Summary
Finding that an alleged breach of an agreement between plaintiff and defendant, without more, did not rise to the level of negligent misrepresentation as this is an arm's length transaction.
Summary of this case from Gold Circle Fin., LLC v. GC Sandton Acquisition, LLCOpinion
2002-01065
Argued December 3, 2002.
January 21, 2003.
In an action, inter alia, to recover damages for breach of contract, the defendant Ernst Young, LLP, appeals, as limited by its brief, from so much of an order of the Supreme Court, Suffolk County (Costello, J.), dated December 17, 2001, as denied those branches of its motion pursuant to CPLR 3016(b) and CPLR 3211(a)(7) which were to dismiss the plaintiffs' second, fifth, and sixth causes of action insofar as asserted against it and so much of the third cause of action as sought consequential damages, the defendant Cap Gemini Ernst Young U.S., LLC, separately appeals, as limited by its brief, from so much of the same order as denied those branches of its motion pursuant to CPLR 3016(b) and CPLR 3211(a)(7) which were to dismiss so much of the plaintiffs' fourth cause of action as sought consequential damages, and the sixth cause of action insofar as asserted against it, and the plaintiffs cross-appeal from so much of the same order as granted that branch of the motion of the defendant Ernst Young, LLP, which was to dismiss the first cause of action pursuant to CPLR 3211(a)(7).
Mayer Brown Rowe Maw, New York, N.Y. (Hector Gonzalez, Sanford I. Weisburst, Dennis P. Orr, and Bruce M. Cormier of counsel), for appellant-respondent.
Winston Strawn, New York, N.Y. (Robert S. Fischler, Michael Rasnick, and Alexis A. Lury of counsel), for appellant.
Ruskin Moscou Faltischek, P.C., Uniondale, N.Y. (Lauren M. Gray and Mark S. Mulholland of counsel), for respondents-appellants.
Before: NANCY E. SMITH, J.P., CORNELIUS J. O'BRIEN, GABRIEL M. KRAUSMAN, REINALDO E. RIVERA, JJ.
DECISION ORDER
ORDERED that the order is modified by (1) deleting the provision thereof denying those branches of the motion of the defendant Ernst Young, LLP, which were to dismiss the second cause of action, the fifth cause of action, so much of the third cause of action as sought consequential damages, and so much of the sixth cause of action as sought punitive damages, and substituting therefor a provision granting those branches of the motion, and (2) deleting the provision thereof denying those branches of the motion of the defendant Cap Gemini Ernst Young U.S., LLC, which were to dismiss the fourth cause of action insofar as it sought consequential damages and the sixth cause of action insofar as asserted against it and substituting therefore a provision granting those branches of the motion; as so modified, the order is affirmed insofar as appealed and cross-appealed from, with one bill of costs to Cap Gemini Ernst Young U.S., LLC, payable by the plaintiffs.
The plaintiff Atkins Nutritionals, Inc. (hereinafter Atkins), entered into an agreement with the accounting firm Ernst Young, LLP (hereinafter E Y), in which E Y was to assist Atkins in selecting a computer accounting system for its new distribution center. In April 2000, E Y recommended that Atkins acquire a computer software system called Cayenta. In May 2000 E Y sold its consulting services component to Cap Gemini, S.A., and acquired shares in the new entity Cap Gemini Ernst Young U.S., LLC (hereinafter CGEY).
In June 2000 E Y recommended that Atkins engage CGEY to oversee implementation of the Cayenta system. Atkins and CGEY entered into such an agreement in August 2000. After numerous problems with the Cayenta system, Atkins and its majority shareholder Dr. Robert Atkins commenced this action against E Y and CGEY.
The Supreme Court properly dismissed the first cause of action asserted against E Y, as it alleged a claim to recover damages for malpractice in the selection and implementation of a computer system. E Y was acting as a computer consultant, and the courts of this state do not recognize a cause of action to recover damages for professional malpractice by computer consultants (see Richard A. Rosenblatt Co. v. Davidge Data Sys. Corp., 295 A.D.2d 168). Even though E Y is an accounting firm, it had a conventional business relationship with Atkins with respect to the computer consulting services which did not create a fiduciary relationship independent of the contract (see RKB Enters. v. Ernst Young, 182 A.D.2d 971). The fact that E Y performed personal accounting services for Dr. Atkins did not give rise to a fiduciary relationship with Atkins, the corporate entity.
The lack of a special relationship distinct from and independent of the contract also precludes the second cause of action against E Y to recover damages for negligent misrepresentation (see WIT Holding Corp. v. Klein, 282 A.D.2d 527; Andres v. LeRoy Adventures, 201 A.D.2d 262; RKB Enters. v. Ernst Young, supra; cf. Kimmel v. Schaefer, 89 N.Y.2d 257). "It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated" (Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382, 389). Similarly, an arms-length business relationship does not give rise to a fiduciary duty. Therefore, the fifth cause of action sounding in breach of a fiduciary duty asserted against E Y should have been dismissed (see WIT Holding Corp. v. Klein, supra).
E Y and CGEY argue that the breach of contract causes of action should be dismissed insofar as the plaintiffs seek consequential damages. In order to recover consequential damages, the plaintiffs were required to plead that those damages were the natural and probable consequences of the breach, and were contemplated at the time the contract was executed (see Kenford Co. v. County of Erie, 73 N.Y.2d 312; Rose Lee Mfg. v. Chemical Bank, 186 A.D.2d 548). As the complaint failed to allege that those damages were within the contemplation of the parties at the time the contract was executed, the claim for consequential damages should be dismissed. Moreover, CGEY's contract with Atkins limited its liability to the fees paid to it, and the contract should be enforced according to its terms (see Sommer v. Federal Signal Corp., 79 N.Y.2d 540; Peluso v. Tauscher Cronacher Professional Engrs., 270 A.D.2d 325).
The sixth cause of action to recover damages for fraud should also have been dismissed insofar as it was asserted against CGEY. The claimed fraudulent representations related to CGEY's intention to perform its obligations under the contract and were not designed to induce Atkins to enter into that contract. Therefore, Atkins cannot maintain both a fraud and breach of contract cause of action against CGEY (see WIT Holding Corp. v. Klein, supra; Gordon v. De Laurentiis Corp., 141 A.D.2d 435).
The Supreme Court properly denied that branch of the motion of E Y which was to dismiss the sixth cause of action to recover damages for fraud insofar as asserted against it, as the allegations in the complaint sufficiently state a cause of action for fraud in the inducement (see WIT Holding Corp. v. Klein, supra; RKB Enters. v. Ernst Young, supra). However, the claim for punitive damages should have been dismissed, as the plaintiffs failed to allege facts sufficient to demonstrate that the conduct of E Y rose to the level of moral culpability which must be reached to support a claim for punitive damages (see Rose Lee Mfg. v. Chemical Bank, supra; RKB Enters. v. Ernst Young, supra).
SMITH, J.P., O'BRIEN, KRAUSMAN and RIVERA, JJ., concur.