Saulsbury v. Durfee
| Decision Date | 28 January 2022 |
| Docket Number | 847,CA 21-00210 |
| Citation | 201 A.D.3d 1318,162 N.Y.S.3d 614 |
| Parties | Vicki L. SAULSBURY, Plaintiff-Appellant-Respondent, v. Nicki M. DURFEE, Defendant-Respondent-Appellant. |
| Court | New York Supreme Court — Appellate Division |
LACY KATZEN LLP, ROCHESTER (DAVID D. MACKNIGHT OF COUNSEL), FOR PLAINTIFF-APPELLANT-RESPONDENT.
It is hereby ORDERED that the order so appealed from is modified on the law by granting the motion insofar as it sought summary judgment on the issue of liability with respect to the first cause of action and insofar as it sought summary judgment dismissing the fourth affirmative defense and the second and third counterclaims, and as modified the order is affirmed without costs.
Memorandum: In late 2016, plaintiff and defendant entered into a sales contract whereby plaintiff agreed to sell defendant the business assets related to her operation of an exclusive H&R Block franchise for the Town of Attica (sales contract). To secure payment for the transfer of assets under the sales contract, defendant executed a promissory note in plaintiff's favor in the amount of $200,000, which was payable over 10 years in annual installments of $20,000, plus interest. The sales contract also provided, in relevant part, that the $200,000 purchase price was paid "in consideration of the sale, transfer, assignment and delivery of the [p]urchased [a]ssets and the covenants made by [plaintiff] under the [n]oncompetition [a]greement." It is undisputed, however, that at the time of the closing on the sales contract, no noncompetition agreement was provided. Indeed, the only item attached to the sales contract at closing was the promissory note. Based on the submissions in this case, the promissory note was intertwined with the sales contract (see generally Oseff v. Scotti , 130 A.D.3d 797, 800-801, 15 N.Y.S.3d 350 [2d Dept. 2015] ; Lorber v. Morovati , 83 A.D.3d 799, 800, 922 N.Y.S.2d 109 [2d Dept. 2011] ), and the parties have proceeded in this action accordingly.
A few months after the parties closed on the sales contract, plaintiff worked for defendant as an hourly employee for several months, until defendant terminated plaintiff's employment. Plaintiff was employed by defendant pursuant to a standard form "tax professional employment agreement" (employment agreement). Relevantly, the employment agreement contained several covenants not to compete that, inter alia, prohibited plaintiff from performing outside tax preparation work while working for defendant and for two years post-termination. Nothing in the employment agreement referenced the sales contract, and nothing in the sales contract referenced the employment agreement.
Although defendant paid the first installment due on the promissory note, she did not submit payment for any other installment. Plaintiff demanded payment, to no avail, and thereafter commenced this action. Specifically, she asserted two causes of action, one for defendant's default under the sales contract (first cause of action), and another for unjust enrichment. In her answer, defendant interposed as affirmative defenses that, inter alia, plaintiff's breach of a covenant not to compete absolved defendant of the obligation to pay under the promissory note (fourth affirmative defense), and that plaintiff's breach of contract entitled defendant to an offset on the balance of the promissory note (fifth affirmative defense). Defendant also asserted three counterclaims, for breach of the employment agreement, unfair competition, and tortious interference with prospective business relations.
Plaintiff moved for, inter alia, summary judgment on the first cause of action and dismissing the counterclaims and the fourth and fifth affirmative defenses, and defendant cross-moved for, inter alia, partial summary judgment on the issue of liability with respect to allegations in the first counterclaim that plaintiff breached certain sections of the employment agreement and, alternatively, for an offset against the amount owed upon the promissory note. In its order, Supreme Court granted the motion insofar as it sought summary judgment dismissing certain affirmative defenses other than the fourth and fifth affirmative defenses but otherwise denied the motion, concluding that, although plaintiff satisfied her initial burden, there were issues of fact whether defendant had a defense to her default on the promissory note based on plaintiff's alleged violation of the covenants not to compete in the employment agreement, which the court concluded was inextricably intertwined with the sales contract. The court denied the cross motion based on its conclusion that defendant had not satisfied her initial burden. Plaintiff appeals, and defendant cross-appeals.
With respect to plaintiff's appeal, we conclude that the court erred in denying the motion with respect to the first cause of action as to the issue of liability and the fourth affirmative defense. It is undisputed that plaintiff met her initial burden on the motion in those respects by submitting the promissory note, and evidence of defendant's default (see Sandu v. Sandu , 94 A.D.3d 1545, 1546, 942 N.Y.S.2d 914 [4th Dept. 2012] ; North Am. Pneumatic Tube Co. v. Mishkin , 203 A.D.2d 944, 944, 612 N.Y.S.2d 1021 [4th Dept. 1994], lv denied 84 N.Y.2d 802, 617 N.Y.S.2d 136, 641 N.E.2d 157 [1994] ). We further conclude that, in opposition, defendant did not raise a triable issue of fact with respect to any defense to her default on the promissory note sufficient to defeat the motion as to liability (see generally Zuckerman v. City of New York , 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ). Here, the court determined that defendant raised an issue of fact in opposition to the motion, specifically, whether plaintiff's alleged breach of the covenants not to compete in the employment contract constituted a defense to defendant's default because the sales contract and the employment agreement were inextricably intertwined such that the covenants not to compete constituted the noncompetition agreement contemplated by, but not included in, the sales contract. That determination was erroneous.
"Generally, breach of a related contract will not in the ordinary course defeat summary judgment on [a promissory] note[ ]" ( Ssangyong [U.S.A.] Inc. v. Sung Ae Yoo , 88 A.D.2d 572, 573, 451 N.Y.S.2d 90 [1st Dept. 1982] ; see Logan v. Williamson & Co. , 64 A.D.2d 466, 470, 409 N.Y.S.2d 883 [4th Dept. 1978], appeal dismissed 46 N.Y.2d 996, 416 N.Y.S.2d 242, 389 N.E.2d 837 [1979] ). Nonetheless, that "rule does not apply where the contract and instrument are intertwined" and inseparable ( A+Assoc. v. Naughter , 236 A.D.2d 655, 656, 654 N.Y.S.2d 44 [3d Dept. 1997] ; see Yoi-Lee Realty Corp. v. 177th St. Realty Assoc. , 208 A.D.2d 185, 189, 626 N.Y.S.2d 61 [1st Dept. 1995] ; see also Town of West Seneca v. American Ref-Fuel Co. of Niagara , 1 A.D.3d 944, 945, 768 N.Y.S.2d 68 [4th Dept. 2003] ). Whether two agreements are inextricably intertwined is a question of law for the court to decide because it involves a matter of contract interpretation (see Mallad Constr. Corp. v. County Fed. Sav. & Loan Assn. , 32 N.Y.2d 285, 291, 344 N.Y.S.2d 925, 298 N.E.2d 96 [1973] ; Matter of Erie County Dept. of Social Servs. v. Bower , 177 A.D.3d 1387, 1388, 114 N.Y.S.3d 788 [4th Dept. 2019] ).
Here, the sales contract and employment agreement are not inextricably intertwined such that plaintiff's purported breach of the noncompetition covenants in the latter constitute a defense to defendant's default on the promissory note (see Frank v. Wyse , 295 A.D.2d 923, 924, 744 N.Y.S.2d 735 [4th Dept. 2002] ; McMann v. Ballantyne Mar., Inc. , 182 A.D.2d 1131, 1132, 586 N.Y.S.2d 225 [4th Dept. 1992] ; Marx v. LaRouche , 152 A.D.2d 927, 928, 544 N.Y.S.2d 257 [4th Dept. 1989] ; Logan , 64 A.D.2d at 470, 409 N.Y.S.2d 883 ). Importantly, the two agreements at issue here never reference each other, and did not incorporate any terms of the other. Indeed, both agreements were executed at different times and for entirely different purposes, and it cannot be said that the sales contract and employment agreement constituted a single integrated agreement, the terms of which were not in dispute . The sales contract never once mentioned that it was conditioned on plaintiff being employed by defendant, nor does the sales contract even contemplate such a scenario (see Grasso v. Shutts Agency, Inc. , 132 A.D.2d 768, 768-769, 517 N.Y.S.2d 113 [3d Dept. 1987], appeal dismissed 70 N.Y.2d 797, 522 N.Y.S.2d 114, 516 N.E.2d 1227 [1987] ). Further, the plain terms of the promissory note indicate that it is an unambiguous instrument containing an unconditional promise to pay, unadorned with any reference of the employment agreement (see North Am. Pneumatic Tube Co. , 203 A.D.2d at 944, 612 N.Y.S.2d 1021 ). Another factor that supports the conclusion that the sales contract and the employment agreement were not intertwined is the fact that each contained a merger clause providing that each contract constituted its own entire agreement (see JMG Custom Homes, Inc. v. Ryan , 45 A.D.3d 1278, 1280, 844 N.Y.S.2d 817 [4th Dept. 2007] ).
Given the evidence establishing that the sales contract and the employment agreement are not inextricably intertwined, we conclude that any purported breach of the covenants not to compete in the employment agreement is not a defense to the first cause of action. Thus, any breach of that portion of the employment agreement by plaintiff does not raise an issue of fact with respect to whether def...
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