| Last Time Beverage Corp. v F & V Distrib. Co., LLC |
| 2012 NY Slip Op 06127 [98 AD3d 947] |
| September 12, 2012 |
| Appellate Division, Second Department |
| Last Time Beverage Corp. et al., Respondents, v F & VDistribution Company, LLC, et al., Appellants. (Action No. 1.) J.C. Tea, Inc., et al.,Respondents, v F & V Distribution Company, LLC, et al., Appellants. (Action No.2.) |
—[*1] Weinstein, Kaplan & Cohen, P.C., Garden City, N.Y. (Alexander Mark Kaplan and Erika L.Conti of counsel), for respondents.
In two related actions, inter alia, to recover damages for breach of contract, the defendantsappeal from (1) an order of the Supreme Court, Nassau County (Driscoll, J.), dated February 25,2010, which, after a hearing, granted the plaintiffs' motion pursuant to CPLR 4403 to confirm thereport of a referee dated June 17, 2009, and (2), as limited by their brief, from so much of anorder of the same court dated July 15, 2010, as, upon reargument, adhered to its originaldetermination.
Ordered that the appeal from the order dated February 25, 2010 is dismissed, as that orderwas superseded by the order dated July 15, 2010, made upon reargument; and it is further,
Ordered that the order dated July 15, 2010 is affirmed insofar as appealed from; and it isfurther,
Ordered that one bill of costs is awarded to the plaintiffs.
The plaintiffs in action No. 1 (hereinafter the Last Time Beverage plaintiffs) and theplaintiffs in action No. 2 (hereinafter the J.C. Tea plaintiffs) commenced these separate actions,inter alia, to recover damages for breach of contract against the defendants, F & V DistributionCo., LLC (hereinafter F & V), and Hornell Brewing Co., Inc. (hereinafter Hornell), which areboth solely owned and operated by Don Vultaggio. Pursuant to orders dated February 14, 2007and February 16, 2007, respectively, the Supreme Court referred the issue of liability in bothactions to a referee to hear and report.[*2]
The Last Time Beverage plaintiffs were experienceddistributors of Coca-Cola and Pepsi products in the New York City metropolitan area. After theCoca-Cola Company purchased the distribution routes of the Last Time Beverage plaintiffs in1995, some of the former Coca-Cola distributors, including the Last Time Beverage plaintiffs,formed the corporation MetBev, Inc. (hereinafter MetBev), to sell Royal Crown soft drinks andother non-alcoholic beverages primarily in the geographic areas where they had previouslydistributed Coca-Cola products. Using their experience and knowledge of the soft drink industry,as well as the good will they had developed with the customers on their routes over the years,MetBev and the Last Time Beverage plaintiffs created a distribution system for the beveragesthey sold and, accordingly, executed Route Distribution Agreements (hereinafter the distributionagreements). These distribution agreements provided, inter alia, that MetBev would operate as afranchisor and the Last Time Beverage plaintiffs as individual distributors. Pursuant to paragraph2.01 of the distribution agreements, each distributor's right to operate its franchise was restrictedto a geographic area or "territory," which was delineated in the contract. Pursuant to paragraph2.02, so long as the distributor was not in default under the distribution agreements, MetBevwould not operate a company-owned distributorship or award a franchise for the operation of asimilar or competitive business within the distributor's territory. Also, pursuant to paragraph9.04, the distributor had the right to sell, assign, or transfer the franchise conveyed by thedistribution agreements, or all or part of the territorial rights, or any interest in these territorialrights, to a third party with the prior written consent of the franchisor, and that consent was not tobe unreasonably withheld.
On December 31, 1996, MetBev executed an agreement, whereby it assigned to F & V itsexclusive rights to distribute Royal Crown Cola and certain other non-alcoholic soft drinks in 12counties in New York State (hereinafter the assignment agreement). Pursuant to the assignmentagreement, F & V assumed MetBev's rights and obligations under the distribution agreementswith the Last Time Beverage plaintiffs. The J.C. Tea plaintiffs were former distributors for, oremployees of, F & V, who were promised that, upon the assignment of MetBev's rights to F & V,they would receive the same rights that the Last Time Beverage plaintiffs had acquired.
Thereafter, the business relationships between the two groups of plaintiffs and F & V beganto deteriorate. Accordingly, the two groups of plaintiffs commenced separate actions against F &V and Hornell. Both the Last Time Beverage plaintiffs and the J.C. Tea plaintiffs alleged, interalia, causes of action to recover damages for breach of contract, based on promissory estoppel,and for unjust enrichment. The plaintiffs also asked the Supreme Court to pierce F & V's limitedliability company veil and hold Hornell liable for F & V's alleged wrongdoing on the ground,inter alia, that F & V and Hornell operated as one business entity under the control of theirmutual principal owner, Don Vultaggio. The crux of the plaintiffs' complaints was that thedefendants allegedly breached the distribution agreements by, among other things, changing oreliminating existing distribution rights without additional compensation, directly selling productsto distributors' customers in violation of the distribution agreements, improperly transhippingproducts, and unreasonably withholding consent to the sale of a franchise by a distributor.
Pursuant to orders of reference made in open court on February 14, 2007 and February 16,2007, respectively, the Supreme Court directed the referee, in relevant part, "to hear and report inthis case on all issues relating to liability that underlie this matter." The referee presided over acomprehensive hearing that continued intermittently for approximately 17 months and includedapproximately 40 days of testimony. In a 57-page report, dated June 17, 2009, the refereemeticulously set forth his proposed findings of fact and conclusions of law. In essence, thereferee recommended that the reviewing court should hold both of the defendants jointly andseverally liable to both groups of plaintiffs on the theory of breach of contract or the theories ofpromissory estoppel and unjust enrichment. The report further recommended that the limitedliability company and corporate veils, respectively, be pierced upon the ground, inter alia, that F& V and Hornell were alter egos of Vultaggio and, accordingly, of one another. The SupremeCourt granted the plaintiffs' motion to confirm the referee's report. Upon reargument, theSupreme Court adhered to its original determination. The defendants appeal.
Contrary to the defendants' contention, the Supreme Court did not err, upon [*3]reargument, in adhering to its original determination confirming thereferee's report. As a general rule, courts will not disturb the findings of a referee as long as theyare substantially supported by the record and the referee has clearly defined the issues andresolved matters of credibility (see Stone v Stone, 229 AD2d 388 [1996]; Kaplan vEiny, 209 AD2d 248, 251 [1994]). A referee's credibility determinations are entitled to greatweight because, as the trier of fact, he or she has the opportunity to see and hear the witnessesand to observe their demeanor (seeGalasso, Langione & Botter, LLP v Galasso, 89 AD3d 897, 898 [2011]).
Here, the referee concluded that the plaintiffs presented 27 "highly credible fact witnesses,"plus three expert witnesses who were familiar with the customs and practices in the soft drinkindustry. In contrast, the defendants presented only two witnesses, who had little or noexperience in the soft drink industry. In addition, the defendants relied on the testimony of DonVultaggio, whom the plaintiffs called as an adverse witness on their direct case, and whosetestimony, according to the referee, "had less than marginal credibility."
The Supreme Court also properly confirmed the referee's recommendation that Hornell'scorporate veil and F & V's limited liability company veil be pierced. The corporate or limitedliability company veil will be pierced "to achieve an equitable result," among other instances,"[w]hen a corporation [or limited liability company] has been so dominated by . . .another corporation and its separate entity so ignored that it primarily transacts the dominator'sbusiness instead of its own and can be called the other's alter ego" (Austin Powder Co. vMcCullough, 216 AD2d 825, 827 [1995]; see Matter of Island Seafood Co. v GolubCorp., 303 AD2d 892, 893 [2003]; cf. John John, LLC v Exit 63 Dev., LLC, 35 AD3d 540, 541-542[2006]; Rivera v Citgo Petroleum Corp., 181 AD2d 818, 819 [1992]; Matter of TotalCare Health Indus. v Department of Social Servs., 144 AD2d 678, 679 [1988]). In piercing F& V's limited liability company veil and imposing liability on Hornell, the referee and theSupreme Court properly considered several factors, including that: (1) Hornell and F & V hadoverlapping ownership, officers, and personnel; (2) both companies shared the same office spacewith other commonly-owned business entities; (3) both companies failed to observe certainformalities such as keeping certain records; and (4) F & V was not adequately capitalized,without a substantial loan from Hornell, to undertake this business venture (see Wm.Passalacqua Bldrs., Inc. v Resnick Devs. S., Inc., 933 F2d 131, 139 [1991]; Peery v United Capital Corp., 84 AD3d1201, 1202 [2011]; Matter of Island Seafood Co. v Golub Corp., 303 AD2d at893-894).
Further, the Supreme Court properly confirmed the referee's conclusion that F & V breachedparagraphs 2.01, 2.02, and 9.04 of the distribution agreements, which clearly and unambiguouslygave the Last Time Beverage plaintiffs the exclusive right to distribute certain beverages indesignated territories and the right to sell their distribution routes to third parties with MetBev'sconsent, which could not be unreasonably withheld.
The Supreme Court also properly confirmed the referee's determination that F & V breachedparagraph 5.03 of the distribution agreements. At the hearing, the parties disputed whether,pursuant to paragraph 5.03, an exclusive right was conferred upon the individual distributors,giving them the opportunity to sell, in their respective territories, any new beverages which thefranchisor became authorized to distribute in a particular distributor's territory. Although theinterpretation of a clear and unambiguous contract is a function for the court, and mattersextrinsic to the agreement may not be considered when the parties' intent can be gleaned from theface of the instrument (see Teitelbaum Holdings v Gold, 48 NY2d 51, 56 [1979]), to theextent that paragraph 5.03 of the distribution agreements, which governed the distribution of newproducts, may be ambiguous, the Supreme Court properly resorted to the canons of construction,and considered extrinsic evidence to ascertain the parties' intent (see Dorman v Cohen,66 AD2d 411, 414 [1979]). Evidence of custom and practice in an industry is admissible todefine an unexplained term (see Hoag v Chancellor, Inc., 246 AD2d 224 [1998];Boody v Giambra, 192 Misc 2d 128 [2002]). A party who seeks to use trade usage todefine language or annex a term to a contract must show either that the other party was actuallyaware of the trade usage, or that the usage was so notorious in the industry that a person ofordinary prudence in the exercise of reasonable care would be aware of it (see Matter ofReuters Ltd. v Dow Jones Telerate, 231 AD2d 337 [1997]). Here, that burden was met, asthe plaintiffs' fact witnesses and expert witnesses consistently testified that the custom andpractice in the soft drink industry was that, once a [*4]franchisorplaced a new beverage on a distributor's truck, the distributor automatically acquired theexclusive right to distribute that beverage in its territory.
The J.C. Tea plaintiffs are in a different position from that of the Last Time Beverageplaintiffs because the J.C. Tea plaintiffs never executed distribution agreements. Instead, the J.C.Tea plaintiffs relied on the oral and written promises made by the defendants' representatives thatthese plaintiffs would receive contracts that would guarantee exclusive rights in theirgeographical territories, equity in their distributorships, long-term franchise relationships, and theright to assign their distributorships to third parties, subject to F & V's consent, which could notbe unreasonably withheld. Based on those promises, the J.C. Tea plaintiffs invested a substantialamount of time, money, and labor to increase the equity in their distribution routes.
The defendants contend that the statute of frauds prevents the J.C. Tea plaintiffs fromasserting breach of contract causes of action based on those oral promises. In support of thatcontention, they rely on General Obligations Law §§ 5-701 and 15-301 (1).However, the doctrine of partial performance removes an oral agreement from the operation ofthe statute of frauds where, as here, the plaintiffs' actions are "unequivocally referable" to thealleged oral agreement (Messner Vetere Berger McNamee Schmetterer Euro RSCG v AegisGroup, 93 NY2d 229, 237 [1999]; Anostario v Vicinanzo, 59 NY2d 662, 664 [1983];see Klein v Jamor Purveyors, 108 AD2d 344, 348 [1985]).
Here, the J.C. Tea plaintiffs performed substantial obligations based on the defendants'promises, which were also articulated in the express terms and conditions set forth in thedistribution agreements and the assignment agreement that governed the Last Time Beverageplaintiffs. Accordingly, the Supreme Court properly confirmed the referee's conclusion that theseoral agreements should be removed from the ambit of the statute of frauds. Moreover, we agreewith the referee and the Supreme Court that the J.C. Tea plaintiffs were entitled to invoke thetheories of promissory estoppel (see Rogers v Town of Islip, 230 AD2d 727 [1996];Ripple's of Clearview v Le Havre Assoc., 88 AD2d 120, 122 [1982]) and unjustenrichment (see Cruz v McAneney,31 AD3d 54, 59 [2006]).
The defendants' contention that the referee exceeded the scope of the order of reference is notbefore us, as it is improperly raised for the first time on appeal (see Gross v Aetna Cas. &Sur. Co., 240 AD2d 468, 469 [1997]; Fresh Pond Rd. Assoc. v Estate of Schacht,120 AD2d 561 [1986]).
The defendants' remaining contentions are without merit. Skelos, J.P., Florio, Eng and Sgroi,JJ., concur. [Prior Case History: 2010 NY Slip Op 30480(U).]