Summit Health, Inc. v. APS Healthcare Bethesda, Inc.
Filing
61
OPINION AND ORDER re: 42 MOTION to Amend/Correct, filed by APS Healthcare Bethesda, Inc., 38 MOTION for Summary Judgment, filed by Summit Health, Inc. For the reasons set forth above, Plaintiff's motion for summary judgment is GRANTED IN PAR T and DENIED IN PART. Defendant's motion for leave to file an amended answer and counterclaim is DENIED. The Clerk of the Court is respectfully directed to terminate the motions (Docs. 38, 42). The parties are instructed to file a joint pretrial order in accordance with Rule 3(A) of the undersigned's Individual Practices by February 26, 2014, and to appear for a pretrial conference on March 5, 2014 at 4:00 p.m., at which time the Court will set a trial date, a final pretrial conference date, and a schedule for all pretrial filings. It is SO ORDERED. (Pretrial Order due by 2/26/2014.), (Pretrial Conference set for 3/5/2014 at 04:00 PM before Judge Edgardo Ramos.) (Signed by Judge Edgardo Ramos on 1/24/2014) (ja)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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SUMMIT HEALTH, INC.,
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#________________
DATE FILED: 1/24/14
Plaintiff,
OPINION AND ORDER
- against 11-cv-9718 (ER) (LMS)
APS HEALTHCARE BETHESDA, INC.,
Defendant.
---------------------------------------------------------------x
Ramos, D.J.:
Summit Health, Inc. (“Plaintiff” or “Summit”) brought this breach of contract action
against APS Healthcare Bethesda, Inc. (“Defendant” or “APS”), alleging that APS failed to pay
the full amount due under their service contract. Doc. 1. Summit alleges that APS has
wrongfully withheld payment of almost two-and-a-quarter million dollars’ worth of minimum
fees. See Compl. ¶¶ 35-36. The underlying controversy revolves around the meaning of the
phrase “Customer projection,” which appears in one of the contract’s minimum fee provisions.
APS disputes Summit’s reading of the contract and points out that, if awarded, the minimum fees
alone would more than double the amount Summit earned for services actually performed. See
Def.’s Mem. of Law in Supp. (Amend) at 31. 1
Plaintiff moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil
Procedure. Doc. 38. In addition to opposing the summary judgment motion, Defendant has filed
a motion for leave to file an amended answer and counterclaim, pursuant to Federal Rules of
Civil Procedure 15 and 16. Doc. 42.
1
For ease of reference, citations to the parties’ briefs and supporting papers will include parenthetical notations
indicating whether a given document relates to Plaintiff’s motion for summary judgment (“MSJ”) or Defendant’s
motion for leave to file an amended answer and counterclaim (“Amend”).
For the reasons discussed below, Plaintiff’s motion for summary judgment is GRANTED
IN PART and DENIED IN PART, and Defendant’s motion for leave to file an amended answer
and counterclaim is DENIED.
I.
Factual Background
The following facts are undisputed except where otherwise noted.
Summit is a Michigan corporation that develops healthcare programs for businesses and
health plans. Compl. ¶ 3. Its programs offer preventative care services, including health
screenings, at employees’ and plan members’ worksites. Id. Its chief executive officer is
Richard Pennington, and its chief operating officer is Douglas Finch. Decl. of Richard
Penington (MSJ) ¶ 1; Decl. of Douglas C. Finch (MSJ) ¶ 1. Jason Moczul, the national account
manager assigned to the program at issue in this case, was APS’s primary contact at Summit
with respect to operational matters. Decl. of Jason Moczul (MSJ) ¶¶ 1-2.
APS, an Iowa corporation with its principal place of business in White Plains, New York,
administers state and local government health plans and provides healthcare services to
government employees. Compl. ¶ 4; Answer ¶ 4. During the time period at issue in this case, its
president and chief operating officer was Jerome Vaccaro, its chief financial officer was John
McDonough, and the in-house attorney who served as the “point man” in negotiations with
Summit was Paul Dominianni. Decl. of Jeff E. Butler (MSJ) Ex. 27, at 6:5-6, 71:18-72:14; id.
Ex. 29, at 19:12-15. David Glazer, a senior vice president in White Plains who was responsible
for operations in the eastern United States, oversaw a team of employees based in Tennessee. Id.
Ex. 26, at 6:21-7:2, 12:7-12; id. Ex. 27, at 10:13-15, 11:3-5. That team included an executive
director, Jim Shulman, who reported to Glazer; a director of operations, Bob Hines, who reported
2
to Shulman; and a clinical supervisor, Troy Watson, who reported to Hines. Id. Ex. 26, at 11:2012:12.
Summit and APS were parties to the Summit Health Services Agreement (the
“Agreement”), which was effective as of January 1, 2011. Pl.’s 56.1 Stmt. ¶ 3; Def.’s 56.1 Stmt.
¶ 3. 2 The Agreement was a subcontract. APS was also party to a general contract with the State
of Tennessee, wherein APS agreed to provide health care services to state employees who had
enrolled in the state’s “ParTNers for Health” program. Pl.’s 56.1 Stmt. ¶ 12; Def.’s 56.1 Stmt. ¶
12. This contract paid APS a fixed fee per screening performed, and it exposed APS to
liquidated damages based on various performance metrics, including maintenance of a fully
operational website. Decl. of Jeff E. Butler (MSJ) Ex. 1, at APS 14994, 15009-15012.
Under the Agreement, Summit agreed to provide staffing and supplies for health
screening clinics at Tennessee worksites during the first six months of 2011. Pl.’s 56.1 Stmt. ¶ 4;
Def.’s 56.1 Stmt. ¶ 4. Summit’s contractual duties included registering participants, scheduling
appointments, and setting up the clinics. Agreement at 11. 3 Participating state employees could
sign up online or by phone in advance of each clinic. Id. Summit maintained an online
appointment system that state employees could use for this purpose. Pl.’s 56.1 Stmt. ¶ 15; Def.’s
56.1 Stmt. ¶ 15. In addition, Summit was required to accept “walk-in appointments” to the
extent it could accommodate them and subject to an agreed-upon policy. Agreement at 11.
2
Citations to “Pl.’s’ 56.1 Stmt.” refer to Plaintiff’s Local Civil Rule 56.1 Statement, Doc. 47. Citations to “Def.’s
56.1 Stmt.” refer to Defendant’s Local Civil Rule 56.1 Statement, Doc. 55.
3
A copy of the Agreement is included as Exhibit 1 to the Declaration of Douglas C. Finch in support of Plaintiff’s
summary judgment motion. Doc. 40. Citations to the Agreement refer to the original pagination as it appears on the
bottom center of each page.
3
The pricing terms were set forth in Exhibit B to the Agreement. Id. at 3, 17-20. The
terms included a $37 fee for each screening Summit performed. Id. at 17. That price was the
product of negotiations between the parties. See Decl. of Richard Penington (MSJ) ¶ 10. Exhibit
B also included various fees, including a “standard minimum” for “health screening clinics” that
was described as follows: “40 screenings, or 90% of Customer projection, whichever is greater.”
Agreement at 17. This per-clinic minimum fee provision is the subject of the present dispute.
The provision appeared in all drafts of Exhibit B that the parties exchanged. Pl.’s 56.1 Stmt. ¶ 8;
Def.’s 56.1 Stmt. ¶ 8.
On December 21, 2010, Dominianni sent Finch an email in which he referenced the
parties’ earlier agreement to reduce the per-screening rate to $37 and informed Finch that all
other provisions of Exhibit B were “acceptable to APS.” Decl. of Douglas C. Finch (MSJ) Ex. 5.
Summit began performing under the Agreement in January 2011, although the Agreement was
not actually signed until March 15, 2011. Pl.’s 56.1 Stmt. ¶¶ 20, 23; Def.’s 56.1 Stmt. ¶¶ 20, 23.
At Summit’s request, Watson and his team began providing Summit with clinic-by-clinic
participation estimates (the “Watson estimates”). See Decl. of Troy Watson (MSJ) ¶¶ 5, 10; id.
Ex. C. Glazer testified at his deposition that he knew the Watson estimates were being provided
but that he believed they would be used solely for staffing (and not for billing) purposes. Decl.
of Jeff Butler (MSJ) Ex. 26, at 114:19-116:2, 117:2-117:6. Watson testified that he typically
tried to provide an estimate at least two weeks prior to a given clinic. Id. Ex. 30, at 115:20116:10. He expected that Summit would staff and supply the clinics based on those estimates.
Id. Ex. 30, at 78:25-79:4, 169:7-9. Both he and Glazer provided deposition testimony indicating
that Watson’s figures represented good-faith estimates of expected clinic participation. Decl. of
Jeff Butler (MSJ) Ex. 26, at 130:23-131:15, 170:23-171:6; id. Ex. 30, at 76:9-15. However,
4
Watson repeatedly indicated to Summit that the numbers he was providing were “guesses.” See,
e.g., Decl. of Troy Watson (MSJ) Ex. E-F.
The accuracy of the Watson estimates, as that issue pertained to the minimum fee
provision, arose in a January 18, 2011 internal Summit email exchange between Finch and
Moczul. Decl. of Howard S. Wolfson (MSJ) Ex. P, at SUM 10973-74. Penington was copied on
the emails. Id. In the process of deciding that Summit would absorb the cost of providing
additional privacy screens, Finch pointed out that “the clinic minimums are attractive (40 and
90%).” Id. Moczul responded as follows:
I will go ahead and order another 30 [privacy screens]. That will be awesome to
get 90%. We may have to talk about a gameplan of ensuring that the APS crew
we talk to each week is aware of this because I wouldn’t want them to be
surprised with that first invoice. Just to give you an idea, the average estimate
over the first two weeks has been 320 and our average screen/clinic is more like
70.
Id. Ex. P at SUM 10973. At his deposition, Moczul testified that he did not recall having
any follow-up discussions about the issues raised in these emails, nor did he recall
informing Watson that the estimates would be used for billing purposes. Id. Ex. D, at
33:7-12, 211:19-212:3. Penington and Finch similarly could not recall subsequent
discussions concerning Moczul’s email. Decl. of Howard S. Wolfson (Amend) Ex. M, at
207:5-208:23; id. Ex. T, at 296:10-17. Moczul prepared an initial invoice for January
2011 in February of that year, but he informed Penington and Finch that he would hold
off on sending it until the Agreement was signed. Decl. of Howard S. Wolfson (MSJ)
Ex. R, S.
The parties dispute whether—and to what extent—Summit actually relied on the Watson
estimates in preparing for clinics. The record contains emails from Moczul that suggest that, at a
5
minimum, Summit relied on the online appointment system in making last-minute staffing
adjustments for some of the clinics. See id. Ex. L. Moczul concedes that, when inputting
participation estimates into Summit’s proprietary “APEX” computer system, it was “common
practice” for Summit to use numbers lower than those provided by their customers. Decl. of
Jason Moczul (MSJ) ¶¶ 19-21.
In early 2011, still prior to the execution of the Agreement, there were a number of
performance issues with the online appointment system, including a glitch that allowed a limited
number of participants to see other participants’ appointments. Decl. of Richard Penington
(MSJ) ¶¶ 13-14. To remedy the privacy issue, the system had to be shut down for over two
weeks in March. Id. ¶ 14. On March 8, Vaccaro alerted Penington to additional complaints
about Summit’s performance. Id. ¶ 15. These complaints included issues with the level of
staffing being provided, allegations that staff members were inadequately trained, and reports of
equipment malfunctions. Id.
Also around that time, Summit realized that screening results, which included
confidential patient information, were being provided to APS without a Business Associate
Agreement (“BAA”) in place, exposing Summit to potential HIPPA liability. Id. ¶ 16; Decl. of
Douglas C. Finch (MSJ) ¶¶ 6, 31-32. Rather than executing a stand-alone BAA, the parties had
included the document as Exhibit C to the Agreement, which at that point still remained
unsigned. Decl. of Douglas C. Finch (MSJ) ¶ 31; see Agreement at 21-30. Summit therefore
suspended the electronic data feed that was transmitting the results to APS. Decl. of Douglas C.
Finch (MSJ) ¶ 32; Decl. of Richard Penington (MSJ) ¶ 16. APS asked Summit to sign a standalone BAA at that point, but Finch informed APS on March 10 that Summit would only sign the
BAA “in conjunction with a signed contract.” Decl. of Douglas C. Finch (MSJ) ¶ 33; id. Ex. 11.
6
This appears to have accelerated any remaining negotiations, and the Agreement was signed five
days later. Finch and McDonough were the signatories for their respective companies.
Agreement at 8.
Finch and Glazer met in White Plains on March 17, 2011, two days after the Agreement
was signed. Decl. of Douglas C. Finch (MSJ) ¶ 40. It was during this conversation that the
minimum fee issue came to the fore, with Finch informing Glazer that the Watson estimates
resulted in large minimum fees for January and February. Id. ¶ 41; Decl. of Jeff E. Butler (MSJ)
Ex. 26, at 113:6-116:2. Glazer emailed Finch on March 18, copying Shulman and Hines. Decl.
of Douglas C. Finch (MSJ) Ex. 16. In the email, Glazer noted that the Tennessee staff had not
been aware of the minimum fee provision because the Agreement “had never been completed in
during [sic] those early months.” Id. He then referenced the staffing issues at the clinics, along
with weather-related reductions in expected turnout, before writing:
Given all of these circumstances, we would expect that as a partner in this
contract you would be billing us in January for the screenings with a minimum of
40 as a standard. We would not expect you to invoke the section of the contract
that talks about 90% of projections.
I have instructed the local TN team to review their projections immediately and
revise the way they calculate these and to inform you today on new estimates for
each site so that you can have an accurate estimate of how you should staff these
screenings.
Id.
Hines sent Finch a follow-up email later that day, copying Glazer and Shulman (the
“Hines email”). The Hines email read:
We just reviewed David Glazer’s email regarding the methodology for
determining screener staffing. It appears that you have been basing your staffing
on the number of folks that are signing up (and the number of slots) on your
registration sheet. You sent a staffing sheet to [Watson] this month for his review
and approval. We would suggest that you continue that method of review (relying
7
on sign-ups on the registration sheets) along with the monthly review with
[Watson].
[Glazer] is correct in his assessment that we all shot high back in December. We
realized during January that the sites were not being fully utilized. We adjusted
as did you, considering the amount of staff you have been sending to each site
since mid January. Once the screenings were well under way, it was clear that
neither one of us was using December “estimates”.
Although it is sometimes difficult to predict how many folks may be necessary
(an example being this morning’s back-ups), we believe that using the sign-up
sheets as a guide is the best way to determine how many screeners you need. It
looks like you have been doing that all along anyway. If you are still using any of
the estimates, you should, effective immediately, stop and continue to utilize the
sign up sheets (along with [Watson]’s review) as your guide.
Id. Ex. 17.
As the program progressed, Summit continued to request participation estimates
from Watson and his team, indicating that additional clinics could not be added to APEX
without that data. See Decl. of Howard S. Wolfson (MSJ) Ex. PP. Watson thus began
providing uniform estimates of either 75 or, if the clinic was being held in a large city,
100. Decl. of Troy Watson (MSJ) ¶ 21; see Decl. of Jeff Butler (MSJ) Ex. 21, at APS
9186.
Summit sent APS its first invoice, covering the screenings performed in January, on
March 30, 2011. Pl.’s 56.1 Stmt. ¶ 24; Def.’s 56.1 Stmt. ¶ 24. In the cover email accompanying
that invoice, Finch described some “accommodations” that Summit made in light of APS’s
concerns. Decl. of Douglas C. Finch (MSJ) Ex. 24. The “accommodations” included an
“Alternative Minimum Calculation” whereby minimum fees were calculated based on an
estimate of actual screening capacity rather than on the Watson estimates. Id. The February
invoice was similarly discounted based on the “Alternative Minimum Calculation.” Id. ¶ 48; see
Decl. of John McDonough (MSJ) Ex. F. As will be discussed below, the parties disagree as to
8
whether the so-called “accommodations” represented an offer to compromise or whether they
constituted a waiver of the fees Summit otherwise would have charged.
APS ultimately received six invoices, one for each month of the program. Decl. of
Douglas C. Finch (MSJ) Ex. 18-23. Beginning with a May 18, 2011 payment for the January
screenings, APS made a payment with respect to each invoice. Pl.’s 56.1 Stmt. ¶ 28; Def.’s 56.1
Stmt. ¶ 28. These payments totaled $1,959,392.78 and consisted of a $37 payment for each
screening actually performed, along with various fees and expenses due under Exhibit B of the
Agreement. Pl.’s 56.1 Stmt. ¶ 30; Def.’s 56.1 Stmt. ¶ 30. The only amounts withheld were those
attributable to the disputed standard minimum fees. See Decl. of Douglas C. Finch (MSJ) Ex.
25-30. In the cover letter accompanying the payment for January, McDonough wrote that the
online appointments were “the proper measurement of a true ‘Customer projection’ as intended
under Exhibit B.” Id. Ex. 25. No payments were withheld based on purported failures by
Summit to perform under the Agreement, and, pursuant to its contract with the State of
Tennessee, APS received the full amount due for the screenings actually performed. Pl.’s 56.1
Stmt. ¶¶ 33-34; Def.’s 56.1 Stmt. ¶¶ 33-34.
Plaintiff filed the instant action for breach of contract on December 30, 2011. Doc. 1.
The Complaint alleges that APS owes Plaintiff $2,248,520.88 in damages attributable to the
unpaid balance of the invoices. Compl. ¶¶ 35-36. Defendant filed an Answer on March 1, 2012.
Doc. 7. The Answer asserts eight affirmative defenses: (1) failure to state a cause of action; (2)
lack of a meeting of the minds; (3) limitation of liability pursuant to section 7 of the Agreement;
(4) duress; (5) breach of contract by Plaintiff; (6) breach of the implied covenant of good faith
9
and fair dealing; (7) waiver and/or estoppel; 4 and (8) failure to mitigate the alleged damages.
Answer ¶¶ 38-45. The Court entered a Civil Case Discovery Plan and Scheduling Order on
April 18, 2012, setting a deadline of June 1, 2012 for filings of any amended pleadings. Doc. 12.
The Order was amended twice to extend the discovery cutoff, but the pleading deadline was not
extended. Docs. 23, 31. Plaintiff moved for summary judgment on March 15, 2013. Doc. 38.
That same day, Defendant moved for leave to file an amended answer and counterclaim. Doc.
42. The proposed amended pleading adds factual allegations to certain of the affirmative
defenses and introduces a counterclaim for rescission of the Agreement on the grounds of
unilateral mistake. Decl. of Howard S. Wolfson (Amend) Ex. A, ¶¶ 42-46, Counterclaim ¶¶ 177. 5
II.
Plaintiff’s Motion for Summary Judgment
A. Applicable Legal Standard
Summary judgment is appropriate where “the movant shows that there is no genuine
dispute as to any material fact.” Fed. R. Civ. P. 56(a). “An issue of fact is ‘genuine’ if the
evidence is such that a reasonable jury could return a verdict for the non-moving party.” Senno
v. Elmsford Union Free Sch. Dist., 812 F. Supp. 2d 454, 467 (S.D.N.Y. 2011) (citing SCR Joint
Venture L.P. v. Warshawsky, 559 F.3d 133, 137 (2d Cir. 2009)). A fact is “material” if it might
affect the outcome of the litigation under the governing law. Id.
The party moving for summary judgment is first responsible for demonstrating the
absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323
4
These are technically separate defenses and will be treated as such below (bringing the total number of asserted
defenses to nine), but the Court lists them together to preserve the numbering that appears in Defendant’s Answer.
5
Citations to “Counterclaim ¶¶” refer to the enumerated paragraphs beginning on page 8 of the proposed amended
answer.
10
(1986). If the burden of proof at trial would fall on the movant, that party’s “own submissions in
support of the motion must entitle it to judgment as a matter of law.” Albee Tomato, Inc. v. A.B.
Shalom Produce Corp., 155 F.3d 612, 618 (2d Cir. 1998). Conversely, “[w]hen the burden of
proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point
to a lack of evidence to go to the trier of fact on an essential element of the nonmovant’s claim.”
Cordiano v. Metacon Gun Club, Inc., 575 F.3d 199, 204 (2d Cir. 2009) (citing Celotex Corp.,
477 U.S. at 322-23). If the moving party meets its burden, “the nonmoving party must come
forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to
avoid summary judgment.” Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008)
(citing Celotex Corp., 477 U.S. at 322-23).
In deciding a motion for summary judgment, the Court must “construe the facts in the
light most favorable to the non-moving party and must resolve all ambiguities and draw all
reasonable inferences against the movant.” Brod v. Omya, Inc., 653 F.3d 156, 164 (2d Cir. 2011)
(quoting Williams v. R.H. Donnelley, Corp., 368 F.3d 123, 126 (2d Cir. 2004)) (internal
quotation marks omitted). However, in opposing a motion for summary judgment, the nonmoving party may not rely on unsupported assertions, conjecture or surmise. Goenaga v. March
of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995). The non-moving party must do
more than show that there is “some metaphysical doubt as to the material facts.” McClellan v.
Smith, 439 F.3d 137, 144 (2d Cir. 2006) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986)) (internal quotation mark omitted). To defeat a motion for
summary judgment, “the non-moving party must set forth significant, probative evidence on
which a reasonable fact-finder could decide in its favor.” Senno, 812 F. Supp. 2d at 467-68
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256–57 (1986)).
11
B. Discussion
i. The Minimum Fee Provision Is Unambiguous
The primary question presented by Plaintiff’s motion for summary judgment is whether
the minimum fee provision in Exhibit B is ambiguous. Under New York law, 6 the threshold
question of whether a contract is ambiguous is to be determined as matter of law, as is the
meaning of an unambiguous contract. See Diesel Props S.r.l. v. Greystone Bus. Credit II LLC,
631 F.3d 42, 51 (2d Cir. 2011). A New York appellate court recently reiterated that “[t]he
fundamental, neutral precept of contract interpretation is that agreements are construed in accord
with the parties’ intent, [and that] [t]he best evidence of what parties to a written agreement
intend is what they say in their writing.” Kasowitz, Benson, Torres & Friedman, LLP v. Duane
Reade, 950 N.Y.S.2d 8, 11 (N.Y. App. Div. 2012) (second and third alterations in original)
(quoting Greenfield v. Philles Records, 780 N.E.2d 166, 170 (N.Y. 2002)) (internal quotation
marks omitted), aff’d, 987 N.E.2d 631 (N.Y. 2013); see also Beal Sav. Bank v. Sommer, 865
N.E.2d 1210, 1213 (N.Y. 2007) (“[T]he intention of the parties may be gathered from the four
corners of the instrument and should be enforced according to its terms.”). Words and phrases
are to be given their plain and ordinary meaning, and New York courts will commonly refer to
dictionary definitions in order to determine that meaning. Mazzola v. Cnty. of Suffolk, 533
N.Y.S.2d 297, 297 (N.Y. App. Div. 1988); see 10 Ellicott Square Court Corp. v. Mountain
6
The Agreement includes an express New York choice-of-law provision, and the parties do not dispute the
applicability of New York state contract law to this case. Agreement at 6; see Rockland Exposition, Inc. v. Alliance
of Auto. Serv. Providers of N.J., No. 08-CV-7069 (KMK), 2009 WL 1154094, at *5 (S.D.N.Y. Mar. 19, 2009)
(applying New York law under similar circumstances); Fireman’s Fund Ins. Cos. v. Siemens Energy & Automation,
Inc., 948 F. Supp. 1227, 1233 n.14 (S.D.N.Y. 1996) (applying New York law where the parties briefed the case on
that basis and there was no suggestion that another state’s law should apply).
12
Valley Indem. Co., 634 F.3d 112, 120 (2d Cir. 2011) (citing Mazzola and relying on a Black’s
Law Dictionary definition).
“[E]xtrinsic evidence may not be considered unless the document itself is ambiguous.”
Duane Reade, 950 N.Y.S.2d at 11 (quoting S. Rd. Assoc., LLC v. Int’l Bus. Machs. Corp., 826
N.E.2d 806, 809 (N.Y. 2005)) (internal quotation mark omitted); see also W.W.W. Associates,
Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990) (“Evidence outside the four corners of the
document as to what was really intended but unstated or misstated is generally inadmissible to
add to or vary the writing.”). 7 “A contract is unambiguous if the language it uses has ‘a definite
and precise meaning, unattended by danger of misconception in the purport of the [agreement]
itself, and concerning which there is no reasonable basis for a difference of opinion.’” Duane
Reade, 950 N.Y.S.2d at 11 (alteration in original) (quoting Breed v. Ins. Co. of N. Am., 385
N.E.2d 1280, 1282 (N.Y. 1978)).
Conversely, a contract is ambiguous where its language is susceptible to multiple
reasonable interpretations. Brad H. v. City of New York, 17 N.Y.3d 180, 186, 951 N.E.2d 743
(N.Y. 2011). When a contract is ambiguous and there is relevant extrinsic evidence as to the
parties’ intent, the proper interpretation of the disputed language becomes a question of fact for
the jury. Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992). “Mere
7
Defendant urges a more context-driven approach to contract interpretation. See Def.’s Mem. of Law in Opp’n
(MSJ) at 18-20. This Court has previously acknowledged that “there is substantial support for the view that
‘evidence of the context in which a contract was executed always is admissible because words, whatever their
apparent clarity, take on meaning from the circumstances in which they are used.’” Toto, Inc. v. Sony Music Entm’t,
No. 12 Civ. 1434 (LAK), 2012 WL 1416884, at *1 (S.D.N.Y. Apr. 23, 2012) (quoting Fireman’s Fund, 948 F.
Supp. at 1233-34). Fireman’s Fund, however, also said the following in its discussion of that alternative interpretive
approach: “There are suggestions that New York adheres to this view, although the possible inconsistency with the
requirement that ambiguity be determined from the four corners of the contract remains unsolved.” 948 F. Supp. at
1233 (emphasis added). Given the abundance of recent authority supporting the four-corners approach set forth in
the body of this Opinion, the Court declines to wade further into this debate at the present time.
13
assertion by one that contract language means something to him, where it is otherwise clear,
unequivocal and understandable when read in connection with the whole contract, is not in and
of itself enough to raise a triable issue of fact.” Duane Reade, 950 N.Y.S.2d at 11 (quoting
Unisys Corp. v. Hercules Inc., 638 N.Y.S.2d 461, 463 (N.Y. App. Div. 1996) (internal quotation
marks omitted). Similarly, ambiguity will not be found “where one party’s view ‘strain[s] the
contract language beyond its reasonable and ordinary meaning.’” Seiden, 959 F.2d at 428
(alteration in original) (quoting Bethlehem Steel Co. v. Turner Const. Co., 141 N.E.2d 590, 593
(N.Y. 1957)).
In light of the foregoing, the Court starts with the plain language of the Agreement and
concludes that the phrase “Customer projection” unambiguously refers to clinic participation
estimates received from APS.
The disputed language in Exhibit B appears in the subsection “Other Services & Fees—
Standard Minimums” and provides that the “standard minimum” for “health screening clinics”
will be “40 screenings, or 90% of Customer projection, whichever is greater.” Agreement at 17
(emphasis added). The Agreement includes a definitions section; however, that section does not
define the phrase “Customer projection” or the individual words “Customer” and “projection.”
See id. at 1.
Webster’s dictionary offers five definitions of “customer,” only one of which reasonably
applies in the present context: “one that purchases some commodity or service.” WEBSTER’S
THIRD NEW INT’L DICTIONARY OF THE ENGLISH LANGUAGE UNABRIDGED 559 (2002). The only
applicable definition of “projection,” out of the twelve provided in Webster’s, is “the carrying
forward of a trend into the future; an estimate of future possibilities based on a current trend.” Id.
at 1813-14 (emphasis added). The Oxford English Dictionary provides similar insight into the
14
words’ common meanings. Of its multiple definitions of the word “customer,” the only one
applicable here reads, in pertinent part, “a buyer, purchaser.” 4 OXFORD ENGLISH DICTIONARY
169 (2d ed. 1989). The relevant definition of “projection” is “[a] forecast based on present
trends.” 12 id. at 600. “Forecast,” in turn, is defined as “[a] forecasting or anticipation; a
conjectural estimate or account, based on present indications, of the course of events or state of
things in the future, esp. with regard to the weather.” 6 id. at 46 (emphasis added). 8
Given the terms of the Agreement, the only entity that can properly be considered a
“Customer” is APS, which was purchasing services from Summit. Thus, the phrase “Customer
projection” necessarily refers to a projection provided by APS. The dictionary definitions also
support Plaintiff’s argument that “projection” was used as a synonym for “estimate.” Although
the two are not precisely synonymous—“projection” refers to a type of estimate that predicts
future events or conditions based on current trends—the overlap between the terms demonstrates
that Plaintiff’s interpretation is a reasonable one. Indeed, as will be discussed in more detail
below, it is the only reasonable one. Because the language of the minimum fee provision
requires that a “Customer projection” be capable of being greater or less than “40 screenings,” it
follows that the word “projection,” as used in this case, must refer to an estimate of the number
of screenings that will be conducted at a particular clinic.
8
In briefing the issue, Summit provides partial quotations from the applicable New Oxford American Dictionary
definitions of “customer” and “projection.” Pl.’s Mem. of Law in Supp. (MSJ) at 18. The full text of those
definitions generally comports with the ones presented in the body of this Opinion. See NEW OXFORD AM.
DICTIONARY 421, 1362 (1st ed. 2001) (defining “customer” as “a person or organization that buys goods or services
from a store or business,” and defining “projection” as “an estimate or forecast of a future situation or trend based on
a study of present ones”). The Court surveyed and relied on different dictionaries in order to guard against the risk
that a one-off formulation would skew the analysis. At the same time, the Court finds it noteworthy that APS
neither offers its own definitions nor directly confronts the plain meaning of the terms.
15
Moreover, the surrounding provisions confirm that “Customer projection” was meant to
refer to estimates received from APS. There is a cancellation fee imposed “if Customer cancels
a confirmed event ten (10) business days or less prior to the scheduled date for reasons not
related to Summit Health’s performance.” Agreement at 17. On the other hand, the Agreement
provides that, “[i]f in 10 business days or less prior to the Clinic, Customer should increase its
participation estimate sufficiently to require Summit to increase the number of staff, Summit
shall directly invoice Customer an expediting fee of $300 for each increase in staff number.” Id.
at 18. The optional Small Clinic Fee is the most illuminating for present purposes. That fee
provision, which appears under the subheading “NonStandard Clinics,” reads:
Summit will waive the 40 participant Clinic minimum for a one-time Small Clinic
Fee of $425 per clinic, and will invoice only for the greater of the per participant
charges or 90% of the estimate for that Clinic. Customer may opt to keep the 40
minimum or pay the Small Clinic fee, whichever is more advantageous.
Id. (emphasis added). In other words, if “Customer” elects to pay the Small Clinic Fee, the
forty-participant minimum is eliminated but the 90% minimum still applies. Finally, a Short
Lead Time fee applies if Summit “accept[s] a Customer requested date with less than 4 weeks
advance notice,” and that fee will be invoiced to “Customer.” Id.
These provisions, taken together, make it clear that “Customer” refers to APS. No other
party or entity was in a position to undertake the contemplated actions, nor would it make sense
for any other entity to receive invoices reflecting the associated fees.
The provisions similarly render the meaning of “projection” unambiguous. The Small
Clinic Fee provision clearly indicates that, if the forty-participant minimum is disregarded, the
minimum fee will be calculated based on “90% of the estimate.” There is no doubt that this is a
reference to the “90% of Customer projection” prong of the more general minimum fee provision
16
at issue in this case. In other words, Exhibit B clearly treats “projection” and “estimate” as
synonyms.
Defendant’s argument that “Customer projection” could reasonably be read as a reference
to online appointments is untenable for a number of reasons. First, the Agreement specifically
includes the task of “scheduling appointments” among Summit’s responsibilities. Agreement at
11. Summit was responsible for maintaining the online appointment system, and the
appointments themselves were to be made by the prospective clinic participants. “Customer”
(i.e., APS) was in no way responsible for scheduling online appointments. In addition, the
suggestion that “projection” is intended as a synonym for “appointments” further “strain[s] the
contract language beyond its reasonable and ordinary meaning,” especially since the Small
Clinic Fee provision clearly equates “projections” with “estimates.” At any given moment, the
online appointment system only communicated facts about who planned to attend a clinic as of
that particular point in time, and the Agreement also contemplated telephone appointments and
walk-in screenings. See id. at 11, 17. There is thus no basis—either in general usage or in the
present context—for the notion that a series of appointments constitutes a “conjectural estimate”
of future circumstances.
It should also be noted that the phrase “Customer projection,” though the center of much
debate in the parties’ briefs and in the supporting evidentiary record, is not presented as a defined
term or as a term of art in the Agreement. The same can be said of the phrase “participation
estimate.” Thus, while Defendant is correct in observing that differing language within a
contract is typically presumed to convey divergent meanings, see Def.’s Mem. of Law in Opp’n
(MSJ) at 22-23, the Court declines to apply that presumption to the language at issue in this case,
where the interchangeable use of the terms “projection” and “estimate” is self-evident from the
17
face of the Agreement. The terms’ ordinary meanings and the overall structure of Exhibit B
demonstrate that the alternative constructions are being used synonymously. 9 In addition,
Exhibit B includes references to “appointments” and the “online appointment system,” so
Defendant’s argument undermines its own proposed interpretation of the contract. While the use
of inconsistent phraseology in this case may not be a model of good drafting, it alone does not
render ambiguous a contractual provision that is otherwise clear.
Likewise, the minimum fee provision is not rendered ambiguous merely by virtue of the
Agreement’s silence on the procedural questions of how, when, or in what form the estimates
were to be provided. As APS observes, the Agreement does not specifically require that a
“Customer projection” be provided at all. Id. at 24-25. However, this situation is readily
distinguishable from the one found in New York ex rel. Spitzer v. Saint Francis Hosp., 289 F.
Supp. 2d 378 (S.D.N.Y. 2003). In that case, this Court concluded that a dissolution provision
was “facially ambiguous” because it failed to indicate whether there was a required method of
dissolution. Id. at 387. The dispute, however, concerned precisely that point: whether the
contract “require[d] the parties to follow any particular form of dissolution, be it voluntary or
judicial.” Id. at 386 (emphasis in original). Had this case arisen because APS refused to provide
9
Defendant argues that the Agreement’s failure to define “Customer projection” is itself a source of ambiguity.
Def.’s Mem. of Law in Opp’n (MSJ) at 24. The cases Defendant cites, however, do not compel such a result in all
instances. In Omni Berkshire Corp. v. Wells Fargo Bank, N.A., 307 F. Supp. 2d 534, 540 (S.D.N.Y. 2004), the
undefined terms “all risk” and “comprehensive all risk insurance” made it impossible to determine what risks were
to be covered by the “all risk” insurance policy at issue. The other two citations are to cases where, unlike here, the
court found that there were multiple reasonable interpretations of the undefined terms. See Eastman Kodak Co. v.
Kyocera Corp., No. 10-CV-6334, 2012 U.S. Dist. LEXIS 152250, at *17-18 (W.D.N.Y. Oct. 22, 2012) (“On these
facts, it could reasonably be understood that the parties intended [that the defendant’s interpretation governs].”);
Glassalum Int’l Corp. v. Albany Ins. Co., No. 03 Civ. 9166 (DC), 2005 U.S. Dist. LEXIS 9767, at *22 (S.D.N.Y.
May 20, 2005) (finding that two terms could “arguably” be assigned alternative meanings). As discussed above,
courts will frequently refer to dictionary definitions to uncover a term’s ordinary meaning. Such an approach
necessarily assumes that contractual terms are not rendered ambiguous merely because they are not specifically
defined within the four corners of the contract.
18
estimates at all, then the reasoning in Saint Francis Hospital might well be persuasive, but such
is not the controversy the Court is being asked to decide. It is quite feasible that, had APS not
provided any estimates, Summit would simply have been unable to invoke the minimum fee
provision. As will be discussed in more detail below, however, that is not what happened in this
case. Moreover, the Court in Saint Francis specifically noted that “both possible proposed
interpretations are reasonable,” further distinguishing those facts from the ones at issue here. Id.
at 387.
ii. The Agreement Is Ambiguous as to Whether the Minimum Fee
Provision Applies to All Clinics
In opposing summary judgment, Defendant briefly points out that there is “a question as
to whether Summit is entitled to anything more per screening than the $37 default rate after the
150th clinic.” Def.’s Mem. of Law in Opp’n (MSJ) at 28 n.6; see Decl. of John McDonough
(MSJ) ¶¶ 30-31. Although Defendant buries this argument in a footnote and Plaintiff does not
address it at all, the Court is of the opinion that the issue raises a genuine question of material
fact for trial.
The ambiguity arises from two provisions in Exhibit A to the Agreement. Section (g)(3)
of that Exhibit states that, “[i]n the first year of the program and in alternate years thereafter
(e.g., 2011, 2013, etc.), Summit Health shall hold at least one hundred fifty (150) screenings per
health screen survey period with a minimum capacity of fifty (50) appointments per screening.”
Agreement at 10. “Screenings,” in this context, is being used to refer to clinics, while
“appointments” refers to the individual health screenings performed at the clinics. Section (g)(4)
says that “Summit Health shall also perform additional screenings (over and above those
19
required by subsection (3) above) during any year of this SOW 10 at the per onsite health
screening rate (default rate) in Exhibit B.” Id. at 11.
There are at least two reasonable interpretations of these provisions: (1) Section (g)(4)
overrides the standard pricing terms after the 150th clinic and only permits Summit to bill based
on the per-clinic rate; or (2) Section (g)(4) clarifies that the standard default rate—and not a
different, supplemental rate—continues to apply even if Summit is required to perform more
than the minimum number of clinics. The first interpretation seems somewhat inconsistent with
the overall structure of the contract, given that its effect would extend beyond just the minimum
fees and allow APS to avoid paying the other miscellaneous fees that Exhibit B charges for
screenings. On the other hand, the latter interpretation would render Section (g)(4) fairly
superfluous, given that the default rate would clearly have applied in any event absent a
provision affirmatively removing certain clinics from its scope. See Agreement at 3 (providing
that Exhibit B governs payments for Summit’s services); Int’l Multifoods Corp. v. Commercial
Union Ins. Co., 309 F.3d 76, 86 (2d Cir. 2002) (discussing the general preference, shared by
New York state courts, for avoiding interpretations that render a contractual provision
superfluous).
Because there are arguments in favor of both readings of Section (g)(4), the Court
concludes that the provision is ambiguous as a matter of law. Extrinsic evidence, to the extent it
is available, can therefore be brought to bear. However, as noted above, neither party has come
forward with evidence of the intent underlying this portion of the Agreement. Therefore, since
Plaintiff bears the burden of demonstrating the absence of a genuine issue of material fact, the
10
The acronym “SOW” is undefined but appears to be a reference to the Agreement itself.
20
Court denies the motion for summary judgment with respect to all but the first 150 clinics during
each applicable health screen survey period.
iii. Summit’s Damages Depend on What Estimates APS Provided 11
a. Minimum Fees for Clinics Held Prior to March 18, 2011
Having rejected APS’s argument regarding online appointments, there is no question that,
for the period prior to March 18, 2011, the only estimates that Summit received from APS were
the Watson estimates. APS argues that, if the online appointments were not “Customer
projections,” then no such projections were provided and the 90% minimum simply falls away.
Def.’s Mem. of Law in Opp’n (MSJ) at 29. This argument is flawed insofar as, in presenting it,
APS assumes that it needed to have specifically provided that its estimates were “to be used for
the purposes of billing or calculating fees.” Id. That suggestion is indicative of a line of
reasoning that recurs throughout Defendant’s papers—namely, that Exhibit B somehow sought
to distinguish staffing estimates from billing estimates. Such reasoning is without merit. As
previously discussed, the contract uses the terms “projection,” “estimate,” and their derivatives
interchangeably; nowhere does the contract suggest that two sets of projections are to be
provided. Nor would such a reading follow absent explicit contractual language to the contrary:
the notion that APS would have the ability to submit inconsistent sets of projections—one to
ensure sufficient staffing and another to minimize potential fee exposure—is unreasonable on its
face.
11
Because at least the first 150 clinics are subject to the minimum fee provision, the Court proceeds to the issue of
what estimates APS provided. The invoices indicate that the 150-clinic threshold was hit during February. See
Decl. of Douglas C. Finch (MSJ) Ex. 18-19. However, given that the jury may conclude that the minimum fees
apply in all cases, the Court’s discussion will cover all six months of the screening program.
21
Because the minimum fee language is unambiguous, and subject to the above discussion
regarding clinics after the first 150, the Court finds that Summit is entitled to demand minimum
payments based on the Watson estimates for clinics held prior to March 18, 2011. 12
b. Minimum Fees for Clinics Held After March 18, 2011
APS asserts that the Hines email directed Summit to treat online appointments as
“Customer projections” for clinics held after March 18. Def.’s Mem. of Law in Opp’n (MSJ) at
29-30. Summit says the Hines email was unclear. Pl.’s Mem. of Law in Supp. (MSJ) at 27. In
addition, Summit argues that the email is irrelevant because (1) APS continued to provide
separate estimates for each clinic, (2) Summit was “entitled” to use those estimates in calculating
minimum fees, and (3) Hines could not amend the Agreement via an email to Summit. Id.
However, nothing on the face of the Agreement precludes APS from basing its “Customer
projection” on data from the online appointment system. APS merely had not done so prior to
March 18. A change in the form of the estimate provided pursuant to the Agreement does not
constitute an amendment of the Agreement itself. Further, the fact that Watson continued to
provide estimates apart from the online appointments does not render Hines’ instruction
12
In opposing summary judgment, Defendant alleges that Summit would not have had the capacity to satisfy its
obligations under the Agreement had the Watson estimates turned out to be accurate. Def.’s Mem. of Law in Opp’n
(MSJ) at 34-35. Defendant asserts that “part of Summit’s obligation was to staff screening clinics so that it could
perform the number of screenings for which it was billing APS based upon APS’s alleged Customer projections.”
Id. at 35. There is nothing in the Agreement, however, that requires Summit to staff in this way, nor does Exhibit B
restrict the minimum fee provision to Customer projections upon which Summit actually relied. Of course, to the
extent Summit gambled by discounting APS’s estimates, it assumed the risk that it would potentially be unable to
meet its obligations under the contract. The mere possibility of a breach, however, does not amount to
nonperformance. The question of whether Summit actually breached its contractual obligations will be taken up
infra in the discussion of APS’s affirmative defenses.
22
irrelevant; rather, it creates a factual dispute as to what served as APS’s “Customer projection”
for purposes of the minimum fee provision. 13
In its reply papers, Summit argues that it would be “impossible, as a practical matter,” for
Summit to treat the online appointments as participation estimates because APEX required that
an estimate be provided for each clinic before any online appointments for that clinic could even
be scheduled. Pl.’s Reply Mem. of Law in Further Supp. (MSJ) at 10-11. Even if Summit is
correct from a logistical standpoint, the alleged impossibility of Hines’s request—a request the
meaning of which Summit argues was unclear—cannot by itself eliminate the possibility that the
Hines email effectively voided the Watson estimates and thus precluded Summit from relying on
those figures beyond March 18. Because the Court must draw all inferences against the party
seeking summary judgment, the Court therefore concludes that there is a genuine question of
material fact as to what “Customer projections,” if any, APS provided for clinics held after
March 18, 2011.
13
Note that the denial of summary judgment with respect to this issue does not point to a latent ambiguity in the
terms of the Agreement more generally, but merely to a factual question with respect to what APS actually provided
during this timeframe. See Def.’s Mem. of Law in Opp’n (MSJ) at 20. “Even where an agreement seems clear on
its face, a ‘latent ambiguity’ may exist by reason of ‘the ambiguous or obscure state of extrinsic circumstances to
which the words of the instrument refer.’” Teig v. Suffolk Oral Surgery Assocs., 769 N.Y.S.2d 599, 600 (N.Y. App.
Div. 2003) (quoting Lerner v. Lerner, 508 N.Y.S.2d 191, 194 (N.Y. App. Div. 1986)). The ambiguities in both
Lerner and Teig involved situations that the parties had not anticipated when they drafted the language of their
respective contracts. See Teig, 769 N.Y.S.2d at 601; Lerner, 508 N.Y.S.2d at 194. In Matter of Phillips, which
Defendant also cites in its brief, the state court found that a decedent’s use of the phrase “land appurtenant thereto”
did not clearly delineate the portion of his property that he intended to bequeath. 957 N.Y.S.2d 778 (N.Y. App. Div.
2012). There are no such ambiguous circumstances in this case. It remains unambiguous as a matter of law that the
minimum fee provision refers to estimates of clinic participation received from APS; the factual dispute merely goes
to the proper basis for measuring damages and will turn on factual determinations (such as how to interpret the
Hines email) that are not for the Court to resolve at the summary judgment stage.
23
iv. Affirmative Defenses
a. Meeting of the Minds
APS takes the position that, even if the term “Customer projection” is unambiguous,
there are material questions of fact with respect to whether there was a meeting of the minds on
this point. See Answer ¶ 39; Def.’s Mem. of Law in Opp’n (MSJ) at 28-29. APS mistakenly
conflates this affirmative defense with the rescission argument raised in its motion to amend.
The motion to amend seeks rescission based on the distinct legal theory of unilateral mistake.
The Court therefore addresses the meeting of the minds defense separately and rejects it as a
matter of law.
Defendant is correct, of course, that New York courts will not enforce a contract if there
was no meeting of the minds regarding one of its material terms. See Computer Assocs. Int’l,
Inc. v. U.S. Balloon Mfg. Co., Inc., 782 N.Y.S.2d 117, 119 (N.Y. App. Div. 2004). However, it
is equally well established that this inquiry is an objective one. See Tractebel Energy Mktg., Inc.
v. AEP Power Mktg., Inc., 487 F.3d 89, 95 (2d Cir. 2007); Express Indus. & Terminal Corp. v.
N.Y. State Dep’t of Transp., 715 N.E.2d 1050, 1053 (N.Y. 1999). The defense fails, and the
subjective intent of the parties is irrelevant, if the contract is unambiguous. See Hunt Ltd. v.
Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1278 (2d Cir. 1989); Commins v. Couture, 785
N.Y.S.2d 160, 162 (N.Y. App. Div. 2004). Since the phrase “Customer projection”
unambiguously refers to estimates of employee participation provided to Summit by APS, the
meeting of the minds defense fails as a matter of law.
b. Duress
APS’s Answer alleges duress as an additional affirmative defense. The allegation is that
“Summit forced APS to execute the [Agreement] under duress by unlawfully threatening that it
24
would not provide information to APS, unless and until APS executed the [Agreement], that APS
was required to report to the State of Tennessee, leaving APS with no alternative but to execute
the [Agreement].” Answer ¶ 41. Summit argues against this defense in its moving papers. Pl.’s
Mem. of Law in Supp. (MSJ) at 31-33. APS does not address the issue in its response. It
therefore appears that APS has abandoned its duress defense. See, e.g., Dunkin’ Donuts
Franchised Restaurants LLC v. Tim & Tab Donuts, Inc., No. 07-CV-3662 KAM MDG, 2009
WL 2997382, at *9 (E.D.N.Y. Sept. 15, 2009) (“As a result of defendants’ failure to oppose
plaintiffs’ [summary judgment] motion as to their defenses and counterclaims, the court finds
that the defendants abandoned their affirmative defenses and counterclaims.”); Hanig v.
Yorktown Cent. Sch. Dist., 384 F. Supp. 2d 710, 723 (S.D.N.Y. 2005) (“[B]ecause plaintiff did
not address defendant’s motion to dismiss with regard to this claim, it is deemed abandoned and
is hereby dismissed.”); Dineen ex rel. Dineen v. Stramka, 228 F. Supp. 2d 447, 454 (S.D.N.Y.
2002) (“We note at the outset that plaintiff does not address these claims in its opposition papers,
enabling the Court to conclude that it has abandoned them.”). In light of Defendant’s failure to
respond to Plaintiff’s motion with respect to duress, the Court deems that affirmative defense
abandoned.
Even if the defense were not abandoned, it would not survive the instant summary
judgment motion. New York law will void a contract if one party can show that “its agreement
was procured by means of (1) a wrongful threat that (2) precluded the exercise of its free will.”
Interpharm, Inc. v. Wells Fargo Bank, Nat. Ass’n, 655 F.3d 136, 142 (2d Cir. 2011); see Stewart
M. Muller Const. Co., Inc. v. N.Y. Tel. Co., 359 N.E.2d 328, 328 (N.Y. 1976). Financial pressure
or unequal bargaining power alone is insufficient to establish duress, and “[t]he principle . . .
extends no further than equity demands.” Interpharm, 655 F.3d at 142. Here, the Agreement
25
had already been the subject of extensive negotiations, and APS’s “point man” in those
negotiations was one of its in-house attorneys. See Mathias v. Jacobs, 167 F. Supp. 2d 606, 614
(S.D.N.Y. 2001) (rejecting duress defense where, among other things, the parties were
“experienced businessmen” who had been represented by counsel during negotiations); C.B.S.
Rubbish Removal Co., Inc. v. Winters Waste Servs. of N.Y., Inc., 797 N.Y.S.2d 501, 504 (N.Y.
App. Div. 2005) (rejecting duress argument where negotiations took place over a “period of
months,” giving the parties “ample opportunity to exercise free will”). Nothing in the record
suggests that Summit was taking advantage of the situation in order to garner more favorable
terms from APS; rather, it was merely requesting that APS finalize a contract pursuant to which
Summit had already been performing for over two months and that included the BAA pursuant
to which it could provide confidential patient information to APS. In addition, the specific
provision the Court is now being asked to enforce is one that APS acknowledges was present in
every draft of the Agreement, and it is a provision that Dominianni had indicated was
“acceptable to APS” from as early as December 2010. Equity does not demand that the
Agreement be voided under such circumstances. Indeed, without a contract in place, Summit
was under no legal obligation to perform at all. The Court therefore cannot conclude that
Summit acted wrongfully in declining to execute a stand-alone BAA at this late stage in the
negotiations.
c. Breach of Contract by Summit
Defendant’s next affirmative defense alleges that Summit breached its obligations under
the Agreement, thus “significantly diminish[ing] the value of the services APS had agreed to
purchase from Summit and damag[ing] APS’s standing with the State.” Def.’s Mem. of Law in
Opp’n (MSJ) at 34; see Answer ¶ 42. The alleged deficiencies included failure to adequately
26
staff clinics, failure to provide appropriate and trained staff, failure to bring adequate supplies,
shutdowns of the online appointment system, difficulties in transferring information to APS, and
the release of private health information. Def.’s Mem. of Law in Opp’n (MSJ) at 34. For the
sake of argument, the Court will assume that all of APS’s allegations are true. Nevertheless, the
affirmative defense fails as a matter of law.
With respect to this affirmative defense, it is Defendant who bears the burden of proof
regarding its alleged right to recoupment or offset. See Aristocrat Leisure Ltd. v. Deutsche Bank
Trust Co. Americas, 727 F. Supp. 2d 256, 289-90 (S.D.N.Y. 2010) (collecting New York state
court cases regarding allocation of the burden of proof). Thus, all Summit is required to do at
summary judgment is point to an absence of evidence going to an essential element of
Defendant’s claim. In this case, Plaintiff has done that and more: it has highlighted evidence in
the record indicating that APS did not suffer any damages as a result of Summit’s alleged
breaches. See LNC Investments, Inc. v. First Fid. Bank, N.A. N.J., 173 F.3d 454, 465 (2d Cir.
1999) (noting that, under New York law, failure to prove damages is fatal to a claim for breach
of contract). APS stipulated that it was paid in full, under its general contract with the State of
Tennessee, for the screenings actually performed. Pl.’s 56.1 Stmt. ¶ 34; Def.’s 56.1 Stmt. ¶ 34.
Likewise, APS admitted that it did not pay any liquidated damages or other monetary penalties to
the State by virtue of Summit having breached the Agreement. Decl. of Jeff E. Butler (MSJ) Ex.
31, at 8 (Response to Request to Admit 17). McDonough testified at his deposition that he was
not aware of any financial harms suffered by APS as a result of Summit’s alleged breaches.
Decl. of Jeff E. Butler (MSJ) Ex. 27, at 105:8-117:2.
Despite the fact that Plaintiff raises each of these evidentiary points in its moving papers,
Defendant does nothing to counter them in its opposition brief. The Court therefore finds that
27
there is no triable question of material fact with respect to the alleged diminution in the value of
services APS received. APS has similarly failed to come forward with any evidence supporting
its argument that its standing with the State of Tennessee was damaged. Even if it had done so,
the Agreement’s limitation of liability clause, on which APS relies elsewhere in its papers,
expressly provides that the parties cannot be held liable for special, incidental or consequential
damages, including any damages attributable to a loss of goodwill. Agreement at 4. APS is thus
not entitled to any offsetting damages by virtue of Summit’s allegedly deficient performance.
d. Breach of the Implied Covenant of Good Faith and Fair Dealing
The discussion in the preceding section similarly disposes of the affirmative defense
alleging breach of Summit’s implied covenant of good faith and fair dealing. Answer ¶ 43. New
York law provides that every contract includes such a covenant. See Kader v. Paper Software,
Inc., 111 F.3d 337, 342 (2d Cir. 1997); Cohen v. Elephant Wireless, Inc., No. 03 Civ. 4058
(CBM), 2004 WL 1872421, at *11 (S.D.N.Y. Aug. 19, 2004). The covenant is breached when
one party’s actions “would deprive the other party of receiving the benefits under their
agreement.” Sorenson v. Bridge Capital Corp., 861 N.Y.S.2d 280, 282 (N.Y. App. Div. 2008).
However, “a breach of an implied covenant of good faith and fair dealing is intrinsically tied to
the damages allegedly resulting from a breach of the contract.” Canstar v. J.A. Jones Const. Co.,
622 N.Y.S.2d 730, 731 (N.Y. App. Div. 1995); see also Fasolino Foods Co., Inc. v. Banca
Nazionale del Lavoro, 961 F.2d 1052, 1056 (2d Cir. 1992) (“[B]reach of [the implied covenant]
is merely a breach of the underlying contract.” (quoting Geler v. Nat’l Westminster Bank USA,
770 F. Supp. 210, 215 (S.D.N.Y. 1991)) (internal quotation mark omitted)). Thus, absent
evidence of any cognizable damages sustained by APS as a result of a breach by Summit, the
affirmative defense fails as a matter of law.
28
e. Waiver
APS argues that its liability for January and February 2011 is limited to the amounts
included on the invoices prepared for those months. Def.’s Mem. of Law in Opp’n (MSJ) at 31;
see Answer ¶ 44. In short, APS claims that Summit waived its right to collect the full amount
due under the minimum fee provision by sending the discounted invoices. The Court finds it
unnecessary to reach the question of whether the January and February invoices constituted a
waiver of Summit’s rights under the contract, as the record demonstrates that any such waiver
was subsequently withdrawn.
New York law permits waivers to be withdrawn to the extent they are executory, as long
as the counterparty receives notice of the withdrawal and is given a reasonable time to perform.
Nassau Trust Co. v. Montrose Concrete Products Corp., 436 N.E.2d 1265, 1270 (N.Y. 1982).
The party asserting waiver—in this case, APS—bears the burden of demonstrating both that
there was a valid waiver and that such waiver was not withdrawn. Blue Ridge Investments, LLC
v. Anderson-Tully Co., No. 04 CIV. 3777 HB FM, 2005 WL 44382, at *7 (S.D.N.Y. Jan. 10,
2005). Even assuming, arguendo, that APS were able to defeat summary judgment on the
threshold question of waiver, APS has not offered any evidence demonstrating that such waiver
was not withdrawn. To the contrary, APS’s own evidence shows that, in the course of
attempting to reach an amicable resolution of the dispute, Summit clarified that the discounted
invoices were intended merely as conditional offers. A May 17, 2011 email from Finch to
Glazer and Steve DaRe observed that Summit had “offered to APS significant invoice discounts .
. . in good faith that APS would pay the full invoice amounts on time, but this is already not the
case.” Decl. of Howard S. Wolfson (MSJ) Ex. MM, at APS 4902. Finch went on to note that
Summit’s professional advisors “believe that any invoice discounts we have offered in good faith
29
should expire 30 days after invoice date.” Id. A subsequent email from Finch to Glazer, dated
September 19, 2011, listed both the amount due “per the letter of the agreement” and the amount
APS would owe if the discounts Summit “offered” were included in the calculation. Id. at APS
7422. Later that day, Finch emailed McDonough, copying Vaccaro and Glazer, again referring
to the alternative amounts due depending on whether the discounts Summit “offered” were taken
into account. Id. at APS 1247-48.
Summit’s willingness to accept the discounted fees in September 2011 does not preclude
it from seeking to enforce the terms of the contract in court, given that APS refused to pay the
reduced minimum fee. 14 Indeed, even without the Finch emails, the filing of the instant action
would itself be sufficient to establish the withdrawal of any alleged waiver. See Kott v. Kott, 229
N.Y.S.2d 471, 471 (N.Y. App. Div. 1962) (“[T]he waiver was executory and should have been
held to have been withdrawn by service of the summons and complaint.”), aff’d, 202 N.E.2d 385
(N.Y. 1964). In light of APS’s refusal to pay the portion of the invoices attributable to the
discounted minimum fees, it is clear that any waiver remained executory and that APS did not
rely on the alleged waiver to its detriment. 15 See Semple v. Eyeblaster, Inc., No. 08 CIV. 9004
14
Nor does Summit’s willingness to accept a discounted fee create a problem with respect to the limitation of
liability clause in section 7 of the Agreement. See Def.’s Mem. of Law in Opp’n (MSJ) at 32; Agreement at 4.
Even if APS is correct that the January and February invoices “essentially calculate Summit’s alleged lost profits,”
Def.’s Mem. of Law in Opp’n (MSJ) at 32, Summit is not seeking recovery of those amounts in the instant action.
Rather, it is Defendant who seeks to cap Summit’s recovery at those amounts. Nothing in the limitation of liability
clause precludes a party from pursuing standard contract damages, which is what Summit is doing here. Thus,
APS’s third affirmative defense—that the limitation of liability clause bars recovery in this action—fails as a matter
of law. See Answer ¶ 40.
15
APS argues that it “could not have breached the [Agreement] by failing to pay invoices that it never received.”
Def.’s Mem. of Law in Opp’n (MSJ) at 31. APS is theoretically correct on this point, which is why any waiver
would have been irrevocable had APS actually relied on it (i.e., if it had paid the proposed alternative minimum
fees). However, APS breached the Agreement when it refused to pay any minimum fees for January or February.
The waiver question therefore goes solely to the amount of damages APS owes as a result of its breach.
30
(HB), 2009 WL 1457163, at *6 (S.D.N.Y. May 26, 2009). Thus, Summit is entitled to recover
the full amounts due, pursuant to the express terms of the contract, for clinics performed in
January and February 2011.
f. Estoppel
APS next argues that there are triable issues with respect to its alleged estoppel defense.
See Answer ¶ 44. To succeed on this affirmative defense, APS would need to show (1) that
Summit concealed or misrepresented facts with both (2) the intent or expectation that APS would
rely on the concealment or misrepresentation and (3) actual or constructive knowledge of the true
facts, and (4) that APS detrimentally relied on the misrepresentation or concealment. See
Learning Annex Holdings, LLC v. Whitney Educ. Grp., Inc., 765 F. Supp. 2d 403, 412-13
(S.D.N.Y. 2011) (quoting General Electric Cap. Corp. v. Eva Armadora, S.A., 37 F.3d 41, 45
(2d Cir.1994)). APS argues that this standard is met because Summit represented that it needed
the estimates for staffing purposes and misled APS “to believe they were not being used for
billing.” Def.’s Mem. of Law in Opp’n (MSJ) at 32. APS alleges that Summit did so with the
intent that APS would rely on the misrepresentation, and that APS did in fact rely to its detriment
when it provided the estimates. Id. Further, APS argues that Summit disregarded most of the
estimates in staffing the clinics, that Summit instead relied on its own projections and the online
appointment system, that it concealed its projections from APS, and that it billed APS based on
estimates that it had disregarded. Id. at 32-33.
The estoppel argument fails as a matter of law. First, there is no evidence supporting
APS’s suggestion that it was affirmatively misled into believing that the Watson estimates were
not going to be used for billing purposes. Moczul and his team at Summit simply did not speak
to the potential billing consequences at all, nor was it incumbent on them to do so. The terms of
31
the contract unambiguously provided that APS would be charged minimum fees based on the
participation estimates it provided, and it was not Summit’s duty to remind APS of its
contractual obligations. Thus, the only possible misrepresentation or concealment would arise
from Moczul’s statements that Summit required estimates for staffing purposes, combined with
APS’s assertion that Summit actually relied on different figures in planning the clinics. This
argument also runs contrary to the evidence. The evidence on which APS relies arguably raises
questions of fact as to why Summit entered lower numbers into APEX for many of the clinics
and how those lower numbers were calculated; it does not support an argument that Summit was
intentionally using staffing as a guise by which to induce APS to provide estimates that would
instead be used solely for minimum fee purposes. See id. at 9-10. Indeed, APS’s own papers
acknowledge that Summit did rely on the Watson estimates, in their unaltered form, for at least
55 clinics. Id. Finally, even assuming that Summit did engage in concealment or
misrepresentation, APS states that it “relied to its detriment by providing estimates.” Id. at 32.
That statement is incomplete: the detriment arose only because APS provided what proved to be
erroneously high estimates, and the Agreement’s minimum fee provision clearly allocated that
risk to APS. 16
16
Here again the Court finds itself confronted with a troubling suggestion alluded to above—namely, that APS was
somehow tricked into providing artificially high estimates because it did not realize it would be billed accordingly,
thus implying that APS would have provided reduced estimates had it known it was in its best financial interest to
do so. Stated another way, implicit in APS’s argument is that it willfully provided inflated estimates of employee
participation because it believed it would suffer no financial penalty if it caused Summit to overstaff the clinics.
Given that APS’s position, putting aside what it now alleges actually transpired, is that Watson and his team had
been operating under the assumption that Summit was actually staffing, and thus incurring costs, based on the
Watson estimates, it is difficult to see where the alleged “injustice” lies. Def.’s Mem. of Law in Opp’n (MSJ) at 33.
One would hope—and the Court will presume—that APS and its employees would have made good-faith estimates
regardless of which party was expected to bear the resultant costs. Moreover, as discussed above, both Glazer and
Watson testified at their depositions that the Watson estimates did represent good-faith estimates of expected
participation.
32
For these reasons, the estoppel defense does not survive Plaintiff’s motion for summary
judgment.
g. Failure to Mitigate
APS also asserts an affirmative defense based on Summit’s alleged failure to mitigate
damages. Answer ¶ 45. Under New York law, the party that is injured by a breach of contract
has “the duty of making reasonable exertions to minimize the injury.” Holy Properties Ltd., L.P.
v. Kenneth Cole Prods., Inc., 661 N.E.2d 694, 696 (N.Y. 1995). As this Court has previously
emphasized, this duty only arises after the purported breach has occurred. See U.S. Bank Nat.
Ass’n v. Ables & Hall Builders, 696 F. Supp. 2d 428, 441 (S.D.N.Y. 2010). In alleging a failure
to mitigate in this case, APS points to the fact that Summit did not tell APS that it had prepared
its own projections that were lower than Watson’s figures, and that Summit did not inform APS
that it planned to bill on the basis of the Watson estimates. Def.’s Mem. of Law in Opp’n (MSJ)
at 33. However, the breach did not occur until APS refused to pay the minimum fees charged on
the January invoice, at which point APS was well aware of how Summit was calculating those
amounts. Summit’s alleged use of its own reduced estimates is similarly irrelevant: by the time
the breach occurred, APS knew that the Watson estimates generally exceeded actual
participation levels. Defendant’s mitigation defense therefore fails as a matter of law.
v. Summary of Issues Surviving Summary Judgment
For the foregoing reasons, Plaintiff is entitled to summary judgment with respect to the
first 150 clinics. 17 With respect to the remaining clinics, the motion is denied because triable
issues of material fact remain with respect to the following two questions: (1) does Section
17
The only affirmative defense not specifically addressed in the above discussion, failure to state a cause of action
on which relief can be granted, clearly fails given the Court’s ruling on the contract interpretation point. See Answer
¶ 38.
33
(g)(4) of Exhibit A preclude Summit from charging minimum fees subsequent to the first 150
clinics; and (2) what “Customer projection,” if any, did APS provide for clinics held after March
18, 2011? In other words, for all but the first 150 clinics, summary judgment is denied because
there are lingering questions of fact as to whether APS breached the contract and, if so, the
extent of the damages to which Summit is entitled.
III.
Defendant’s Motion for Leave to Amend
A. Applicable Legal Standard
Parties are entitled to amend their pleadings once, as a matter of course, within 21 days
after serving the pleading or, if a responsive pleading is required, within 21 days after service of
a responsive pleading or a Rule 12 motion. Fed. R. Civ. P. 15(a). A party may not otherwise
amend its pleading without either the written consent of the opposing party or leave of the court.
Fed. R. Civ. P. 15(b). “The court should freely give leave when justice so requires.” Id. The
Supreme Court has held that it would be an abuse of discretion, “inconsistent with the spirit of
the Federal Rules,” for a district court to deny leave without some justification, “such as undue
delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies
by amendments previously allowed, undue prejudice to the opposing party by virtue of
allowance of the amendment, futility of amendment, etc.” Foman v. Davis, 371 U.S. 178, 182
(1962).
The Second Circuit has stated that a court should allow leave to amend a pleading unless
the non-moving party can establish prejudice or bad faith. AEP Energy Servs. Gas Holding Co.
v. Bank of Am., N.A., 626 F.3d 699, 725 (2d Cir. 2010) (quoting Block v. First Blood Assocs.,
988 F.2d 344, 350 (2d Cir.1993)). Motions to amend are ultimately within the discretion of the
district courts, Foman, 371 U.S. at 182, and they should be handled with a “strong preference for
34
resolving disputes on the merits.” Williams v. Citigroup Inc., 659 F.3d 208, 212-13 (2d Cir.
2011) (quoting New York v. Green, 420 F.3d 99, 104 (2d Cir.2005)) (internal quotation marks
omitted). “Courts in this district have consistently granted motions for leave to amend a
complaint where facts and allegations developed during discovery are closely related to the
original claim and are foreshadowed in earlier pleadings.” Stonewell Corp. v. Conestoga Title
Ins. Co., No. 04 CV 9867 KMW/GWG, 2010 WL 647531, at *2 (S.D.N.Y. Feb. 18, 2010).
Although permissive, the standard for leave to amend “is by no means ‘automatic.’” Billhofer v.
Flamel Technologies, S.A., No. 07 Civ. 9920, 2012 WL 3079186, at *4 (S.D.N.Y. July 30, 2012)
(quoting Klos v. Haskel, 835 F. Supp. 710, 715 (W.D.N.Y. 1993)).
Ordinarily, leave to amend may be denied on the basis of futility if the proposed claim
would not withstand a Rule 12(b)(6) motion to dismiss. Dougherty v. Town of N. Hempstead Bd.
of Zoning Appeals, 282 F.3d 83, 88 (2d Cir. 2002). However, when the motion to amend is filed
after the close of discovery and the relevant evidence is before the court, a summary judgment
standard will be applied instead. See Milanese v. Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir.
2001) (noting that, in situations where the motion to amend is made in response to a summary
judgment motion and the parties have fully briefed the issue and presented all relevant evidence,
“the court may deny the amendment as futile when the evidence in support of the [movant’s]
proposed new claim creates no triable issue of fact and the [non-moving party] would be entitled
to judgment as a matter of law”); Huber v. Nat’l R.R. Passenger Corp., No. 10 Civ. 09348
(ALC) (DF), 2012 WL 6082385, at *5 (S.D.N.Y. Dec. 4, 2012) (“In the less common case where
the Court is asked to review a proposed amendment with the benefit of a full discovery record, a
futility analysis is still possible, but it will then turn on the question of whether the proposed
amended complaint would be subject to dismissal under Rule 56 of the Federal Rules of Civil
35
Procedure for lack of a genuine issue of material fact.”); Stoner v. N.Y.C. Ballet Co., No. 99 Civ.
0196 (BSJ), 2002 WL 523270, at *14 (S.D.N.Y. Apr. 8, 2002) (denying a motion to amend
where the additional claim “would immediately be subject to dismissal on a motion for summary
judgment”). The party opposing the amendment has the burden of establishing its futility.
Blaskiewicz v. Cnty. of Suffolk, 29 F. Supp. 2d 134, 137 (E.D.N.Y. 1998).
Modifications of Rule 16(b) scheduling orders are only permitted for good cause. Fed. R.
Civ. P. 16(b)(4). The Second Circuit has held that this good cause standard, which is more
stringent that the Rule 15(a) standard just discussed, must also be applied to motions to amend in
cases where the scheduling order’s deadline for amended pleadings has passed. Parker v.
Columbia Pictures Indus., 204 F.3d 326, 339-40 (2d Cir. 2000). The good cause analysis turns
on the movant’s diligence. Id. at 340.
B. Discussion
i. Proposed Counterclaim for Rescission
The core of the debate surrounding Defendant’s motion to amend centers on whether or
not Defendant’s proposed counterclaim is futile. Because Defendant’s motion to amend is made
at this late stage in the proceedings, and because the Court has the full evidentiary record at its
disposal, a summary judgment standard will be applied in assessing futility. 18 See DiPace v.
Goord, 308 F. Supp. 2d 274, 278-79 (S.D.N.Y. 2004) (applying a summary judgment standard
18
Defendant concedes that its counterclaim “will not require any additional discovery.” Def.’s Mem. of Law in
Supp. (Amend) at 34. The Court is therefore confident that the necessary facts are contained in the expansive record
currently before it. In addition, although Defendant’s moving papers proceeded under the assumption that a motionto-dismiss standard would apply, its reply papers argue using a summary judgment standard. See, e.g., Def.’s Reply
Mem. of Law in Further Supp. (Amend) at 13 (“[W]hether APS exercised ordinary care is a question of fact for
trial.”). The Court is therefore satisfied that the parties have had an adequate opportunity to brief the issue.
36
where both parties submitted and relied on extensive outside evidence in making their
arguments, and where the moving party was not seeking additional discovery).
The proposed counterclaim seeks rescission of the Agreement on the grounds of
unilateral mistake. Decl. of Howard S. Wolfson (Amend) Ex. A, Counterclaim ¶¶ 67-77. New
York law requires that the party seeking rescission on this basis establish that “(i) he entered into
a contract based upon a mistake as to a material fact, and that (ii) the other contracting party
either knew or should have known that such a mistake was being made.” VCG Special
Opportunities Master Fund Ltd. v. Citibank, N.A., 594 F. Supp. 2d 334, 343 (S.D.N.Y. 2008)
(quoting NCR Corp. v. Lemelson Med., Educ. and Research Found., No. 99 Civ. 3017 (KNF),
2001 WL 1911024, at *7 (S.D.N.Y.2001)), aff’d, 355 F. App’x 507 (2d Cir. 2009). 19 The
19
In interpreting New York law, courts in this Circuit have been inconsistent with respect to whether unilateral
mistake can justify rescission absent an allegation of fraud on the part of the counterparty. Compare Aetna Cas. &
Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d 566, 585 (2d Cir. 2005) (stating that New York law permits
rescission based on unilateral mistake only if that mistake “is accompanied by some fraud committed by the other
contracting party”), and De Sole v. Knoedler Gallery, LLC, No. 12 Civ. 2313 PGG, 2013 WL 5452669, at *33
(S.D.N.Y. Sept. 30, 2013) (“A unilateral mistake must be ‘coupled with some fraud.’” (quoting Allen v. WestPoint–
Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1990))), with VCG, 594 F. Supp. 2d at 343-44 (analyzing New York law on
rescission without any mention of fraud), and Creative Waste Mgmt., Inc. v. Capitol Envtl. Servs., Inc., 429 F. Supp.
2d 582, 599 (S.D.N.Y. 2006) (indicating that fraud is not required in situations where the mistake goes to a “basic
assumption of the contract”), supplemented, 458 F. Supp. 2d 178 (S.D.N.Y. 2006). One Second Circuit opinion
presents fraud and “knew or should have known” as alternative tests. Middle East Banking Co. v. State St. Bank
Int’l, 821 F.2d 897, 906 (2d Cir. 1987) (“While it is true that New York courts will, in some cases, rescind contracts
and void releases even in the absence of fraud where unilateral mistake is established, the mistake must be ‘one
which is known or ought to have been known to the other party.’” (citation omitted) (quoting Assurance Co. v.
Pulin, 142 N.Y.S.2d 809, 810 (N.Y. App. Div. 1955) (per curiam))).
The Court finds that the Second Circuit’s interpretation in Middle East Banking captures the general state of New
York case law, though New York courts have themselves been far from clear on the issue of unilateral mistake.
Pulin, the case on which the Second Circuit relied in Middle East Banking, required not only that the counterparty
knew or should have known of the mistake, but also that the mistake be induced by “some ambiguity or peculiar
circumstances.” Pulin, 142 N.Y.S.2d at 810. However, a subsequent case observed that “[i]t is universally
recognized that there is a right of rescission for a unilateral mistake if the mistake was known to the other party at
the time of the negotiating of the contract and was not corrected by it.” Sheridan Drive-In, Inc. v. State, 228
N.Y.S.2d 576, 582 (N.Y. App. Div. 1962); see also Sanzotta v. Continuing Developmental Servs., Inc., 692
N.Y.S.2d 272, 273 (N.Y. App. Div. 1999) (“Defendant failed to meet its burden of establishing as a matter of law
that it is entitled to rescind the agreements based upon a unilateral mistake known to plaintiff at the time the
37
moving party must also establish that it exercised ordinary care and that enforcement would be
unconscionable. Id. at 343-44 (quoting William E. McClain Realty, Inc. v. Rivers, 534 N.Y.S.2d
530, 531 (N.Y. App. Div. 1988)); see also Kraft Foods, Inc. v. All These Brand Names, Inc., 213
F. Supp. 2d 326, 331 (S.D.N.Y. 2002) (noting that a party seeking rescission based on unilateral
mistake must demonstrate that it exercised ordinary care). Rescission will be denied if the
mistake arises out of negligence and “the means of knowledge were easily accessible.”
Consumers Union of U.S., Inc. v. Campbell, No. 88 Civ. 7980 (JMW), 1989 WL 304762, at *5
(S.D.N.Y. Nov. 16, 1989) (quoting Da Silva v. Musso, 428 N.E.2d 382, 386 (N.Y. 1981))
(internal quotation mark omitted). 20
Based on the facts before it, the Court concludes as a matter of law that APS failed to
exercise ordinary care. 21 APS alleges that it entered into the contract under the mistaken belief
agreements were negotiated and left uncorrected by her or fraudulent misrepresentations made by plaintiff . . . .”
(emphasis added) (citation omitted)).
In light of the foregoing, the Court is satisfied that the standard for rescission based on unilateral mistake set forth in
the body of this Opinion comports with New York State case law on the subject.
20
Defendant argues that rescission should only be denied if the mistake results from something more than mere
negligence. Def.’s Reply Mem. of Law in Further Supp. (Amend) at 12-13. There is New York State case law on
both sides of this issue. Compare Cox v. Lehman Bros., Inc., 790 N.Y.S.2d 16, 17 (N.Y. App. Div. 2005) (“Such a
windfall should be avoided given no indications that defendant lacked good faith or intentionally avoided making an
inquiry it had reason to know would disclose the true facts.”), with Morey v. Sings, 570 N.Y.S.2d 864, 867 (N.Y.
App. Div. 1991) (rejecting a rescission claim because the defendant failed to establish that “ordinary care” would
not have prevented the mistake). One case even suggests that negligence is not a factor at all if the counterparty was
allegedly aware of the mistake. See Bailey Ford, Inc. v. Bailey, 389 N.Y.S.2d 181, 183 (N.Y. App. Div. 1976)
(observing that negligence bars rescission in a situation where the parties alleging mistake do not claim that the
counterparty “shared in their mistake or was aware of it”). Given the apparent tension in the case law and the
absence of contrary authority from the New York Court of Appeals, the Court will adhere to the interpretation of the
ordinary care requirement that has previously been applied to cases within this District.
21
The case law belies Defendant’s argument that the issue of ordinary care is always a question of fact for trial. See
Def.’s Mem. of Law in Supp. (Amend) at 30; Def.’s Reply Mem. of Law in Further Supp. (Amend) at 13. In Kraft
Foods, this Court reviewed the circumstances surrounding an alleged mistake before finding that it could not make
the ordinary care determination “[b]ased on the evidence before us,” thus indicating that the outcome was driven by
the specific evidentiary record and not by a general legal principle. 213 F. Supp. 2d at 331. Likewise, in Lehman
38
that “the number of online appointments made by State employees was the ‘Customer
projection’ for each clinic referred to in Exhibit B.” Decl. of Howard S. Wolfson (Amend) Ex.
A, Counterclaim ¶ 68. As discussed above, however, the unambiguous terms of the contract
foreclose this possibility. There is no question that the disputed provision appeared in all drafts
of Exhibit B that the parties exchanged. Thus, APS had time to review the language and ensure
that it was comfortable with the pricing terms. Indeed, the December 21, 2010 email from
Dominianni to Finch confirms that APS believed its review of Exhibit B was sufficiently
complete: not only does the email acknowledge that the $37 per-screening rate was the product
of negotiation between the parties, but it includes a specific representation that the rest of the
pricing terms were “acceptable to APS.” Even so, almost three more months elapsed before the
Agreement was actually signed, providing APS with additional time to review the terms of the
contract.
In these respects, the case resembles two others in which this Court denied rescission on
the grounds of negligence. In VCG, the Court observed that the contractual language was clear,
that the party claiming mistake was sophisticated, and that there was no claim that “it was
limited in its ability to review drafts of the agreement or to discuss the provisions of the
[contract] before it was executed.” 594 F. Supp. 2d at 344. The Court concluded that the
plaintiff had “simply failed to review carefully the terms of the parties’ agreement” and held that
Brothers, Inc. v. Piper Jaffray & Co., No. 600629/06, 2008 N.Y. Misc. LEXIS 8016, at *34-35 (N.Y. Sup. Ct. May
20, 2008), the New York trial court said that ordinary care was “necessarily a fact-intensive question” but
immediately added that the record contained evidence supporting the party’s claim that it acted reasonably. Both
state and federal courts have disposed of rescission claims on the basis that the party alleging mistake did not
exercise ordinary care. See VCG, 594 F. Supp. 2d at 344; NCR Corp. v. Lemelson Med., Educ. and Research
Found., No. 99 Civ. 3017 (KNF), 2001 WL 1911024, at *7-8 (S.D.N.Y.2001); Sanford/Kissena Owners Corp. v.
Daral Properties, LLC, 923 N.Y.S.2d 692, 694-95 (N.Y. App. Div. 2011); Wachovia Sec., LLC v. Joseph, 866
N.Y.S.2d 651, 653 (N.Y. App. Div. 2008).
39
such negligence did not warrant rescission. Id. The reasoning in NCR Corp. was almost
identical, as was the Court’s conclusion that the mistake resulted from a sophisticated entity’s
failure “to review carefully unambiguous language in the parties’ agreement.” NCR Corp., 2001
WL 1911024, at *7.
APS attempts to distinguish these cases on two bases. First, it argues that the parties
seeking rescission in VCG and in NCR “simply failed to review the terms of the parties’
agreement.” Def.’s Reply Mem. of Law in Further Support (Amend) at 12 n.5. This argument
ignores the key qualifier, “carefully,” that appears in both opinions. Thus, to the extent APS’s
argument implies that ordinary care can be established by merely indicating that the party
actually read the contract, the Court rejects that premise. Second, APS seeks to distinguish the
cases on the grounds that “there was no evidence in [VCG or NCR] that the other party knew of
the mistake and intentionally concealed it from the party seeking rescission.” Id. The Court is
unable to identify the basis for this purported distinction, as these are two of the cases standing
for the very proposition that rescission for unilateral mistake can be based on the “knew or
should have known” standard. If there were no allegation of knowledge in either case, it would
be difficult to understand why the Court bothered to undertake the ordinary care analysis (and, in
the case of NCR, the unconscionability analysis) at all, rather than merely denying rescission for
failure to allege one of the requisite elements of the claim.
None of Defendant’s arguments regarding ordinary care points to evidence that could
raise a triable issue on this point. The claim that “[a] dictionary would not have informed APS
that Summit intended to use the Watson estimates instead of the number of online
appointments,” id. at 11, is inaccurate. The issue is not whether APS knew what Summit
subjectively “intended to use,” but rather whether APS exercised ordinary care in determining
40
what the contract required. As previously discussed, a dictionary would certainly have informed
APS that it was the “Customer” referenced in the Agreement, and it would necessarily follow
that the phrase “Customer projection” refers to a projection received from APS. Since the
Watson estimates were the only projections APS had been providing to Summit prior to the
execution date of the contract, the “means of knowledge were easily accessible” with respect to
what would form the basis for the minimum fee calculation.
McDonough and Watson offered deposition testimony to the effect that APS had no way
of reliably predicting how many state employees would ultimately attend the Summit clinics.
See Decl. of Howard S. Wolfson (Amend) Ex. F, at 90:13-24, 228:6-18; id. Ex. G, at 59:21-60:9.
As a result, McDonough testified that APS believed the online appointment system, as of the day
before each clinic, provided the “best estimate of how many people were going to show up.” Id.
Ex. F, at 142:5-14. This may very well be so, and it may indeed be the case that the contract
would have better reflected reality if it based the minimum fees on the online appointment
system. However, while those considerations would have justified APS in seeking to revise the
terms of the contract before it was signed, they do not justify an assumption that the contract said
something that it did not. To the contrary, a careful reading of the contract would have belied
that very assumption, regardless of its reasonableness in theory.
APS also argues that its mistaken interpretation of the contract was reasonable given “the
fact that the [Agreement] fails to provide any process, procedure or timeline for providing a
Customer projection, other than the number of online appointments made by State employees,
and Summit’s failure to request that APS provide it with any ‘Customer projections’ prior to
41
March 15, 2011.” 22 Id. Ex. A, Counterclaim ¶ 75; see Def.’s Mem. of Law in Supp. (Amend) at
30. There does not appear to be any dispute regarding the Agreement’s silence on the logistical
points. If anything, however, this silence merely provides all the more reason for APS to have
paid closer attention to—and to have sought clarification of—the minimum fee provision. It
does not explain why a contractual provision referring to data provided by APS was instead read
to refer to data not provided by APS. Likewise, although Summit may not have specifically
requested “Customer projections” using those words, that does not change the fact that the
contract clearly refers to estimates provided by APS. Thus, one would have expected APS to
attempt to discern what it was they were supposed to provide and whether they were already
providing it, rather than merely assuming that the phrase referred to something they were neither
responsible for nor capable of providing. 23
The fact that Summit did not specifically inform APS that Watson’s estimates would be
used for billing purposes does not bear on the analysis. See Def.’s Reply Mem. of Law in
Further Supp. (Amend) at 12. Any reliance by APS on Summit’s silence with respect to the
meaning of an unambiguous contract provision cannot reasonably be said to constitute ordinary
care.
Similarly irrelevant is the fact that Moczul offered Watson a choice between providing
participation estimates or an indication of how much staffing would be required for each clinic.
22
Note that APS is merely observing that Summit did not specifically use the phrase “Customer projections.” APS
acknowledges elsewhere in its briefs and supporting papers that Summit did request “participation estimates.” See
Def.’s Mem. of Law in Opp’n (MSJ) at 8; Decl. of Troy Watson (MSJ) ¶ 5.
23
This is particularly so given that APS claims that it expected Summit to staff the clinics based on the Watson
estimates. As discussed above, it would be unreasonable to expect Summit to staff based on that set of numbers and
then bill based on the online appointments. In other words, the consequences of APS’s mistaken interpretation
should have themselves raised a red flag calling for a more careful examination of the language.
42
APS argues that, since Summit could not have billed based on the staffing figures, Watson’s
decision to provide participation estimates “was obviously not intended to serve as the
‘Customer projection.’” Id. Once again, however, the relevant inquiry is not whether one of the
parties—or one of that party’s employees— subjectively “intended” that the Watson estimates be
used for billing purposes; it is sufficient that Watson did, in fact, provide participation estimates
and that the contract unambiguously authorized Summit to bill APS on that basis. To put it
another way, although the alleged mistake is presented elsewhere in APS’s briefs as “a mistake
of fact as to what was going to be used as the Customer projection,” id. at 9 (emphasis added),
what APS is actually describing is a mistake as to what could be used as a Customer projection.
It is at that level of contract interpretation that APS failed to exercise ordinary care; had the
contract been properly construed pursuant to its unambiguous terms, the mistake would have
been self-evident.
Because APS has failed to come forward with evidence tending to demonstrate that it
exercised ordinary care in interpreting Exhibit B of the Agreement, the Court finds that the
proposed counterclaim would not withstand Plaintiff’s motion for summary judgment. The
motion to amend is therefore denied, on the basis of futility, with respect to the counterclaim.
ii. Proposed Amendments to the Affirmative Defenses
APS also seeks leave to add factual allegations to five of its affirmative defenses
(offsetting breach of contract, breach of the implied covenant of good faith and fair dealing,
estoppel, waiver, and failure to mitigate). Def.’s Mem. of Law in Supp. (Amend) at 5; Decl. of
Howard S. Wolfson (Amend) Ex. A, ¶¶ 42-46. Because those affirmative defenses have already
been disposed of via Plaintiff’s summary judgment motion, the proposed amendments would be
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