Agency Dev. V. Medamerica Ins. Co. of New York

• Decision Date: 17 June 2004
• Docket Number: No. 02-CV-6663L.,02-CV-6663L.
• Citation: 327 F.Supp.2d 199
• Parties: AGENCY DEVELOPMENT, INC., A Michigan corporation, and Patrick D. Patterson, as Managing General Agent, Plaintiff, v. MEDAMERICA INSURANCE COMPANY OF NEW YORK, a New York corporation, et al., Defendants.
• Court: U.S. District Court — Western District of New York

327 F.Supp.2d 199

AGENCY DEVELOPMENT, INC., A Michigan corporation, and Patrick D. Patterson, as Managing General Agent, Plaintiff, v. MEDAMERICA INSURANCE COMPANY OF NEW YORK, a New York corporation, et al., Defendants.

No. 02-CV-6663L.

United States District Court, W.D. New York.

June 17, 2004.

COPYRIGHT MATERIAL OMITTED

Brian H. Rolfe, Falcone & Rolfe, P.C., Joseph Falcone, Joseph Falcone, P.C., Southfield, MI, for Plaintiff.

Daniel J. Moore, Harris Beach LLP, Pittsford, NY, for Defendants.

DECISION AND ORDER

LARIMER, District Judge.

INTRODUCTION

By order entered March 24, 2004, I granted defendants' motion for summary judgment and dismissed plaintiffs' first, second and third claims which alleged federal and state antitrust violations and violations of the Lanham Act. Familiarity with the decision, reported at 310 F.Supp.2d 538, is presumed.

I also dismissed the balance of plaintiffs' complaint, alleging state law claims, pursuant to 28 U.S.C. § 1367(c)(3), and denied as moot plaintiffs' motion to amend those claims. Plaintiffs now move (Dkt.# 60) for reconsideration of that part of my decision which dismissed the state law claims and denied as moot their request to amend those claims.

The motion to reconsider is granted. Upon reconsideration, it appears that diversity jurisdiction was adequately pleaded. Nevertheless, on the merits, defendants remain entitled to summary judgment on all those claims.

PROCEDURAL HISTORY

Defendants' motion for summary judgment (Dkt.# 24) was directed at plaintiffs' first amended complaint (Dkt.# 2). In response, plaintiffs moved for permission to file a second amended complaint that was nearly four times as long as the first amended complaint and set forth in substantially more detail the allegations against defendants. (Dkt.# 43). The proposed second amended complaint essentially asserted the same state law claims against defendants and added a new claim for punitive damages.

Plaintiffs then filed two subsequent motions to amend that modified two of the proposed claims in the proposed second amended complaint. By Docket # 51, plaintiffs withdrew their proposed ninth claim that sought punitive damages separately, and sought instead to add punitive damages as part of their breach of contract, fraud, interference with contract, and unjust enrichment claims. By Docket # 53, plaintiffs sought, inter alia, to substitute their proposed common law unfair competition claim for a claim under New York's General Business Law § 349.

On reconsideration, the Court grants, in part, plaintiffs' first motion to amend (Dkt.# 43). Plaintiffs' fourth claim (breach of contract), fifth claim (fraud), seventh claim (interference with contract), and eighth claim (unjust enrichment) are amended.¹ The Court treats defendants' motion for summary judgment (Dkt.# 24) as against these claims as amended, and, for the reasons stated below, grants summary judgment to defendants.

In addition, the Court denies as moot plaintiffs' second motion to amend (Dkt. # 51) to add claims for punitive damages relative to these same claims because summary judgment is granted. Plaintiffs' third motion to amend that sought to assert a claim for unfair competition under General Business Law § 349 (Dkt. # 53) is denied because, as discussed below, such amendment would be futile.

DISCUSSION

I. Defendants' Motion For Summary Judgment on Plaintiffs' State Law Claims

Plaintiffs' state law claims are all essentially based on the same factual allegations. Plaintiffs claim that defendants improperly solicited Eric Dellinger, a corporate officer and agent of ADI, to work for MANY just before defendants terminated the agreement. Dellinger, who was the corporate officer in charge of ADI's Rochester office and the manager of ADI's sales force, resigned from ADI to take a position with MANY one day before MANY terminated the agreement with plaintiffs. Plaintiffs also claim that defendants induced Dellinger and other ADI sales agents to breach their contracts and their fiduciary duties to ADI by recruiting them to leave ADI's employ without giving proper notice.

Plaintiffs' so-called "fraud" claim is difficult to discern. Plaintiffs assert that defendants committed fraud by not advising ADI, in advance, that they intended to recruit and hire Dellinger, Plaintiffs assert that these activities harmed them because they could not "mitigate" their damages, caused by Dellinger's departure nor could they attempt to prevent termination of the agreement. According to plaintiffs, there was a "special relationship" of confidence and trust between the parties "that was at a higher level than in a normal sales relationship", and more akin to a fiduciary relationship (Dkt. # 50, p. 9). As a result, plaintiffs assert that defendants' conduct described above was "unfair" and is actionable under state law as breach of the implied covenant of good faith and fair dealing, fraud, interference with contractual relations, and unjust enrichment. As a remedy, plaintiffs seek monetary damages of $22,000,000 for past and future commissions over a ten-year period from the date of the termination of the agreement.

These state claims fare no better than the federal claims that have already been dismissed. Plaintiffs are nothing more than disappointed suitors. They lost the contract which had been lucrative but such a condition is not actionable.

A. Breach of Contract

Defendants are entitled to summary judgment on plaintiffs' breach of contract claim. Although plaintiffs concede that MANY did not breach an express term of the agreement, they assert that MANY breached the implied covenant of good faith and fair dealing inherent in the agreement when it recruited and hired Dellinger.

"[T]he duty of good faith and fair dealing between the parties to a contract is well recognized" under New York law. See Mark Patterson, Inc. v. Bowie, 237 A.D.2d 184, 186, 654 N.Y.S.2d 769 (1st Dep't 1997) (citing New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318, 639 N.Y.S.2d 283, 662 N.E.2d 763 (1995) ("implicit in every contract is a covenant of good faith and fair dealing")). The covenant requires that neither contracting party engage in conduct that will have the effect of destroying or injuring the rights of the other party to receive the benefit of the contract. See Dalton v. Educational Testing Serv., 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977, 663 N.E.2d 289 (1995). Courts generally enforce the covenant "where an implied promise was `so interwoven in the whole writing' of a contract as to be necessary for effectuation of the purposes of the contract." M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir.1990) (quoting Havel v. Kelsey-Hayes Co., 83 A.D.2d 380, 384, 445 N.Y.S.2d 333 (4th Dep't 1981)). However, the covenant "does not extend so far as to undermine a party's general right to act on its own interests in a way that may incidentally lessen the other party's anticipated fruits from the contract." Id. at 136 (citations omitted); see also Sterbenz v. Attina, 205 F.Supp.2d 65, 70 (E.D.N.Y.2002).

Here, plaintiffs contend, in conclusory fashion, that MANY "destroyed" plaintiffs' right to receive the fruits of the agreement by recruiting and hiring Dellinger. According to plaintiffs, MANY should not have recruited Dellinger because his employment with ADI was "critical" to plaintiffs performance of the agreement. Plaintiffs argue that it was only after MANY secured the services of Dellinger that MANY terminated the contract with ADI. Thus, according to plaintiffs, the very act of successfully recruiting Dellinger caused the contract to terminate. These allegations are not supported by the record.

First of all, the "intended benefit" of the agreement for the plaintiffs was the substantial first-year and renewal commissions that they received from the sale of MANY's Long Term Care Insurance policies ("LTCI"). Plaintiffs, however, do not dispute that they were paid all commissions owed under the agreement while it was in effect for over seven years. Nor is there any dispute that MANY continued to pay plaintiffs renewal commissions pursuant to the agreement after it was terminated in accordance with the terms and schedules set forth therein.² No reasonable jury could conclude that MANY's hiring of Dellinger was "the sole and direct cause[] of the destruction of the value of the contract" for plaintiffs. M/A-COM Sec. Corp., 904 F.2d at 136-37 (noting that the "chain of causation" between defendants' conduct and plaintiff's loss was too attenuated to find that defendants breach the covenant of good faith). Rather, it was the lawful termination of the agreement by MANY because ADI had suddenly been purchased by a competitor that caused plaintiffs to lose the commissions that they enjoyed during the term of the contract.

Second, the agreement was terminable with or without cause by either party on thirty days written notice to the other party. (Dkt.# 25, Ex. 2). MANY's conduct in terminating the agreement was in accordance with the express terms of the agreement. Plaintiffs could have negotiated for certain terms in the agreement regarding the hiring of officers or agents of the other party, but they did not. Plaintiffs did not have non-compete agreements with their sales agents or their officers.

It is well-settled that the implied covenant "will not be expanded to a point of conflict with the express terms of the bargained-for exchange, and `equitable considerations will not allow an extension of coverage beyond [the agreement's] fair intent and meaning in order to obviate objections which might have been foreseen and guarded against.'" Mark Patterson, 237 A.D.2d at 186, 654 N.Y.S.2d 769 (quoting Caporino v. Travelers Ins. Co., 62 N.Y.2d 234, 239, 476 N.Y.S.2d 519, 465 N.E.2d 26 (1984)); see also Sterbenz, 205 F.Supp.2d at 70 ("a court is not at liberty to impose obligations inconsistent with those imposed under the written agreement.... Accordingl...