CATTERSON, J.
The parties in this breach of contract action have been engaged in a highly contentious business relationship since they agreed to form a joint venture to build a multi-billion dollar undersea fiber-optic telecommunications network almost 15 years ago. Between periods of litigation, the parties have spent the last 12 years unhappily and unsuccessfully negotiating the details of the plaintiffs' usage of such a network. We now find that the prior decisions of this Court and the Court of Appeals in favor of the defendants did not extinguish the defendants' obligation to continue negotiations with the plaintiffs in good faith.
The record reflects the following: In November 1999, IDT Corp. and IDT Europe, B.V.B.A. (collectively, plaintiffs) and Tyco Group, S.A.R.L., Tycom (US), Inc., Tyco International,
The defendants agreed to provide the plaintiffs, for their exclusive use, an "indefeasible right to use" (hereinafter referred to as an IRU) two wavelengths, free of charge, for 15 years, beginning in 2002 for one wavelength and 2003 for the second. The defendants also agreed to provide operations, administration and management (hereinafter referred to as OAM) for the wavelengths used by the plaintiffs for the same periods.
The settlement agreement further stated that the plaintiffs' IRU "shall be documented pursuant to definitive agreements to be mutually agreed upon and, in any event, contain[ ] terms and conditions consistent with those described" in the settlement agreement (emphasis added). The future agreements were to include terms governing, among other things, resale of capacity; provisioning, installation and commissioning of wavelengths; portability of capacity; and collocation services. Those agreements, including the IRU, were to be in writing and consistent with the defendants' standard agreements (which did not yet exist) with similarly situated customers or market rates, subject to any future negotiations between the parties.
After several years of unsuccessful negotiations, on May 4, 2004, the plaintiffs commenced a breach of contract action in Supreme Court. The plaintiffs alleged that the settlement agreement was a valid contract that obligated the defendants to provide IRU and OAM, and that the defendants had failed to supply the IRU and OAM in accordance with the terms of the agreement. The plaintiffs moved for partial summary judgment on the issue of liability, and the defendants cross-moved for summary judgment dismissing the complaint.
The motion court granted the plaintiffs' motion for partial summary judgment on the issue of liability and denied that portion of the defendants' cross motion seeking dismissal of the
The plaintiffs appealed and on October 22, 2009, the Court of Appeals affirmed. (IDT Corp. v Tyco Group, S.A.R.L., 13 N.Y.3d 209 [2009].) The Court held that the record did not support a finding that the defendants breached any of their obligations but that "under the settlement agreement, the parties were required to negotiate the terms of the IRU and other agreements in good faith." (13 NY3d at 214.) The Court found that the settlement agreement was valid, but that it "contemplated... the negotiation and execution of four additional agreements, most importantly, the IRU." (13 NY3d at 214.) The Court reasoned that although there was a valid contract, the defendants'" obligation to furnish capacity never became enforceable because agreed-upon conditions were not met." Thus, the Court concluded that the defendants did not "breach[ ] the settlement agreement by merely proposing an IRU which allegedly contained [three] terms inconsistent with settlement." (13 NY3d at 214.)
Subsequently, the parties resumed negotiations, but on November 15, 2010, the plaintiffs commenced this action in Supreme Court alleging that the defendants had breached the settlement agreement and their duty to negotiate in good faith.
On appeal, the plaintiffs contend that the motion court erred, and should not have dismissed their complaint. For the reasons set forth below, we agree.
The motion court misconstrued the Court of Appeals decision in favor of the defendants. Specifically, the motion court focussed on the conclusion that, "[a]lthough there was a valid settlement agreement in this case, [the defendants'] obligation to furnish capacity never became enforceable because agreed-upon conditions were not met." (IDT Corp., 13 NY3d at 214 [emphasis added].) It interpreted the highlighted phrase to mean that the defendants had "no further obligations under the [s]ettlement [a]greement." This was error.
The Court was simply observing that the allegations specified in the plaintiffs' first complaint did not articulate a breach at the time the action was commenced given the non-occurrence of a condition precedent: namely, the parties had not yet entered into final agreements, and the defendants had not otherwise breached their duty to negotiate.
More significantly, the cases relied upon by the motion court in which the failure to satisfy a condition precedent results in the discharge of further obligations under an agreement are distinguishable in that they involve incidents where performance of a condition precedent was required by a date certain. (See MHR Capital Partners LP v Presstek, Inc., 12 N.Y.3d 640 [2009] [plaintiff's failure to obtain a consent by close of business on June 22, 2004 relieved defendant of its obligation to perform under a stock purchase agreement].) Obviously, in those cases, the defendants had no further duty to perform under the contract because, having passed the date certain, the condition precedent could never be satisfied.
On appeal, the defendants additionally argue that "a contractual obligation must be performed within a reasonable time" and that, in this case, such time has passed. They further suggest that the plaintiffs are responsible for this protracted litigation, and through the defendants' disingenuous use of block
Moreover, this Court's decision, which the Court of Appeals affirmed, clarifies that the parties were obligated to continue to negotiate until either side insisted that the open terms be as set forth in the defendants' standard agreements. (54 AD3d at 275.) Since there was no evidence that either party insisted on this provision, the parties remained obligated to continue negotiations subsequent to the Court of Appeals decision.
Hence, accepting the allegations in the complaint as true, and according the plaintiffs the benefit of every possible favorable inference, as we must on a motion to dismiss (Leon v Martinez, 84 N.Y.2d 83 [1994]), the plaintiffs here state a cause of action for breach of the agreement and breach of the duty to negotiate in good faith.
In this case, the plaintiffs allege that the defendants breached the agreement by frustrating the occurrence of the condition precedent in disavowing their obligation to negotiate. Specifically, the plaintiffs allege that on December 8, 2009, the defendants replied to the plaintiffs' communication and stated that, in light of the decisions of the Appellate Division and Court of Appeals, they no longer had any obligations under the settlement agreement.
The plaintiffs further allege that the defendants continued to disavow their obligations, while nevertheless appearing to consider the plaintiffs' proposals for the IRU, and while making their own proposals throughout 2009 and 2010.
Hence, even though the parties apparently continued to negotiate, the defendants' statements that they had no further
The plaintiffs' allegations also support a cause of action for the breach of the defendants' duty to negotiate in good faith. It is well established that a covenant of good faith and fair dealing is implied in all contracts. (Dalton v Educational Testing Serv., 87 N.Y.2d 384, 389 [1995].) This includes the promise that "`neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" (Id., quoting Kirke La Shelle Co. v Armstrong Co., 263 N.Y. 79, 87 [1933].) The obligation to negotiate in good faith bars a party from insisting on conditions that are materially at odds with an already established preliminary agreement. (Credit Suisse First Boston v Utrecht-America Fin. Co., 80 A.D.3d 485 [1st Dept 2011].)
Here, the plaintiffs allege that on May 18, 2010, they provided a proposed "IRU Agreement," which the defendants rejected "without any justification." Instead, the defendants sent back the IRU with proposed changes that allegedly resulted in 10 "significant provisions" that were inconsistent with the terms of the settlement agreement. The plaintiffs allege that, despite several attempts to point out these inconsistencies, the defendants refused to entertain any other versions of the proposed IRU.
Furthermore, although neither the complaint nor the record are specific as to the 10 inconsistencies in the IRU proposed by the defendants in 2010, we must accept the plaintiffs' allegation that they are "significant." Since it is conceivable that the defendants could have proposed terms in 2010 that are so unreasonably inconsistent with the settlement agreement that they rise to the level of bad faith, it would be premature to dismiss this part of the complaint at the pleading stage.
As discussed above, the plaintiffs' current claims arise from the alleged actions and omissions of the defendants after the Court of Appeals decision. Thus, the conduct complained of now could not have been the basis for the breach of contract action previously dismissed by this Court and the Court of Appeals. Because this claim does not arise out of the same transactions or series of transactions previously litigated, this action is not barred by res judicata. Similarly, this action is not barred by collateral estoppel because the issues raised here were not raised or decided in the prior litigation. The defendants' assertions to the contrary, the defendants never argued in opposition to the previous breach of contract action that they had discharged their obligation to negotiate with the plaintiffs, nor did any court address that issue.
It should also be noted that the Court of Appeals did not previously determine the issue of whether the defendants' proposals were a breach of the duty to negotiate in good faith; it did not consider the substance or merit of the proposals; it simply held that the making of proposals was not a breach of the settlement agreement.
We have considered the defendants' remaining arguments and find them unpersuasive.
Accordingly, the order of the Supreme Court, New York County (Melvin L. Schweitzer, J.), entered June 20, 2011, which granted the motion of defendants Tyco Group, S.A.R.L., Tycom (US), Inc., Tyco International, Ltd., Tyco International (US) Inc., and Tycom Ltd. to dismiss the complaint pursuant to CPLR 3211 (a) (7), should be reversed, on the law, with costs, and the motion denied.
FRIEDMAN, J. (concurring).
I concur in reversing the order appealed
Given our obligation, at this pre-discovery stage of the proceeding, to assume the truth of the allegations of the complaint and to draw all reasonable inferences in favor of the pleader, the above-quoted allegation of paragraph 50 of the present complaint suffices to sustain the causes of action asserted therein for breach of the settlement agreement and breach of the obligation to negotiate in good faith. Again, it has never been adjudicated that Tyco's obligations under the settlement agreement have been discharged. Further, the conduct described in paragraph 50 of the present complaint allegedly occurred after the dismissal of the previous action, and neither of the appellate decisions dismissing the previous complaint held that conduct of that kind, if proven, would not constitute a breach of Tyco's obligations. Accordingly, the dismissal of the previous action does not bar the present action as either res judicata or collateral estoppel.
Order, Supreme Court, New York County, entered June 20, 2011, reversed, on the law, with costs, and the motion denied.