Forum Selection Clause Not Enforced When Neither Parties Nor Agreement Connected to Chosen Forum

On November 5, 2014, the Second Department issued a decision in U.S. Merchandise, Inc. v L&R Distributors, Inc., 2014 NY Slip Op. 07495, refusing to enforce a forum selection clause.

In U.S. Merchandise, the Second Department reversed a trial court decision dismissing an action because the parties’ contract contained a forum selection clause providing for “the exclusive jurisdiction of the courts of the State of Delaware and the Federal Courts therein.” It explained:

A party seeking dismissal of a complaint under CPLR 3211(a)(1) must submit documentary evidence that conclusively establishes a defense to the asserted claims as a matter of law. A contract provision may constitute documentary evidence under CPLR 3211(a)(1), and a forum selection clause contained in a contract may provide a proper basis for dismissal of a complaint under CPLR 3211(a)(1). A forum selection clause is prima facie valid and enforceable unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or it is shown that a trial in the selected forum would be so gravely difficult that the challenging party would, for all practical purposes, be deprived of its day in court. Accordingly, a forum selection clause will be given effect in the absence of a strong showing that it should be set aside.

Here, the plaintiff has made the requisite strong showing that the forum selection clause in the nondisclosure agreement was unreasonable. Specifically, the plaintiff has contended, without contradiction, that neither the parties nor the agreement has any connection to the State of Delaware: none of the parties is located in Delaware, the nondisclosure agreement was not executed in Delaware, and performance of the agreement was not to take place in Delaware. Accordingly, the prima facie enforceability and validity of the forum selection clause has been rebutted and, therefore, that clause does not conclusively establish a defense to the asserted claims as a matter of law. Thus, the Supreme Court should have denied that branch of the defendants’ motion which was to dismiss the amended complaint pursuant to CPLR 3211(a)(1).

(Internal quotations and citations omitted) (emphasis added). That there are situations in which forum selection clauses will not be enforced is not a new legal principle. It is a bit surprising to see it applied to these facts.

Post-Answer Motion to Dismiss Converted to Motion for Summary Judgment

On September 18, 2014, Justice Emerson of the Suffolk County Commercial Division issued a decision in Sriram v GCC Enterprises, Inc., 2014 NY Slip Op. 32448(U), converting a motion to dismiss based on documentary evidence to one for summary judgment.

In Sriram, the defendant moved to dismiss the complaint. The trial court converted the motion to one for summary judgment (which it denied), explaining:

The defendant cross moves to dismiss the complaint pursuant to CPLR 3211(a)(1). A motion to dismiss a cause of action under CPLR 3211(a)(1) must be made before service of the responsive pleading, i.e., before answering. A motion for summary judgment, on the other hand, does not lie until after service of the responsive pleading. Summary judgment is, therefore, a post-answer device. Any of the grounds on which a CPLR 3211 motion could have been made before service of the answer can be used as a basis for a motion for summary judgment afterwards as long as the particular objection, although not taken by CPLR 3211 motion before service of the answer, has been included as a defense in the answer and thereby preserved. The defendant has answered the complaint and raised the issues that it now raises as an affirmative defense. Thus, although the cross motion is denominated as a motion to dismiss pursuant to CPLR 3211(a)(1), it is, in effect, a motion for summary judgment on that ground.

CPLR 3211 (c) empowers the court to treat a motion to dismiss as a motion for summary judgment after adequate notice to the parties when the proof submitted to the court is as complete as it usually is on a motion for summary judgment pursuant to CPLR 3212. Notice is not required if the parties have revealed their proof and clearly charted a summary judgment course. The court finds that the parties have charted a summary judgment course. Accordingly, the court will treat the cross motion as one for summary judgment without any further notice to the parties.

(Internal quotations and citations omitted).

First Department Decisions Address Use of Emails As “Documentary Evidence” For Motion to Dismiss

On August 28, 2014, the First Department issued decisions in Amsterdam Hospitality Group, LLC v. Marshall-Alan Assoc., Inc., 2014 NY Slip Op. 06007, and Art & Fashion Group Corp. v. Cyclops Production, Inc., 2014 NY Slip Op. 06008, addressing the use of email correspondence as “documentary evidence” for purposes of a motion to dismiss.

One unique feature of New York State motion practice is that, in addition to the motion to dismiss for failure to state a cause of action, the CPLR permits a motion to dismiss on the “ground that . . . a defense is founded upon documentary evidence.” CPLR 3211(a)(1). Amsterdam Hospitality Group and Art Fashion Group are commercial cases (the former a fraud action brought against an executive search firm and the latter an action for breach of an oral joint venture agreement) in which the defendants filed 3211(a)(1) motions based on email correspondence between the parties that allegedly refuted the claims. As the majority observed in Amsterdam Hospitality Group, the New York courts “have grappled with the issue of what writings do and do not constitute documentary evidence, since the term is not defined by statute”:

Judicial records, such as judgments and orders, would qualify as documentary, as should the entire range of documents reflecting out-of-court transactions, such as contracts, deeds, wills, mortgages, and even correspondence. (David D. Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C3211:10 at 22). To qualify as “documentary,” the paper’s content must be “essentially undeniable and . . ., assuming the verity of [the paper] and the validity of its execution, will itself support the ground on which the motion is based. (Neither the affidavit nor the deposition can ordinarily qualify under such a test)” (id.).

* * *

As Professor Siegel recognizes, “even correspondence” may, under appropriate circumstances, qualify as documentary evidence. In our electronic age, emails can qualify as documentary evidence if they meet the “essentially undeniable” test.

(Citations omitted) (emphasis added).

In Amsterdam Hospitality Group, the court denied a 3211(a)(1) motion to dismiss claims for fraudulent and negligent misrepresentation, concluding that the emails submitted by the defendant in support of the motion were not sufficiently conclusive to “utterly refute” the plaintiff’s factual allegations:

The emails in this particular case, aside from being not otherwise admissible, are not able to support the motion to dismiss. The “documentary evidence” here . . . do not, standing on their own, conclusively establish a defense to the claims set forth in the complaint. While they may indicate that Bowd put defendants [N.B. it appears this should read “plaintiff”] on notice of potential employment restrictions, other letters indicate that Bowd had, in fact, accepted the offer of employment days before he sent the emails in question. Because defendant has not “negated beyond substantial question” the allegation of reasonable reliance, and the submissions raise factual issues concerning the circumstances and communications underlying plaintiff’s hiring of Bowd, it cannot be concluded that plaintiff has no causes of action for fraudulent and negligent misrepresentation.

Justice DeGrasse dissented, concluding that “documentary evidence consisting of an email sent by Bowd to plaintiff 19 days before Bowd was hired negates the element of justifiable reliance as a matter of law.”

In Art Fashion Group, the First Department unanimously affirmed the denial of a motion to dismiss a claim for breach of an oral joint venture agreement, ruling that the emails submitted by the defendants in support of the motion did not “definitively refute plaintiffs’ claim”:

There is no merit to defendants’ assertion that the emails show, as a matter of law, that no joint venture agreement was reached and that the parties were merely engaging in preliminary negotiations. Even where the parties acknowledge that they intend to hammer out details of an agreement subsequently, a preliminary agreement may be binding.

Although some parts of the emails suggest that all of the details of the joint venture were not fully agreed upon, the emails, when read in their entirety, do not conclusively refute plaintiffs’ allegations that an oral joint venture agreement had in fact been reached. For example, a November 3, 2009 email states that “359 is already operating in AFG’s  space” (emphasis added) and was expected to be “cashflow positive by the end of 2009.” This same email talks about “formalizing the establishment of . . . 359 Productions,” suggesting that it was already in existence. Furthermore, in a May 1, 2010 email, plaintiffs’ representative Federico Pignatelli addresses defendant Michael Jurkovac as “[p]artner,” makes reference to “stabiliz[ing] the [c]ompany,” and expresses concern about two managerial changes within the past year.

In a May 13, 2010 email, written six months after the initial email submitted by defendants, Pignatelli informs Jurkovac of his decision “not to proceed anymore with 359P.” Contrary to defendants’ contention, this statement does not unequivocally establish that no joint venture agreement had been reached in the first place. It can just as easily be read as indicating Pignatelli’s decision to terminate an already-established joint venture. The email also discusses 359P’s overhead and notes issues about the extent of the work that was brought into 359P, both of which are consistent with plaintiffs’ claim that a joint venture had been formed. The emails also make reference to other communications, not produced by defendants, identifying issues with 359P’s staff. Thus, it is clear that the emails submitted present only a partial picture of the interactions between the parties.

Finally, although defendants contend that they did not intend to proceed with the alleged joint venture until they executed a formal written agreement, no such express reservation is contained in any of the emails. Because the emails in question fail to definitely refute plaintiffs’ claim that the parties had reached an oral joint venture agreement, dismissal at this stage is not warranted.

(Citations omitted) (emphasis added).

Motions to dismiss based on “documentary evidence” are a useful tool for seeking early dismissal of infirm claims that because of artful pleading may not be easily susceptible to a motion to dismiss based solely on the face of the complaint. However, as these cases illustrate, CPLR 3211(a)(1) is not a means to file an accelerated summary judgment motion. Although in appropriate circumstances email correspondence can form the basis for a motion to dismiss based on “documentary evidence,” where the correspondence is inconclusive or requires further factual development, the motion should be denied.

When no Present Claim and a Subsequent Dispute Would be New and Distinct, Party not Necessary Under CPLR 1001

On July 15, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in 37 E. 50th St. Corp. v. Restaurant Group Management Services, L.L.C., 2014 NY Slip Op. 31876(U), granting a defendant’s motion to dismiss on the grounds that it was not a necessary party under CPLR 1001(a).

In 37 E. 50th St. Corp. , the owner (37 East) and manager (RGMS) of a restaurant agreed that RGMS would negotiate a lease extension with the landlord (Eurofinch) on behalf of both entities, but the new lease “cut 37 East out as a tenant” and named an affiliate of RGMS as the new tenant. 37 East sued RGMS for breach of contract and fiduciary duties, seeking injunctive relief requiring RGMS to assign the lease to 37 East. Because Eurofinch would be required to give its consent (not to be unreasonably withheld) to the assignment, 37 East also named Eurofinch as a defendant, although no direct claim was asserted against Eurofinch.

Eurofinch moved to dismiss on that basis, and 37 East opposed on the grounds that the landlord was a necessary party in a litigation concerning the assignment of a lease.

The court rejected all of 37 East’s arguments and dismissed Eurofinch.

First, the court noted that, as a general principle of law, “in order for an entity to be a necessary party, it must be one against whom plaintiff can assert a right to relief.” And in this case, 37 East had no present right to relief against Eurofinch, which would only become implicated in the dispute if it unreasonably withheld its consent to an assignment between 37 East and RGMS. The court held that any assertion that Eurofinch would breach its contractual obligations was highly speculative, and also noted that an entity that is merely “required to provide some cooperative acts if a judgment is adverse to the defendants” is not by law a necessary party.

Second, the court held that the general rule that “third parties with an interest in the property underlying the litigation between plaintiff and defendant [are] necessary parties” was inapplicable:

The cases cited by 37 East are distinguishable from the present case because Eurofinch has no material interests in the merits of the litigation. Unlike the property owners whose interests might be adversely affected by the litigation or whose property might be encumbered with mortgage, Eurofinch’s property rights in the Premises will not be abrogated regardless of the outcome of the litigation between 37 East and RGMS. Eurofinch retains the right to reasonably reject a proposed assignment no matter which party wins the lawsuit.

And third, there was no risk of duplicative litigation because the merits of the present dispute—RGMS’s alleged misconduct in negotiating the new lease—were completely independent of the merits of any subsequent dispute with Eurofinch, which “would focus on the reasonableness of withholding the assignment.” Joining Eurofinch as this time would only “impede and delay” the resolution of the main action between 37 East and RGMS.

As well as presenting an exception to the widely-held rule that the landlord is always a necessary party in a lease assignment case, this decision also shows the limits of the necessary party rule: if there is no present claim for relief against a party and if the legal issues in a subsequent dispute involving would be new and distinct, the party is not necessary under CPLR 1001(a).

Class Not Certified When Plaintiff’s Evidence of Class Size is Insufficient

On June 24, 2014, Justice Platkin of the Albany County Commercial Division issued an opinion in Picard v. Bigsbee Enterprises, Inc., 2014 NY Slip Op. 51113(U), denying a motion for class certification for failure to establish numerosity.

In Picard, the plaintiff brought a class action “premised on alleged violations of New York Labor Law § 196-d.” The court denied the plaintiff’s motion for class certification on the ground that the plaintiff had not established the numerosity element for certification as a class action, explaining:

The first prerequisite to certification is that the class be so numerous that joinder of all members is impracticable. In seeking to establish this essential element, plaintiff offers the following averment: “Based on the number of servers employed, I believe it is probable that over the last six years, defendants employed more than 100 servers.”

Defendants recognize that it generally is accepted that a putative class of forty members is sufficiently numerous for certification. However, defendants assert that plaintiff has failed to come forward with an adequate evidentiary basis upon which to find numerosity.

The Court concludes that plaintiff has not met his burden of establishing numerosity on the present record. Plaintiff fails to offer a sufficient foundation for his belief as to the number of servers employed by defendants at pertinent times. Indeed, plaintiff was not employed by defendants during the first four years of the proposed class period, and plaintiff’s affidavit does not demonstrate personal knowledge of that period. Further, the equivocal nature of plaintiff’s averment — a mere belief regarding probability — is problematic. And contrary to the contention of plaintiff’s counsel, it is not defendants’ burden to establish the absence of numerosity, even if the relevant data may be within their possession. In fact, plaintiff was given the opportunity to take limited discovery on issues pertaining to class certification, but did not pursue data concerning numerosity. Finally, plaintiff may not offer new evidence for the first time in reply to meet his initial burden.

Accordingly, while it may well be that the proposed class is sufficiently numerous that the joinder of all members is impracticable, this essential prerequisite to certification has not been established on the present record.

(Internal quotations and citations omitted) (emphasis added).

This decision illustrates the importance of going beyond mere allegations and gathering (and presenting) factual support for any claim or relief, such as class certification.

Even Where CPLR 3211(a)(4) Does Not Require Dismissal, Cases Can be Consolidated

On July 10, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in 11 E. 68th St. LLC v. Madison 68 Realty LLC, 2014 NY Slip Op. 31872(U), analyzing the rules for dismissal or consolidation when there are two pending actions regarding similar subject matter.

In 11 E. 68th St. LLC, the defendant filed an action relating to a real estate deal done bad. The next day, the plaintiff filed a similar action. The defendant moved to dismiss the second-filed action pursuant to CPLR 3211(a)(4). The court ultimately decided to consolidate the actions, rather than dismiss the second-filed on, but in doing so, it explained a number of issues relevant to a motion to dismiss in favor of a prior pending proceeding:

Under the first-filed rule, the action that is commenced first is the action in which a complaint was first filed. A case in which a complaint is filed only a day before the filing of a complaint in another action is generally immune from dismissal based on CPLR 3211(a)(4) under the first-filed rule.

Pursuant to CPLR 3211(a)(4), a court has broad discretion as to the disposition of an action when another action is pending and may dismiss one of the actions where there is a substantial identity of the parties and causes of action. The critical element is that both suits arise out of the same subject matter or series of alleged wrongs. Courts must ultimately determine whether the relief sought is the same or substantially the same. If the court finds such symmetry in the parties’ claims, then it has wide discretion to decide whether to dismiss. stay, or consolidate the current suit. The critical issue in determining this motion is whether [the plaintiff’s] claims in this action arise out of the same subject matter or alleged wrongs as [the defendant’s] claims in the first-filed complaint. The fact that two lawsuits emanate from a common transaction or occurrence is not necessarily sufficient to warrant dismissal based upon CPLR 3211(a)(4). . . .

The assertion of claims in both actions by a party is not required for a finding of identity of issues under CPLR 3211(a)(4). The fact that [the defendant’s] claim concerning the units in the first-filed action is for declaratory relief does not attenuate the court’s belief that a dismissal, stay, or consolidation may be warranted. The action for a declaratory judgment having been first commenced, this court is not ousted of its jurisdiction by the proceeding later brought and that the situation is an appropriate one for a declaratory judgment. If the court were to determine that dismissal of this action would be premature, then a stay of the instant case pending the outcome of the first-filed action might be appropriate  pursuant to the court’s powers under CPLR 3211(a)(4).

After reflecting on the options at its disposal, however, the court concludes that consolidating the instant action into the first action is the most equitable and rational outcome, and will avoid the waste of judicial resources and the risk of inconsistent verdicts. Under CPLR 602(a), a court . . . may order the actions consolidated, assuming both involve a common question of law or fact and are both pending before a court. The action that was commenced first is the action that should retain priority. The first-filed rule also typically applies to consolidation orders under CPLR 602(a). Even if the complaint in the first action was filed only a few days before a subsequent action, the first filed rule demands that consolidation be into the first-filed action.

(Internal quotations and citations omitted) (emphasis added).

Commercial Division Applies Delaware Demand Futility Pleading Rules

On July 3, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in David Shaev Profit Sharing Account v. Riggio, 2014 NY Slip Op. 31776(U), dismissing a derivative action for failure adequately to plead demand futility.

In David Shaev Profit Sharing Account, the plaintiff filed a derivative action against the individual directors of Barnes & Noble, accusing them of failing properly to oversee the company’s affairs. As evidence of this, the plaintiff pointed to errors in Barnes & Noble’s earnings reports and an SEC investigation arising from subsequent corrections. The defendants moved to dismiss on the grounds that the plaintiff had failed to plead demand futility with the necessary particularity.

Because Barnes & Noble is a Delaware corporation, the court applied Delaware law, specifically Delaware Chancery Court Rule 23.1, to the pleading question. Rule 23.1, like similar rules in New York and elsewhere, requires derivative plaintiffs claiming that pre-suit demand would have been futile to plead particularized facts, in a ‘director-by-director’ fashion, that would be sufficient to contradict the presumption that the directors were disinterested and independent when performing their duties.

Sorting through the many Delaware tests and precedents on the issue of demand futility, the court first determined that the Rales test applied to actions alleging a general failure of oversight rather than challenging specific business decisions. Under Rales,

A plaintiff must adequately plead that a majority of the company’s board of directors were incapable of objectively responding to a demand because they either (1) face a substantial threat of personal liability and are thus themselves interested, or (2) are compromised in their ability to act independently of the interested directors . . . . interestedness under Rales solely focuses on whether a director confronts a substantial likelihood of liability for Plaintiff’s proffered claims.

(Internal citations and quotations omitted.)

And because Barnes & Noble exculpates its directors from liability for breaches of the duty of care, the plaintiff was further restricted, having to show that the majority of the directors faced a substantial likelihood of personal liability for breach of their duty of good faith or loyalty to the corporation.

Claims that directors breached their duty of loyalty by failing to exercise oversight are known as Caremark claims, “which are recognized by Delaware courts as possibly the most difficult theory in corporate law upon which a plaintiff might hope to win judgment.” In essence, to prevail under a Caremark analysis, the plaintiff would have to show that the Barnes & Noble directors “consciously failed to put forth any control systems, or knowingly refused to monitor those systems already in existence.”

The court held that the plaintiff did not satisfy this demanding standard of pleading. Barnes & Noble’s audit committee met regularly, and the existence of errors in audit statements or an SEC investigation are insufficient to show a breach of the duty of loyalty. Plaintiff alleged that a whistleblower had identified many control issues, but could not allege that any individual board member had known of the problems and intentionally ignored them. And because none of the directors could be shown to be interested, allegations that the directors were unable to act independently of one another were also unavailing. The court also noted that, for demand futility purposes, Delaware does not apply SEC or NYSE rules to determine whether directors are independent of one another, placing a higher burden on plaintiffs.

Finally, the court ruled that a prior insufficient complaint and the plaintiff’s refusal to obtain pre-suit discovery of the corporate books and records under Delaware G.C.L. § 220—which the Delaware courts frequently emphasize as essential to a derivative action—warranted dismissal with prejudice.

This case is not interesting so much for the ultimate outcome—derivative actions are routinely dismissed for failure to plead demand futility—but for Justice Schweitzer’s comprehensive summary of Delaware’s demand futility precedents, which might be very useful to a practitioner unfamiliar with this area of the law.

Consequential Damages Not Available When Not Contemplated at the Time of Contracting

On July 2, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Rampart Brokerage Corp. v. Ribs NY LLC, 2014 NY Slip Op. 31772(U), dismissing the plaintiff’s damages claim to the extent it sought consequential damages.

In Rampart Brokerage Corp., the defendants allegedly mislead the plaintiff and its clients “as to which insurance policies it had been issued, the nature of the policies, the premiums charged, and other terms.” The defendants moved to dismiss. The court denied their motion with respect to the plaintiff’s claims for gross negligence and consequential damages. Certain defendants moved for reargument, which the court granted with respect to consequential damages and, on reargument, dismissed the plaintiff’s damages claims to the extent they sought consequential damages, explaining:

In order to be entitled to consequential damages, plaintiff was required to plead that those damages were the natural and probable consequences of the breach, and that they were contemplated at the time the contract was executed. [The plaintiff’s] complaint merely sought all damages, which may be construed to include consequential damages. However, [the plaintiff] failed to plead either of the requisite elements of a consequential damages claim . . . .

(Internal quotations and citations omitted) (emphasis added).

Insurer Could Not Use Tort Theory to Transfer Back to Insured Risks the Insurer Had Assumed

On July 3, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Assured Guaranty Municipal Corp. v. DLJ Mortgage Capital, Inc., 2014 NY Slip Op. 51044(U), dismissing fraud claims that sought to hold an insured liable, on a tort theory, for risks the insurer had assumed.

In Assured Guaranty, the plaintiff monoline insurer sued various defendants in connection with RMBS transactions. The court granted defendant Credit Suisse’s motion to dismiss the plaintiff’s fraud claims, explaining:

[The plaintiff] alleges it was fraudulently induced to issue the subject financial guarantee policies based on Credit Suisse’s countless misrepresentations about the loans in the transaction. Some of the alleged malfeasance expressly falls under the ambit of the PSA’s representations and warranties, such as lies about borrowers’ income. Other malfeasance, such as wholesale abandonment of underwriting standards, does not.

As discussed in DBSP, before a monoline agrees to guarantee revenue to RMBS investors, the monoline and the bank negotiate their risk of loss. Monolines take no risk on non-conforming loans and expressly negotiate the universe of loan defects that constitute non-conformance, negotiations which result in the representations and warranties. Banks want to limit their exposure by negotiating for as narrow a universe of representations as possible (even if banks can put-back non-conforming loans to originators under MLPAs, because originators pose more counterparty credit risk than global banks). The universe of representations ultimately agreed-to is the only universe of non-conformance coverage that monolines are entitled to. The monoline’s risk is every possible problem with the loans not covered by the representations and warranties. So, for instance, when [the plaintiff] does not negotiate for the inclusion of a “no fraud rep” (or any other representation not included in the PSA), perhaps, thereby, charging a higher premium, it makes a conscious decision to take the risk that if such non-included representations cause losses resulting in claims payments, [the plaintiff] will not be reimbursed by Credit Suisse via a put-back. Continue reading

Contract and Quasi-Contract Claims Based On Oral Modification to Contract Survive Despite “No Oral Modification” Clause

On June 25, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Laquila Group, Inc. v. Hunt Construction Group, Inc., 2014 NY Slip Op. 51007(U), refusing to dismiss claims based on alleged oral modifications to a contract that prohibited oral modifications.

The dispute in Laquila Group, related to construction work on the Barclays Center. Among the issues the court addressed in deciding the defendant’s motion to dismiss was whether the plaintiff’s contract and quasi-contract claims based on oral modifications to the parties’ written contract stated a claim in light of the contract’s no oral modification clause. The court held that they did, explaining:

Generally, a party may not maintain causes of action for quantum meruit or unjust enrichment if a valid, enforceable contract governs the same subject matter.

. . .

Quasi-contractual recovery may . . . be appropriate, however, in the face of a cardinal change, effecting an alteration to the essence of a contract sufficient to constitute an intentional abandonment of the original contract. Whether there has been a cardinal change sufficient to invalidate a contract is generally a question of fact, to be decided by the factfinder.

Here, plaintiff has pleaded that the scope and extent of changes made to the Project, resulting in additional costs of nearly half the Subcontract price, constituted a cardinal change to the contract that could justify treating it as abandoned and granting recovery in quasi contract. Although defendant has submitted evidence that many of the costs incurred by plaintiff were compensated in agreed change orders, plaintiff’s allegations are not conclusively refuted by documentary evidence sufficient to conclude that plaintiff has no claim as a matter of law. Accordingly, defendant’s motion must be denied as to the cardinal-change claim.

As the plaintiff’s surviving cardinal-change claim preserves the possibility of quasi-contractual recovery, dismissal must also be denied as to plaintiff’s quantum meruit and unjust-enrichment claims. Defendant’s reliance on a clause in the Subcontract specifically barring quantum meruit claims is misplaced, since the finding of an absence of a valid, enforceable contract, a prerequisite to quantum meruit recovery, would inherently render that clause unenforceable, along with the remainder of the Subcontract.

(Internal quotations and citations omitted) (emphasis added).

The court also upheld the plaintiff’s breach of contract claim based on the alleged oral modifications to the contract, explaining:

General Obligations Law § 15-301 (1) states, in relevant part, that “[a] written agreement . . . which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought.” Section 15-301 (1), however, nullifies only executory oral modification, and partial performance of an oral modification, inconsistent with other causes, may prove the modification’s validity. Furthermore, if a plaintiff has detrimentally relied on an oral modification, the doctrine of equitable estoppel will preclude a defendant from raising a clause barring oral modification and § 15-301 (1) in defense.

(Internal quotations and citations omitted) (emphasis added).

One of the reasons people choose New York law to govern their contracts is that in New York, contracts are generally enforced as written. As this decision shows, however, a contract provision prohibiting oral modifications to the contract might not be enforced when it appears that the parties chose to ignore it during the performance of the contract.