimant name) :|
|Defendant(s):||THE STATE OF NEW YORK|
|Footnote (defendant name) :|
|Judge:||FRANCIS T. COLLINS|
|Claimant's attorney:||Weil, Gotshal & Manges LLP
By: James W. Quinn, Esquire, Steven Alan Reiss, Esquire, Salvatore A. Romanello, Esquire, Jared R. Friedmann, Esquire
Nixon Peabody LLP
By: Andrew C. Rose, Esquire
|Defendant's attorney:||Honorable Andrew M. Cuomo, Attorney General
By: C. Michael Reger, Esquire
Assistant Attorney General
|Third-party defendant's attorney:|
|Signature date:||June 15, 2010|
|See also (multicaptioned case)|
Claimants move for an Order dismissing the defendant's counterclaim pursuant to CPLR 3211 (a) (7) or, in the alternative, striking certain requests for damages set forth in the counterclaim pursuant to CPLR 3024 (b).
Claimants, M/A-COM, Inc. (M/A-Com) and its parent corporation Tyco Electronics Corporation (Tyco), seek damages for the State's alleged breach of a contract (the Contract) for the installation of a Statewide Wireless Network (SWN). In the aftermath of the events of September 11th, 2001, the installation of a SWN was considered necessary to "provide an integrated, land mobile radio communications network that will be utilized by public safety and public service agencies in New York State to more effectively and efficiently coordinate the day-to-day delivery of governmental services . . . [and] deployment of all levels of public safety resources during disaster and emergency situations . . ." (claimants' Exhibit I, Master Agreement, p. 3). According to the allegations in the claim, the Contract required M/A-Com to design and construct the SWN in a two-county primary regional build-out (PRB) area composed of Erie and Chautauqua counties. Once tests of the regional system were complete the State would then determine whether to accept the PRB and proceed to the next phase or exercise its termination rights as provided in RFP Part 12 (Exhibit B annexed to affidavit of Hanford C. Thomas sworn to April 2, 2010, p. 222).(1) "Under the Master Agreement, the State did not have to make payments to M/A-COM unless and until the State accepted the PRB" (Claim, ¶ 12).
The State did not accept the PRB. Rather, by letter dated August 29, 2008 the State declared M/A-Com to be "in default of the SWN Master Agreement" and cited the 45 day "cure period" provided in the agreement for correcting the 19 operational deficiencies described in an attachment to the correspondence. M/A-Com allegedly failed to cure the deficiencies, however, and defendant terminated the Contract for cause by letter dated January 14, 2009. Also on January 14, 2009, the State drew upon a $50,000,000.00 standby letter of credit (SLOC) required under the contract between the parties. Claimants allege in the claim that termination of the contract and drawing down of the SLOC were both undertaken in bad faith:
13. Unfortunately for M/A-COM, it substantially completed the PRB at the same time that the State became aware of its unprecedented $25 billion budget deficit. Facing a potential $2 billion expenditure for the SWN, termination of the Master Agreement presented the State with a convenient opportunity not only to avoid future billions of dollars in payments, but also to seek a $50 million windfall by drawing down on a standby letter of credit issued in connection with the Master Agreement" (Claim,¶ 13).
Defendant served an amended answer to the claim in which it alleged, as its fourth defense and counterclaim, damages in the sum of $275,972,292.00 arising from the claimants' breach of contract. Incorporating by reference the notice of default dated August 29, 2008 and the letter terminating the Contract dated January 14, 2009, defendant alleged seven items of damages including expenditures made in reliance on the contract as well as losses expected to accrue as the result of the claimants' breach thereof. The following damages are alleged in the counterclaim:
"l. SWN Project Expenditures by OFT including Outside Consultants and cost of designated SWN staff in the amount of at least $56,246,896.00;
2. Federal Grant Expenditures in the sum of $7,377,143.00;
3. Realignment and reconfiguration of CIO/OFT for a program to replace SWN to fulfill the purposes of SWN in the amount of at least $11,931,477.00;
4. Purchase of radios to comply with Federal Communications Commission ('FCC') narrow-banding requirements in at least the sum of $138,065,313.00;
5. Loss of functionality of proprietary radios to be purchased from M/A-Com in at least the sum of $50,596,000.00;
6. Maintenance of the existing ('legacy') radio system for the five year maintenance required from M/A-Com under the terms of the Master Agreement in an amount not less than $11,755,463; and
7. A system to be constructed as an inter-operable public safety and communication system to meet the purposes of the SWN to have been provided by M/A-Com under the Master Agreement by State of New York in an amount yet to be determined but believed to be in excess of the $2,005,343,896 not-to-exceed price bid by M/A-Com payable under the terms and conditions of the Master Agreement".
Claimants argue that dismissal of the counterclaim is warranted because it fails to allege sufficient facts to state a cause of action and the damage claims are meritless as a matter of law. Claimants also argue that defendant's counterclaim for expectation-based damages fails as a matter of law because it may not be permitted to benefit from its own wrongdoing in terminating the contract and because recovery for both reliance and expectation-based damages is precluded.
On a motion to dismiss a claim pursuant to CPLR 3211 (a) (7) the court is required to "accept the facts as alleged in the [claim] as true, accord [claimant] the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 NY2d 83, 87-88 ; see also Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326 )). "[T]he sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail" (Guggenheimer v Ginzburg, 43 NY2d 268, 275 ). Evaluating the counterclaim in this light, it clearly states a prima facie cause of action for breach of contract. " 'The elements of a cause of action for breach of contract are (1) formation of a contract between plaintiff and defendant; (2) performance by plaintiff; (3) defendant's failure to perform; and (4) resulting damage' " (Clearmont Prop., LLC v Eisner, 58 AD3d 1052, 1055  [citation omitted]). Each of these elements were sufficiently alleged in the defendant's counterclaim to state a breach of contract cause of action and avert dismissal on a motion pursuant to CPLR 3211 (a) (7) (id.; see also Prince Seating Corp. v QBE Ins. Co., 62 AD3d 771 ).
While claimants purport to seek dismissal of the counterclaim pursuant to CPLR 3211 (a) (7), they rely not on the counterclaim itself, indeed they failed to support the motion with a copy of the counterclaim. Instead, claimants rely on various items of extrinsic evidence which may not be considered in support of such a motion (Leon v Martinez, supra; compare 3211 [a] ).(2) Thus, to the extent claimants' motion is premised on evidence outside the four corners of the counterclaim, it is improper.
Moreover, there is no rule precluding recovery for both reliance and expectation-based damages as a matter of law. Rather, contract damages are "intended to give the injured party the benefit of the bargain by awarding a sum of money that will, to the extent possible, put that party in as good a position as it would have been in had the contract been performed" (Goodstein Constr. Corp. v City of New York, 80 NY2d 366, 373 ). So far as possible the law attempts to "secure to the injured party the benefit of his bargain, subject to the limitations that the injury - - whether it be losses suffered or gains prevented -- was foreseeable, and that the amount of damages claimed be measurable with a reasonable degree of certainty and, of course, adequately proven" (Freund v Washington Sq. Press, 34 NY2d 379, 382 ; see also Wakeman v Wheeler & Wilson Mfg. Co., 101 NY 205, 209  ["The damages must be not merely speculative, possible and imaginary, but they must be reasonably certain, and such only as actually follow or may follow from the breach of the contract"]). Claims for lost profits based only upon a speculative assessment of how much income would have been generated but for the breach are not recoverable (Kenford Co. v County of Erie, 67 NY2d 257 ). Nor are claims which were not within the reasonable contemplation of the parties at the time of contracting (Kenford Co. v County of Erie, 73 NY2d 312 ). "To determine whether consequential damages were reasonably contemplated by the parties, courts must look to the nature, purpose and particular circumstances of the contract known by the parties . . . as well as what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made" (Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187, 193  [internal quotations and citations omitted]). The measure of damages reasonably contemplated by the parties, a fact based inquiry, cannot be determined as a matter of law at the pleadings stage of litigation (Goodstein Constr. Corp. v City of New York, 67 NY2d 990, 992 ).
It is generally recognized that where expectation-based damages, which include both lost profits and benefit of the bargain damages, cannot be proven with reasonable certainty, reliance damages may nevertheless be recoverable (St. Lawrence Factory Stores v Ogdensburg Bridge & Port Auth., 13 NY3d 204 ). In such circumstances the non-breaching party is permitted to recover "damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed" (Id. at 208 [internal quotation marks and citation omitted]). While it is fundamental that money damages are designed "to put the injured party in as good a position as he would have been put by full performance of the contract" (Freund v Washington Sq. Press, 34 NY2d at 382 [internal quotation marks and citation omitted]), it is "equally fundamental that the injured party should not recover more from the breach than he would have gained had the contract been fully performed" (id.; see also Bogdan & Faist v CAI Wireless Sys., 295 AD2d 849 ). Recovery of both reliance and expectation-based damages would generally yield the non-breaching party more than he would have gained had the contract been fully performed. However, on a motion directed to the sufficiency of the pleading it can not be determined, as a matter of law, that a claim for both reliance and expectation-based damages would place the State in a better position than it would have been in without the alleged breach by the claimants.
For example in Goodstein Constr. Corp. v City of New York (67 NY2d 990) plaintiff alleged in its complaint that the defendant breached designation agreements selecting the plaintiff as the exclusive negotiator on land disposition agreements (LDAs) for the sale and development of certain city-owned properties to the plaintiff. The terms of the designation agreements required only that the defendant cooperate with plaintiff in developing the LDAs for eventual submission and approval by the City. The designation agreements allegedly breached did not require the sale of the properties to the plaintiff, which was subject to approval by another agency. In denying the defendant's motion to dismiss the complaint pursuant to CPLR 3211 (a) (7) the Court held that the causes of action were sufficiently pled and claims for both reliance damages and expectation-based damages should remain undisturbed. While the Court noted that it was doubtful that plaintiff could establish a right to recover damages resulting from defendant's failure to sell the sites to the plaintiff, thereby relegating plaintiff to reliance damages, it stated that it was "immaterial on a motion addressed to the sufficiency of the pleading . . . that plaintiff cannot recover all of the items of damage claimed" (id. at 992). This case is dispositive of the instant motion, which is likewise addressed only to the sufficiency of the counterclaim (cf. Goodstein Constr. Corp. v City of New York, 80 NY2d 366 ). While it may well be that the expectation-based damages alleged in the counterclaim are too speculative or unconnected to the alleged breach to withstand summary judgment, no such determination can be made on a motion directed to the sufficiency of the pleadings.
To the extent claimants move pursuant to CPLR 3024 (b) to strike the alleged damages as scandalous or prejudicial, such relief is inappropriate under the circumstances at bar (see generally Soumayah v Minnelli, 41 AD3d 390 ; Wegman v Dairylea Coop., 50 AD2d 108 ). Based on the foregoing, claimants' motion is denied.
June 15, 2010
Saratoga Springs, New York
FRANCIS T. COLLINS
Judge of the Court of Claims
The Court considered the following papers:
1. The RFP was expressly incorporated into the Master Agreement (claimant's Exhibit I, Master Agreement, p. 4, Art. 2.01).
2. While affidavits may not be considered in support of a motion to dismiss a claim pursuant to CPLR 3211 (a) (7), they may be considered "to preserve inartfully pleaded, but potentially meritorious, claims" (Rovello v Orofino Realty Co., 40 NY2d 633, 635 ; Nonnon v City of New York, 9 NY3d 825 ).