SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: IAS PART 49

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TRIPLE POINT TECHNOLOGY, INC. d/b/a
TRIPLE POINT OF NEW YORK,

Plaintiff,

- against - Index No. 603950/2001

TRANSAMMONIA INC.,

Defendant.

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Motions number 001 and 004 are consolidated for disposition. In motion sequence number 001, plaintiff moves to dismiss the first, second, third, fourth, fifth, and sixth counterclaims, on the grounds of a defense founded upon documentary evidence and failure to state a cause of action, CPLR 3211(a)(1) and (a)(7). In motion sequence number 004, plaintiff moves to strike the second, third, fourth, fifth, sixth, and seventh affirmative defenses, CPLR 3211(b).

Defendant Transammonia Inc. is in the business of trading, distributing, and transporting commodities, including petrochemicals, liquefied petroleum gases, and fertilizers. Plaintiff Triple Point Technology, Inc., d/b/a Triple Point of New York, is engaged in the business of developing, supplying, and servicing computer software relating to commodities trading.

Defendant issued a request for proposal, in August 1999 (the ARFP@), in which it invited prospective bidders to submit proposals for outsourcing defendant=s information technology functions. Plaintiff submitted such a proposal, whereupon plaintiff and defendant entered into three contracts, on March 30, 2000: (1) a software license agreement (the ALicense Agreement@), pursuant to which plaintiff granted defendant a license to use several software systems, including a commodity trading system known as Tempest 2000 (all of that software, collectively, ATempest@); (2) a consulting services agreement (the AConsulting Agreement@), pursuant to which plaintiff agreed, inter alia, to provide consulting and development services, as described on AService Request@ forms which were agreed upon, and executed, by the parties; and (3) a software maintenance services agreement, which does not appear to be central to the parties= dispute (all three agreements, collectively, the AAgreements@).

Also on March 30, 2000, the parties executed Service Request No. 3 under the Consulting Agreement, pursuant to which plaintiff agreed to design and develop six specified interfaces between Tempest and an accounting software system, known as the PeopleSoft Account System (APeopleSoft@), which defendant would license separately from another company. Defendant contends that the Agreements, taken together, obligated plaintiff to provide a fully integrated commodity trading and accounting software system, comprised of Tempest, PeopleSoft, and the interfaces between them.

Defendant allegedly became dissatisfied when plaintiff failed to correct various deficiencies in Tempest, and had provided only one of the six interfaces between Tempest and PeopleSoft by March 2001. In May 2001, defendant advised plaintiff to cease performing any work under the Agreements, and to refund all of the amounts which defendant had paid thereunder. On July 11, 2001, pursuant to provisions contained in the Agreements, defendant notified plaintiff of various defaults under the License Agreement and the Consulting Agreement, and demanded that plaintiff cure the defaults within 30 days. Plaintiff allegedly failed to do so.

The complaint=s sole cause of action, for breach of contract, alleges that plaintiff is entitled to recover approximately $795,000, for services rendered under the Consulting Agreement. Defendant=s answer sets forth six counterclaims, and seven separately denominated affirmative defenses.

The motion to dismiss the counterclaims is granted, but only to the extent that the first counterclaim is dismissed.

The first counterclaim alleges that plaintiff breached the License Agreement, by failing to develop, deliver, and implement software in accordance with the requirements of that agreement. However, the counterclaim=s allegations, when considered in conjunction with the terms of the License Agreement, fail to state a cause of action. Insofar as the License Agreement obligated plaintiff to grant defendant a license to use Tempest, and to deliver the licensed software and documentation, defendant has not adequately alleged plaintiff=s breach of those obligations. Moreover, since the License Agreement imposed no obligation upon plaintiff to develop or implement any software, such obligations cannot serve as the basis for defendant=s counterclaim alleging breach of the License Agreement.

Defendant contends that Tempest was deficient in various respects, including, for example, that it was: (1) unable to generate essential reports; (2) unable to properly record Avalue added tax@ transactions; (3) unable to properly record foreign currency transactions in accordance with defendant=s accounting practices; and (4) not fully integrated with PeopleSoft. However, even assuming that Tempest was deficient in those respects, the terms of the License Agreement preclude defendant=s counterclaim for breach of that agreement on the grounds of those deficiencies.

The License Agreement clearly stated, in a provision set forth entirely in capital letters, that the licensed software and documentation were provided Aas is,@ and without any warranty, express or implied, except for four warranties which were specifically enumerated in the agreement (License Agreement, ' 7.5). That the foregoing limitations upon plaintiff=s liability were an integral part of the parties= bargain is confirmed by another provision, which states: ATHE PARTIES ACKNOWLEDGE THAT ALL OTHER PROVISIONS OF THE AGREEMENT RELY UPON THE INCLUSION OF THIS SECTION 7. THE PROVISIONS OF THIS SECTION 7 MATERIALLY LIMIT THE POTENTIAL LIABILITY OF [PLAINTIFF] AND CONSTITUTE A MATERIAL PORTION OF THE CONSIDERATION RECEIVED BY [PLAINTIFF]@ (id., ' 7.12). Defendant=s counterclaim for breach of the License Agreement fails, accordingly, because defendant has not alleged any facts indicating that plaintiff failed to provide defendant with the licensed Tempest software and documentation in Aas is@ condition.

Defendant asserts that the Agreements, read and construed together, contractually obligated plaintiff to provide it with a fully integrated trading and accounting software system. It is true that the Agreements were part of one larger transaction, and must be read and construed in conjunction. However, that fact does not justify a construction of the License Agreement which disregards its clear terms and provisions, or renders them without force or effect. Defendant has failed to demonstrate that plaintiff=s alleged failure to deliver a fully integrated trading and accounting system would constitute a breach of the License Agreement.

Although plaintiff=s motion to dismiss defendant=s counterclaims is granted with respect to the first counterclaim, it is denied with respect to the second, third, fourth, fifth, and sixth counterclaims.

The second counterclaim alleges that plaintiff breached the Consulting Agreement by, among other things, failing to develop and deliver the six interfaces described in Service Request No. 3. Plaintiff argues that the second counterclaim is barred by the express provisions of the Consulting Agreement and the License Agreement, because: (1) the Consulting Agreement contains a provision which made the interfaces subject to the terms of the License Agreement, which, as previously discussed, provides for the delivery of software Aas is,@ and without warranty, other than the four warranties enumerated in footnote 2 above; and (2) the Consulting Agreement itself states that the software developed thereunder is subject to delivery Aas is,@ and without warranty of any kind (see, Consulting Agreement, '' 1.7, 2.3, 5.1; Service Request No. 3). However, that argument fails, because defendant=s second counterclaim does not allege that plaintiff delivered the six interfaces, and that they thereafter proved to be defective. Rather, the counterclaim alleges that plaintiff breached the Consulting Agreement by failing to deliver the six interfaces, or at least five of them, at all.

The third, fourth, and fifth counterclaims allege claims, respectively, for fraudulent inducement, common law fraud, and negligent misrepresentation. Plaintiff asserts two general grounds for dismissal of those counterclaims, but neither ground justifies dismissal of any of them.

Plaintiff argues that the counterclaims should be dismissed, first, because they are duplicative of defendant=s counterclaims for breach of contract. In order to allege a claim of fraud arising in connection with a contractual relationship, which is not duplicative of a claim for breach of contract, a plaintiff must allege either: (1) a fraudulent representation which is collateral or extraneous to the contract; (2) the breach of a legal duty which is separate from the duty to perform under the contract; or (3) special damages, caused by the misrepresentation, which would not be recoverable under a contract measure of damages (see, Bridgestone/Firestone, Inc. v Recovery Credit Servs., Inc., 98 F3d 13, 20 [2d Cir 1996] [applying New York law]; Coppola v Applied Elec. Corp., 288 AD2d 41, 42 [1st Dept 2001]).

[I]f a plaintiff alleges that it was induced to enter into a transaction because a defendant misrepresented material [present or existing] facts, the plaintiff has stated a claim for fraud even though the same circumstances also give rise to the plaintiff=s breach of contract claim. Unlike a misrepresentation of future intent to perform, a misrepresentation of present facts is collateral to the contract (though it may have induced the plaintiff to sign the contract) and therefore involves a separate breach of duty.

 

(First Bank of Americas v Motor Car Funding, Inc., 257 AD2d 287, 291-292 [1st Dept 1999] [citations omitted]; see also, Deerfield Communications Corp. v Chesebrough-Ponds, Inc., 68 NY2d 954, 956 [1986]; RKB Enters., Inc. v Ernst & Young, 182 AD2d 971, 972 [3d Dept 1992]).

Defendant alleges, inter alia, that plaintiff represented, in its response to defendant=s RFP, that it had the capability of developing interfaces between Tempest and PeopleSoft, and that it had already successfully developed such an interface for another client (see, Answer, && 17, 30; see also, Plaintiff=s Response to Defendant=s RFP, Stein Affid. in Opp., Exh. B, at 13). Defendant alleges that it relied upon plaintiff=s representations in deciding to replace its existing software with Tempest and PeopleSoft, in purchasing and installing the hardware necessary to run those applications, in contracting with plaintiff to develop and deliver the interfaces between them, and in entering into the Agreements (see, Answer, && 31, 34, 59). Defendant alleges that it was Aastonished to learn, in early 2001, that [plaintiff] had not, in fact, developed interfaces between Tempest and PeopleSoft for another client and that [plaintiff=s] representations in this regard were false@ (id., & 35).

Plaintiff=s statement, to the effect that it had successfully developed an interface between Tempest and PeopleSoft, was clearly a representation as to a present or existing fact, collateral to the contracts between the parties, which Acannot be characterized merely as an insincere promise of future performance@ or future intent (First Bank of Americas v Motor Car Funding, Inc., supra, 257 AD2d, at 292). Accordingly, the counterclaims for fraud and negligent misrepresentation are not merely duplicative of the breach of contract claims.

Plaintiff also argues that defendant=s counterclaims for fraud and negligent misrepresentation should be dismissed, because they are barred by the disclaimers of warranty and liability, and by the merger clauses, which are contained in the License Agreement and the Consulting Agreement.

Defendant contends in response, as a preliminary matter, that the Agreements are governed by Article 2 of the Uniform Commercial Code, because they involved a Atransaction in goods@ (see, UCC 2-102), and that the disclaimer provisions are unenforceable, under the UCC, because they were unconscionable at the time when the parties entered into the Agreements (see, UCC 2-302[1]). However, even assuming, arguendo, that one or all of the Agreements are governed by the UCC, defendant has failed to establish that the disclaimer provisions were unconscionable at the time when the Agreements were entered into.

AA determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made--i.e., >some showing of an Aabsence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party@=@ (Gillman v Chase Manhattan Bank, N.A., 73 NY2d 1, 10 [1988] [citations omitted]). Defendant has failed to articulate any basis for a finding of procedural unconscionability, and would presumably be unable to do so, given the commercial sophistication of the parties, the lack of disparity in their bargaining power, the apparent lack of haste and high-pressure tactics in the bargaining process, and the fact that the disclaimer provisions were printed in capital letters (see, id. at 10-11). Defendant has also failed to demonstrate, alternatively, that this is one of the Aexceptional cases where a provision ... is so outrageous as to warrant holding it unenforceable on the ground of substantive unconscionability alone@ (id. at 12).

However, neither the disclaimers nor the merger clause (which is contained in section 11.4 of the License Agreement and incorporated by reference in section 6 of the Consulting Agreement) bar defendant=s counterclaims for fraud and misrepresentation. The merger clause is ineffective to exclude parol evidence of fraud in the inducement, because it is phrased in general terms, and does not contain a specific representation that defendant was not relying upon a representation made by plaintiff outside of the parties= agreement (see, First Nationwide Bank v 965 Amsterdam, Inc., 212 AD2d 469, 471 [1st Dept 1995]; Mahn Real Estate Corp. v Shapolsky, 178 AD2d 383, 385 [1st Dept 1991]).

While it is true that Aa specific disclaimer [in a contract] defeats any allegation that the contract was executed in reliance upon contrary ... representations@ (Busch v Mastropierro, 258 AD2d 492, 493 [2d Dept 1999]), plaintiff has not demonstrated that all of the alleged misrepresentations which are the basis of defendant=s counterclaims, and upon which defendant purportedly relied, are contrary to specific disclaimers contained in the License Agreement and the Consulting Agreement. Plaintiff has failed to establish, for example, that its representation to the effect that it had developed an interface between Tempest and PeopleSoft, for another client, was meaningfully contradicted by any specific disclaimer in either agreement. Indeed, defendant=s counterclaims based upon fraud and misrepresentation would not be precluded, even if either agreement did contain such a specific disclaimer, since the alleged misrepresentation concerns facts arguably within plaintiff=s exclusive knowledge (see, Steinhardt Group Inc. v Citicorp, 272 AD2d 255, 257 [1st Dept 2000]).

Plaintiff contends that defendant=s counterclaim for negligent misrepresentation is barred, additionally, because there was no Aspecial relationship@ between the parties which would justify defendant=s reliance upon plaintiff=s alleged misrepresentations. However, A[w]hether the nature and caliber of the relationship between the parties is such that the [allegedly] injured party=s reliance on a negligent misrepresentation is justified generally raises an issue of fact,@ the determination of which is dependent upon, among other things, Awhether the person making the representation held or appeared to hold unique or special expertise@ (Kimmell v Schaefer, 89 NY2d 257, 264 [1996]; see also, Salesian Socy., Inc. v Nutmeg Partners Ltd., 271 AD2d 671, 673 [2d Dept 2000]).

Plaintiff argues that it held no unique or special expertise vis-à-vis defendant, since, before defendant attempted to switch to Tempest and PeopleSoft, defendant operated its business using a software system which it had developed in-house (see, Answer, & 23). However, that fact would not preclude the possibility that plaintiff held special expertise with respect to the specific matters here in issue, e.g., Tempest and plaintiff=s ability to develop, and past experience in developing, interfaces between Tempest and PeopleSoft.

Plaintiff has also failed to demonstrate its entitlement to dismissal of the sixth counterclaim, which seeks rescission of the Agreements, on the grounds of plaintiff=s fraud, inability to perform the Agreements, and lack of consideration. Plaintiff argues that defendant has failed to allege an adequate ground for rescission, and that defendant has an adequate remedy at law which precludes the counterclaim.

In order to state a claim for the equitable remedy of rescission, a party must allege: Afraud in the inducement of the contract; failure of consideration; an inability to perform the contract after it is made; or a breach [of] the contract@ which is either material and willful, or A>so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract=@ (Babylon Assocs. v Suffolk County, 101 AD2d 207, 215 [2d Dept 1984] [citation omitted]). Plaintiff has failed to establish that defendant has no basis for its rescission claim, since plaintiff has not demonstrated that defendant=s counterclaim for fraud should be dismissed, and since defendant asserts that plaintiff=s failure to develop and deliver the six interfaces between Tempest and PeopleSoft was a breach of the Consulting Agreement so fundamental as to defeat the object of the parties in making that agreement.

The court declines to dismiss defendant=s rescission counterclaim on the basis of plaintiff=s conclusory contention that defendant has an adequate remedy at law which precludes that counterclaim. Defendant did not have a fair opportunity to respond to that argument, because plaintiff raised the argument for the first time only in its reply papers (see, Azzopardi v American Blower Corp., 192 AD2d 453, 454 [1st Dept 1993]; Dannasch v Bifulco, 184 AD2d 415, 416-417 [1st Dept 1992]).

Plaintiff=s motion to strike defendant=s second, third, fourth, fifth, sixth, and seventh affirmative defenses is granted, and all of those defenses are dismissed.

The second and sixth defenses allege, respectively, that plaintiff=s claim is barred by the doctrine of equitable estoppel, and by plaintiff=s waiver of its claim. Defendant bases both of these defenses upon two e-mails, which were sent by plaintiff in February 2001. In the e-mails, plaintiff acknowledged that defendant had not yet been provided with any satisfactory results relating to the six interfaces between Tempest and PeopleSoft. Plaintiff also advised defendant to temporarily withhold Aany Peoplesoft related payments,@ until certain matters were clarified, and stated that plaintiff A[wouldn=t] pay them either@ (Stein Affid. in Opp., Exh. B). Defendant apparently contends that plaintiff should now be equitably estopped from asserting that the interfaces were delivered, or that it is entitled to payment even though the interfaces were not delivered. Defendant also apparently maintains that plaintiff waived its right to payment for the interfaces, by asserting that defendant should temporarily suspend its APeoplesoft related payments.@

The elements of an equitable estoppel defense are:

A(1) conduct which amounts to a false representation or concealment of material facts; (2) intention that such conduct will be acted upon by the other party; and (3) knowledge of the real facts. The party asserting estoppel must show with respect to himself: (1) lack of knowledge of the true facts; (2) reliance upon the conduct of the party estopped; and (3) a prejudicial change in his position.@

 

(Babylon Assocs. v Suffolk County, supra, 101 AD2d, at 214 [citation omitted].) None of those elements are adequately pleaded, or readily discernable from the facts upon which defendant premises its equitable estoppel defense. Nor could any statement made by plaintiff to defendant, concerning a temporary suspension of payments relating to PeopleSoft, constitute a Avoluntary and intentional abandonment@ (General Motors Acceptance Corp. v Clifton-Fine Cent. School Dist., 85 NY2d 232, 236 [1995]) by plaintiff, on a final basis, of its right to receive any payment in connection with the interfaces.

The third affirmative defense, alleging Aunclean hands,@ is only a defense to a cause of action in equity, and is unavailable to defendant as against plaintiff=s cause of action for breach of contract (The Color Wheel, Inc. v Interstate Printing Co. Inc., 281 AD2d 161, 162 [1st Dept 2001]; 518 East 80th St. Co., LLC v Smith, 251 AD2d 215, 216 [1st Dept 1998]).

Defendant=s fourth affirmative defense, asserting plaintiff=s breach of contract, is duplicative of defendant=s second counterclaim.

Defendant=s fifth affirmative defense alleges that, A[b]ecause of [plaintiff=s] fraudulent misconduct as alleged ... in [defendant=s] Counterclaims, [defendant] is not obligated to pay [plaintiff] the amount claimed ... and any payments to [plaintiff] constitute or would constitute an unjust enrichment@ (Answer, & 11). Insofar as the defense is predicated upon plaintiff=s alleged fraud, it is duplicative of defendant=s third and fourth counterclaims, which are also denominated, respectively, as defendant=s eighth and ninth affirmative defenses. Insofar as the defense is predicated upon the theory of unjust enrichment, that theory is unavailing, since the parties= obligations and potential liabilities with regard to plaintiff=s cause of action for breach of contract are governed by the terms of their valid written Agreements (see, Apfel v Prudential-Bache Sec., Inc., 81 NY2d 470, 479 [1993]; DePinto v Ashley Scott, Inc., 222 AD2d 288, 289 [1st Dept 1995]).

The seventh affirmative defense, alleging plaintiff=s breach of the covenant of good faith and fair dealing, is duplicative of defendant=s second counterclaim, for breach of contract, Asince, where appropriate, the courts will imply the obligation of good faith and fair dealing between parties to a contract@ (McMahan & Co. v Bass, 250 AD2d 460, 462 [1st Dept 1998]; see also, Apfel v Prudential-Bache Sec. Inc., 183 AD2d 439 [1st Dept 1992], mod on other grounds and affd 81 NY2d 470 [1993]).

In the event that any of its affirmative defenses are dismissed, defendant has requested leave, in a footnote in its memorandum of law, to replead those defenses. However, leave to replead the dismissed defenses is denied, since defendant has failed to submit either a proposed amended pleading of the defenses, or evidence of their merit (see, CPLR 3211[e]; HT Capital Advisors, L.L.C. v Optical Resources Group, Inc., 276 AD2d 420 [1st Dept 2000]; King v George Schonberg & Co., 233 AD2d 242, 243 [1st Dept 1996]).

For the foregoing reasons, it is hereby

ORDERED that plaintiff=s motion to dismiss defendant=s counterclaims (motion sequence no. 001) is granted, but only to the extent that the first counterclaim (for breach of the Software License Agreement) is dismissed; and it is further

ORDERED that plaintiff=s motion to dismiss certain of defendant=s affirmative defenses (motion sequence no. 004) is granted, and defendant=s second, third, fourth, fifth, sixth, and seventh affirmative defenses are dismissed; and it is further

ORDERED that the action in all other respects continues.

Dated: July , 2002

ENTER:

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J.S.C.