| IDT Corp. v Tyco Group, S.A.R.L. |
| 2008 NY Slip Op 06621 [54 AD3d 273] |
| August 19, 2008 |
| Appellate Division, First Department |
| IDT Corp. et al., Respondents, v Tyco Group, S.A.R.L., etal., Appellants. |
—[*1] Grayson & Kubli, P.C., Vienna, Va. (Alan M. Grayson of the Virginia bar, admitted pro hacvice, of counsel), for respondents.
Order, Supreme Court, New York County (Charles Edward Ramos, J.), entered October 11,2007, which, to the extent appealed from as limited by the briefs, granted plaintiffs' motion forpartial summary judgment on the issue of liability and denied that portion of defendants' crossmotion seeking summary judgment dismissing the complaint, unanimously reversed, on the law,with costs, plaintiffs' motion for partial summary judgment denied, that portion of defendants'cross motion seeking summary judgment dismissing the complaint granted, defendants'counterclaims severed, and the matter remanded to Supreme Court for further proceedings. TheClerk is directed to enter judgment dismissing the complaint.
This action is for breach of a settlement agreement. The agreement was entered into onOctober 10, 2000, was partially performed by the dismissal of all of the then-pending litigationbetween the parties, and requires defendants to provide specified amounts of fiber optic capacity,at specified times, at a specified price, in a specified configuration, and with specified endpoints.It also expressly calls for further written agreements between the parties, including anindefeasible right of use (IRU). These further agreements are required to be consistent withdefendants' standard agreements for similarly situated customers and "in any event" consistentwith the settlement agreement. The settlement agreement thus leaves room to negotiate the termsof the IRU and the other agreements it contemplated, but makes clear that each side has the rightto insist that those terms be as set forth in defendants' standard agreements except to the extentany such term was inconsistent with the settlement agreement. Accordingly, although thesettlement agreement "reflect[s] a meeting of the minds on all the issues perceived to requirenegotiation" (Brown v Cara, 420 F3d 148, 153 [2d Cir 2005] [applying New York law;internal quotation marks omitted]), all of its essential terms are not contained within its fourcorners. The parties agreed that the remaining terms could and should be negotiated but providedan alternative mechanism for determining those terms in the event negotiations were notsuccessful.
Because defendants' standard agreements, including in particular the IRU, were not inexistence at the time the settlement agreement was entered into, essential terms of the settlementagreement remained indeterminate, and thus the settlement agreement was not a fully enforceableagreement when the parties entered into it. Once the content of defendants' standard agreements[*2]became determinate, however, the contract would have beenfully enforceable if either side insisted that the open terms be as set forth in defendants' standardagreements (except to the extent any particular term of a standard agreement was inconsistentwith the settlement agreement). In essence, the settlement agreement is indistinguishable from awritten agreement in which the parties agree on many but not all of the essential terms of theirrelationship, and further agree that a third party, through binding arbitration or otherwise, is toresolve the remaining terms if they are not resolved by the further negotiations called for in theagreement. We think it plain that if one of the parties to such an agreement refused to performafter the third party resolved the remaining terms, the party refusing to perform could not avoidliability for breach of contract on the ground that the agreement was not fully enforceable when itwas executed.
In Brown, the Second Circuit stated that "binding preliminary agreements fall intoone of two categories" (420 F3d at 153 [internal quotation marks omitted]). A "Type Ipreliminary agreement[ ] [is] complete, reflecting a meeting of the minds on all the issuesperceived to require negotiation" (id. [internal quotation marks omitted]). "Because it iscomplete, a Type I preliminary agreement binds both sides to their ultimate contractualobjective" (id. [internal quotation marks omitted]). By contrast, "Type II preliminaryagreements . . . are binding only to a certain degree, reflecting agreement on certainmajor terms, but leaving other terms open for further negotiation" (id. [internal quotationmarks and brackets omitted]). "Type II agreements do not commit the parties to their ultimatecontractual objective but rather to the obligation to negotiate the open issues in good faith in anattempt to reach the . . . objective within the agreed framework" (id.[internal quotation marks and brackets omitted]).
The settlement agreement reflects a third, hybrid category of preliminary agreement, one thatis incomplete but nonetheless "binds both sides to their ultimate contractual objective" upon thesubsequent occurrence of a contingency, here, either the insistence of one party on the terms ofthe standard agreements after they come into existence or a resolution of the remaining termsthrough further negotiation. Under this hybrid, which might be called a "contingent Type Iagreement," both parties were required to "negotiate the open issues in good faith" unless anduntil one party were to insist on the terms of the standard agreements. Thus, we reject bothplaintiffs' contention that the settlement agreement is a "Type I" agreement and defendants'contention that it is a "Type II" agreement.
Plaintiffs erroneously contend that defendants breached the settlement agreement when, onJune 12, 2001, defendants proposed an IRU that contained terms—such as a provision thatwould have required plaintiffs to relinquish their right to use the fiber optic network withoutcharge for 15 years, and another provision that would have required plaintiffs to forgo theirdamages remedies in the event defendants breached the settlement agreement—thatplaintiffs contend were inconsistent with the settlement agreement. Nothing in the settlementagreement prohibited defendants or plaintiffs from merely proposing terms that were inconsistentwith the settlement agreement. The proposal that defendants made, moreover, was hardly "thesort of definite and final communication" of "an intent to forgo [their] obligations" that is"necessary to justify a claim of anticipatory breach" (Canali U.S.A. v Solow Bldg. Co.,292 AD2d 170, 171 [2002] [internal quotation marks omitted]).
After receiving the June 12 proposal, plaintiffs did not insist that defendants perform inaccordance with the terms of defendants' standard agreements. Nor did plaintiffs take the positionthat defendants thereby had breached the settlement agreement. Rather, the parties did [*3]what the settlement agreement required: they negotiated the openterms. The negotiations continued, albeit in desultory fashion, until March 2004, shortly beforeplaintiffs commenced this action. Because the parties' submissions on the motion and crossmotion establish that defendants never made a "definite and final communication" of "an intentto forgo [their] obligations" (id.) prior to the commencement of this action, defendantsdid not, as a matter of law, breach the settlement agreement. Thus, plaintiffs' motion for partialsummary judgment on liability should have been denied, and that aspect of defendants' crossmotion for summary judgment dismissing the complaint should have been granted.Concur—Lippman, P.J., Andrias, Williams and McGuire, JJ.