Romeo Land Development LLC v. CVS Pharmacy Inc.
Filing
30
-CLERK TO FOLLOW UP-DECISION AND ORDER granting in part and denying in part 14 Motion to Dismiss for Failure to State a Claim. Defendants motion [#14] to dismiss is granted as to the Amended Complaints first cause of action (the Brockport Site) and denied as to the third cause of action (the Titus Site). Signed by Hon. Charles J. Siragusa on 5/14/14. (KAP)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
__________________________________________
ROMEO LAND DEVELOPMENT
LLC,
Plaintiff,
DECISION AND ORDER
-vs11-CV-6516 CJS
CVS PHARMACY, INC.,
Defendant.
__________________________________________
INTRODUCTION
This is an action for breach of contract between a commercial land developer, Romeo
Land Development, LLC (“Romeo” or “Plaintiff”), and a well-known retail pharmacy chain,
CVS Pharmacy, Inc. (“CVS” or “Defendant”). Now before the Court is CVS’s motion (Docket
No. [#14]) to dismiss the Amended Complaint’s first and third causes of action for failure to
state a claim, or, in the alternative, for partial summary judgment on those claims.1 The
motion to dismiss is granted as to the first cause of action and denied as to the third cause
of action.
BACKGROUND
Unless otherwise noted, the following facts are taken from the Complaint in this
action, including the underlying contractual documents which are incorporated by reference.
It is of course well-settled that in resolving a 12(b)(6) motion, the Court is limited as to what
it can consider. See, Vasquez v. City of New York, No. 10 Civ. 6277(LBS), 2012 WL
4377774 at *1 (S.D.N.Y. Sep.24, 2012). (On a 12(b)(6) motion, “a court may consider
‘documents attached to the complaint as an exhibit or incorporated in it by reference, ...
matters of which judicial notice may be taken, or ... documents either in plaintiffs' possession
or of which plaintiffs had knowledge and relied on in bringing suit.’ “ Chambers v. Time
1
As discussed further below, the Amended Complaint purports to state three separate claims
for breach of contract. Defendant’s motion is not directed at the second cause of action.
1
Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002) (quoting Brass v. Am. Film Techs., Inc., 987
F.2d 142, 150 (2d Cir.1993)).”).
In this action, the parties have each submitted matters outside of the pleadings, in the
form of affidavits, and Defendant has moved, in the alternative, for partial summary
judgment. The affidavits add little to the pleading and the documents incorporated therein
by reference. Essentially, Defendant’s short affidavit, consisting of seven paragraphs,
contends that Plaintiff failed to satisfy contractual conditions precedent regarding each of
the two development sites that are at issue in this motion. See, Angella Franklin Aff. at ¶ ¶
6-7. Specifically, Defendant contends that Plaintiff failed to obtain approvals from the CVS
Real Estate Committee, failed to execute Development Contract Supplements, and failed
to complete the projects.2 Plaintiff submitted a much-lengthier affidavit, which, for the most
part, merely repeats the allegations in the Amended Complaint. See, Frank Romeo Aff.
Additionally, Plaintiff’s affidavit agrees that the contractual conditions precedent were not
performed, but maintains that was Defendant’s fault. Id. at ¶ ¶ 55-58.
In this situation, where the parties have submitted matters outside of the pleadings,
the Court may treat the motion as one for summary judgment:
Rule 12(d) of the Federal Rules of Civil Procedure provides, “If, on a motion
under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to
and not excluded by the court, the motion must be treated as one for summary
judgment under Rule 56. All parties must be given a reasonable opportunity
to present all the material that is pertinent to the motion.” Accordingly, a district
court acts properly in converting a motion for judgment on the pleadings into
a motion for summary judgment when the motion presents matters outside the
pleadings, but the rule requires that the court give “sufficient notice to an
opposing party and an opportunity for that party to respond.” Groden v.
Random House, Inc., 61 F.3d 1045, 1052 (2d Cir.1995).
Ordinarily, formal notice is not required where a party “should reasonably have
2
With regard to the Titus Avenue site, Defendant further indicates that, after CVS took over the
site from Plaintiff, it never completed the project, and it “became a dead deal.” Id. at ¶ 7.
2
recognized the possibility that the motion might be converted into one for
summary judgment [and] was [neither] taken by surprise [nor] deprived of a
reasonable opportunity to meet facts outside the pleadings.” Villante v. Dep't
of Corrections of City of New York, 786 F.2d 516, 521 (2d Cir.1986) (internal
quotation marks omitted) (quoting In re G. & A. Books, Inc., 770 F.2d 288, 295
(2d Cir.1985)).
Hernandez v. Coffey, 582 F.3d 303, 307 (2d Cir. 2009).
Plaintiff, despite having submitted an affidavit concerning matters outside the
pleadings, nevertheless contends that Defendant’s summary judgment motion is premature,
since the parties have not had an opportunity to conduct discovery. On that point, it is true
that it is “[o]nly in the rarest of cases may summary judgment be granted against a plaintiff
who has not been afforded the opportunity to conduct discovery.” Hellstrom v. U.S. Dept. of
Veterans Affairs, 201 F.3d 94, 97 (2d Cir. 2000) (citations omitted). Ordinarily, however, to
avoid summary judgment, the nonmoving party must submit an affidavit or declaration
explaining what discovery he needs, and how such discovery will create a triable issue of
fact. See, FRCP 56(d) (Formerly 56(f), requiring the nonmovant to show “by affidavit or
declaration that, for specified reasons, it cannot present facts essential to justify its
opposition” to the motion); see also, Young v. Benjamin Dev. Inc., No. 09–1320–cv, 395
Fed.Appx. 721, 722–723, 2010 WL 3860498 (2d Cir. Oct.5, 2010) (“Only in the rarest of
cases may summary judgment be granted against a plaintiff who has not been afforded the
opportunity to conduct discovery. Nonetheless, we conclude that the district court committed
no error in this case because Young failed to file an affidavit setting forth the essential facts
he sought to discover.”) (citation omitted); Crandall v. David, No. 10–0985–cv, 2012 WL
255329 at *1 (2d Cir. Jan.30, 2012) (“We review a district court's denial of a motion for
further discovery under Fed.R.Civ.P. 56(d) for an ‘abuse of discretion’ and will not reverse
where a plaintiff has failed to show how the facts sought are reasonably expected to create
a genuine issue of material fact.”) (citations and internal quotation marks omitted).
Here, Plaintiff has not submitted a Rule 56(d) affidavit, but instead has included, in
3
its memorandum of law, a rather vague discussion as to why discovery is necessary.
Nonetheless, the Court will exercise its discretion to postpone summary judgment motions
until after the parties have had an opportunity to conduct discovery. Accordingly, the Court
will not consider anything besides the Amended Complaint and the documents incorporated
into it by reference, although, it appears the Court would reach the same ultimate result
either way.
With that issue resolved, the Court will proceed to set forth the relevant facts, viewed
in the light most-favorable to Plaintiff. CVS is a Rhode Island corporation with a principal
place of business in Rhode Island. Romeo is a commercial real estate developer in
Rochester, New York. In or about 2006, Romeo began working with CVS to identify
properties that would be desirable for new pharmacy locations. Romeo showed CVS
numerous locations, but with specific reference to this motion, Romeo identified two
locations: Brockport, New York (“the Brockport Site”); and Titus Avenue in Rochester (“the
Titus Site”).
On May 23, 2008, the parties entered into a contract, titled a Preferred Developer
Agreement (“PDA”). On January 2, 2009, the parties executed an Amended PDA. The
PDA, as amended, deals with essentially two broad matters: 1) the identification of sites for
potential pharmacies; and 2) the development of those sites. More specifically, the pertinent
provisions of the PDA, as amended, are as follows:
[1(a)] Developer shall work with CVS to identify sites for consideration by CVS
for new CVS retail pharmacy stores[.] . . . In addition, with CVS’s prior written
approval and on terms and conditions as agreed upon with CVS . . .
Developer shall develop approved sites as new retail pharmacy stores for
CVS[.]
***
[1(b)] Notwithstanding Developer’s designation as the CVS Preferred
Developer for the Territory [Rochester], CVS reserves the right, in its sole
discretion, to lease projects, to acquire store locations, or to consider and/or
accept any other real estate acquisition, leasing and/or development
transaction within the territory from other parties that do not have CVS
4
Preferred Developer status[.] Accordingly, Developer acknowledges that while
it has been designated as a CVS Preferred Developer for the Territory, it has
not been designated as an exclusive developer for CVS in the Territory and
nothing in this agreement should be taken to suggest any exclusivity in favor
of developer.
***
[1(d)] The parties acknowledge that Developer’s designation as a CVS
Preferred Developer does not constitute an agreement by CVS to lease any
project, to acquire any store location, to participate in a specific number of
projects or transactions with Developer, or to engage in any transaction with
Developer. The parties further acknowledge that (i) final site selection shall
remain solely within the discretion of CVS; and (ii) all aspects of the
acquisition, design, development and leasing of any store for or by CVS shall
be subject to CVS’s prior approval in its sole discretion.
***
3. Developer Compensation. Developer and CVS expect that, as a CVS
Preferred Developer, Developer shall propose a number of projects to CVS for
consideration by CVS in each calendar year, which CVS in its sole discretion
shall be free to accept or reject.
(a) Developer and CVS agree that for all of the projects completed for CVS by
Developer under the CVS Preferred Developer Program, Developer shall be
compensated solely on a fixed fee-for-service basis per project as provided in
the applicable documents and agreements between CVS and Developer with
respect to each specific project. . . . As of the date hereof, the fee per project
with respect to all projects approved by the CVS Real Estate Committee on
or after January 2, 2009, is:
(i) Fee Simple Land Acquisitions: $235,000.00 (75% paid at land closing
provided all permits for the project have been issued, 15% paid upon issuance
of permanent certificate of occupancy and 10% paid upon full completion of
the project and satisfaction of all Conditions Precedent to Final Disbursement).
(ii) Ground Leases: $210,000.00 (75% paid at land possession, 15% paid
upon issuance of permanent certificate of occupancy and 10% paid upon full
completion of the project and satisfaction of all Conditions Precedent to Final
Distribution).
***
5
(d) Full completion of the project shall have been deemed to have occurred
at such time as Full Completion of the Project shall have occurred as defined
in the Development Contract or Master Development Contract applicable to
the project [.]
***
6. Termination
This Agreement shall be at will between the Parties. This Agreement shall
remain in effect, unless terminated by either Party in the manner set forth
below.
(a) Developer may withdraw from the CVS Preferred Developer Program at
any time upon written notice to CVS of such withdrawal. . . . .
(b) CVS may withdraw Developer’s status as a CVS Preferred Developer at
any time upon written notice to Developer of such withdrawal. . . . .
(c) Any such termination shall not affect any project the terms of which have
been reduced to written agreement between Developer and CVS or any
Affiliate.
***
8. General
(a) It is understood and agreed that following notification to Developer that a
proposed project pro forma has been approved by CVS, CVS will be
responsible for funding the itemized project costs set forth on such pro forma
... provided that CVS shall have no responsibility to Developer for any
expenses, losses or actions incurred or undertaken by Developer as a result
of work performed or materials or equipment purchased by Developer prior to
such notification, unless specifically agreed to in writing by CVS.
***
(c) This Agreement may not be amended or modified except by an instrument
in writing signed by the Parties hereto.
***
(h) This Agreement and the rights and obligations of the Parties hereunder
shall be construed in accordance with and governed by the law of the State
of Rhode Island[.]3
3
Preferred Developer Agreement dated May 23, 2008, as amended.
6
Notably, the PDA indicated, in two separate paragraphs, that it represented “the agreement
of the parties with respect to Developer’s Compensation for all such projects approved by
the CVS Real Estate Committee on or after January 2, 2009.” Amendment Agreement dated
January 2, 2009 at pp. 1, 3 (emphasis added). The Amended Complaint also indicates that
the compensation schedule pertained to “projects that were completed which [Romeo]
undertook for CVS.” Amended Complaint at ¶ 9 (emphasis added).
However, the PDA is not the only agreement between the parties dealing with
compensation. On January 2, 2009, the parties also executed a Master Development
Contract (“MDC”), pertaining to those situations, referenced earlier, in which CVS might
request that Romeo develop a site. The MDC purports to set forth general terms regarding
the development of sites, while leaving the details of specific projects to be set forth in
separate Development Contract Supplements (“DC Supplements”). The MDC further
indicates that DC Supplements would not be executed for a particular project
until
“immediately following the CVS Real Estate Committee’s approval of the Project.”
The MDC also provides procedures for situations in which CVS might elect to “take
over” a project from a developer, such as occurred in the instant case at the Titus Site.
Specifically, Article 29 of the Master Development Contract states:
CVS, after prior notice to [Romeo] in accordance with the terms of this
Contract, may complete all or any portion of the Work, and in the event
[Romeo] has failed or neglected to prosecute the Work properly hereunder,
shall have failed to perform any provisions herein, or an Event of Default shall
have occurred hereunder such action shall be without prejudice to any other
remedy that may exist, and the cost to correct any such deficiencies may be
deducted from any unpaid portion of the Development Fee or shall be paid by
[Romeo] to CVS upon demand. In the event CVS exercises such option the
Development Fee shall be reduced to reflect the portion of the Work that was
unfinished at the time CVS exercised its option to complete the Work.
As to each Project, in the event CVS exercises such option prior to the closing
with respect to the acquisition of the Land, CVS shall reimburse [Romeo] for
all out-of-pocket due diligence expenses incurred by [Romeo] and any other
7
reimbursements due hereunder and approved by CVS in accordance with the
provisions of this Contract.
As to each Project, if CVS exercises such option after the Land Closing, in
addition to the foregoing due diligence reimbursement and any other
reimbursements due hereunder and approved by CVS in accordance with the
provisions of this Contract, so long as [Romeo] has not failed or neglected to
prosecute the work properly hereunder, shall not have failed to perform any
provision herein and there has been no Event of Default by [Romeo]
hereunder, CVS shall pay [Romeo’s] Compensation to [Romeo] upon
satisfaction of [Romeo’s] obligations hereunder, other than those obligations
with respect to completion of the Project, after the date of such exercise.
MDC Art. 29 (emphasis added).
Additionally, Article 49 of the MDC, entitled “Abandonment of Project,” states, in
pertinent part:
[Romeo] hereby agrees and acknowledges that CVS shall have the right, in
its sole and absolute discretion, to determine not to proceed with the
construction of any Project at any time.
As to each Project, in the event CVS determines not to proceed with the
construction of the Project prior to the closing with respect to the acquisition
of the Land, CVS shall reimburse Developer for all out-of-pocket due diligence
expenses incurred by [Romeo] and any other reimbursements due hereunder
and approved by CVS in accordance with the provisions of this Contract. In
such event, no Development Fee shall be paid to [Romeo] with respect to
such Project.
As to each Project, if CVS determines not to proceed after the Land closing,
in addition to the foregoing due diligence reimbursement, and any other
reimbursements due hereunder and approved by CVS in accordance with the
provisions of this Contract, so long as [Romeo] has not failed or neglected to
prosecute the work properly hereunder, shall not have failed to perform any
provision herein and there has been no Event of Default by Developer
hereunder, CVS shall pay [Romeo’s] Compensation for the Project in question
to [Romeo] reduced to reflect the portion of the Work that was unfinished at
the time CVS exercised its option to abandon such Project, upon satisfaction
8
of [Romeo’s] obligations hereunder other than with respect to completion of
such Project, after the date of CVS’s determination.
MDC Art. 49.
Finally, Article 45 of the MDC states that “[a]ny notice, consents or other
communications” given under the contract are to be made in writing, and delivered by either
mail, courier or fax. However, the Article concludes by stating: “Authorizations and consents
required to be given in writing may be given by e-mail.” Moreover, Section 8(d) of the PDA,
which pertains to giving notices, includes Romeo’s email address. See, PDA at p. 7.
Pursuant to the PDA, Romeo took certain actions with regard to the aforementioned
sites. With regard to the Brockport Site, Romeo showed the location to CVS executives,
and “researched and gathered demographic, zoning and other pertinent information
regarding” the site. Amended Complaint ¶ 14. In turn, CVS advised Romeo that it was
interested in the site, and CVS’s Real Estate Director for the Rochester area, Angella
Franklin (“Franklin”), directed Romeo to “proceed with efforts to acquire and develop” the
site. Amended Complaint ¶ 17. In May 2009, Romeo made a purchase offer on the site.
However, the property owner did not accept the offer, and informed Romeo that he already
“had a better offer from another person to develop a CVS.” Amended Complaint, Ex. B.
Romeo informed Franklin of that fact by email, which he closed by stating, “Let me know
how hard you want me to pursue this.” Amended Complaint, Ex. B.
Apparently, the third party who had made the other offer to the Brockport Site’s owner
was already known to both Romeo and Franklin, since Franklin immediately responded to
Romeo’s email and stated, in pertinent part: “Walk away for now. I will stand my ground that
the only way this deal will get done is if it is done as a purchase with you. Sooooo [sic] he
really does not have a deal. What offer did Gata [sic] make?” Amended Complaint Ex. B.
In that regard, Franklin was referring to Calvin Gaeta (“Gaeta”), of Genesee Regional
Properties, LLC, who, as it turned out, had offered to develop the Brockport Site for CVS as
a turn-key lease.
9
Despite Franklin’s statement that she would stand her ground, CVS nevertheless
went with Gaeta, and completed the transaction with him, instead of Romeo. According to
Romeo, Franklin later indicated that “she was able to obtain better terms through [Gaeta].”
Amended Complaint ¶ 29. As a consequence of CVS’s selection of Gaeta to develop the
Brockport site, Romeo did not receive compensation for its preliminary work on the site.4
Concerning the Titus Site, beginning in 2007, Romeo showed the property to CVS
and “researched and gathered demographic, zoning and other pertinent information
regarding the [site].” Amended Complaint ¶ 59. At CVS’s direction, Romeo also successfully
negotiated a ground lease for the property. On February 26, 2009, CVS closed the lease
with the owner of the Titus Site.5 Additionally, Romeo prepared a site plan and began
negotiating with the Town of Irondequoit for approval of the site plan.
On October 20, 2009, CVS informed Romeo that it was withdrawing Romeo’s status
as Preferred Developer, effective November 1, 2009. However, CVS directed Romeo to
complete projects that were “the subject of an executed Development Contract, and to
proceed, subject to direction and approval by CVS, with the following Projects: CS 47918Titus & Cooper Roads, Rochester, NY (the Titus Site) and CS 51735, Winton and Blossom,
Rochester, NY (the Winton Site).” Amended Complaint ¶ 12. From that statement in the
pleading, the Court understands that neither the Titus nor the Winton sites were yet the
subject of an executed Development Contract, but that CVS nevertheless wanted Romeo
to continue working on them.
However, on February 15, 2010, Franklin sent an email to Romeo, indicating that
CVD would be “taking over the [Titus] project[.]” Amended Complaint ¶ 64. Franklin stated,
4
Romeo contends that by electing to proceed with a different developer, CVS “avoided having
to pay [Romeo] any amounts due under the Preferred Developer Agreement.” Frank Romeo Aff., ¶ 19.
Presumably, however, CVS paid compensation to the other developer. Accordingly, to the extent
Romeo suggests that by switching developers CVS completely avoided paying a developer, the Court
does not agree that would be a reasonable inference to be drawn. See, Frank Romeo Aff. ¶ 40.
5
See, Frank Romeo Aff. at
¶ 23.
10
though, that she would ask CVS to compensate Romeo $100,000.00 for the work that it had
already done on the project, provided that Romeo would work with CVS to coordinate any
further meetings with the property owner that might be needed. Amended Complaint, Ex.
E. However, CVS ultimately did not pay Romeo for the Titus Site.
On October 18, 2011, Romeo commenced this action. On April 9, 2012, Romeo filed
an Amended Complaint [#13], which purports to assert three separate causes of action for
breach of contract, two of which involve the Brockport Site and Titus Site, respectively.
Concerning the Brockport Site, the pleading alleges that CVS “breached the Preferred
Developer Agreement, including [the] obligation of good faith,” by “secretly compet[ing] with
Romeo for the Brockport Site through the other developer [Gaeta].” Amended Complaint ¶
32. In Romeo’s view, CVS should not have pursued the deal with Gaeta, since Romeo
“identified the Brockport Site, did preliminary work to show it was a prime candidate, and
negotiated for its acquisition.” Amended Complaint ¶ 32. Romeo therefore maintains that
it is owed $210,000.00 by CVS, which is the amount that would have been owing if Romeo
had completed a ground lease for CVS at the Brockport Site.
Concerning the Titus Site, the Amended Complaint alleges that CVS breached the
Preferred Developer Agreement and the Master Development Contract by “taking over” the
development of the site and failing to pay Romeo. The pleading further indicates that CVS
breached “Articles 29 and 45 of the Master Development Contract,” by failing to provide
“written notice of CVS’s intent to take over development of the Titus Site.” Amended
Complaint ¶ 68. Romeo therefore maintains that it is owed $210,000.00 by CVS under the
aforementioned compensation schedule, since Romeo completed a ground lease for the
Titus Site.
With regard to both sites, Romeo maintains that to the extent it failed to perform any
necessary conditions precedent to payment under the agreement, it was prevented from
doing so by CVS.
On May 7, 2012, Defendant filed the subject motion [#14] to dismiss or, alternatively,
11
for summary judgment. With regard to the Brockport claim, CVS denies that the Amended
Complaint states an actionable claim, since the parties’ agreement gave CVS complete
discretion over whether to utilize Romeo’s services on any particular project. With regard
to the Titus Site, CVS maintains that the pleading fails to state an actionable claim, since
the necessary conditions precedent to payment never occurred. In that regard, CVS
maintains that Romeo never completed the project, CVS’s Real Estate Committee never
voted to approve the project, and the parties never executed a specific DC Supplement for
the site. For those same reasons, CVS maintains that the MDC does not apply to the Titus
Site.
DISCUSSION
The general legal principles concerning motions under FRCP 12(b)(6) are well
settled:
Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain
statement of the claim showing that the pleader is entitled to relief, in order to
give the defendant fair notice of what the claim is and the grounds upon which
it rests. While a complaint attacked by a Rule 12(b)(6) motion to dismiss does
not need detailed factual allegations, a plaintiff's obligation to provide the
grounds of his entitlement to relief requires more than labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do.
Factual allegations must be enough to raise a right to relief above the
speculative level, on the assumption that all the allegations in the complaint
are true (even if doubtful in fact).
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964–65, 167 L.Ed.2d 929
(2007); see also, ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.
2007) (“To survive dismissal, the plaintiff must provide the grounds upon which his claim
rests through factual allegations sufficient ‘to raise a right to relief above the speculative
level.’ ”) (quoting Bell Atl. Corp. v. Twombly ) (footnote omitted).
When applying this “plausibility standard,” the Court is guided by “two working
principles”:
12
First, although a court must accept as true all of the allegations contained in
a complaint,6 that tenet is inapplicable to legal conclusions, and threadbare
recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice. Second, only a complaint that states a plausible
claim for relief survives a motion to dismiss, and determining whether a
complaint states a plausible claim for relief will be a context-specific task that
requires the reviewing court to draw on its judicial experience and common
sense.
Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009) (citations and internal quotation marks
omitted). “[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not shown—that the pleader
is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 1950 (2009)
(citation omitted). “The application of this ‘plausibility’ standard to particular cases is
‘context-specific,’ and requires assessing the allegations of the complaint as a whole.”
Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Medical Centers Retirement Plan v.
Morgan Stanley Inv. Management Inc., 712 F.3d 705, 719 (2d Cir. 2013) (citation and
internal quotation marks omitted).
There is no dispute that the Court must apply Rhode Island law in evaluating the
sufficiency of Romeo’s contract claims. Romeo maintains that CVS breached the implied
covenant of good faith. Under Rhode Island law, it is well settled that “there is an implied
covenant of good faith and fair dealing between parties to a contract so that the contractual
objectives may be achieved.” Ide Farm & Stable, Inc. v. Cardi, 110 R.I. 735, 739, 297 A.2d
643, 645 (R.I. 1972).
The covenant of good faith is regarded as a counterpromise that the promisee
will act in a manner consistent with the purposes of the contract. . . . [A]
party's actions must be viewed against the backdrop of contractual objectives
in order to determine whether those actions were done in good faith. A party's
actions, however, do not violate the covenant of good faith and fair dealing
6
The Court must accept the allegations contained in the complaint as true and draw all
reasonable inferences in favor of the nonmoving party. Burnette v. Carothers, 192 F.3d 52, 56 (2d
Cir.1999), cert. den. 531 U.S. 1052, 121 S.Ct. 657 (2000).
13
when they were contemplated by the parties at the time of contract formation.
Hord Corp. v. Polymer Research Corp. of America, 275 F.Supp.2d 229, 237-238 (D.R.I.
2003) (citations omitted). In that regard, “[a]n unambiguous contractual clause, agreed upon
by both parties, cannot be rendered meaningless, because one party does not like its strict
application.” Id., 275 F.Supp.2d at 238 (citation omitted); see also, id. (“Since plaintiff acted
within the confines of the parties' contractual objectives, and thus by definition in good faith,
plaintiff did not violate the implied covenant of good faith and fair dealing.”).
“The applicable standard in determining whether one has breached the implied
covenant of good faith and fair dealing is whether or not the actions in question are free from
arbitrary or unreasonable conduct.” Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 66
F.Supp.2d 317, 329 (D.R.I. 1999).
In cases such as this one, where the contract affords the alleged breaching party
considerable discretion,
there appears to be consistent recognition in commercial and banking
jurisprudence that “[g]ood faith between contracting parties requires the party
vested with contractual discretion to exercise it reasonably, and he may not
do so arbitrarily, capriciously, or in a manner inconsistent with the reasonable
expectations of the parties.” Carrico v. Delp, 141 Ill.App.3d 684, 690, 490
N.E.2d 972, 976 (1986). Furthermore, exercise of a discretionary right under
an agreement when used as a pretext for an effort to gain an improper
advantage, or to thwart the reasonable expectations of the parties may also
constitute a breach of the implied covenant of good faith and fair dealing. See
Anthony's Pier Four, Inc. v. HBC Associates, 411 Mass. 451, 473, 583 N.E.2d
806, 820 (1991); Southwest Sav. & Loan Ass'n v. Sunamp Sys., Inc., 172 Ariz.
553, 559, 838 P.2d 1314, 1320 (1992). Merely because a party reserves the
right to take action under a particular set of circumstances does not mean that
there can never be a breach of the implied covenant, even if the discretion is
exercised arbitrarily, by improper means, or for an improper purpose.
Gillette of Kingston, Inc. v. Bank Rhode Island, No. WC 05-0616, 2006 WL 1314259 at *6
(R.I.Super. 2006) (emphasis added; in a case involving a breach of contract under Rhode
14
Island law).
Specifically in the context of a motion to dismiss for failure to state a claim under
FRCP 12(b)(6),
[t]o state a claim for breach of the implied covenant of good faith and fair
dealing, a party must do more than allege a simple breach of contract. . . . [A]
party generally must allege some kind of “subterfuge[ ]” or “evasion[ ],” such
as “evasion of the spirit of the bargain, lack of diligence and slacking off, willful
rendering of imperfect performance, abuse of a power to specify terms, [or]
interference with or failure to cooperate in the other party's performance.”
Restatement (Second) of Contracts § 205 (1981).
Dotcom Associates I, LLC v. United States, 112 Fed.Cl. 594, 596 (Fed.Cl. 2013). That is,
the plaintiff must “allege . . . facts that would show that [the defendant] exercised such
discretion arbitrarily, irrationally or in bad faith.” See, Sveaas v. Christie’s Inc., No. 11-2064cv, 452 Fed.Appx. 63, 2011 WL 6415192 (2d Cir. Dec. 22, 2011) (emphasis added).
The Brockport Site
As already mentioned, Romeo maintains that “CVS breached the Preferred
Developer Agreement, including its obligation of good faith, by utilizing the Other Developer
to complete the project.” Amended Complaint ¶ 32. Although Romeo contends that on this
point, the agreement is “clear,” Pl. Memo of Law [#19] at pp. 7-8, significantly, Romeo does
not allege that CVS breached any particular express contractual provision. Instead, Romeo
admits that, under the Preferred Developer Agreement, it was not an exclusive developer,
and that CVS had “sole discretion” to enter into deals with other developers. Consequently,
Romeo seems to maintain that the implied covenant of good faith did not allow CVS to utilize
another developer once Romeo was already involved with a property. See, Pl. Memo of Law
[#19] at p. 8. With respect to such arguments, the pleading contends that CVS should have
allowed Romeo a further “opportunity to freely engage in negotiations with the owner.”
Amended Complaint ¶ 30.
In Romeo’s memo of law submitted in opposition to the motion to dismiss, it further
15
explains the basis of the Brockport claim as follows:
Plaintiff identified the Site[ ] for Defendant, engaged in significant legwork,
invested time and effort in procuring the site[ ] and then was told by [CVS] to
‘walk away,’ only to find out later that CVS was using the information [Romeo]
had provided and [also] using [another] developer for the site[ ].
Pl. Memo of Law [#19] at p. 2. However, the Amended Complaint does not actually allege
that CVS used any information from Romeo in making a deal with Gaeta. In fact, the
complaint does not allege that Romeo gave CVS any particular information about the site,
other than the name of the owner’s attorney. Rather, the complaint indicates that the owner
of the Brockport site already had a “better” offer from Gaeta “to develop a CVS” when
Romeo submitted its purchase offer.7
Considering the pertinent allegations, the Court finds that the Amended Complaint
fails to state a claim for breach of contract concerning the Brockport site. As already
discussed, the Preferred Developer Agreement gave CVS essentially unlimited discretion
about how to acquire its properties, while simultaneously emphasizing that Romeo had no
reasonable expectation of exclusivity. Consequently, CVS was entitled to do business with
Gaeta rather than Romeo, and was not required to allow Romeo the opportunity to continue
negotiating with the owner.
Romeo nevertheless maintains that while the agreement gave CVS broad discretion,
CVS exercised that discretion in an arbitrary and unreasonable manner that violated the
agreement’s implied covenant of good faith, since it frustrated Romeo’s objective in entering
the agreement. Romeo contends that CVS did so by “secretly” working with Gaeta, after
Franklin assured Romeo that she would “stand her ground” and insist that CVS use Romeo
as the developer. Romeo further suggests that CVS was motivated by a desire to “evade
paying Plaintiff the compensation due [to him].” Pl. Memo of Law [#19] at p. 2. However, the
7
The Amended Complaint indicates that Romeo was pursuing that project as a “fee simple land
acquisition.” The pleading further indicates that such “better offer” was made by Gaeta, and involved a
different type of project, namely, a lease. Amended Complaint ¶ 28.
16
Court does not agree that those allegations state a plausible claim for breach of the
covenant of good faith. In that regard, there is no suggestion that Franklin had the authority
to amend the PDA, so to the extent that she may have suggested that Romeo had some
entitlement to continue working on the project, her statement was contrary to the specific
terms of the agreement. Similarly, the fact that CVS failed to tell Romeo that it was pursuing
a deal with Gaeta is not indicative of bad faith, since CVS was free to do business with
whomever it chose, and Romeo had no reasonable expectation of exclusivity. In any event,
Romeo was already aware, from speaking with the site owner’s attorney, that Gaeta had
made a better offer “to develop a CVS.” Moreover, Franklin’s statement that she would
“stand her ground” alerted Romeo to the possibility that, while Franklin claimed to support
Romeo, others within CVS’s corporate hierarchy might disagree with her. As it turned out,
Franklin was apparently overruled both as to who would develop the site (Romeo vs. Gaeta),
and how it would be developed (lease vs. purchase).
Finally, although Romeo suggests, in conclusory fashion, that CVS was motivated by
a desire to “evade paying [Romeo],” no such inference can be reasonably drawn from the
pleading. In that regard, the Amended Complaint does not plead any facts which reasonably
suggest that CVS realized a financial windfall from doing business with Gaeta as opposed
to Romeo.8 To the contrary, the pleading merely indicates that CVS wanted the property,
and that Gaeta had already made an offer that was viewed by the owner as being more
favorable to him than Romeo’s offer. The fact that CVS exercised its discretion to enter a
deal with Gaeta rather than Romeo does not suggest that CVS acted in bad faith or that it
was motivated by a desire to deny Romeo the benefits of the Preferred Developer
8
The Amended Complaint indicates only that Franklin claimed “she was able to obtain better
terms through [Gaeta].” Amended Complaint at ¶ 29. The pleading further suggests that if Romeo had
been given the chance, it might have also negotiated with the site owner for “such terms.” Id. The
pleading does not explain how the deal with Gaeta involved “better terms,” though the obvious
possibility is that CVS viewed a turn-key lease as being more desirable than purchasing the property.
See, id. at ¶ 33 (“Plaintiff was ready, willing and able to acquire the Brockport Site, construct the Store,
and if necessary enter into a build-to suit/turnkey lease with CVS.”).
17
Agreement. For all these reasons, Romeo’s cause of action concerning the Brockport Site
is dismissed for failure to state a claim.
The Titus Site
Romeo maintains that CVS breached the Preferred Developer Agreement, including
the implied covenant of good faith, by “taking over” the development of the site, “instead of
continuing to work with [Romeo],” and by failing to give proper written notice under Articles
29 and 45 of the Master Development Contract.
Amended Complaint ¶ ¶ 67-69.
Additionally, Romeo contends that CVS breached the Preferred Developer Agreement “by
failing to pay [Romeo] the amount due[.]” Id. at ¶ 69. With regard to the allegation that CVS
improperly “took over” the site, the Amended Complaint does not allege that CVS violated
any particular express term of the agreement, apart from failing to give proper notice under
Articles 29 and 45 of the Master Development Contract by failing to provide written notice.
Nor does the Amended Complaint identify the specific contractual provision that would
warrant payment where, as here, CVS took over the site. However, from the Court’s
recitation of the facts, the reasonable inference is that Romeo is relying on the PDA’s
“Developer Compensation” provision, as amended, which, in conjunction with Article 29 of
the MDC, appears to provide for partial compensation in situations where CVS has taken
over a project.
CVS counters that the Amended Complaint fails to state a plausible claim as to the
Titus Site, since the necessary conditions precedent never occurred, and that the MDC
therefore does not apply. However, the Court disagrees. In that regard, the Amended
Complaint clearly indicates that CVS gave its approval to have Romeo develop site, and to
continue developing it even after CVS withdrew Romeo’s Preferred Developer Status.
Additionally, Romeo successfully obtained a ground lease on CVS’s behalf, and performed
significant additional work on the site, before CVS announced that it was taking over the site.
18
Accordingly, it appears that MDC Article 29 applies.9 CVS contends that the extent of
Romeo’s work on the site is irrelevant, since CVS’s Real Estate Committee never approved
the project and the parties never executed a DC Supplement. The Amended Complaint,
though, indicates that CVS had control over those factors, and unreasonably prevented
those conditions precedent from occurring. The Amended Complaint further indicates that
regardless of whether certain formalities were observed, CVS in fact approved having
Romeo develop the Titus Site, up until the time it gave notice it was taking over the site.
Accordingly, the Amended Complaint plausibly states a claim for breach of contract
regarding the Titus Site.
CONCLUSION
Defendants’ motion [#14] to dismiss is granted as to the Amended Complaint’s first
cause of action (the Brockport Site) and denied as to the third cause of action (the Titus
Site).
So Ordered.
Dated: Rochester, New York
May 13, 2014
ENTER:
/s/ Charles J. Siragusa
CHARLES J. SIRAGUSA
United States District Judge
9
CVS maintains that after it took over the project, it abandoned it. Even if that is true, it appears
that Romeo would be entitled to compensation under Article 49 of the MDC.
19
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?