Benderson et al v. Northwest Savings Bank et al

Filing 14

DECISION AND ORDER GRANTING in part and DENYING in part Defendant Northwest's 6 Motion to Dismiss; GRANTING Defendant Creal's 7 Motion to Dismiss. Signed by William M. Skretny, United States District Judge on 7/8/2015. (MEAL) - CLERK TO FOLLOW UP -

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

RANDALL BENDERSON and
BENDERSON DEVELOPMENT
COMPANY, LLC,
Plaintiffs,
v.

DECISION AND ORDER
14-CV-96S

NORTHWEST SAVINGS BANK and
THOMAS K. CREAL IV,
Defendants.

I. INTRODUCTION
On January 10, 2014, Plaintiffs Randall Benderson and Benderson Development
Company, LLC (collectively, “Plaintiffs”) commenced this civil action against Northwest
Savings Bank (“Northwest”) and Thomas K. Creal IV (collectively, “Defendants”) for
breach of agreements between the parties related to the negotiation and purchase of
certain notes and mortgages. Plaintiffs filed a Summons and Complaint in the Supreme
Court for the State of New York, Erie County. Defendants removed the action to this
Court, asserting federal subject matter jurisdiction based upon diversity of citizenship
and amount in controversy. 28 U.S.C. § 1332(a). (Notice of Removal and Complaint,
Docket No. 1). Pending before this Court are Defendants’ Motions to Dismiss Plaintiffs’
Complaint. (Docket Nos. 6, 7). The Motions are fully briefed and the Court finds that
oral argument is not necessary. For the reasons stated below, Defendant Northwest’s
Motion is GRANTED IN PART and DENIED IN PART, and Defendant Creal’s Motion is
GRANTED.

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II. FACTS 1
The following facts, drawn from the Complaint and the Confidentiality and NonDisclosure Agreement attached thereto (“Confidentiality Agreement”; Exh. A to
Complaint), are assumed true for purposes of Defendants’ Motions to Dismiss. 2
Plaintiff Randall Benderson is the president of Plaintiff Benderson Development
Company, LLC. (Confidentiality Agreement p. 5). Defendant Thomas K. Creal IV is a
vice president of Defendant Northwest. (Complaint ¶¶ 3, 4). In July 2013, Plaintiffs
contacted Northwest about the possibility of purchasing certain notes and mortgages,
stated to be worth approximately $4,000,000. (Id. ¶¶ 11, 13). The notes and mortgages
were secured by a property at 3770 Union Road in Cheektowaga, New York, owned by
3770 Union Road, LLC, and/or Paul F. Rosa (Rosa). (Id. ¶¶ 5, 12). In contemplation of
their negotiations, the parties entered into the Confidentiality Agreement on or about
July 31, 2013 (Id. ¶ 14), which was executed by Benderson and Creal (Confidentiality
Agreement p. 5), and states that it is:
“by and between Northwest Savings Bank (including its parent,
subsidiaries and affiliated companies, collectively, “Northwest”), and Mr.
Randall Benderson … (including any affiliated companies, trusts or legal
entities he has an interest in, collectively, the “Recipient”).” (Id. p. 1)
It further provides, in relevant parts:
“WHEREAS, Northwest and the Recipient are exploring the possible sale
of loans and of certain other assets of Northwest (the “Project”)” (Id.)

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The parties’ submissions in support of and in opposition to the instant motion, include:
(1) Defendant Northwest’s Memorandum in Support of Motion (“Northwest Memo.”, Docket No. 6-1) and
Reply Memorandum (“Northwest Reply”, Docket No. 13).
(2) Defendant Creal’s Memorandum in Support of Motion (“Creal Memo.”, Docket No. 7-1) and Reply
Memorandum (“Creal Reply”, Docket No. 12).
(3) Plaintiff’s Memorandum in Opposition to Motion (“Opposition”, Docket No. 11).

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The Confidentiality Agreement is attached to and referenced in the Complaint. Accordingly, the Court will consider
it in connection with this motion to dismiss. Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels & Resorts
Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004).

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“SECTION 4. Neither party will disclose to any person or entity the fact
that the Confidential Information has been made available, that
discussions or negotiations are taking place or have taken place between
the parties concerning a possible sale or any of the terms, conditions, or
other facts with respect to any such possible sale, including the status
thereof.” (Id. p. 2) (“Section 4”).
“SECTION 13. This Agreement does not constitute an agreement or
commitment to sell or to purchase any assets. Any arrangement relating
to the Project is subject to approval by the senior management of
Northwest and Recipient and the execution and delivery of a definitive
agreement. Northwest and Recipient reserve the right to, in its sole
discretion, reject any and all proposals regarding the Project and terminate
discussions, and either may negotiate and enter into an agreement with
another party with respect to any transaction, including one similar in
nature to or containing part or all of the Project, at any time and without
notice to the other.” (Id. p. 4) (“Section 13”).
The parties’ negotiations took place primarily from August 2013 through
December 2013. (Complaint ¶¶ 16-20). During the same time frame, Benderson and
Rosa were in contact about an unrelated matter. (Id. ¶ 21). In an email to Benderson in
December 2013, Rosa indicated that he knew Plaintiffs had been negotiating with
Defendants regarding the “mortgage on Union Road.” (Id. ¶ 22). Plaintiffs had not
disclosed any information about the negotiations to third parties and thus believed that
Rosa learned the information from Defendants.

(Id. ¶ 23).

Plaintiffs allege that

Benderson “became concerned” that Defendants were using their negotiations with
Plaintiffs as leverage to obtain a better deal elsewhere. (Id. ¶ 24). Later in December,
Benderson called Creal, who confirmed that Defendants had told Rosa about their
negotiations with Plaintiff.

(Id. ¶ 25).

Creal stated Defendants’ position that the

Confidentiality Agreement only limited Plaintiffs’ ability to disclose confidential
information but not Defendants’ ability to do so. (Id. ¶ 26). Plaintiffs disagreed with this
assertion, but continued to negotiate with Defendants for the purchase of the notes and

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mortgages. (Id. ¶ 27). Benderson asked Creal to get back to him with a proposed
price. (Id.). On or before December 16, 2013, Benderson and Creal agreed to a deal
over the phone: Creal made an offer to sell the notes and mortgages to Benderson
Development Company, LLC for $3,050,000, with Plaintiffs to receive $70,000 that was
then being held in escrow. (Id. ¶ 28). Benderson told Creal that he had a deal, and they
agreed to close as soon as possible. (Id. ¶ 29). The parties exchanged names of
closing attorneys, who were subsequently in contact with each other about finalizing the
deal and preparing closing documents. (Id. ¶¶ 30-34). Then, on or about December 30,
2013, Creal called Benderson to tell him that Northwest would not go forward with the
agreement to sell the notes and mortgages and that the Defendants had decided to go
“in a different direction.” (Id. ¶ 35).
III. DISCUSSION AND ANALYSIS
Plaintiffs assert two causes of action. The first claim is against Northwest for
breach of an oral contract for the purchase of the notes and mortgages.

Plaintiffs

maintain that Benderson and Creal reached an enforceable oral agreement, which
Northwest subsequently breached by refusing to go forward with the sale. (Id. ¶¶ 38,
39).

The second cause of action is for breach of the Confidentiality Agreement.

Plaintiffs bring this claim against both Northwest and Creal for disclosing the fact of the
parties’ negotiations to Rosa. (Id. ¶ 42). Defendants have filed Motions to Dismiss
Plaintiffs’ causes of action for failure to state a claim. (Docket Nos. 6,7).
A.

Standard of Review Rule 12(b)(6) Motion to Dismiss
Rule 12 (b)(6) allows dismissal of a complaint for “failure to state a claim upon

which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Federal pleading standards are
generally not stringent: Rule 8 requires only a short and plain statement of a claim.
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Fed. R. Civ. P. 8(a)(2). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on
its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868
(2009), quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955,
1966, 167 L.Ed.2d 929 (2007). The court must construe the complaint liberally, accept
all factual allegations as true, and draw all reasonable inferences in the plaintiff’s favor.
Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir. 2008). This analysis includes the facts and
allegations in “any documents that are either incorporated into the complaint by
reference or attached to the complaint as exhibits.” Blue Tree Hotels Inv. (Can.), Ltd. v.
Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004).
The complaint need not contain “detailed factual allegations,” but the plain
statement must “possess enough heft to show that the pleader is entitled to relief.”
Twombly, 550 U.S. at 545. Facial plausibility exists when the facts alleged allow for a
reasonable inference that the defendant is liable for the misconduct charged. Iqbal, 556
U.S. at 678. The plausibility standard is not, however, a probability requirement: the
pleading must show, not merely allege, that the pleader is entitled to relief. Id. at 679;
Fed. R. Civ. P. 8(a)(2). Labels, conclusions, or “a formulaic recitation of the elements of
a cause of action will not do.” Twombly, 550 U.S. at 555.
The court’s examination is context specific and requires that the court draw on its
judicial experience and common sense. Iqbal, 556 U.S. at 679. First, statements that
are not entitled to the presumption of truth – such as conclusory allegations, labels, and
legal conclusions – are identified and stripped away.

Id. at 678-9.

Second, well-

pleaded, non-conclusory factual allegations are presumed true and examined to

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determine whether they “plausibly give rise to an entitlement to relief.”

Id. at 679.

“Where the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct,” the complaint fails to state a claim. Id.
B.

Claim I: Breach of the Alleged Oral Agreement 3
Under New York law, a breach of contract claim is established through proof of

“(1) an agreement, (2) adequate performance by the plaintiff, (3) breach by the
defendant, and (4) damages.” Fischer & Mandell, LLP v. Citibank, N.A., 632 F.3d 793,
799 (2d Cir. 2011). Northwest argues that, in addition to being indefinite and uncertain
in its material terms (Northwest Memo. p. 9), under any characterization the alleged oral
agreement for the sale of notes and mortgages is unenforceable for lack of a writing,
pointing to the New York statutes of frauds (Northwest Memo. pp. 4,7,8): New York
General Obligations Law § 5-703 (an interest in real property); New York Uniform
Commercial Code § 1-207 4 (transfer of personal property for more than $5000); and NY
UCC §§ 5-701(b) (“qualified financial contract” exemption to NY UCC § 1-207, requiring
“sufficient evidence” that a contract was made). Indeed, throughout their Opposition,
Plaintiffs explicitly refer to the alleged agreement as an oral contract.

(See, e.g.,

Opposition pp. 1,8)
Ultimately, this Court needs to look no further than the Confidentiality Agreement,
which the parties agreed to and executed at the outset of their negotiations, to
determine that Plaintiff has alleged neither a contract nor a breach. First, while Plaintiffs
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SECTION 8 of the Confidentiality Agreement provides that “Pennsylvania law governs the validity, legality, and
construction of this Agreement or any of its provisions . . . .” (Confidentiality Agreement p. 3). In their submissions,
however, the parties cite almost exclusively to New York case law (See Opposition p.7; see generally Northwest
Memo., Creal Memo.). Thus, given the parties implied consent, the Court will apply New York substantive law in this
case. See Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (where parties briefs assume New
York law controls, such “implied consent ... is sufficient to establish choice of law”), quoting Tehran–Berkeley Civil &
Envtl. Eng’rs v. Tippetts–Abbett–McCarthy–Stratton, 888 F.2d 239, 242 (2d Cir. 1989).
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Formerly NY UCC § 1-206.

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adequately plead that Northwest made an oral offer that Plaintiffs accepted, and they
engage in a lengthy analysis of what the oral agreement could be considered under
New York law, the parties explicitly agreed in the Confidentiality Agreement that any
“arrangement” resulting from their negotiations would be “subject to … execution and
delivery of a definitive agreement.”

(Section 13).

Here, the only reasonable

interpretation of Section 13 is that the parties intended to “execute and deliver” a written
agreement. See Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63, 69 (2d
Cir. 2011) (“It is well settled that a contract is unambiguous if the language it uses has a
definite and precise meaning, as to which there is no reasonable basis for a difference
of opinion.”), citing White v. Cont’l Cas. Co., 9 N.Y.3d 264, 267 (2007); Steuart v.
McChesney, 498 Pa. 45, 444 A.2d 659 (1982) (“when the words are clear and
unambiguous, the intent is to be discovered only from the express language of the
agreement”).
Although the mere intention to reduce an agreement to writing need not negate
an otherwise valid oral agreement, “if either party communicates an intent not to be
bound until he achieves a fully executed document, no amount of negotiation or oral
agreement to specific terms will result in the formation of a binding contract.” Winston v.
Mediafare Entertainment Corp., 777 F.2d 78, 80, (2d Cir. 1985); Essner v. Shoemaker,
393 Pa. 422, 143 A.2d 364 (1958) (“if the parties themselves contemplate that their
agreement cannot be considered complete, and its terms assented to, before it is
reduced to writing, no contract exists until the execution of the writing”). Therefore,
there was no enforceable contract to sell the notes and mortgages.

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Second, also in Section 13, the parties specifically reserved their rights right to
“terminate discussions … at any time and without notice to the other,” including to enter
into a similar deal with another party.

(Section 13).

According to the Complaint,

Defendants backed out of the deal before the written agreements were “executed and
delivered,” therefore, they did not breach any enforceable agreement regarding the sale
of the notes and mortgages.

Consequently, Count I for breach of the alleged oral

agreement is DISMISSED.
C.

Claim II: Breach of the Confidentiality Agreement by Northwest and Creal
On the other hand, the parties also agreed not to disclose the facts or contents of

their negotiations.

(Section 4).

In Count II, Plaintiffs allege Northwest and Creal

breached the Confidentiality Agreement by telling Rosa about their negotiations.
(Complaint ¶¶ 22, 25). In fact, Plaintiffs’ pleading alleges that Creal admitted as much.
(Id. ¶ 25). Plaintiffs argue that the confidential disclosures led Defendants to back out of
the deal. (Id. ¶ 36; Opposition pp. 21-22).
1.

Defendant Northwest

Defendant Northwest moves to dismiss Count II arguing that Plaintiffs fail to
allege plausible facts suggesting that they were damaged as a result of the breach.
(Northwest Memo. pp. 10-11). Giving all favorable inferences to the facts alleged in the
Complaint, the Court finds that Plaintiff states a claim for breach of the Confidentiality
Agreement. Plaintiffs sufficiently plead: (1) the existence of enforceable Confidentiality
Agreement; (2) that Plaintiffs did not disclose confidential information; (3) that Creal
admitted to sharing the information with Rosa; (4) following the breach, they lost the
deal that the Confidentiality Agreement was designed to protect.

Yet, Northwest

contends no damages or causation can be inferred from the conduct alleged.
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First, Northwest argues that Plaintiffs’ continued negotiations with Northwest after
learning of the alleged breach suggest that they were not harmed. (Northwest Memo. p.
10). While Defendants are free to raise that factual assertion, the Plaintiffs’ decision to
continue negotiations does not waive their claim for breach of the Confidentiality
Agreement. Cf. Times Mirror Magazines, Inc. v. Field & Stream Licenses Co., 103
F.Supp.2d 711, 737 (S.D.N.Y. 2000) (Under New York election of remedies, “a nonbreaching party who elects to continue to perform a contract may still sue later and
recover damages solely for the breach of the agreement, provided that it gives notice of
the breach to the breaching party.”). Even stripping away the conclusory allegation in
the Complaint that “Apparently, Mr. Benderson’s earlier concerns – that the defendants
might have been using their negotiations and agreements with the plaintiffs as leverage
to obtain a better deal elsewhere – were justified,” this Court “using its common sense”
finds that Plaintiffs have alleged the plausible existence of a connection between the
breach of a material term of the Confidentiality Agreement with Northwest’s termination
of the underlying transaction. (Complaint ¶ 36); Iqbal, 556 U.S. at 678-9.
In addition, Northwest argues that Creal’s disclosure to Rosa cannot be
causative because Rosa was not a competing purchaser, rather the mortgage-holder
and owner of the property. (Northwest Reply p. 10). Nonetheless, the limitations in
Section 4 are unqualified: either party is prohibited from disclosing the fact of the
negotiations to “any person or entity.” In this case, Plaintiffs have sufficiently alleged
each of the elements to state a cause of action for breach of the Confidentiality
Agreement. If they cannot meet the requisite burden of proof and ultimately establish a
causal connection between Northwest’s alleged breach of the Confidentiality Agreement

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and their own damages, then Plaintiffs’ contract claims will certainly fail.

This and

whether Plaintiffs will be able to prove an amount of damages to the requisite degree of
certainty are questions for a later date. Thus, Northwest’s Motion to Dismiss Claim II is
DENIED.
2.

Defendant Creal

Defendant Creal also moves to dismiss Count II. Creal asserts that Plaintiffs fail
to state a claim for breach of the Confidentiality Agreement against him because he is
not a party to the contract and Plaintiffs fail to allege damages. (Creal Memo. pp.1-2).
The Court will address the non-party liability issue.
“It is well established that officers or agents of a company are not personally
liable on a contract if they do not purport to bind themselves individually.” Georgia
Malone & Co., Inc. v Rieder, 86 A.D.3d 406, 408, 926 N.Y.S.2d 494 NY (1st Dep’t
2011); Electron Energy Corp. v. Short, 408 Pa.Super. 563, 567, 597 A.2d 175, 177
(1991), aff’d, 533 Pa. 66, 618 A.2d 395 (1993). (“It is fundamental contract law that one
cannot be liable for a breach of contract unless one is a party to that contract.”) Here,
the Confidentiality Agreement states that it is made “by and between Northwest Savings
Bank (including its parent, subsidiaries and affiliated companies, collectively,
“Northwest”), and Mr. Randall Benderson … (including any affiliated companies, trusts
or legal entities he has an interest in, collectively, the “Recipient”).
Agreement p. 1).

(Confidentiality

Furthermore, Creal’s name appears nowhere, other than on the

signature page beneath “NORTHWEST SAVINGS BANK” where he signed as Vice
President. (Id. p. 5). Accordingly, no such intent to bind Creal individually appeared in
the Confidentiality Agreement.

See Georgia Malone, 86 A.D.3d at 408.

(affirming

dismissal of contract claim against corporate officer where he “signed the contract once,
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rather than signing twice, which is the general practice when an individual wishes to be
personally bound”). Moreover, Plaintiffs’ pleadings refer to Creal as a representative of
Northwest and contain no allegations that he acted in his individual capacity. (See, e.g.
Complaint ¶¶ 26-29, 38-39).
Finally, Plaintiffs suggest it is premature to dismiss Creal from the lawsuit
because Northwest could later raise the defense that Creal was acting outside the
scope of his authority when he disclosed the parties’ negotiations. (Opposition p. 23).
This assertion is speculative, and Northwest does not raise such a defense in its
Motion.

Here, absent any plausible factual allegation that Creal signed the contract in

his individual capacity, the plain language of the Confidentiality Agreement states that
Northwest and Randall Benderson (and his affiliates) are the parties to it. Accordingly,
Count II for the breach of Confidentiality Agreement against Creal is DISMISSED.
IV. CONCLUSION
For the foregoing reasons, this Court finds that Plaintiffs’ breach of contract claim
in Count I must be dismissed for failure to plead an enforceable agreement to purchase
the notes and mortgages. Plaintiffs’ breach of contract claim against Creal in Count II is
also dismissed for failure to state a claim because Creal signed the Confidentiality
Agreement as a corporate officer and was not individually bound.

Defendant

Northwest’s Motion to Dismiss is therefore granted in part and denied in part, and
Defendant Creal’s Motion to Dismiss is granted.

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V. ORDERS
IT HEREBY IS ORDERED, that Defendant Northwest’s Motion to Dismiss
(Docket No. 6) is GRANTED IN PART and DENIED IN PART; and that Defendant
Creal’s Motion to Dismiss (Docket No. 7) is GRANTED.
SO ORDERED.

Dated:

July 8, 2015
Buffalo, New York
/s/William M. Skretny
WILLIAM M. SKRETNY
United States District Judge

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