Woodberry v. Graham et al

Filing 80

OPINION & ORDER re: 69 LETTER MOTION for Conference on Summary Judgment addressed to Judge Analisa Torres from Kathryn L. Marshall dated 04/11/2016. filed by John Woodberry, 70 MOTION for Summary Judgment Notice of Motion. filed by John Woodberry. For the reasons set forth above, the Court GRANTS summary judgment as to Count I and DENIES it as to all other counts. This matter shall proceed to trial expeditiously. Trial will begin May 1, 2017, and is scheduled for three days. The Clerk of Court is directed to terminate the motions at ECF Nos. 69 and 70. (Signed by Judge Katherine B. Forrest on 1/13/2017) (kgo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
JOHN WOODBERRY,
:
:
Plaintiff,
:
:
-v:
:
FORD GRAHAM et al.,
:
:
Defendants.
:
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: January 13, 2017

14-cv-04816 (KBF)
OPINION & ORDER

KATHERINE B. FORREST, District Judge:
This is a breach of contract and fraud action. This Opinion & Order resolves
plaintiff’s pending motion for summary judgment at ECF No. 70 as to all claims.
For the reasons set forth below, the Court GRANTS summary judgment as to Count
I (on consent) and DENIES it as to all other counts. This matter shall proceed
expeditiously to trial.
I.

PROCEDURAL HISTORY1
This action was filed on June 27, 2014. (ECF Nos.1, 2.) It was transferred to

the undersigned on November 1, 2016. The Complaint makes claims against a
number of defendant entities, including Ford Graham, Cogent Offshore Ltd.,
Ginsters Services and Investment Ltd., Greenhill Offshore Ltd., Greenstone Ltd.,
JMF Offshore Ltd., Nassau Media Ltd., Vulcan Energy International, LLC, Vulcan
Holdings Limited, LLC, Vulcan Minerals and Power, Ltd., Vulcan Petroleum

1

This case was reassigned to the undersigned on November l, 2016.

Resources Ltd., Vulcan Power Services Ltd., Vulcan Water Resources, Ltd.,
Westbridge Fuels Ltd., the Ford Graham Annuity Trust No. 2, the Ford Graham
Annuity Trust No. 7, and Katherine Graham in her capacity as Trustee and
representative of the Ford Graham Annuity Trusts. (ECF No. 2.) Defendants
answered on September 4, 2014. (ECF No. 25.)2 Following the conclusion of
discovery, plaintiff brought the instant motion for summary judgment as to all
claims. (ECF No. 70.)
Defendants concede liability for the breach of contract asserted in Count I
(relating to a security agreement discussed below) but oppose the motion in all
other respects. (Def. Brief in Opp. at 1, ECF No. 72 at 4.)
II.

FACTS
The following facts are undisputed unless otherwise noted.
The dispute between the parties concerns two related contractual

arrangements: a security agreement (“Security Agreement”) relating to certain
equipment (“Project Equipment”), and an option agreement (“Option Agreement”),
relating to various investments. The Complaint contains four counts. Count One
(to which defendants have conceded liability), asserts a claim against the

The answer in this action was filed on behalf of all defendants. The docket incorrectly reflects a
notice of appearance for only three of the defendants (Ford Graham, Vulcan Holdings Limited LLC,
and Westbridge Fuels Ltd.). The Court will separately direct the Clerk of Court to note an
appearance of counsel on behalf of all defendants.
2

2

Graham Entities3 for breach of the Security Agreement, (Compl. at 10); Count Two
asserts a claim against the “Vulcan Parties,”4 (Id. at 11); Count Three asserts a
claim for Fraudulent Inducement against “Graham and Vulcan Energy,” (Id. at 1112); and Count Four asserts a claim for Fraudulent Misrepresentation against
“Graham and Vulcan Energy,” (Id. at 12-13).
A.

The Security Agreement

On March 7, 2012, Vulcan Energy, Vulcan Holdings, the Ford Graham
Annuity Trust No.2, the Ford Graham Annuity Trust No. 7, and Ford Graham (the
“Graham Entities”), and plaintiff John Woodbury, entered into a Project
Development and Security Agreement (the “Security Agreement”). (Pl. Rule 56.1
Statement of Material Facts (“SOF”) ¶ 1, ECF No. 69-1 at 3.) The Security
Agreement was retroactive, with an effective date of October 4, 2010. (Id.) The
Security Agreement provided that the Graham Entities agreed to pledge certain
equipment as collateral, with a first priority security interest, for repayment of
amounts provided to them by plaintiff Woodbury beginning in 2010.5 (SOF ¶¶ 2-5;
Compl. Ex. A at Sch. 1, ECF No. 2-1 at 10.) The amount due and owing is referred
to throughout the Security Agreement as “Development Costs.” (SOF ¶ 2.)
Particularly pertinent to this dispute are the representations and warranties (“reps

The Graham Entities are defined as Ford Graham, Vulcan Energy International, LLC (“Vulcan
Energy”), Vulcan Holdings Limited, LLC (“Vulcan Holdings”), and the Ford Graham Annuity Trusts
Nos. 2 and 7. (Compl. ¶ 1.)
4 The Vulcan Parties are defined as Cogent Offshore Ltd., Ginsters Services and Investment Ltd.,
Greenhill Offshore Ltd., Greenstone Ltd., JMF Offshore Ltd., Nassau Media Ltd., Vulcan Minerals
and Power Ltd., and Westbridge Fuels Ltd. (Compl. ¶ 35.)
5 The equipment at issue is defined as “Project Equipment” and includes “[t]he generator, turbine,
air handling unit and other equipment located at 11518 Old LaPorte Road, LaPorte, Texas 77571
and 1227 Bushong, Houston, Texas 77574 . . . .” (SOF ¶ 7) (alterations in original).
3

3

and warranties”) set forth in Article 3 of the Security Agreement. The reps and
warranties provide, inter alia:
3.3 Litigation. No suit, action, litigation, administrative
hearing, arbitration, negotiation or other proceeding or
governmental inquiry or (to its knowledge) investigation
affecting it or its property or assets is pending or, to its
knowledge, threatened that would have a material
adverse effect on any Obligor's ability to consummate the
transactions contemplated by this Agreement.
3.4 Solvency. (a) The fair value of the property and assets
of each Obligor is greater than the total amount of
liabilities, including contingent liabilities of such Obligor;
(b) the present fair salable value of the assets of each
Obligor is not less than the amount that will be required
to pay the probable liability of such Obligor on its debts as
they become absolute and mature . . . .
3.5 Collateral. Each Obligor is the sole owner and shall
continue to be the sole owner of all of the Collateral
pledged by such Obligor free and clear of liens, claims and
other encumbrances. . . .
(Compl. Ex. A at S-4.) The Security Agreement also contains a standard integration
clause:
5.3. Complete Agreement; Amendment; Termination.
This Agreement supersedes all prior agreements and
understandings whether written or oral, between the
Parties with respect to its subject matter, and constitutes
a complete and exclusive statement of the terms of the
agreement between the Parties with respect to its subject
matter.
(Id. at S-6.) Finally, the Security Agreement provides for a Limitation on Liability:
5.8 Limitation on Liability. . . . NEITHER PARTY
SHALL BE LIABLE OR HAVE ANY RESPONSIBILITY
TO THE OTHER PARTY UNDER THIS AGREEMENT
FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL,
PUNITIVE OR EXEMPLARY DAMAGES . . . . THE
4

LIMTIATIONS ON LIABILITY CONTAINED IN THIS
SECTION SHALL APPLY TO ANY CLAIM OR ACTION
REGARDLESS OF THE THEORY OF LIABILITY ON
WHICH IT IS BASED.
(Id. at S-7.) Repayment of the Development Costs was required on or before August
31, 2012. (SOF ¶ 8.) It is undisputed that the defendant Obligors did not and have
not repaid the Development Costs. (SOF ¶ 11.)
It is undisputed that during the negotiations of the Security Agreement, Ford
Graham represented to Woodbury that the Project Equipment was worth more than
the principal amount of the loan (otherwise referred to as the Development Costs).6
(SOF ¶ 28.) The parties further concede that this representation was made on
behalf of Ford Graham himself as well as the “Graham Entities.” (Id. ¶ 30.)
Plaintiff asserts that the Project Equipment has not been properly stored or
maintained since its arrival at the LaPorte facility, and that from sometime
commencing at least in the summer of 2010, the Project Equipment was stored out
of doors, uncovered, and otherwise not properly maintained. (SOF ¶¶ 32,
33, 36.) Plaintiff further asserts that usual and customary preventative storage
maintenance was not performed. (SOF ¶ 35.) Plaintiff also asserts that the
equipment is now covered in rust and corroded. (SOF ¶¶ 37, 38.) Defendants
dispute these assertions. (SOF ¶¶ 32, 33, 35-38.) Plaintiff further asserts that
“[t]he substantial corrosion and other deterioration of the Project Equipment has
been present since at least 2011 or early 2012.” (SOF ¶ 41.) Defendants dispute

While the parties dispute the precise amount of the Development Costs, they both agree they are in
an amount of around $2 million.
6

5

this assertion. (Id.) Plaintiff contends that various parts are currently missing
from the Project Equipment. (See, e.g., SOF ¶¶ 42-45.) Defendants respond that
they can neither admit nor deny the current condition of the Project Equipment as
the last inspection was in 2014. (Id.)
Plaintiff contends that the costs of replacing the missing parts and otherwise
restoring the Project Equipment exceeds its market value. (SOF ¶ 50.) Defendants
deny this assertion. (Id.) The parties dispute whether the Project Equipment can
be sold “as is” or not. (Id. ¶ 52.)
Plaintiff contends that at the time the Ford Graham was negotiating the
Security Agreement, he knew that the Project Equipment was worth less than the
amount funded in the Security Agreement. (Id. ¶ 61.) Defendants dispute this
assertion. (Id.)
Plaintiff asserts that despite their representation to the contrary, at the time
the Graham Entities executed the Security Agreement, PlainsCapital Bank held a
lien on Vulcan Energy’s assets, including the Project Equipment. (Id. ¶ 66.) In
particular, plaintiff asserts that Grover Scott Campbell, who served as the vice
president and financial director of Vulcan Energy until May 2010, and also served
as the operations and finance manager of several other Vulcan entities, knew that
PlainsCapital Bank had a lien on several Vulcan entities’ assets. (Id. ¶¶ 67-69.)
Defendants dispute that PlainsCapital Bank ever held a valid lien on the Project
Equipment and instead contend that it had a lien on other equipment located in

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Elizabethtown, North Carolina, relating to a company called Vulcan AMPS. (SOF
¶¶ 66, 71-72.) The parties are in agreement that PlainsCapital Bank eventually
seized assets of Vulcan AMPS. (Id. ¶ 71.)
The parties agree that, separate and apart from the PlainsCapital issues,
Vulcan Energy filed an action in Texas in 2011 seeking to enjoin a third party’s
assertion of ownership of the Project Equipment. (Id. ¶ 77.) The third party was an
entity called Technical Assets Power Management Group (“TAPMG”) with a
President and CEO by the name of John McVea. (Id. ¶¶ 77, 80.) That lawsuit was
resolved in March 2014 by way of a settlement. (Id. ¶ 79.) The parties agree that for
some period of time (when precisely is unclear), McVea arranged for storage of the
equipment; defendants assert that this was part of the agreement McVea made in
connection with the Project Equipment’s sale to defendants. (Id. ¶ 85.) The parties
also agree that throughout the relevant period, McVea continued to have access to
the equipment. (Id. ¶ 87.)
The parties agree that after August 31, 2012, Ford Graham represented to
Woodbury that the equipment had a fair market value in excess of the Development
Costs. (See id. ¶ 94.) In 2014, Ford Graham told Woodbury that he had agreed to
sell the equipment for $4 million and that the equipment had a value in excess of
$11 million. (Id. ¶ 97.) At his deposition, Ford Graham provided nonspecific
testimony regarding other potential buyers. (See id. ¶ 100.)
A.

The Option Agreement

The following persons and entities are parties to the Option Agreement:
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Cogent Offshore Ltd., Ginsters, Services and Investments Ltd., Greenhill Offshore
Ltd., JMF Offshore Ltd., Nassau Media Ltd., Vulcan Minerals and Power Ltd.,
Vulcan Petroleum Resources Ltd., Vulcan Power Services Ltd., Vulcan Water
Resources Ltd., and Westbridge Fuels Ltd. (the “Vulcan Parties”); John Woodbury,
the Ford Graham Annuity Trust No. 1, Ford Graham Annuity Trust No. 2, Ford
Graham Annuity Trust No. 3, Ford Graham Annuity Trust No. 4, Ford Graham
Annuity Trust No. 5, Ford Graham Annuity Trust No. 6, and the Ford Graham
Annuity Trust No. 7 (the “Graham Family Trusts”). (SOF ¶ 17.) Vulcan Energy
and Vulcan Holdings—the two Vulcan entities that are parties to the Security
Agreement—are not parties to the Option Agreement. (Compare SOF ¶ 17, with
Compl. Ex. A at 1.)
The Option Agreement was signed on May 15, 2012, with an effective date of
June 16, 2012. (Compl. Ex. B (“Option Agreement”), ECF No. 2-2.) The Option
Agreement provided Woodbury with an option to participate in various investment
opportunities described in Schedule A, attached to that agreement. (See Option
Agreement ¶ 1.) The agreement further provides, “Schedule A shall be amended by
the Vulcan Parties at the beginning of each calendar quarter during the term of this
Agreement, commencing September 1, 2012. . . .” (Id.) Any option must be
exercised within two years from the effective date of the Option Agreement. (Id. at
¶ 2.) As the language of this latter provision is key to the parties’ dispute regarding
this provision the Court quotes it more fully below:
2. Exercise of the Option. Woodbury, in his sole and
absolute discretion, may exercise the Option one or more
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times in respect of any Opportunity to Invest, each time
by giving written notice of such exercise to the respective
Vulcan Party and the respective Graham Family Trust,
which notice must be given by Woodbury during the
period from the Effective Date until 5:00 p.m. EST on the
date two (2) years from the Effective Date (the “Option
Term”). . . . If Woodbury does not exercise the Option in
respect of an Opportunity to invest during the Option
Term, the Option in respect of that Opportunity to Invest
will automatically terminate and neither the Vulcan
Parties nor any of the Graham Family Trusts, on the one
hand, nor Woodbury, on the other hand, nor Woodberry,
on the other hand, will have any other liability, obligation
or duty to the other under this Agreement in respect of
that Opportunity to invest. . . .
(Id. at ¶ 2.)
It is undisputed that Woodbury never provided written notice of his exercise
of any Option during the Option Term. By the terms of the Option Agreement, the
Vulcan Parties to that agreement were required to amend “Schedule A” on October
1, 2012, and every quarter thereafter for the following two years. (Id. ¶ 22.) The
Vulcan Parties concede that they did not amend the Schedule A as required, but
assert that they nevertheless provided plaintiff with extensive information on each
investment opportunity. (SOF ¶ 23.) Plaintiff has not contested that such
information was provided but argues that defendants’ alleged failure to provide
“formal Schedule A amendments” is “all that is required for Plaintiff to be entitled
to summary judgment.” (Pl. Reply Br. at 14, 13, ECF No. 73.)

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III.

RELEVANT LEGAL PRINCIPLES
A.

Standard of Review

“The court shall grant summary judgment if the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party bears the initial
burden of demonstrating “the absence of a genuine issue of material fact.” Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986). When the moving party does not bear
the ultimate burden on a particular claim or issue, it need only “point to the absence
of evidence to support an essential element of the non-moving party’s claim.” Brady
v. Town of Colchester, 863 F.2d 205, 211 (2d Cir. 1988).
In making a determination on summary judgment, a court must “construe all
evidence in the light most favorable to the nonmoving party, drawing all inferences
and resolving all ambiguities in its favor.” Dickerson v. Napolitano, 604 F.3d 732,
740 (2d Cir. 2010). Once the moving party has discharged its burden, the opposing
party must set out specific facts showing a genuine issue of material fact for trial.
Wright v. Goord, 554 F.3d 225, 266 (2d. Cir. 20009). “[A] party may not rely on
mere speculation or conjecture as to the true nature of the facts to overcome a
motion for summary judgment,” as “[m]ere conclusory allegations or denials cannot
by themselves create a genuine issue of material fact where none would otherwise
exist.” Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (internal citations and
quotation marks omitted). In addition, “[o]nly admissible evidence need be
considered by the trial court in ruling on a motion for summary judgment.” Porter
10

v. Quarantillo, 722 F.3d 94, 97 (2d Cir. 2013) (internal quotation marks and citation
omitted).
Only disputes relating to material facts—i.e., “facts that might affect the
outcome of the suit under the governing law”—will properly preclude the entry of
summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see
also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586
(1986) (stating that the nonmoving party “must do more than simply show that
there is some metaphysical doubt as to the material facts”). The Court should not
accept evidence presented by the nonmoving party that is so “blatantly contradicted
by the record . . . that no reasonable jury could believe it[.]” Scott v. Harris, 550
U.S. 372, 380 (2007); see also Zellner v. Summerlin, 494 F.3d 344, 371 (2d Cir. 2007)
(“Incontrovertible evidence relied on by the moving party . . . should be credited by
the court on [a summary judgment] motion if it so utterly discredits the opposing
party’s version that no reasonable juror could fail to believe the version advanced by
the moving party.”).
A court may grant summary judgment in favor of a non-moving party sua
sponte when the parties have been fully and fairly heard on an issue and “so long as
the losing party was on notice that it had to come forward with all of its evidence.”
Garanti Finansai Kiralama A.S. v. Aqua Marino and Trading Inc., 697 F.3d 59, 64
(2d Cir. 2012) (internal citation omitted); see also Coach Leatherware Co, v,
AnnTaylor, Inc., 933 F.2d 162, 167 (2d Cir. 1991).

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B.

Breach of Contract

Under New York law, the elements of a breach of contract claim are: (i) the
formation of a contract between the parties; (ii) performance by the plaintiff;
(iii) failure of defendant to perform; and (iv) damages.” Johnson v. Nextel
Commc’ns Inc., 660 F.3d 131, 142 (2d Cir. 2011); see also Eternity Global Master
Fund Ltd. v. Morgan Guar. Trust Co., 375 F.3d 168, 177 (2d Cir. 2004).
C.

Fraud

Plaintiff has asserted claims for both common law fraud and fraudulent
inducement.
1.

Common Law Fraud

“The elements of fraud are a misrepresentation or a material omission of fact
which was known to be false by the defendant, made for the purpose of inducing the
other party to rely upon it, justifiable reliance of the other party on the
misrepresentation or omission, and injury[.]” VisionChina Media Inc. v. S’holder
Representative Servs., LLC, 967 N.Y.S.2d 338, 343 (App. Div. 1st Dep’t 2013).
2.

Fraudulent Inducement

A claim of fraudulent inducement under New York law requires plaintiffs to
allege: “‘(1) that the defendant made a representation, (2) as to a material fact,
(3) which was false, (4) and known to be false by the defendant, (5) that the
representation was made for the purpose of inducing the other party to rely upon it,
(6) that the other party rightfully did so rely, (7) in ignorance of its falsity (8) to his
injury.’” Eaves v. Designs for Fin., Inc., 785 F. Supp. 2d 229, 246 (S.D.N.Y. 2011)
(quoting Computerized Radiological Servs. v. Syntex Corp., 786 F.2d 72, 76 (2d
12

Cir. 1986)).
3.

Fraud Claims Overlapping with Contract Claims

“It is black letter law in New York that a claim for common law fraud will not
lie if the claim is duplicative of a claim for breach of contract[.]” EQT Infrastructure
Ltd. v. Smith, 861 F. Supp. 2d 220, 233 (S.D.N.Y. 2012) (citations omitted); see also
Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir.
1996) (requiring that a fraud claim raised in a case stemming from a breach of
contract be “sufficiently distinct from the breach of contract claim”) (citation
omitted).
In Bridgestone/Firestone, the Second Circuit identified three situations in
which a plaintiff may bring a fraud action after a defendant makes “intentionallyfalse statements . . . indicating [an] intent to perform under the contract.” 98 F.3d
at 19-20. A “plaintiff must either: (i) demonstrate a legal duty separate from the
duty to perform under the contract; or (ii) demonstrate a fraudulent
misrepresentation collateral or extraneous to the contract; or (iii) seek special
damages that are caused by the misrepresentation and unrecoverable as contract
damages.” Id. (internal citations omitted). With respect to collateral or extraneous
fraudulent misrepresentations, “New York distinguishes between a promissory
statement of what will be done in the future that gives rise only to a breach of
contract cause of action and a misrepresentation of a present fact that gives rise to a
separate cause of action for fraudulent inducement.” Merrill Lynch & Co v.
Allegheny Energy, Inc., 500 F.3d 171, 184 (2d Cir. 2007) (citations omitted);
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Crabtree v. Tristar Auto. Grp., Inc., 776 F. Supp. 155, 163 (S.D.N.Y. 1991)
(explaining that generally, a “representation that performance will be made, even if
only implied through the negotiation process, is not distinct from the contract,” but
that there is an exception “if the promise made was a representation of present fact,
not future intent”) (citations omitted).
“Where courts have found viable fraud claims based on fraudulent
misrepresentation, the statements concerned matters separate and distinct from
the subject matter of the contract.” MCI World Commc’ns, Inc. v. N. Am.
Commc’ns Control, Inc., No. 98 Civ. 6818, 2003 WL 21279446, at *9 (S.D.N.Y. June
4, 2003); see also id. (discussing various cases and dismissing plaintiff’s fraudulent
misrepresentation claim because “[t]he misrepresentations . . . are closely related to
the subject matter of the contract and concern representations of future intent, not
a separate, present fact”).
IV.

DISCUSSION
As stated above, defendants have conceded liability as to the breach of the

Security Agreement. As to this claim, the only remaining issue is one of damages.
As discussed below, the undisputed facts require denial of plaintiff’s motion as to
Count Two, for breach of the Option Agreement, and Count Three, for fraudulent
inducement. Moreover, as the parties have been fully heard on these two claims,
judgment is entered for defendants with regard to them. However, the Court finds
that there are triable issues of fact with regard to Count Four, the fraud claim
relating to conduct following defendants’ breach of the Security Agreement.
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A.

The Option Agreement

The language of the Option Agreement is clear and unambiguous: It required
plaintiff to provide “written notice” of his intent to exercise an option within the
two-year Option Term. (Compl. Ex. B at ¶ 2.) It is undisputed that he failed to do
so. While it is also undisputed that defendants did not provide plaintiff with the
contractually required amendments to Schedule A, (SOF ¶ 23), that failure did not
relieve plaintiff of his obligation to provide the required notice. If plaintiff viewed
the failure to provide the amended schedules as material to his decision whether to
exercise an option, it behooved him to raise that prior to the expiration of the
Option Term. There is no evidence in the record that he did so. Further, once the
Option Term expired, the contract was at an end. The breach that plaintiff here
asserts is therefore one as to which no relief can be granted.
As plaintiff failed to provide required contractual notice, his claim for breach
must fail.
B.

Fraud Claims

Plaintiff asserts two different fraud claims: Count Three, that while the
parties were negotiating the Security Agreement Ford Graham made various false
representations to plaintiff, including that Vulcan Energy or one of the Graham
Entities was the owner of the Project Equipment, that he or one of the Graham
Entities had clear title, and that the market value of the Project Equipment was
approximately $4 million; and Count Four, that after defendants had failed to fulfill
their repayment obligation under the Security Agreement, Ford Graham made a
15

number of false statements to plaintiff in order to prevent seizure of the equipment.
(Compl. at 11-13.) The former claim fails but the latter must go to trial.
1.

Common Law Fraud

Plaintiff and defendants disagree as to a number of facts pertinent to
resolution of the fraudulent misrepresentation claim. In sum, if plaintiff were able
to prove at trial that Ford Graham prevented seizure of the Project Equipment by
making intentionally false statements as to a sale, plaintiff may be able to establish
liability. There are disputed issues of fact necessary to resolution of this question,
including what statements were made, whether they were false, and whether in
making any statements Ford Graham had the requisite scienter. This claim must
therefore go to trial.
The Court notes two important additional points. First, there are many
entities apparently included as defendants in this claim. It is not at all clear to the
Court that this claim can stand as to any defendant other than Ford Graham
personally. However, as defendant has not moved separately as to other
defendants, this issue will be left for another day (but the Court will require that it
be cleaned up prior to trial).
Second, the Court notes that even if plaintiff is able to prove liability as to
Count Four, recoverable damages must be based on damage demonstrably
attributable to diminution in the equipment’s value following the date when
payment was due (August 31, 2012)—and therefore tied to the alleged postcontractual fraud. The parties should consider whether there is any proof of damage
16

given such guidance. If there is not, the parties should bring that fact to the Court's
attention.
2.

Fraudulent Inducement

In order for this Court to grant plaintiff’s motion for summary judgment on
Count Three, there must not be a triable issue of fact on any of the following: that
defendants made one or more false representations of material fact, known to the
defendant to be false, made for the purpose of inducing plaintiff’ reliance, upon
which plaintiff rightfully relied, and which induced plaintiff to enter into the
Security Agreement, to his injury. Computerized Radiological Servs., 786 F.2d at
76. In this regard, plaintiff has focused on the representations of the defendantparties to the Security Agreement: (1) that they were the sole owners of the
equipment, and held clear title free of any liens, claims, or encumbrances; and
(2) that the value of the equipment was in excess of the principal amount of the loan
(that is, the Development Costs). (Pl. Brief in Support at 19-20, 23, ECF No. 71.)
As an initial matter, Count Three is directed solely at Graham (which the
Court interprets as Ford Graham personally only) and Vulcan Energy. The claim is
not directed at any of the other defendants. The Court notes that in all events the
only possible defendants with regard to this claim would be the parties to the
Security Agreement. The host of other defendants joined in this action are not
parties to that agreement or alleged to have been involved in the purported fraud.
The most problematic aspect of plaintiff’s claim of fraudulent inducement
regards the timing and damages. In order to sustain a claim for fraudulent
17

inducement, plaintiff must prove damage. Computerized Radiological Servs., 786
F.2d at 76. Here, the funds plaintiff provided to defendants were provided almost
entirely prior to the execution of the Security Agreement. Schedule I to that
agreement lists the amounts and dates of funds provided. (Compl. Ex. A at Sch. 1.)
All but the last two payments were made prior to the date on which the defendants
signed the contract, and all were provided prior to the date plaintiff signed. (See
id.)
But there are additional infirmities. Even if this Court accepted that
defendants made false representations regarding ownership and lien, defendants
have proffered sufficient evidence to rebut an inference of scienter. (SOF ¶¶ 66, 7076.) Moreover, even assuming falsity and scienter, plaintiff has failed to show how
he could have been damaged by the representations. This is first because, as
discussed supra, almost all the funds were provided prior to defendants making any
such representations—and, therefore, plaintiff could not have been relying on them.
The Court turns next to the representation regarding the Project
Equipment’s value. First, the integration clause in the Security Agreement renders
oral statements and emails provided during negotiations or otherwise irrelevant.
(Compl. Ex. A ¶ 5.3.) Under New York law it is clear that a fraud claim will not lie
for a routine breach of contract. Bridgestone/Firestone, 98 F.3d at 20. Here, the
breach of the rep and warranty—assuming for purposes of this point that it has
been breached—is no more than that. When plaintiff executed a Security

18

Agreement that contained the integration clause, he was agreeing to forego
arguments regarding his reliance on pre-contract discussions.
But in addition, plaintiff has not proffered how he was damaged as a result of
such representations. Again, at the time the contract was executed, virtually all of
the Development Costs had been incurred. (Compl. Ex. A at Sch. 1.)
V.

CONCLUSION
For the reasons set forth above, the Court GRANTS summary judgment as to

Count I and DENIES it as to all other counts. This matter shall proceed to trial
expeditiously. Trial will begin May 1, 2017, and is scheduled for three days.
The Clerk of Court is directed to terminate the motions at ECF Nos. 69 and
70.
SO ORDERED.
Dated:

New York, New York
January 13, 2017

____________________________________
KATHERINE B. FORREST
United States District Judge

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