| Demetre v HMS Holdings Corp. |
| 2015 NY Slip Op 03058 [127 AD3d 493] |
| April 9, 2015 |
| Appellate Division, First Department |
[*1]
| Dennis Demetre et al., Appellants, v HMSHoldings Corp., Respondent. |
Humphrey, Farrington & McClain, P.C., Independence, MO (Kenneth B.McClain of the bar of the State of Missouri, admitted pro hac vice, of counsel), forappellants.
Raines Feldman LLP, Beverly Hills, CA (Robert M. Shore of the bar of the State ofCalifornia, admitted pro hac vice, of counsel), for respondent.
Order, Supreme Court, New York County (Barbara R. Kapnick, J.), entered on orabout November 1, 2013, which, to the extent appealed from, granted the motion ofdefendant, HMS Holdings Corp. (HMS), to dismiss the causes of action for fraud andbreach of the implied covenant of good faith and fair dealing, unanimously modified, onthe law, the motion denied as to the cause of action for breach of the implied covenant ofgood faith and fair dealing, and otherwise affirmed, without costs.
Plaintiffs were the owners and shareholders of Allied Management Group-SpecialInvestigation Unit (AMG). Pursuant to a stock purchase agreement (SPA), HMSacquired all of the shares in AMG. Under the SPA, the purchase price for AMGconsisted of a single "up-front" cash payment of $13 million at closing, plus twosubsequent annual "earn-out" or "contingent" payments. The earn-out or contingentpayments were based on the financial performance of AMG. HMS made the up-frontpayment of $13 million at closing, but plaintiffs received "zero dollars" in contingentpayments at the end of June 2011 and June 2012.
The dismissal of the claim for breach of the implied covenant of good faith and fairdealing, at this juncture, is premature. The court's dismissal of the claim as duplicative ofthe breach of contract claim is inconsistent with its determination that the "best efforts"clause, allegedly being breached, is ambiguous as to whether it applied to HMS'spost-acquisition operation of AMG. Because the issues are still undeveloped at this stageof the proceeding, both claims should be permitted to stand (see Sims v FirstConsumers Natl. Bank, 303 AD2d 288 [1st Dept 2003]).
Further, to the extent the "best efforts" clause could be found inapplicable, plaintiffshave sufficiently pleaded a claim for breach of the implied covenant, as the allegationsshow that HMS, in bad faith, engaged in acts that had the effect of destroying or injuringplaintiffs' right to receive "the fruits of the contract," i.e., the contingent payments(Dalton v Educational Testing Serv., 87 NY2d 384, 389 [1995] [internalquotation marks and citation omitted]). HMS's contention that the claim would imposeon it obligations that are inconsistent with other terms of the contract is unavailing, asplaintiffs were alleging that it failed to fulfill promises that "a reasonable person in theposition of the promisee would be justified in understanding were included" (511 W.232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 153 [2002]). We declineto review HMS's unpreserved argument that the Uniform Commercial Code governs theagreement.
The court, however, properly dismissed the fraud claim as duplicative of the breachof contract claim, as plaintiffs' were alleging only that HMS misrepresented its intent toperform the [*2]contractual obligations at the time theywere made (see New York Univ. v Continental Ins. Co., 87 NY2d 308, 318[1995]; Forty Cent. Park S., Inc.v Anza, 117 AD3d 523 [1st Dept 2014]). Concur—Tom, J.P., Sweeny,Renwick and Andrias, JJ.