[*1]
Legend Autorama, Ltd. v Audi of Am., Inc.
2011 NY Slip Op 51346(U) [32 Misc 3d 1216(A)]
Decided on July 14, 2011
Supreme Court, Suffolk County
Emerson, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law ยง 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on July 14, 2011
Supreme Court, Suffolk County


Legend Autorama, Ltd.; STORMS MOTORS, INC.; AUDI OF SMITHTOWN, INC.; and AUDI OF HUNTINGTON, INC., Plaintiffs,

against

Audi of America, Inc., a division of Volkswagen of America, Inc.; TOM DEL FRANCO and ATLANTIC IMPORTS, INC., Defendants.




38667-08



ROBINSON BROG LEINWAND GREENE GENOVESE & GLUCK, P.C.

Attorneys for Plaintiffs Audi of Smithtown, Inc., and Audi of Huntington, Inc.

875 Third Avenue, 9th Floor

New York, New York 10022

HOGAN LOVELLS US LLP

Attorneys for Defendant Audi of America, Inc.

875 Third Avenue

New York, New York 10022

LARUSSO AND CONWAY

Attorneys for Defendant Tom Del Franco

300 Old Country Road, Suite 341

Mineola, New York 11501

Elizabeth H. Emerson, J.

ORDERED that the motion by the defendant Tom Del Franco for summary judgment dismissing the complaint insofar as asserted against him is granted; and it is further

ORDERED that the motion by the defendant Audi of America, Inc., for summary judgment dismissing the complaint insofar as asserted against it is denied.

The plaintiffs Audi of Smithtown, Inc. ("Smithtown Audi") and Audi of Huntington, Inc. ("Huntington Audi") are two Audi dealerships located in Suffolk County, New

York. Smithtown Audi, which has been an Audi dealer since 2001, and Huntington Audi, which as been an Audi dealer since 1993, executed substantially the same dealer agreements with the defendant Audi of America ("Audi"). The agreements provided, in pertinent part, as follows:

Dealer assumes the responsibility in Dealer's Area for the promotion and sale of Authorized Products and for the supply of Genuine Parts and customer service for Authorized Products. This Agreement does not give Dealer any exclusive right to sell or service Authorized Products in any area or territory (empasis added).

Additionally, the agreements imposed upon Audi obligations to actively assist its dealers in all aspects of the dealers' operations through such means as Audi considered appropriate; to safeguard and promote the reputation of Audi and its products; to refrain from conduct that might be harmful to the reputation or marketing of Audi products or inconsistent with the public interest; and to avoid all discourteous, deceptive, misleading, unprofessional or unethical practices.

In 2007, Audi created a new Audi dealership in West Islip, New York, which is also located in Suffolk County. The West Islip dealership bordered the market areas assigned to both Smithtown Audi and Huntington Audi, and portions of their market areas were reassigned to the West Islip dealership. On May 10, 2007, the defendant Atlantic Imports, Inc., which is owned by John Staluppi, entered into a dealer agreement with Audi, and the West Islip dealership opened for business in August 2007.

Smithtown Audi and Huntington Audi, among others, commenced this action against Audi and its former Chief Operating Officer, the defendant Tom Del Franco for injunctive relief and to recover damages for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and tortious interference with contract [FN1]. The plaintiffs allege that Audi created the West Islip dealership after Audi had persuaded them to invest millions of [*2]dollars in their facilities in order to be eligible for bonus and promotional programs that they needed to remain competitive. The plaintiffs also allege that the West Islip dealership did not have any rational business justification; that it was not supported by Audi's own market studies; and that it was, in fact, opposed by Audi executives responsible for the Long Island market. The plaintiffs further allege that the creation of the West Islip dealership was motivated by Audi's desire to force one of its existing dealers in Suffolk County, the plaintiff Legend Autorama ("Legend"), out of business and Del Franco's desire to repay a favor to his friend John Staluppi. Del Franco and Audi both move to dismiss the complaint insofar as it is asserted against them.

The fourth cause of action for tortious interference with contract is asserted against Del Franco only. A claim for tortious interference with contract requires the existence of a valid contract between the plaintiff and a third party, the defendant's knowledge of that contract, the defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom (Lama Holding Co. v Smith Barney, 88 NY2d 413, 424). Smithtown Audi and Huntington Audi contend that Del Franco tortiously interfered with their contracts with Audi by targeting Legend for elimination,[FN2] by soliciting his friend John Staluppi to be the new Audi dealer, by pushing for the creation and award of the West Islip dealership to Staluppi, by disregarding the opposition to and lack of business justification for the new dealership, and by failing to disclose his purported conflict of interest to his superiors at Audi. It is undisputed that Del Franco was Audi's Chief Operating Officer when the West Islip dealership was awarded to Staluppi.

Generally, a director of a corporation is not personally liable to one who has contracted with the corporation on the theory of inducing a breach of contract merely due to the fact that, while acting for the corporation, he has made decisions and taken steps that resulted in the corporation's promise being broken (Courageous Syndicate v People-to-People Sports Comm., 141 AD2d 599, 600). Moreover, a corporate officer who is charged with inducing the breach of a contract between the corporation and a third party is immune from liability if it appears that he is acting in good faith and did not commit independent torts or predatory acts directed at another (Id.). Thus, the plaintiff must allege that the officer's or director's acts were taken outside the scope of his employment or that he personally profited therefrom (Id.).

Although Smithtown Audi and Huntington Audi contend that Del Franco acted in bad faith, the record does not reflect that he acted outside the scope of his employment as an officer of Audi, that he personally profited from the transaction, or that he committed any independently tortious or predatory acts directed at them (see, Britvan v Sutton & Edwards, 226 AD2d 490, 491, citing Courageous Syndicate v People-to-People Sports Comm., supra). The record reveals that the decision to eliminate Legend was made at meeting of Audi senior executives in October 2006 and that the creation of the West Islip dealership was supported by Audi's vice-president of sales and marketing, Johan De Nysschen, as well as Del Franco. While there is [*3]evidence in the record that Del Franco advocated for Staluppi and the West Islip dealership over opposition, the record does not reflect that he was motivated by a desire to harm or injure Smithtown Audi or Huntington Audi. Moreover, the only evidence that Del Franco may have benefitted from awarding the West Islip dealership to Staluppi is a vague and conclusory double hearsay statement that Del Franco owed Staluppi a favor. Finally, the dealership agreements with Audi did not give Smithtown Audi or Huntington Audi the exclusive right to sell Audi products in any area or territory. The court finds that, under these circumstances, the evidence is insufficient as a matter of law to establish that Del Franco tortiously interfered with Audi's contracts with Smithtown Audi and Huntington Audi. Accordingly, the court grants summary judgment dismissing the fourth cause of action.

The third cause of action for breach of fiduciary duty is asserted against both Audi and Del Franco. Del Franco had a fiduciary relationship with Audi as an officer thereof (see, Howard v Carr, 222 AD2d 843, 845). He did not have a fiduciary relationship with Smithtown Audi and Huntington Audi. Moreover, contrary to their contentions, he is not liable to them for aiding and abetting Audi's purported breach of fiduciary duty. A claim for aiding and abetting a breach of fiduciary duty requires (1) a breach by a fiduciary of obligations to another, (2) the defendant's knowing inducement or participation in the breach, and (3) damages (AHA Sales, Inc. v Creative Bath Prods, Inc., 58 AD3d 6, 23). Assuming that Del Franco knowingly aided and abetted Audi in breaching its purported fiduciary duty to the plaintiffs, the record does not reflect that he did so in any capacity other than his capacity as a corporate officer (Id.). Like inducing a breach of contract, he is immune from liability if he acted in his corporate capacity and did not commit any independent torts or predatory acts (Id. [and cases cited therein]). As previously discussed, the record does not reflect that Del Franco acted outside the scope of his employment as an officer of Audi, that he personally profited from the transaction, or that he committed any independently tortious or predatory acts directed at Smithtown Audi or Huntington Audi. Accordingly, the court grants summary judgment dismissing the third cause of action insofar as it is asserted against Del Franco.

Generally, there is no fiduciary relationship between a franchisor and a franchisee (Akkaya v Prime Time Transp., Inc., 45 AD3d 616, 617 [and cases cited therein]). A distributorship agreement may, in some rare instances, create a confidential relationship out of which a duty of fiduciary care arises (see, Lake Erie Distribs. v Marlet Importing, 221 AD2d 954, 955). A distributor enjoys a fiduciary relationship with a manufacturer when the manufacturer has a position of dominance over the distributor, the distributor invests time and money in the manufacturer's business, and the parties' contract obligates the distributor to reveal proprietary information to the manufacturer (Zimmer-Masiello, Inc. v Zimmer, Inc., 159 AD2d 363, 365, citing A.S. Rampell, Inc. v Hyster Co., 3 NY2d 369, 376-377; see also, Manhattan Motorcars, Inc. v Automobili Lamborghini, S.p.A., 244 FRD 204, 219-220; Beautiful Jewellers Private Ltd. v Tiffany & Co., US Dist Ct., SDNY, March 21, 2007, Wood, J. [2007 WL 867202]), at *5). While Audi urges the court to apply the general rule and find that it owes no fiduciary duty to Smithtown Audi and Huntington Audi, they have raised factual issues concerning the nature and extent of their relationship with Audi, which requires the denial of [*4]summary judgment (see, Zimmer-Masiello, Inc. v Zimmer, Inc., supra at 366).

Contrary to Audi's contentions, the breach-of-fiduciary-duty cause of action is not duplicative of the breach-of-contract cause of action. The same conduct that may constitute the breach of a contractual obligation may also constitute the breach of a duty arising out of the relationship created by the contract, but that is independent of the contract itself (Sally Lou Fashions Corp. v Camhe-Marcille, 300 AD2d 224, 225). In assessing whether a contractual claim will preclude a claim for breach of fiduciary duty, the question is whether there exists an independent basis for the fiduciary-duty claim apart from the contractual claim, even if both are related to the same or similar conduct (Coventry Real Estate Advisors v Developers Diversified Realty Corp., 84 AD3d 583). A fiduciary duty generally must arise out of a relationship of confidence, trust, or superior knowledge or control, and may exist when one entity is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation (Broadway National Bank v Barton-Russell Corp., 154 Misc 2d 181, 197 [and cases cited therein]). Pleading a breach of fiduciary duty is appropriate when a plaintiff, even if claiming a breach of contract, should have a remedy in tort for betrayal and breach of trust (Id., citing Zimmer-Masiello, Inc. v Zimmer, Inc., supra at 367). When a fiduciary duty may be found, this claim is generally not fatally duplicative of a breach-of-contract claim (Broadway National Bank v Barton-Russell Corp., supra). Here, the fiduciary duty, if any, arises out of Audi's purported position of control and dominance over Smithtown Audi and Huntington Audi and their dependency on Audi. Thus, it arises out of the parties' contractual relationship, but is independent of the contract itself (Sally Lou Fashions Corp. v Camhe-Marcille, supra). Accordingly, the court denies summary judgment on the third cause of action insofar as it is asserted against Audi.

The second cause of action for breach of contract and breach of the implied covenant of good faith and fair dealing is asserted against Audi only. Audi contends, inter alia, that it is entitled to summary judgment dismissing this cause of action because the parties' dealer agreements gave it the unfettered right to establish dealerships wherever it chose. However, the dealer agreements also imposed upon Audi the obligation to actively assist its dealers in all aspects of the dealers' operations through such means as Audi considered appropriate. Audi contends that it created the West Islip dealership and awarded it to Staluppi because it thought that the Long Island market was underperforming. Smithtown Audi and Huntington Audi contend that Audi did not advise them of its dissatisfaction with their performance and did not give them an opportunity to correct the purported deficiencies in their performance prior to opening the West Islip dealership. The court finds that, under these circumstances, there is a triable issues of fact regarding whether Audi breached its contractual obligation to provide dealer assistance to Smithtown Audi and Huntington Audi. There is also a triable issue of fact regarding whether Smithtown Audi and Huntington Audi were damaged thereby.

Audi contends that it was only obligated to assist its dealers through such means as it considered appropriate. Thus, any specific assistance was left to Audi's sole discretion. Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance [*5](Dalton v Educ. Testing Serv., 87 NY2d 384, 389). Encompassed within the implied obligation of each promisor to exercise good faith are any promises that a reasonable person in the position of the promisee would be justified in understanding were included (Id.). This embraces a pledge that neither shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract (Id.). When, as here, the contract contemplates the exercise of discretion, this pledge includes a promise to exercise such discretion in good faith and not to act arbitrarily or irrationally (Id.; Maddaloni Jewelers, Inc. v Rolex Watch U.S.A., Inc., 41 AD3d 269, 270). The court finds that there are triable issues of fact regarding whether Audi exercised its discretion in bad faith and whether Smithtown Audi and Huntington Audi were damaged thereby. Accordingly, the court denies summary judgement on the second cause of action.

Dated:July 14, 2011

J.S.C.

Footnotes


Footnote 1:The first cause of action for injunctive relief has been discontinued. Atlantic Imports, Inc., was added as a defendant in the second amended complaint, and the fifth cause of action against it was subsequently discontinued.

Footnote 2:The court questions whether Smithtown Audi and Huntington Audi would be injured by the elimination of a competing Audi dealer. Rather, it appears that they would profit therefrom.