PROSPECT STREET VENTURES LLC v. ECLIPSYS SOLUTIONS CORP (2005)

Order, Supreme Court, New York County (Bernard J. Fried, J.), entered February 22, 2005, which denied defendants' motion to dismiss the complaint pursuant to CPLR 3211(a)(7), unanimously reversed, on the law, with costs, the motion granted and the complaint dismissed.   The Clerk is directed to enter judgment accordingly.

 The letter agreement dated July 15, 1998, upon which plaintiffs rely, was a mere “agreement to agree” rather than an enforceable contract, since it was expressly conditioned on the “execution of a definitive agreement satisfactory in form and substance” to both sides, and nothing in the complaint or record reflects that this condition was waived.   The continued applicability of this condition precluded the formation of a contract in the form of the letter agreement, since that document manifested an intent not to be bound unless there was such a definitive agreement or a waiver thereof (see Scheck v. Francis, 26 N.Y.2d 466, 311 N.Y.S.2d 841, 260 N.E.2d 493 [1970];  Hollinger Digital, Inc. v. LookSmart, Ltd., 267 A.D.2d 77, 699 N.Y.S.2d 682 [1999];  Chatterjee Fund Mgt. v. Dimensional Media Assoc., 260 A.D.2d 159, 687 N.Y.S.2d 364 [1999];  LaRuffa v. Fleet Bank, N.A., 260 A.D.2d 299, 689 N.Y.S.2d 59 [1999];  Prestige Foods, Inc. v. Whale Sec. Co., 243 A.D.2d 281, 663 N.Y.S.2d 14 [1997] ).   The intent not to be bound is also manifested in the references in the letter to a “proposed” commitment and a “proposed” transaction.

 Plaintiff's conclusory allegation that defendants refused to negotiate a final purchase agreement in good faith, devoid of any specific factual allegations other than the use of the term “good faith,” is insufficient to support its argument that defendants unilaterally frustrated performance of the condition and therefore cannot benefit from its nonperformance (cf. Long Is. Sav. Bank, FSB v. Geloda/Briarwood Corp., 235 A.D.2d 301, 302, 652 N.Y.S.2d 611 [1997];  Curtis Props. Corp. v. Greif Cos., 212 A.D.2d 259, 264, 628 N.Y.S.2d 628 [1995];  Ellenberg Morgan Corp. v. Hard Rock Cafe Assoc., 116 A.D.2d 266, 271, 500 N.Y.S.2d 696 [1986] ).

 The legal insufficiency of the contract cause of action requires the dismissal of the promissory estoppel claim as well, since the inclusion of the condition precluded the element of detrimental reliance (see Chatterjee Fund Mgt., supra;  Prestige Foods Inc., supra;  Hollinger Digital Inc., supra ).   The expenditure of time and $25,000 for due diligence is not detrimental reliance under the circumstances (see Chatterjee Fund Mgt., supra ).

Since the promissory estoppel claim is precluded by the terms of the letter, the rule that a detailed showing of the elements of promissory estoppel need not be shown to survive a pre-answer motion to dismiss (see Rogers v. Town of Islip, 230 A.D.2d 727, 728, 646 N.Y.S.2d 158 [1996] ) is irrelevant here;  the deficiency is not in the completeness of the allegations, but in their contradiction.

In light of the foregoing, we need not reach the issue of whether Eclipsys Corp. may be held liable as Eclipsys System's alter ego or whether, as the court stated, additional discovery may flesh out the corporate relationship.   However, we note that the complaint is completely devoid of factual allegations in this regard.

The Decision and Order of this Court entered herein on August 4, 2005 is hereby recalled and vacated (see M-4749 decided simultaneously herewith).