LLC v. ADP LLC (2022)

Order, Supreme Court, New York County (Barry R. Ostrager, J.), entered on or about October 18, 2021, which, insofar as appealed from as limited by the briefs, denied defendant's motion for partial summary judgment and denied plaintiff's motion for leave to amend the complaint to reinstate its fraud claim, unanimously modified, on the law, to grant plaintiff's motion, and otherwise affirmed, without costs.

The fraud claim is not duplicative of the contract claim (see e.g. BML Props. Ltd. v. China Constr. Am. Inc., 174 A.D.3d 419, 101 N.Y.S.3d 597 [1st Dept. 2019]). Unlike Cronos Group Ltd. v. XComIP, LLC, 156 A.D.3d 54, 64 N.Y.S.3d 180 (1st Dept. 2017), this is not a case where “the only fraud alleged” was the defendant's “unkept promise to perform certain of its preexisting obligations under the parties’ contract” (id. at 64, 64 N.Y.S.3d 180). Rather, plaintiff alleges, “Whenever ADP's services for Plaintiff[ ] proved to be deficient, ․ ADP would purport to deal with the problem and then misrepresent to Plaintiff[ ] that the problem had been fixed, when ․ it had not.” “Unlike a misrepresentation of future intent to perform, a misrepresentation of present facts is collateral to the contract ․ and therefore involves a separate breach of duty” (Wyle Inc. v. ITT Corp., 130 A.D.3d 438, 440-441, 13 N.Y.S.3d 375 [1st Dept. 2015] [emphasis and internal quotation marks omitted]; see also Board of Mgrs. of 411 E. 53rd St. Condominium v. Dylan Carpet, Inc., 182 A.D.2d 551, 552, 582 N.Y.S.2d 1022 [1st Dept. 1992]).

Moreover, plaintiff seeks at least some damages on its fraud claim that it does not seek on its contract claim (see MBIA Ins. Corp. v. Credit Suisse Sec. [USA] LLC, 165 A.D.3d 108, 114, 84 N.Y.S.3d 157 [1st Dept. 2018]). As it explained during oral argument on defendant's CPLR 3211 motion to dismiss, defendant's substandard performance under the parties’ contract resulted in plaintiff's overpaying its employees. If defendant had admitted that its system was not working, plaintiff “would have terminated [the contract] ․ [and] wouldn't have ․ overpaid [its] employees for that period of time post the supposed fix.” Plaintiff does not seek this item under its contract damages.

Contrary to defendant's contention, plaintiff's brief at nisi prius, which characterized damages other than the fees it paid defendant as consequential, was not a formal judicial admission. “[T]o constitute a judicial admission, the statement must be one of fact” (Naughton v. City of New York, 94 A.D.3d 1, 12, 940 N.Y.S.2d 21 [1st Dept. 2012]).

We are also unpersuaded by defendant's claim that the court decided its motion on a ground not advanced by the parties. The court denied defendant's motion because there were issues of fact as to whether its conduct constituted willful misconduct and the impact of such misconduct on sections 6.A and B of the contract, not due to the distinction between consequential and direct (or general) damages.

The court properly reserved the issue of consequential versus direct damages for trial. “The distinction between general [i.e., direct] and special [i.e., consequential] contract damages is well defined[,] but its application to specific contracts and controversies is usually more elusive” (Biotronik A.G. v. Conor Medsystems Ireland, Ltd., 22 N.Y.3d 799, 805-806, 988 N.Y.S.2d 527, 11 N.E.3d 676 [2014] [internal quotation marks omitted]). Thus, a case-specific approach is appropriate, requiring a court determining whether damages are general “to look at the contract in its entirety to determine the probable consequences that will befall a non-breaching party” (id. at 808, 988 N.Y.S.2d 527, 11 N.E.3d 676 and n 5).

If plaintiff's contract damages are ultimately determined to be direct or general, section 6.B's ban on consequential damages will not apply. However, even if plaintiff's damages are consequential, an exclusion for willful conduct or gross negligence will be implied where a limitation on liability does not specifically provide for one (Graphic Scanning Corp. v. Citibank, 116 A.D.2d 22, 26, 499 N.Y.S.2d 712 [1st Dept. 1986]).

Contrary to defendant's contention, Matter of Part 60 Put-Back Litig., 36 N.Y.3d 342, 141 N.Y.S.3d 410, 165 N.E.3d 180 (2020) does not support the conclusion that section 6.B's ban on consequential damages applies even to damages caused by gross negligence or willful misconduct. First, Put-Back considered only the public policy exception for gross negligence; it did not discuss the public policy exception for willful misconduct (id.). Second, Put-Back was concerned with “a pure breach of contract case, where a defendant's conduct does not give rise to separate liability in tort” (id. at 351, 141 N.Y.S.3d 410, 165 N.E.3d 180; see also id. at 355, 358, 359, 141 N.Y.S.3d 410, 165 N.E.3d 180). Third, while “the sole remedy provision [in Put-Back] was not intended to exculpate defendants from liability for a breach but rather was intended by the parties to provide a remedy for the breach” (id. at 357, 141 N.Y.S.3d 410, 165 N.E.3d 180), section 6.B says, “Neither [defendant] nor [plaintiff] will be responsible for special, indirect, incidental, consequential, punitive or other similar damages ․, however caused and under whatever theory of liability” (emphasis omitted).

Defendant contends that, if section 6.A and B are read together, section 6 is neither an exculpatory clause nor a provision that limits liability to a nominal sum because, under section 6.A, plaintiff can recover three months of the fees it paid to defendant. However, Chaitman v. Moezinia, 178 A.D.3d 642, 115 N.Y.S.3d 283 (1st Dept. 2019) called a paragraph that said, “ ‘Tenant waives, to the full extent permitted by law, any claim for consequential or punitive damages’ ” (id. at 643, 115 N.Y.S.3d 283), an “exculpatory clause” (id.), although another paragraph allowed the tenant to obtain a rent abatement (id. at 642, 115 N.Y.S.3d 283).