| Pacnet Network Ltd. v KDDI Corp. |
| 2010 NY Slip Op 08353 [78 AD3d 478] |
| November 16, 2010 |
| Appellate Division, First Department |
| Pacnet Network Ltd., Appellant, v KDDI Corporation,Respondent. |
—[*1] Morrison & Foerster LLP, New York (James E. Hough of counsel), for respondent.
Order, Supreme Court, New York County (Bernard J. Fried, J.), entered September 17, 2009,which, insofar as appealed from as limited by the briefs, granted defendant's motion to dismiss plaintiff'scauses of action for fraudulent inducement, negligent misrepresentation, and gross negligence, and tostrike the demand for consequential damages, unanimously affirmed, with costs.
Plaintiff and defendant entered into a contract pursuant to which defendant designed andconstructed a fiber optic submarine cable system in East Asia (the system). Before final acceptance ofthe system by plaintiff, the parties identified problems with the performance of a critical componentselected by defendant, namely, certain laser diodes. Plaintiff alleges that, rather than rescinding thecontract or insisting on greater contractual protections, it entered into a contract modification or"variation" in reliance on defendant's misrepresentations that minimal failures would occur and the laserdiodes would stop failing over the course of the system's 25-year design life, and that the componentsdid not represent a threat to the system's performance. The preamble to the contract variation recitedthat, whereas defendant believed the failure rate of the laser diodes would decrease gradually over time,and plaintiff considered it "difficult to estimate the long-term reliability at this moment, thus theagreement should be based on the currently available data," which data was annexed to the contractvariation. Four years later, after an earthquake occurred in the area, a significant number of the laserdiodes failed, resulting in one part of the system being put out of service for about 500 days and anotherpart for a shorter period.
The fraudulent inducement and negligent misrepresentation causes of action were properlydismissed because they do not allege an intentional misrepresentation of any material existing facts(see New York Univ. v Continental Ins. Co., 87 NY2d 308, 318 [1995]), but only"statements of prediction or expectation" (Naturopathic Labs. Intl., Inc. v SSL Ams., Inc., 18 AD3d 404, 404[2005]). The allegation that defendant knew the performance prediction was false is indefinite andconclusory, and therefore not actionable (CPLR 3016 [b]), absent allegations that the prediction wascontradicted by a concrete, existing fact that defendant either intentionally failed to disclose ornegligently failed to discover (compare Coolite Corp. v American Cyanamid Co., 52 AD2d486, 488 [1976], with Hydro Invs., Inc. v Trafalgar Power [*2]Inc., 227 F3d 8, 20-21 [2d Cir 2000]; see George Backer Mgt.Corp. v Acme Quilting Co., 46 NY2d 211, 220 [1978]). Further, since the language of thecontract variation contradicts plaintiff's allegations that it relied on defendant's predictions concerningthe "long-term reliability" of the laser diodes in entering into the contract variation, those allegations arenot presumed to be true (see O'Donnell, Fox & Gartner v R-2000 Corp., 198 AD2d 154,154 [1993]).
The motion court also correctly dismissed the gross negligence claim relating to defendant'sselection of the laser diodes and delay in performing its warranty obligations, since "claims based onnegligent or grossly negligent performance of a contract are not cognizable" (City of New York v611 W. 152nd St., 273 AD2d 125, 126 [2000]), and plaintiff does not allege a breach of a dutyindependent of the contract (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382,389-390 [1987]; Megaris Furs v Gimbel Bros., 172 AD2d 209, 211 [1991]).
Defendant also is entitled to dismissal, based on documentary evidence (CPLR 3211 [a] [1]), of somuch of the demand for damages as seeks consequential damages expressly precluded by thecontractual provision limiting the parties' liability for consequential damages. Contractual limitation ofliability provisions are generally enforceable unless the party seeking to avoid liability has engaged ingrossly negligent conduct evincing a "reckless disregard for the rights of others" (Colnaghi, U.S.A. vJewelers Protection Servs., 81 NY2d 821, 823-824 [1993]). Plaintiff's allegations that the repairstook an unreasonably long time and that defendant did not accede to certain of its demands do notshow the reckless disregard necessary to avoid the contractual limitation on consequential damages(see Retty Fin. v Morgan Stanley Dean Witter & Co., 293 AD2d 341, 341 [2002]; compare Banc of Am. Sec. LLC v Solow Bldg.Co. II, L.L.C., 47 AD3d 239, 244-245 [2007]). Concur—Gonzalez, P.J., Mazzarelli,Andrias, Nardelli and Richter, JJ. [Prior Case History: 25 Misc 3d 1203(A), 2009 NY Slip Op51963(U).]