| Amcan Holdings, Inc. v Canadian Imperial Bank ofCommerce |
| 2010 NY Slip Op 00786 [70 AD3d 423] |
| February 4, 2010 |
| Appellate Division, First Department |
| Amcan Holdings, Inc., et al.,Appellants-Respondents, v Canadian Imperial Bank of Commerce,Respondent-Appellant, et al., Defendants. |
—[*1] Skadden, Arps, Slate, Meagher & Flom LLP, New York (Scott D. Musoff of counsel), forrespondent-appellant.
Order, Supreme Court, New York County (Helen E. Freedman, J.), entered June 17, 2008,which granted defendants' motion to dismiss the complaint to the extent of dismissing all causesof action against defendants Canadian Imperial Holdings, CIBC World Markets, and CIBC, Inc.,and the cause of action for breach of the implied covenant of good faith and fair dealing againstdefendant Canadian Imperial Bank of Commerce (CIBC), unanimously modified, on the law, theremaining causes of action against CIBC dismissed, and otherwise affirmed, with costs againstplaintiffs.
Plaintiff companies are all controlled by one Richard Gray, who, in 2001, approached CIBCto obtain financing for the acquisition of a company called CWD Windows Division (CWDDivision), as well as refinancing for the existing debt of Amcan and another company owned byAmcan, B.F. Rich Co. (BF Rich). Gray also sought funding for the continuing operations ofCWD Division and BF Rich. More specifically, plaintiffs sought a commitment from CIBC tofurnish two separate lines of credit: (1) a revolving credit line to provide working capital, and (2)a nonrevolving term loan.
The parties negotiated a "Draft Summary of Terms and Conditions" (draft summary),outlining the proposed terms of the two credit lines. After additional negotiations, the partiesexecuted a writing entitled "Summary of Terms and Conditions" (summary). Both documentscontained a highlighted box at the top of the first page with the following language: "The CreditFacilities will only be established upon completion of definitive loan documentation, including acredit agreement . . . which will contain the terms and conditions set out in thisSummary in addition to such other representations . . . and other terms andconditions . . . as CIBC may reasonably require."
The summary itself contained specifics on a number of items, including, inter alia, detaileddescriptions of the credit lines, the amount of funding to be provided under each, amortizationand interest rates, fees, security, a proposed closing date and definitions of key [*2]terms. The borrower was listed as CWD Division and BF Rich.
Under the subheading "Fees," the summary provided for a $500,000 fee to CIBC, payable asfollows: $50,000 payable on acceptance of the draft summary, $150,000 payable uponacceptance of this committed offer and $300,000 payable upon the closing of this transaction. Itis undisputed that plaintiffs paid the first two installments, which were not refunded bydefendants when the deal was terminated.
Under the subheading "Conditions Precedent" were included what was "[u]sual andcustomary for transactions of this type," such as—for "Initial Funding," the "[e]xecutionand delivery of an acceptable formal loan agreement and security . . .documentation, which embodies the terms and conditions contained in this Summary."
Although there is a dispute over what happened next, it appears that prior to the execution ofthe final loan documents and credit agreement, CIBC discovered Gray had failed to disclose thatcertain entities he controlled, including Amcan, were subject to a preliminary injunction issuedby New York County Supreme Court on October 21, 1996, which prohibited Amcan fromassigning BF Rich shares as security for the loan, a condition precedent to closing the deal.Additionally, defendants claim plaintiffs failed to disclose that Gray had been held in contemptfor violating the injunction, which contempt was upheld twice on appeal. Plaintiffs argue thatdefendants were aware of Gray's prior actions but proceeded with the deal in spite of thatknowledge. CIBC broke off negotiations and the deal was never consummated.
Six years later, plaintiffs commenced this action, asserting causes of action for breach ofcontract based on defendants' failure to close the loan, breach of defendants' obligation of goodfaith and fair dealing, and fraud. Defendants moved to dismiss the complaint pursuant to CPLR3211 (a) (1) and (7). Defendants argued that the summary was not a binding agreement, but amere agreement to agree, and that they did not act arbitrarily in breaking off negotiations afterlearning about the preliminary injunction and contempt orders. Defendants further argued thatassuming arguendo that the summary was a binding agreement, plaintiffs failed to state a causeof action because they did not identify provisions of the summary defendants had allegedlybreached. Finally, defendants argued that Chariot Management lacked standing to sue, as it wasneither a party to, nor a third-party beneficiary of, the summary.
The motion was granted to dismiss against all defendants other than CIBC, holding that theywere not parties to any agreement. The court also dismissed plaintiffs' cause of action againstCIBC for breach of good faith and fair dealing, holding this claim duplicative of thebreach-of-contract cause of action. In addition, it denied the motion to dismiss the cause ofaction against CIBC for breach of contract, finding that the circumstances presented at thispreliminary stage of the proceedings did not permit a determination as to whether the summarywas a binding agreement or merely an agreement to agree. The court also held that the portion ofthe motion to dismiss, for lack of standing, plaintiff Chariot Management's cause of action forbreach of contract was premature.
The claim that defendants breached the implied covenant of good faith and fair dealing wasproperly dismissed as duplicative of the breach-of-contract claim, as both claims arise from thesame facts (Logan Advisors, LLC vPatriarch Partners, LLC, 63 AD3d 440, 443 [2009]) and seek the identical damages foreach alleged breach (see Deer ParkEnters., LLC v Ail Sys., Inc., 57 AD3d 711, 712 [2008]).
The causes of action asserted by Chariot Management against all defendants should havebeen dismissed for lack of standing. The documents belie plaintiffs' allegation that Chariot [*3]Management—which was not identified as a "Borrower," orlisted as a signatory to either the summary or the draft credit agreement—was an intendedthird-party beneficiary of the summary (see LaSalle Natl. Bank v Ernst & Young, 285AD2d 101, 108-109 [2001]).
"In determining whether a contract exists, the inquiry centers upon the parties' intent to bebound, i.e., whether there was a 'meeting of the minds' regarding the material terms of thetransaction" (Central Fed. Sav. v National Westminster Bank, U.S.A., 176 AD2d 131,132 [1991]). Generally, where the parties anticipate that a signed writing is required, there is nocontract until one is delivered (see Scheck v Francis, 26 NY2d 466, 470-471 [1970]).
Here, both the draft summary and summary documents clearly state the credit facilities "willonly be established upon completion of definitive loan documentation," which would contain notonly the terms and conditions in those documents but also such "other terms and conditions. . . as CIBC may reasonably require." Although the summary was detailed in itsterms, it was clearly dependent on a future definitive agreement, including a credit agreement. Atno point did the parties explicitly state that they intended to be bound by the summary pendingthe final credit agreement, nor did they waive the finalization of such agreement (see Prospect St. Ventures I, LLC vEclipsys Solutions Corp., 23 AD3d 213 [2005]; see also Hollinger Digital vLookSmart, Ltd., 267 AD2d 77 [1999]).
The parties disagree on whether the draft summary and summary fall into a type I (fullynegotiated) or type II (terms still to be negotiated) preliminary agreement, commonly used infederal cases addressing the issue of whether a particular document is an enforceable agreementor merely an agreement to agree (see Teachers Ins. & Annuity Assn. of Am. v TribuneCo., 670 F Supp 491, 498 [SD NY 1987]). However, our Court of Appeals recently rejectedthe federal type I/type II classifications as too rigid, holding that in determining whether thedocument in a given case is an enforceable contract or an agreement to agree, the questionshould be asked in terms of "whether the agreement contemplated the negotiation of lateragreements and if the consummation of those agreements was a precondition to a party'sperformance" (IDT Corp. v Tyco Group, S.A.R.L., 13 NY3d 209, 213 n 2[2009]).
Here, the summary made a number of references to future definitive documentation, startingwith the box on page one of the summary. The fact that the summary was extensive andcontained specific information regarding many of the terms to be contained in the ultimate loandocuments and credit agreements does not change the fact that defendants clearly expressed anintent not to be bound until those documents were actually executed. As a result, the motion todismiss the complaint should have been granted in its entirety with respect to CIBC.[*4]
Based on the foregoing, there is no need to address theremaining issues raised by the parties on the appeal and cross appeal. Concur—Mazzarelli,J.P., Sweeny, Catterson, Acosta and Abdus-Salaam, JJ. [Prior Case History: 20 Misc 3d1104(A), 2008 NY Slip Op 51218(U).]