ATSCO Footwear Holdings, LLC v. KBG, LLC

• Decision Date: 13 April 2021
• Docket Number: Case No. 2020-02290,Index No. 654336/18,13581
• Citation: 148 N.Y.S.3d 24,193 A.D.3d 493
• Court: New York Supreme Court — Appellate Division
• Parties: ATSCO FOOTWEAR HOLDINGS, LLC formerly known as Atsco Footwear, LLC, Plaintiff-Appellant, v. KBG, LLC, Defendant-Respondent.

193 A.D.3d 493

148 N.Y.S.3d 24

ATSCO FOOTWEAR HOLDINGS, LLC formerly known as Atsco Footwear, LLC, Plaintiff-Appellant,

v.KBG, LLC, Defendant-Respondent.

13581

Index No. 654336/18

Case No. 2020-02290

Supreme Court, Appellate Division, First Department, New York.

ENTERED April 13, 2021

Arnold & Porter Kaye Scholer LLP, New York (James M. Catterson of counsel), for appellant.

Proskauer Rose LLP, New York (Peter J.W. Sherwin of counsel), for respondent.

Manzanet–Daniels, J.P., Mazzarelli, Oing, Kennedy, JJ.

Order, Supreme Court, New York County (O. Peter Sherwood, J.), entered April 14, 2020, which granted defendant's CPLR 3211(a)(1) and (7) motion to dismiss the complaint to the extent it alleged breach of a "Management Agreement" for failure to properly calculate "Net Gross Profits" for the 2013 through 2016 calendar years, and for failure to include certain management fees and royalty fees in the calculation of "Net Gross Profits," unanimously affirmed, with costs.

The letters and emails submitted by defendant establishes that plaintiff's principals "knowingly, voluntarily and intentionally" ( Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgt., L.P., 7 N.Y.3d 96, 104, 817 N.Y.S.2d 606, 850 N.E.2d 653 [2006] ) waived their contractual right to audit the "Computation Statements" setting forth the Net Gross Profits calculations during the relevant calendar years. Further, such correspondence constitutes "documentary evidence" that "utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law" ( Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314, 326, 746 N.Y.S.2d 858, 774 N.E.2d 1190 [2002] ; see also Amsterdam Hospitality Group, LLC v. Marshall–Alan Assoc., Inc., 120 A.D.3d 431, 432–433, 992 N.Y.S.2d 2 [1st Dept. 2014] ).

Contrary to plaintiff's contention, its audit right and right to a proper calculation of Net Gross Profits were not "separate and distinct" such that the waiver of the former did not amount to relinquishment of the latter. The purpose of the audit right was to allow plaintiff to verify whether Net Gross Profits were properly calculated. Thus, by waiving the audit rights, plaintiff was also waiving its right to challenge the calculation. We reject plaintiff's contention that its failure to invoke the audit procedure set forth in the Management Agreement does not bar it from now challenging the Net Gross Profits calculations. Acceptance of such a contention would render the contractual procedure for challenging the calculations meaningless (see Beal Savings Bank v. Sommer, 8 N.Y.3d 318, 324, 834 N.Y.S.2d 44, 865 N.E.2d 1210 [2007] ; RM 14 FK Corp. v. Bank One Tr. Co., N.A., 37 A.D.3d 272, 274, 831 N.Y.S.2d 120 [1st Dept. 2007] ). Plaintiff's contention that its waivers were "inoperable" because they "took place before [it] knew the full extent of KBG's breach of the Management Agreement" is circular, as the whole point of the audit right was to enable plaintiff to verify whether the Net Gross Profits were properly calculated.

Defendant could properly invoke the account stated doctrine as a defense to plaintiff's breach of contract claim, in view of plaintiff's express waiver of its audit rights and acquiescence to defendants' calculations, and acceptance of payments (see ...