PHL Variable Ins. Co. v. Town of Oyster Bay

• Decision Date: 09 July 2019
• Docket Number: Docket No. 18-0575-cv,August Term, 2018
• Citation: 929 F.3d 79
• Parties: PHL VARIABLE INSURANCE COMPANY, Plaintiff-Appellant, v. TOWN OF OYSTER BAY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

929 F.3d 79

PHL VARIABLE INSURANCE COMPANY, Plaintiff-Appellant,

v.TOWN OF OYSTER BAY, Defendant-Appellee.

Docket No. 18-0575-cv

August Term, 2018

United States Court of Appeals, Second Circuit.

Argued: October 24, 2018

Decided: July 9, 2019

BRYAN F. LEWIS, Islandia, New York (Jennifer H. McGay, Lewis Johs Avallone Aviles, Islandia, New York, on the brief), for Plaintiff-Appellant.

KATHLEEN M. SULLIVAN, New York, New York (Jonathan E. Pickhardt, Rex Lee, Monica E. Tarazi, Quinn Emanuel Urquhart & Sullivan, New York, New York, on the brief), for Defendant-Appellee.

Before: KATZMANN, Chief Judge, KEARSE, Circuit Judge, and MEYER, District Judge^*

KEARSE, Circuit Judge:

Plaintiff PHL Variable Insurance Company ("PHL") appeals from so much of an order of the United States District Court for the Eastern District of New York, Sandra J. Feuerstein, Judge , as denied reconsideration of a final judgment dismissing PHL's amended complaint ("Amended Complaint") alleging claims of, inter alia , breach of contract, innocent misrepresentation, and fraud, in connection with PHL's making to a licensee of defendant Town of Oyster Bay ("Town") a loan that was allegedly secured by the Town. The district court declined to reconsider its original decision granting the Town's motion pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the Amended Complaint for failure to state a claim, on the ground—adhered to in the postjudgment order—that the amended complaint did not plausibly allege that the claimed agreement by the Town had been approved by the Town's governing board through a resolution as required by New York Town Law § 64(6), and hence did not plausibly allege the existence of a valid and enforceable contract. See PHL Variable Insurance Co. v. Town of Oyster Bay , 16-CV-4013, 2017 WL 2371188, at *12 (E.D.N.Y. May 30, 2017) (" D.Ct. 2017 Opinion"); Opinion and Order dated January 29, 2018. On appeal, PHL contends principally that the court (a) erred in failing to view the amended complaint as alleging Board authorization of the contract, (b) erred in ruling that PHL failed to allege actionable misrepresentation, and (c) abused its discretion in refusing to allow plaintiff to file a second amended complaint to allege Board ratification of the contract. Finding no merit in plaintiff's contentions, we affirm.

I. BACKGROUND

The following account is based on nonconclusory factual allegations in the Amended Complaint, which we accept as true for purposes of reviewing the dismissal pursuant to Rule 12(b)(6).

A. The Municipal Concession Contracts

The Town, located in Nassau County, New York, owns and operates several recreational facilities, including a municipal golf course ("Golf Course") that offers multiple dining and concession facilities ("Facilities"). The claims asserted by PHL relate to agreements entered into by the Town with one or more nonparty entities for the operation of food and beverage services at the Golf Course and for the funding and implementation of major capital improvements to the Golf Course club house.

In an October 2000 agreement between the Town and nonparty SRB Catering Corp. d/b/a H.R. Singleton's Classic American Grille ("SRB Catering"), the Town licensed SRB Catering, for a 20-year term, to operate the Golf Course dining and concession facilities, for which it would pay fees to the Town, and required SRB Catering to, inter alia , expend approximately $2,097,000 in making specific capital improvements to the Facilities within the first three years of the agreement ("Concession Agreement"). This Concession Agreement, attached to the Amended Complaint as Exhibit A, was authorized by Town Board Resolution 638-2000. Upon completion and acceptance of the work, title to all capital improvements was to vest in the Town. (See Concession Agreement ¶ 39(g).)

The Concession Agreement, whose term was to end on December 31, 2020, gave the Town an option to renew SRB Catering's license, extending it for a 10-year period. In April 2005, in light of the fact that SRB Catering, while only obligated by the Concession Agreement to expend $2,097,000 in making capital improvements, had in fact expended $4,600,000 for such improvements, the Town entered into an agreement with nonparty SRB Convention and Catering Corp., d/b/a The Woodlands and PassionFish ("SRB Convention"), that amended the Concession Agreement ("2005 Amendment" or "FACA"). (See Amended Complaint ¶¶ 17-18 & Exhibit B.) The parties during this litigation have treated SRB Catering and SRB Convention as the same entity, see , e.g. , D.Ct. 2017 Opinion, at *2 n.2 (noting such treatment despite indications that SRB Catering and SRB Convention were different entities), and the 2005 Amendment made no distinction between the two. The FACA at the outset defined SRB Convention as "the ‘CONCESSIONAIRE’ "; its introductory "WHEREAS" clause referred to the "major capital improvements heretofore performed" at the Golf Course "by the CONCESSIONAIRE"; and paragraph 37 referred to license fees that "the CONCESSIONAIRE began to pay the TOWN" on "January 1, 2001." Accordingly, we will refer to SRB Catering and SRB Convention singly or collectively as "SRB."

The FACA, which was authorized by Town Board Resolution No. 313-2005, provided, inter alia , that the Town accepted the $4,600,000 in capital improvements already made "by the CONCESSIONAIRE" and noted that "[t]he CONCESSIONAIRE may make additional capital improvements ... at its own cost and expense, with no setoff" against payments due the Town (FACA ¶ 39(b)). It noted the Town's option to renew the Concession Agreement for a "ten-year renewal" period and stated that the Town "exercises the renewal" and that the "[FACA] shall be effective through December 31, 2029 [sic ]." (FACA ¶ 37.)

In September 2008, the Town and SRB, after additional capital improvements had been made, entered into another agreement to amend the Concession Agreement ("2008 Agreement"). The 2008 Agreement, which was authorized by Town Board Resolution No. 889-2008, noted that SRB, having been obligated to expend $2,097,000 and having actually expended $4,600,000, "now proposed to make an additional $3,250,000 in capital improvements, to the facility, within the next three years." (2008 Agreement at 1.) The 2008 Agreement required SRB to make the additional $3,250,000 in improvements by the end of 2011; and "[i]n consideration," the Town extended the term of the licence for an additional 20 years, through December 31, 2049. (Id . at 2.)

B. Enter PHL

"Sometime during 2010, SRB determined that it would require financing to, inter alia , properly operate the Facilities and complete the improvements required by the terms of" the 2008 Agreement (Amended Complaint ¶ 22), and it entered into negotiations with an entity that was "a loan broker for PHL" (id . ¶ 24). The Amended Complaint alleged that "PHL was unwilling to commit loan money to SRB" because SRB "had no collateral to support any potential loan." (Id . ¶¶ 25-26.) Accordingly, PHL sought "a transaction that would assure that PHL would receive significant monies from [the Town] in the event that SRB defaulted in its repayment obligations." (Id . ¶ 27.)

The Amended Complaint alleged that the respective attorneys for SRB, the Town, PHL, and its broker "collaboratively created a vehicle whereby," if SRB defaulted on its loan, the Concession Agreement would be terminated automatically and "[the Town] would be required to" pay PHL the outstanding balance on SRB's loan. (Id . ¶ 28.)

29. As a result of the successful conclusion of those negotiations, [ ]PHL agreed to provide financing to SRB in the amount of $7,843,138.08, inclusive of interest ("Loan").

....

31. Additionally, contemporaneously with, and as part of the Loan transaction, SRB and [the Town] agreed to amend the Concession Agreement . That amendment was effectuated by a certain Amendment to Concession Agreement dated as of November 18, 2011, a true and accurate copy of which is attached hereto as Exhibit F ....

(Amended Complaint ¶¶ 28-29, 31 (italics in original).) And pursuant to that subsequent "Amendment to Concession Agreement" (which, similarly to the district court, we will refer to as the "SACA"), if SRB defaulted on its loan, the Town would be obligated to pay PHL "as described above" (id . ¶ 32).

In addition, the SACA provided that even if SRB did not default on its loan, if the Town terminated the Concession Agreement for cause—e.g. , for SRB's failure to make contractual payments to the Town (see Concession Agreement ¶ 32)—the Town would be required to make a "Cause Termination Payment" to PHL (Amended Complaint ¶ 33). The amount of such a payment would be "five percent (5%) of the capital improvements made by SRB to the Facilities for each year[ ], or part of a year, remaining in the initial term of the [Concession Agreement ]," including renewal periods, up to "100% of the value of said improvements"—which "as of the date" of the SACA were agreed to have an "aggregate value" of "$10,000,000.00." (Id . (italics in original).)

PHL, which was not a party to the SACA, was thus "an intended third-party beneficiary of the [SACA]" (Amended Complaint page 11, ¶ 39). The SACA provided that the Town's obligation to pay PHL "would not be subject to any defenses, including but not limited to, the defenses of bankruptcy, or insolvency of [SRB]." (Id . ¶ 34.)

C. The Present Action

SRB ultimately ceased making payments to PHL on its loan, and in or about November 2015, PHL demanded payment of the balance from the Town. As of June 2016, the amount demanded by PHL totaled $6,252,623.82, including principal of $3,853,002.29. (See , e.g. , Amended Complaint page 11, ¶ 38.) The Town refused to pay, stating that the SACA was "of no legal effect because" it "purport[s] to make [the Town] a guarantor of the ... [L]oan, which violates Article VIII, § 1 of the New York State Constitution, and because [the SACA] was [not] authorized by a Town Board Resolution, as required under...