| G.K. Alan Assoc. Inc. v Lazzari |
| 2009 NY Slip Op 07585 [66 AD3d 830] |
| October 20, 2009 |
| Appellate Division, Second Department |
| G.K. Alan Assoc. Inc., Appellant, v Derval Lazzari,Respondent, et al., Defendant. |
—[*1] Vincent D. McNamara, East Norwich, N.Y. (Anthony Marino of counsel), fordefendant/counterclaim plaintiff-respondent.
In an action to recover damages for breach of contract, the plaintiff appeals from (1) adecision of the Supreme Court, Nassau County (Brandveen, J.), dated July 2, 2008, and (2) ajudgment of the same court entered September 23, 2008, which, after a nonjury trial, and uponthe decision, is in favor of the defendant and against it, dismissing the complaint and awardingthe defendant the principal sum of $350,000 on his counterclaims to recover payments he madeto the plaintiff under a certain consulting agreement.
Ordered that the appeal from the decision is dismissed, as no appeal lies from a decision(see Schicchi v J.A. Green Constr. Corp., 100 AD2d 509 [1984]); and it is further,
Ordered that the judgment is modified, on the law, by deleting the provision thereofawarding the defendant the principal sum of $350,000 on his counterclaims to recover paymentshe made to the plaintiff under a certain consulting agreement and substituting therefor aprovision dismissing those counterclaims; as so modified, the judgment is affirmed; and it isfurther,
Ordered that one bill of costs is awarded to the defendant.
In March 2001 the defendant Derval Lazzari entered into an agreement (hereinafter the stockpurchase agreement) with Harvey Katzenberg in which Lazzari agreed to purchase stock ownedby Katzenberg in four related corporations (hereinafter collectively the Corporations). On thesame date, Lazzari, in his personal capacity, entered into a consulting agreement with theplaintiff G.K. Alan Assoc., Inc. (hereinafter Alan), a corporation owned by Katzenberg and hiswife. Under the terms of the consulting agreement, Alan agreed to provide consulting services"for the benefit and protection of businesses" in which Lazzari had purchased stock fromKatzenberg, and Lazzari agreed, among other things, to make monthly payments to Alan in theamount of $25,000 over a term of 15 years.[*2]
Both before and after Lazzari purchased Katzenberg'sstock, Alan provided insurance brokerage services to the Corporations and was responsible forplacing their automobile and workers' compensation insurance. It is undisputed that, inconnection with its insurance brokerage services, Alan engaged in an insurance fraud scheme bymaking material misrepresentations to the Corporations' insurers in order to lower theunderwriter's insurance ratings. Additionally, it is undisputed that Alan intentionally overbilledthe Corporations for their insurance premiums and retained the overbilled amounts for itself.
In 2003, after Lazzari allegedly discovered that Alan had engaged in misconduct inconnection with its insurance brokerage services, he stopped making payments to Alan under theconsulting agreement. Shortly thereafter, Alan commenced this action to recover damages forLazzari's breach of the consulting agreement. In its amended complaint, Alan alleged that thestock purchase agreement and the consulting agreement represented a single integratedtransaction for the sale of Katzenberg's stock in the Corporations to Lazzari and that thepayments to which Alan was entitled under the consulting agreement constituted a portion of theconsideration which Lazzari had agreed to pay for Katzenberg's stock. Thus, according to Alan,by failing to make payments under the consulting agreement, Lazzari breached his obligation topay for the stock he purchased from Katzenberg. In his amended answer, Lazzari denied that thestock purchase agreement and the consulting agreement represented an integrated transactionand alleged, in support of his affirmative defenses, that Alan's misconduct in providing insurancebrokerage services entitled Lazzari to avoid his obligations to pay Alan pursuant to theconsulting agreement. Additionally, Lazzari interposed counterclaims seeking, among otherthings, recovery of the money he had paid to Alan under the consulting agreement.
On a prior appeal, this Court concluded that neither the complaint nor Lazzari's affirmativedefenses and counterclaims could be dismissed on summary judgment (see G.K. Alan Assoc., Inc. v Lazzari,44 AD3d 95 [2007], affd 10 NY3d 941 [2008]). Following a nonjury trial, theSupreme Court entered a judgment against Alan and in favor of Lazzari dismissing the complaintand awarding Lazzari the principal sum of $350,000 on his counterclaims to recover thepayments he made to Alan under the consulting agreement. We modify the judgment so as todismiss those counterclaims.
"Where, as here, a nonjury trial is involved, this Court's power to review the evidence is asbroad as that of the trial court, bearing in mind that due regard must be given to the trial court,which was in a position to assess the evidence and the credibility of the witnesses" (Totonelly v Enos, 49 AD3d 710,711 [2008]).
Alan contends that the Supreme Court incorrectly found that the consulting agreement wasan independent contract for consulting services rather than simply a means for Lazzari to pay aportion of the purchase price for Katzenberg's stock. If it were the latter, then any misconduct onAlan's part would be irrelevant since Katzenberg had already provided the consideration for thepurchase price by transferring the stock (see G.K. Alan Assoc., Inc. v Lazzari, 44 AD3dat 103). "In determining whether contracts are separable or entire, the primary standard is theintent manifested, viewed in the surrounding circumstances" (Rudman v CowlesCommunications, 30 NY2d 1, 13 [1972]; see Williams v Mobil Oil Corp., 83 AD2d434, 439 [1981]). Here, the Supreme Court was presented with conflicting evidence as to theintent of Katzenberg and Lazzari at the time the stock purchase agreement and the consultingagreement were executed. Taking into account that the Supreme Court had the advantage ofviewing the witnesses (see Matter of Fasano v State of New York, 113 AD2d 885, 888[1985]), we decline to disturb its finding that the consulting agreement was an independentcontract for consulting services.
Additionally, we uphold the Supreme Court's determination that the consulting agreementgave rise to an agency relationship between Alan and the Corporations, as well as between Alanand Lazzari. Lazzari's affirmative defenses and counterclaims relied largely upon his contentionthat Alan had forfeited its right to compensation under the consulting agreement by acting, ineffect, as a faithless agent in connection with its insurance brokerage services. The disloyalty ofan agent entitles its principal to avoid the agent's claims for damages arising from the principal'stermination of the agency relationship, at least to the extent such claims involve futurecompensation (see G.K. Alan Assoc., Inc. v Lazzari, 44 AD3d at 102). However, thedefense afforded by the faithless agent rule inures only to the benefit of the agent's principal(id. at 101), and Alan's misconduct in connection with its insurance brokerage servicesfor the [*3]Corporations was not directed towards Lazzaripersonally. Therefore, Lazzari would not be able to avoid his future obligations under theconsulting agreement on the basis of Alan's disloyalty towards the Corporations unless thatagreement also gave rise to an agency relationship between Alan and the Corporations.
"[Agency] is a fiduciary relationship which results from the manifestation of consent of oneperson to allow another to act on his or her behalf and subject to his or her control, and consentby the other so to act" (Maurillo v Park Slope U-Haul, 194 AD2d 142, 146 [1993]). "Theduties of an agent are defined by the terms of the agreement that gave rise to the agency"(G.K. Alan Assoc., Inc. v Lazzari, 44 AD3d at 101). Here, although the consultingagreement was nominally between Alan and Lazzari, its expressed purpose was to engage Alanfor the benefit and protection of the Corporations, and, under its terms, Alan agreed to advancethe business and interests of each of the Corporations "subject to the direction of the respectiveBoard of Directors" of each of the Corporations. Moreover, Lazzari testified at trial that someportion of the consideration which Alan had received under the consulting agreement had beenpaid by the Corporations, rather than by Lazzari personally, and he proffered documentaryevidence in support of this testimony. Based on the foregoing, we decline to disturb the SupremeCourt's determination that the consulting agreement gave rise to an agency relationship betweenAlan and the Corporations.
As Alan contends, "[a] principal who condones misconduct on the part of his or her agentmay not rely on that misconduct to deprive the agent of compensation" (G.K. Alan Assoc.,Inc. v Lazzari, 44 AD3d at 100). The trial record contains conflicting evidence as to whetherLazzari and the other corporate managers were aware of and participated in Alan's practice ofmaking material misrepresentations to the Corporations' insurers. However, at trial, Lazzarirepresented that he had terminated the consulting arrangement based upon Alan's overbillingpractices, rather than its underlying insurance fraud scheme, and it was uncontroverted thatneither Lazzari nor the other corporate managers knew that Alan was overbilling theCorporations for insurance premiums and retaining the overbilled amounts. Notably, Katzenbergtestified that he never discussed Alan's overbilling practices with either Lazzari or the other mainpartner in the Corporations and that the insurance bills Alan issued to the Corporations had notitemized the difference between Alan's charge for insurance premiums and the actual cost of thepremiums. In light of the foregoing, we uphold the Supreme Court's determination that Lazzariwas entitled to avoid his future obligations under the consulting agreement based upon Alan'smisconduct of overbilling the Corporations for insurance premiums.
Contrary to the Supreme Court's determination, Lazzari was not entitled to an award of$350,000 on his counterclaims to recover payments he made to Alan under the consultingagreement. At trial, Lazzari failed to establish that Alan's misconduct with respect to itsinsurance brokerage services had tainted or interfered with its performance of the advisoryservices it provided under the consulting agreement (see G.K. Alan Assoc., Inc. vLazzari, 44 AD3d at 103-105).
Alan's remaining contentions are without merit. Mastro, J.P., Santucci, Chambers and Lott,JJ., concur. [See 20 Misc 3d 1120(A), 2008 NY Slip Op 51486(U).]