Messner Vetere Berger McNamee Schmetterer Euro RSCG Inc. v. Aegis Group PLC

• Decision Date: 25 March 1999
• Citation: 711 N.E.2d 953,689 N.Y.S.2d 674,93 N.Y.2d 229
• Parties: , 711 N.E.2d 953, 1999 N.Y. Slip Op. 2626 MESSNER VETERE BERGER McNAMEE SCHMETTERER EURO RSCG INC., Appellant, v. AEGIS GROUP PLC, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 674

689 N.Y.S.2d 674

93 N.Y.2d 229, 711 N.E.2d 953, 1999 N.Y. Slip Op. 2626

MESSNER VETERE BERGER McNAMEE SCHMETTERER EURO RSCG INC., Appellant, v. AEGIS GROUP PLC, Respondent.

Court of Appeals of New York.

March 25, 1999.

Winston & Strawn, New York City (Alan B. Howard, Daniel R. Murdock and Jeremy F. Manning, of counsel), for appellant.

Bressler, Amery & Ross, P.C, New York City (David H. Pikus of counsel), for respondent.

OPINION OF THE COURT

SMITH, J.

This case presents us with two certified questions from the United States Court of Appeals for the Second Circuit regarding the adequacy at the pleading stage of a claim invoking the part performance exception to the Statute of Frauds.

Plaintiff, Messner Vetere Berger McNamee Schmetterer Euro RSCG Inc., commenced an action in Federal District Court against defendant, Aegis Group PLC, seeking a declaratory judgment and damages for breach of contract based upon an alleged oral agreement pertaining to plaintiff's obligations under a commercial lease, which, plaintiff claims, Aegis orally assumed. On Aegis' motion, the District Court dismissed the complaint, concluding that Aegis' conduct was not "unequivocally referable to the oral agreement" and that plaintiff had failed to state a claim sufficient at the pleading stage to invoke the part performance exception to the New York Statute of Frauds (974 F.Supp. 270, 274-275). Finding that the unresolved issues "concern[ed] the proper interpretation and application of New York's part performance exception to the Statute of Frauds" (150 F.3d 194, 195), the Second Circuit certified the following two questions for this Court's review:

"1. Whether the part performance doctrine is adequately invoked at the pleading stage by a claim that the plaintiff 'took no action' with respect to a pre-existing written agreement, relying on an oral promise allegedly made by the defendant to the plaintiff that the defendant would act in place of the plaintiff and fulfill all of the plaintiff's obligations under that agreement.

"2. Whether the plaintiff's allegation of part performance by the defendant alone states a claim under the part performance doctrine."

We answer both questions in the negative. In the circumstances presented, plaintiff cannot claim the benefit of the part performance doctrine to avoid the Statute of Frauds.

I.

As stated by the Second Circuit in its certification, in 1979, HBM Creamer Inc., an advertising agency, entered into a 20- year written lease agreement with Paramount Equities, Ltd., as the agent for MRI Broadway Rental, Inc. The agreement provided for the rental of the entire 27th floor and part of the 26th floor of an office building at 1633 Broadway in New York City. Creamer occupied the entire 27th floor, and its subsidiary, CDB Inc., an entity not in the advertising business, occupied the space on the 26th floor. The total rent was $775,450 per year. In July 1986, defendant Aegis--an English company--purchased all of Creamer's outstanding stock, making Creamer its wholly-owned subsidiary. Subsequently, Creamer, after a reorganization, became part of defendant's Advertising Holding Company.

In February 1987, Creamer, the only tenant on the lease, with the approval of the landlord, sublet the 26th floor space to an unrelated third party. Later that year Aegis moved essentially all of Creamer's operations into another Manhattan building, and merged Creamer into Della Femina McNamee Inc. (DFM), which became Creamer's successor to the lease. At the same time, Aegis, along with other entities, a Non- Holding Company and CDB, took over and occupied the 27th floor space previously occupied by Creamer. No sublease agreement or written assignment of the lease was ever executed. In March 1988, Aegis sold 20% of the stock in its Advertising Holding Company--and therefore a 20% interest in DFM--to plaintiff, Messner Vetere. In 1989, Aegis sold plaintiff an additional 40%, and finally, in 1992, sold plaintiff its remaining 40% interest in DFM.

The complaint alleges that although DFM (formerly Creamer) remained the named tenant on the lease, Aegis agreed with Messner Vetere, in conjunction with the sale of shares in 1988, to have Aegis' Non-Advertising Holding Company both "assume direct responsibility for all obligations under the Lease" and "hold Creamer * * * and any successor-in-interest, harmless from any further financial exposure on the Lease." This alleged agreement was also never put in writing.

In September 1990, in a separate transaction with Aegis, plaintiff also purchased all of the outstanding shares of CDB. The purchase agreement included a reference to the 1979 lease agreement as follows:

"CDB subleases, 19,675 square feet of office space at 1633 Broadway, New York, New York at a monthly rental of $44,184. There is no formal sublease with respect to these premises. The lessee under the lease is Creamer, Inc. (now DFM). The lease prohibits assignment without consent except under certain circumstances including assignment to a company under common control with lessee. As DFM and CDB are not at present under common control, the sublease to CDB is not permitted under the terms of the lease."

On December 3, 1992, Aegis' group comptroller sent a memorandum to the individual at Aegis who had functioned as administrator of the lease. The memorandum, which plaintiff attached to its complaint, stated that the company was "currently preparing a list of [its] property liabilities" and believed that its only property in the United States was 1633 Broadway. According to the complaint, from the time Creamer moved out of the space in 1987 until May 1, 1995, Aegis negotiated sublease agreements with third parties, collected sublease payments, made all payments due to the landlord, filed commercial tax returns and paid commercial rent tax to the City of New York for the space. As alleged, Aegis never consulted with, or provided notice to, Creamer or its successors with respect to any of these activities. In short, Aegis assumed Creamer's obligations under the lease without ever executing a written agreement to that effect, even though, by June 1992, Aegis no longer had any financial interest in Creamer.

On March 9, 1995, Aegis sent plaintiff a letter in which Aegis first noted that it had been fulfilling the obligations under the lease, and then declared that it "would terminate all involvement with respect to the Lease as of April 30, 1995." Therefore, beginning on May 1, 1995, plaintiff began paying the rent for the space. Plaintiff has never disputed that as between the landlord and itself, it is liable (as Creamer's successor) for the payment of the rent. Plaintiff then filed the instant action against Aegis in Federal District Court seeking damages for breach of contract and a declaratory judgment that Aegis assumed all obligations under the lease. Aegis moved for dismissal on the ground that plaintiff was barred from recovery by the New York Statute of Frauds (General Obligations Law §§ 5-701, 5-703). In response, plaintiff argued that although the Statute of Frauds did apply to the alleged oral agreement, its claims were nonetheless saved by the equitable doctrine of part performance.

The District Court dismissed the complaint, holding that Aegis' conduct was not "unequivocally referable to the oral agreement" and that plaintiff had failed to state a claim sufficient at the pleading stage to invoke the part performance exception to the New York Statute of Frauds (974 F.Supp. at 274-275, supra). Additionally, the Court concluded that plaintiff's claim for damages, as opposed to its claim for specific performance, sounded in law rather than equity, and therefore could not be redressed by New York's equitable doctrine of part performance. ¹ On plaintiff's appeal, the United States Court of Appeals for the Second Circuit certified to this Court the aforementioned questions, which we accepted for review.

II.

It is long settled under New York's Statute of Frauds that an oral agreement to convey an estate or interest in real property, other than a lease for a term not exceeding one year, is "nugatory and unenforceable," and "[a] party to the agreement may legally and rightfully refuse to recognize or perform it" (Woolley v. Stewart, 222 N.Y. 347, 350-351, 118 N.E. 847; General Obligations Law § 5-703). A party may, however, lose the benefit of the defense of the Statute of Frauds, "or waive its protection, by inducing or permitting without remonstrance another party to the agreement to do acts, pursuant to and in reliance upon the agreement, to such an extent and so substantial in quality as to irremediably alter [the] situation and make the interposition of the statute against performance a fraud" (id., at 351, 118 N.E. 847).

Codified in New York's General Obligations Law, section 5-703(4), ² the doctrine of part performance is based on principles of equity, and, specifically, recognition of the fact that it would be a fraud to allow one party to a real estate transaction to escape performance after permitting the other party to perform in reliance on the agreement (Walter v. Hoffman, 267 N.Y. 365, 196 N.E. 291; McKinley v. Hessen, 202 N.Y. 24, 95 N.E. 32, rehg. denied 202 N.Y. 587, 96 N.E. 1121). Part performance alone, of course, is not sufficient. The performance must be unequivocally referable to the agreement (Burns v. McCormick, 233 N.Y. 230, 232, 135 N.E. 273; Woolley v. Stewart, 222 N.Y., supra, at 351, 118 N.E. 847).

Although application of the part performance doctrine has traditionally been grounded on affirmative acts of the party aggrieved, in concept part performance in the form of inaction might also suffice. The doctrine, whose roots lie in equity to prevent injustice by fraud, is invoked as an equitable remedy by the party aggrieved and applied by courts of equity in the determination of what justice and fairness require. As a hallmark of equity, the doctrine remains...