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NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017
STATE OF NEW YORK
SUPREME COURT COUNTY OF ONONDAGA
OSI RESTAURANT PARTNERS, LLC; OUTBACK STEAKHOUSE
OF FLORIDA, LLC; CARRABBA’S ITALIAN GRILL, LLC;
BONEFISH GRILL, LLC; BONEFISH GRILL OF FLORIDA, LLC;
AND OUTBACK/FLEMING’S, LLC;
ATTORNEY’S
REPLY AFFIRMATION
PLAINTIFFS,
Index No.: 2016EF2494
RJI No.: 33-17-0510
VS.
Hon. Anthony J. Paris, JSC
IPT, LLC D/B/A FM FACILITY MAINTENANCE,
DEFENDANT.
JOHN G. POWERS, ESQ., affirms under penalties of perjury as follows:
1. I am an attorney at law duly licensed to practice in the State of New York and I
represent the Plaintiffs in this matter. Plaintiffs are OSI Restaurant Partners, LLC (“OSI”), and
its affiliates Outback Steakhouse of Florida, LLC (“Outback”), Carrabba’s Italian Grill, LLC,
(“Carrabas”)Bonefish Grill, LLC (“Bonefish”) , Bonefish Grill of Florida, LLC (“Bonefish FL”),
and Outback/Fleming’s, LLC (“Flemings”) (collectively referred to as “OSI” or “Plaintiffs”).
2. I make this Reply Affirmation in further support of Plaintiffs’ motion brought
pursuant under CPLR 3211(c), requesting conversion of the pending motion to one seeking
partial summary judgment on three discrete issues.
POINT I
FM’S ARGUMENT THAT CONVERSION IS PROCEDURALLY IMPROPER IGNORES
THE CPLR’S PLAIN LANGUAGE AND ITS OWN MOTION PAPERS
3. FM offers three justifications for its position that conversion under CPLR § 3211
(c) is “procedurally improper”: (a) it did not really rely on matters outside the pleadings for its
original motion; (b) the issues raised by OSI as ripe for conversion do not relate to the issues
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raised in FM’s original motion; and (c) issue has not yet been joined. See Opp. Br. at 4–5. FM
cites no case law relative to its first two justifications.
4. First, FM’s position is hard to justify with its papers, because its primary motion
argument regarding the preclusive effect of various states’ tax law relies directly on its gratuitous
assertion that it knew which jurisdictions were at issue from “its own books and records, and . . .
correspondence between the parties. . . .” Defs. Br. at p.5, n.8 (ECF # 8). By seeking dismissal
of the Complaint based on information that is not in the Complaint but that it nonetheless
represents is true based on its own books and records, FM certainly relied upon on matters
outside the pleadings. FM cannot have it both ways.
5. Second, FM’s motion also represented that it was seeking dismissal under CPLR
§ 3211 (a) (1) based on “a defense founded on documentary evidence,” Defs. Br. at p.5 (ECF #
8) which by definition is reliant on documents submitted outside the pleadings.
6. Third, there is no authority for the argument that this Court’s conversion power is
limited only to issues that mirror the grounds raised in FM’s original motion. Rather, case law
demonstrates the opposite is true. See, e.g., Tupper v. City of Syracuse, 93 A.D.3d 1277, 1278
(4th Dep’t 2012) (affirming conversion of defendant’s motion to dismiss and granting plaintiff
partial summary judgment on certain discrete issues upon which there was no material issues of
fact). More importantly, the scope of FM’s original motion sought dismissal of the entire
Complaint. It thus cannot be heard to complain that conversion of that motion to one for
summary judgment on discrete issues that also fall within the scope of the Complaint is
somehow unrelated to its original motion.
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7. Finally, the argument that issue has not yet been joined completely ignores the
text of CPLR § 3211 (c), which specifies that conversion is appropriate and permitted “[w]hether
or not issue has been joined . . .” CPLR § 3211(c).
POINT II
FM’S ARGUMENT THAT THE AGREEMENTS ARE “AMBIGUOUS” AS TO
WHETHER IT WAS REQUIRED TO ACCURATELY INVOICE FOR SALES TAX IS
INCONSISTENT WITH THE PLAIN LANGUAGE OF THE AGREEMENTS
8. FM argues that it is at least “ambiguous” as to whether the MCAs and the MSA
required it to accurately invoice Plaintiffs for sales tax when seeking reimbursement for
maintenance and repair work performed by FM’s contractors.
9. FM’s argument assumes the fact that is, of course, undisputed—that it did in fact
erroneously and inaccurately invoice Plaintiffs for millions of dollars in sales tax that was never
properly due and owing. The import of FM’s argument, however, is that the MCAs and MSA
freely allowed it to invoice the Plaintiffs for any amount of sales tax and that Plaintiffs had no
contractual recourse under the contracts for it doing so.
10. Obviously, this argument is at best a stretch based on the intent of the parties’
contractual relationship. It is not as if the relevant agreements are silent as to the issue of sales
tax. Rather, the MCAs contains an entire paragraph devoted to the issue of sales tax titled
“Sales Tax and Permit Fees” detailing in several different ways that FM may invoice only for
sales tax “required to be paid by applicable Laws. . . ” MCA ¶ 9. To argue that this provision
created no contractual obligation on FM to determine the correct amount of sales tax under
applicable state law defies logic and the plain meaning of this section of the contract.
11. FM cites to the above phrase in isolation without reference to a preceding
sentence in the paragraph which defines what may be included within FM’s invoices—i.e., “such
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Sales Taxes and Permit Fees.” Id. (emphasis added). Read together, the two sentences indicate
that FM may invoice Plaintiffs for only sales tax required to be paid by applicable Laws. FM’s
argument that it is free to over pay sales tax cannot be reconciled with this language.
12. The above language of course is enough. But the MCA’s contain further
language assigning responsibility, and derivatively risk, by stating:
FM and [Plaintiffs] acknowledge that it is not the intent for [Plaintiffs] to
incur any additional sales tax liability (over and above what [Plaintiffs]
would normally incur when directly performing the services to be performed
by FM hereunder) as a result of this Agreement.”
MCA ¶ 9 (emphasis added).
13. Importantly, this sentence confirms that FM assumed the contractual
responsibility for any “additional sales tax liability,” i.e., any liability above that which Plaintiffs
would have incurred if they were performing the work and remitting the sales tax themselves.
When read together with the sentences that precede it—including the clear contractual
responsibility placed on FM to determine the proper amount of sales tax is required by
“applicable Law”—there is no credible argument that FM was free to invoice Plaintiffs for any
amount of sales tax it arbitrarily chose.
14. Finally, FM’s argument that the contracts did not require it to accurately invoice
Plaintiffs is directly contrary to other portions of the contracts—specifically Schedule N.
Schedule N of the MCAs contains a list of “key performance indicators” under the contracts.
See MCAs, Schedule N. The five performance indicators listed there constitute material terms of
the contract because Schedule N expressly provides Plaintiffs the right “to terminate th[e]
Agreement of Cause,” for non-performance of the listed indicators. Id. One the of the five
material performance terms listed in Schedule N is “Reporting and Invoicing Accuracy.” Id.
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Thus, in addition to provisions discussed above, FM had an express contractual obligation to
invoice accurately.
15. Similarly, under the later MSA, the parties defined the Plaintiffs’ “sole financial
obligation” under the MSA as being the payment of the “Fee” set forth in Schedule “B” of the
Agreement. MSA ¶ 1.2.
16. In ¶ 4.1 of the MSA titled “Compliance with All Laws,” FM warranted that it
would “comply” (i.e., “FM shall comply. . . .”) “with all statutes, laws, regulations . . . and other
governmental rules and restrictions . . . applicable to (i) FM’s execution of this Agreement; (ii)
FM’s business; or (iii) the performance of the Program and Services by FM and its Workers.”
MSA ¶ 1.2 (emphasis added). This provision unmistakably places the contractual responsibility
for interpretation of applicable sales tax statutes and regulations on FM.
17. Finally, Schedule “B,” which defined Plaintiffs’ “sole financial obligation,”
unmistakably limited Plaintiffs’ responsibility for payment to “the actual cost of reactive and
scheduled maintenance services rendered at such restaurants.” MSA, Schedule B at ¶ 1
(emphasis added).
18. While FM attempts to argue that the payment of sales tax has nothing to do with
the performance of services under the Agreement, it cannot have it both ways. Because if sales
tax is not part of the performance of services—FM had no right to invoice for it at all, as per
Schedule B, and thus is liable to Plaintiffs for a refund of all sales tax. On the other hand, if it is
considered to be a part of such costs, and appropriate for contractual reimbursement, the invoice
must necessarily reflect the “actual cost” of the sales tax.
19. FM’s argument that the MSA allowed it to invoice for any cost regardless of
whether it was correct renders the term “actual” unnecessary and superfluous. Indeed, FM’s
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argument appears to be that it is permitted to invoice for “the [ ] cost of reactive and scheduled
maintenance services rendered at such restaurants. . .” regardless of the amount—reading out the
term “actual.” Such an argument is contrary to New York contract interpretation law. See Solco
Plumbing Supply, Inc. v. Hart, 123 A.D.3d 798, 800 (2d Dep’t 2014) (holding that “in
determining the meaning of contractual language, a court should not read a contract so as to
render any term, phrase, or provision meaningless or superfluous.”)
20. Finally, the MSA expressly required FM to make “at its own expense” all
necessary corrections “required by the Customer due to any errors or omissions in FM’s work
product.” MSA ¶ 3.1(B). Thus, not only did FM warrant error and omission free work product,
it agreed to correct such mistakes at its own expense.
21. Based on all of the above provisions, there can be no reasonable position taken
that FM did not bear the responsibility for appropriately interpreting sales tax law and charging
Plaintiffs the correct amounts.
22. In light of the plain meaning of the agreements, FM’s argument that it’s
acknowledged over-invoicing of sales tax should be excused on account of “ambiguity” in the
relevant agreements should be flatly rejected. “[C]lear contractual language does not become
ambiguous simply because the parties to the litigation argue different interpretations.” Riverside
South Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61, 67 (1st Dep’t 2008).
23. At bottom, FM’s entire pitch to secure Plaintiffs as clients rested on FM’s
representation that it was an expert in administering on-site repair and maintenance services for
commercial parties. In return for a more than handsome fee, Plaintiffs turned over the entire
responsibility such services to FM, including determining the applicability of taxes, permits and
fees. But with responsibility comes accountability. FM’s efforts to deflect responsibility for its
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own mistakes by suggesting that it had no responsibility to accurately invoice Plaintiffs—or
worse yet, that it was somehow Plaintiffs’ fault they weren’t double checking FM’s calculations,
catching FM’s errors, or policing FM’s interpretation of sales tax law should not be well received
in light of the clear contractual scheme set forth in the agreements.
POINT III
FM’S PURPORTED PUBLIC POLICY ARGUMENT DOES NOT ELIMINATE A CLEAR
CONTRACTUAL OBLIGATION
24. A portion of FM’s opposition brief appears to argue that the Court should not
enforce the parties’ contract as written because to do so would violate important public policy.
Opp. Br. at 6-9.
25. But none of the case law cited by FM seems to articulate a public policy that
would prevent one sophisticated party from contracting with another sophisticated party for
accurate payment of, and derivatively invoicing for, sales tax.
26. “Freedom of contract prevails in an arm’s length transaction between
sophisticated parties such as these, and in the absence of countervailing public policy concerns
there is no reason to relieve them of the consequences of their bargain.” Oppenheimer & Co. v.
Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 695 (1995).
27. Ignoring the parties’ broad freedom to contract regarding the particulars of their
transactional relationship, FM’s body of case law—including the Rhode Island case its cites as
its main authority—all seem to deal with non-contract based, tax recovery actions by a consumer
against a retailer.
28. In fact, Long v. Dell, 93 A.3d 988 (R.I. 2014)—FM’s principal authority—did not
even involve a breach of contract claim. Rather, it considered whether, under Rhode Island law,
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a retailer owed a consumer a duty in tort to accurately charge sales tax. Long v. Dell thus has no
applicability to the enforceability of sophisticated parties’ contractual agreement regarding this
responsibility.
29. FM has continually beat this drum in this case. But, for the same reasons set forth
in Plaintiffs’ prior briefing, there is no logical basis to find these cases applicable, or even
analogous. In a retailer/consumer context: (1) there is no written agreement, or negotiation of
risks and responsibilities; (2) the consumer is typically an individual, often commercially
unsophisticated, with little bargaining power; (3) the retailer is considered to be an agent of the
state for tax collection; and, importantly, (4) there is no contractual promise of accuracy with
respect tax assessment.
30. None of these attributes apply here. And, it is well within the regular, ordinary
power of commercial parties to agree by contract that one party will accurately determine the
applicability of state tax law on behalf of another commercial party. This type of agreement
occurs every day in the representation of businesses by accounting and tax preparation firms and
is a routine contractual requirement in most construction contracts. See e.g., Rubinberg v.
Correia Designs, Ltd., 262 A.D.2d 474, 475 (2d Dep’t 1999) (finding questions of fact breach of
contract claim brought against a construction contractor alleging in part that the contractor
“improperly assessed sales tax”); TRU-Temp Indus. Supply Co. v. Flower City Asbestos, Inc.,
283 A.D.2d 1003, 1003, (4th Dep’t 2001) (breach of contract action regarding 355 invoices
claiming reimbursement for sales tax on projects that were non-taxable).
31. FM’s attempt to stretch cases like Long v. Dell—which is not even a New York or
Florida case—to cover the parties’ contractual relationship, shoves a square peg in a round hole.
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32. Moreover, as previously demonstrated in Plaintiffs’ opposition papers, even FM’s
account of the legal authority regarding the viability of consumer/retailer actions is unreliable.
33. For example, directly contrary to FM’s view of the law, Florida state law
expressly authorizes the lawsuit brought by Plaintiffs against FM. See Florida Administrative
Code, Rule 12A–1.014(4) (“a taxpayer who has overpaid tax to a dealer, or who has paid tax to a
dealer when no tax is due, must secure a refund of the tax from the dealer and not from the
Department of Revenue). Similarly, the law of North Carolina, also a jurisdiction at issue, is also
directly contrary to FM’s position, also expressly authorizing this particular suit. See N.C. GEN.
STAT. § 105-164.11 (c) (authorizing purchaser to bring “cause of action against the seller for
over-collected sales or uses taxes”).
34. These examples undermine the claimed pervasiveness of FM’s “public policy”
argument; and, we respectfully submit that the Court should decline to adopt FM’s suggestion
that the subject matter of the contracts at issue somehow alters the ordinary rules of contract
enforcement.
35. In short, barring a clear statutory bar or case law from the New York Court of
Appeals or Florida Supreme Court articulating some common law public policy—none of which
has been identified—FM has not even approached its burden of voiding the parties’ contract on
account of public policy.
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POINT IV
MICHAEL BARRETT’S TESTIMONY IS COMPETENT, BASED ON PERSONAL
KNOWLEDGE, AND ADMISSIBLE FOR PURPOSES OF SUMMARY JUDGMENT
36. Citing mainly federal court cases and cases from other jurisdictions (rather than
the CPLR and New York case law), FM criticizes the legal sufficiency of the testimony
contained in the Affidavit of Michael Barrett.
37. Suffice it to say, the Affidavit is based on personal knowledge, well-detailed,
consistent, and supported by adequate detail and specificity—it is precisely the type of affidavit
that is routinely considered and accepted in New York courts. See, e.g., Reed Paving, Inc. v.
Glen Ave. Builders, Inc., 148 A.D.2d 934, 935 (4th Dep’t 1989) (management level employee
with personal knowledge is competent to testify to damages suffered by the company); CNP
Mech., Inc. v. Allied Builders, Inc., 84 A.D.3d 1748, 1749 (4th Dep’t 2011) (“testimony provided
by a witness with knowledge of the actual value of such extra work is sufficient and
documentary evidence with respect thereto is not required”); People v. Pearson, 296 A.D.2d 861,
861 (4th Dep’t 2002) (A lay witness may testify as to opinions when it is based on his/her
particular work experience/responsibilities and personal knowledge); Elec. Servs. Int'l, Inc. v.
Silvers, 284 A.D.2d 367, 368 (2d Dep’t 2001) (Witnesses with firsthand knowledge of litigation
involving an injured out-of-state employee was competent to testify as to damages).
38. Tellingly, despite offering a robust criticism of the procedural legitimacy of Mr.
Barrett’s testimony, FM does not materially contradict the events narrated by Mr. Barrett.
39. Indeed, FM offers no reason to question—let alone evidence contrary to—the
material facts and information contained within Barrett’s testimony, including Plaintiffs’ efforts
to induce FM to correct its own mistakes, FM’s refusal to do so, Plaintiffs’ efforts to mitigate
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their damages, and/or the amounts Plaintiffs have been able to collect or the costs of that
collection.
40. And, it is not as if FM is learning this information for the first time in this lawsuit;
the documents and data underlying Barrett’s testimony were all provided to FM in course of the
parties’ pre-suit interaction regarding this dispute. Barrett Aff., ¶ 51.
41. Finally, Mr. Barrett offered testimony regarding FM’s delay, recalcitrance, and
then outright refusal to cooperate with Plaintiffs’ mitigation efforts between November 2015 and
June of 2016. Barrett Aff., ¶¶ 26 –29, 48. Such conduct by FM was an independent breach of
contract by FM and a breach of the implied covenant of good faith and fair dealing—not to
mention the catalyst for this lawsuit.
42. Rather than denying the facts underlying these events or denying that such
communications occurred, FM instead argues they are inadmissible under CPLR § 4547, or,
otherwise quibbles over the failure to identify the speaker. See Opp. Br. at 17–18. Once again,
FM is wrong on the law.
43. First, inclusion of language in correspondence that it is being sent “in the context
of settlement” does not make it a settlement document. Nineteen Eighty-Nine, LLC v. Icahn, 96
A.D.3d 603, 607 (1st Dep’t 2012). Second, § 4547 limits the “exclusion of settlement evidence .
. . only when the purpose of admission is to prove the validity or weakness of a claim or the
amount of damages.” CPLR §4547 (McKinneys Practice Commentaries) (emphasis added).
“The usual rules of relevance apply when settlement-related evidence is offered for some other
purpose.” Id.
44. FM’s refusal to cooperate in recovery efforts or its conditioning of cooperation in
signing assignment of rights for recovery actions upon receipt of a release are not statements
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regarding the validity of FM’s position nor the amount of Plaintiffs’ damages—they are, in and
of themselves, independent conduct that breaches the parties’ contract and/or its implied
covenant. §4547 does not shield FM from its own admitted conduct.
45. It would have been easy enough for one of the four FM witnesses to testify: “Mr.
Barrett is incorrect, FM promptly executed all assignment of rights forms presented to it by
Plaintiffs.” No such testimony was offered. Instead, all FM’s General Counsel can muster is
that he did not “issue a blanket refusal to provide OSI with assignments of rights,” Janas Aff., ¶
12, explaining that it was his preference to have the Plaintiffs’ requests “included as part of the
wind up of the FM/OSI business relationship.” Id. ¶ 11. This artful, non-denial is, of course,
completely consistent with Mr. Barrett’s representation that FM was holding up the execution of
assignments of right—thereby preventing Plaintiffs from mitigating their damages—until
Plaintiffs agreed to release FM from liability.
POINT V
FM’S VEILED ADMISSION THAT IT WITHHELD $186,136 OWED TO PLAINTIFFS
JUSTIFIES THE ENTRY OF PARTIAL SUMMARY JUDGMENT
46. Although it engaged in deflection regarding admitting that it made a mistake, FM
acknowledged that it set out to credit Plaintiffs for $548,438 for its past overcharges of sales tax.
Opp. Br. at 20. FM’s brief refers to this credit of over a half million dollars as gratuitous, id., as
if it was voluntary gift it gave to the Plaintiffs.
47. FM’s opposition papers also clarify that notwithstanding this reconciliation, FM
could not be bothered to actually recover the overpayments from the state taxing authorities.
This revelation is both emblematic and consistent with FM’s later conduct as described in Mr.
Barrett’s Affidavit.
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48. In any event, FM’s papers posit that even if hypothetically it was obligated to
return $548,438 for its past overcharges, it was nonetheless entitled to retain $186,136, roughly
thirty-four percent (34%), of that amount under the guise that it had saved Plaintiffs money and
therefore was entitled to a percentage under the “Shared Savings” provision of the MCAs.
49. However, the overpayments made by FM to state authorities were never
“Savings” as that term was defined in the MCAs and thus there was never any contractual basis
for FM to retain a percentage of those amounts.
50. Specifically, as set forth in paragraph Exhibit G of the MCAs, “Shared Savings”
are calculated based on the “actual cost of Covered Services.” See MCAs Exhibit G, ¶ 2.
51. Thus, amounts by FM that it had wrongfully charged Plaintiffs were not part of
the “actual cost” of the services, and thus cannot be predicate basis from which “Shared Savings”
are calculated under the agreement in the first instance.
52. Again, FM is trying to have it both ways. If, as suggested in FM’s papers, the
$548,438 was truly gratuitous—i.e., a gift untethered to any contractual obligation by FM—then
FM cannot rely on the provisions of the contract to enact a set off. FM’s set off argument, even
if it were meritorious, works only if it is willing to concede that the $548,438 was mistakenly
overcharged by it to Plaintiffs in the first instance—a step it is apparently unwilling to take.
53. Finally, it is also worth noting that in Mr. Greenebaum’s Affidavit, he claimed
that “FM had no way of knowing whether, in fact, the OSI Companies’ claims regards such
overcharges were valid.” Greenebaum Aff., ¶¶ 8-9. However, as testified to in Michael
Barrett’s Reply Affidavit, correspondence sent by Thomas Greenebaum to OSI not only verifies
that the accounting of the overpayment of taxes came from FM, but that FM verified the
correctness of the numbers. Barrett Aff. ¶¶ 11-12.
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POINT VI
PLAINTIFFS’ MITIGATION COSTS TO DATE ARE UNDISPUTED AND ARE
APPROPRIATELY AWARDED VIA PARTIAL SUMMARY JUDGMENT
54. FM offers no real defense to Plaintiffs’ entitlement to recover $209,415.35 in
DMA fees charged in recovering the product of FM’s overpayments to various states—amounts
that it erroneously invoiced Plaintiffs and then refused to recover itself.
55. As an initial matter, FM’s papers do not dispute that mitigation costs are an
appropriate component of breach of contract damages.
56. And, it is beyond dispute that the money recovered by DMA was the direct result
of FM’s sales tax miscalculations/overpayments. This objectively demonstrable because the
applicable states would not be returning these funds if they were not improperly submitted in the
first place.
57. It should also be noted that DMA’s efforts did not just benefit Plaintiffs—they
benefited FM as well. But for DMA’s efforts, FM’s contract exposure to Plaintiffs in this
lawsuit would be much larger and would necessarily include a healthy interest component. And,
since FM’s lack of care and/or competence created the need for DMA’s efforts, it is only right
and fitting that FM pay for these efforts.
58. FM’s defense to the request for partial judgment with respect to this liquidated
amount argues that: (i) a small percentage of the amounts recovered arose from claims that are
time barred (Opp. Br. at 22); (ii) there may be a factual question as to whether a portion of the
claims under the MCAs may be subject to New York’s voluntary payment doctrine defense (id.);
and (iii) there is a factual dispute as to whether DMA’s fees are “reasonable.” Opp Br. at 23.
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Statute of Limitations
59. FM’s first argument does not provide a full defense to judgment on this issue;
rather, if correct, it still results in a judgment entered against FM, but in a slightly reduced
amount. Thus, in advancing this argument, FM concedes judgment on the issue of liability but
disputes quantum.
60. But FM is wrong on the law, because it focuses exclusively on the date the sales
tax was paid as the accrual date for the breach of contract. As an initial matter, the date when
FM invoiced Plaintiffs incorrectly is only of one of the contract breaches relative to these
amounts.
61. Specifically, the MSA expressly required FM to make “at its own expense” all
necessary corrections “required by the Customer due to any errors or omissions in FM’s work
product.” MSA ¶ 3.1(B).
62. Thus, once Plaintiffs (i) put FM on notice of the need for it correct their erroneous
payments in June of 2015, (ii) FM refused, and (iii) Plaintiffs suffered damages (the incurrence
of DMA fees), a separate and independent breach of the agreement occurred. See Barrett Aff., ¶¶
26 – 30.
63. In other words, since FM had the express contractual obligation to correct its
mistakes “at its own expense,” its refusal to do so in 2015 caused Plaintiffs instead to absorb this
expense, which constituted an independent breach of the parties’ agreement.
64. Accordingly, all of the $209,415.35 DMA fees—which FM agreed it would
bear—are breach of contract damages incurred well within either statutory period (i.e., under
Florida or New York law).
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Voluntary Payment Doctrine
65. Second, (as FM admits) the voluntary payment doctrine does not apply at all to
contract actions under in Florida state law. See Florida Statue Annotated 725.04:
When a suit is instituted by a party to a contract to recover a payment made pursuant to
the contract and by the terms of the contract there was no enforceable obligation to make
the payment or the making of the payment was excused, the defense of voluntary
payment may not be interposed by the person receiving payment to defeat recovery of the
payment.
Fla. Stat. Ann. § 725.04 (West).
66. Obviously the portion of DMA fees relating to recovery of taxes remitted prior
2014, see Barrett Aff., ¶ 31, Ex. A., which fall under the MCA’s that have a Florida choice of
law provision, are not subject to this argument. See MCAs ¶ 14A.
67. With respect to New York law, the choice of law specified in the later MSA, the
common law voluntary payment doctrine provides no defense to the remainder of the claims.
68. First, it is an affirmative defense that FM has the burden of demonstrating its
applicability. It made no effort to do so.
69. Second, it is a narrow doctrine that does not apply if payments were made under a
mistake of law or fact. Kirby McInerney & Squire, LLP v. Hall Charne Burce & Olson, S.C., 15
A.D.3d 233, 233 (1st Dep’t 2005). Both occurred here: Plaintiffs made payments to FM based
on a mistake in fact because it did not know FM was incorrectly overcharging sales tax, and
FM’s incorrect sales tax calculations were a mistake of law. Thus, the doctrine does not apply
70. Third, the doctrine applies only to payments made where the receiving party was
in complete possession of all the facts necessary to determine the erroneous nature of the
payments. See, e.g., Rite Aid of New York, Inc. v. Chalfonte Realty Corp., 105 A.D.3d 470, 470
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(1st Dep’t 2013); Samuel v. Time Warner, Inc., 10 Misc.3d 537, 549 (Sup. Ct. New York 2005)
(voluntary payment doctrine not applicable when claim predicated on lack of full disclosure).
71. Thus, FM could establish a question of fact as to this defense only if it showed
that, for each of its invoices, it provided Plaintiffs with all of the underlying documentation
associated with the work that was performed by its vendors, the invoices for their material
purchases reflecting whether the vendors themselves paid sales tax and how much, as well as
subcontractor invoices. See id.
72. FM made no attempt to offer evidence that this occurred—and in fact it did not
provide this information with its invoices or otherwise share with Plaintiffs the analysis it
performed on an invoice-by-invoice basis. Rather, its invoices contained a single figure for all
taxes, not even differentiating between types of tax, and not containing any analysis, explanation,
or back up documentation. Barrett Reply Affidavit at ¶¶ 5–10, Ex. “A.”
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73. Thus, even if the voluntary payment doctrine was available as a defense, it would
not apply because Plaintiffs were not contemporaneously provided all the information they
would need to challenge the payments. See Rite Aid of New York, Inc., 105 A.D.3d at 470;
McCracken v. Verisma Sys., Inc., 131 F. Supp. 3d 38, 50 (W.D.N.Y. 2015) (applying New York
law) (noting that courts have declined to apply the voluntary payment doctrine when “a
plaintiff's claim is predicated on a lack of full disclosure by defendant.”)
74. As related in Mr. Barrett’s original affidavit at ¶ 11, “the scope of the over
taxation was not immediately known understood by OSI.” This was because FM did not provide
the information necessary to establish that certainty. Rather, the only reason Plaintiffs originally
knew something was wrong was because the aggregate annual sales tax it was reimbursing FM
for was significantly larger than what it had been paying pre-MCA. Barrett Reply. Aff. ¶ 3. It
was only after Plaintiffs began a forensic review of past transactions, with the assistance of its
consultants, that they were able to understand the specific nature of FM’s errors. Id., ¶ 4. Thus,
the voluntary payment doctrine is not available under these circumstances. See, e.g. Samuel, 10
Misc.3d at 549.
75. Finally, the voluntary payment doctrine does not apply when “the parties have
expressly contracted for repayment of excess funds.” Best Buy Stores, L.P. v. Developers
Diversified Realty Corp., No. CIV 05-2310 DSD/JJG, 2010 WL 4628548, at *2 (D. Minn. Nov.
4, 2010). As previously indicated, the MSA expressly required FM to make “at its o
Preview
FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 STATE OF NEW YORK SUPREME COURT COUNTY OF ONONDAGA OSI RESTAURANT PARTNERS, LLC; OUTBACK STEAKHOUSE OF FLORIDA, LLC; CARRABBA’S ITALIAN GRILL, LLC; BONEFISH GRILL, LLC; BONEFISH GRILL OF FLORIDA, LLC; AND OUTBACK/FLEMING’S, LLC; ATTORNEY’S REPLY AFFIRMATION PLAINTIFFS, Index No.: 2016EF2494 RJI No.: 33-17-0510 VS. Hon. Anthony J. Paris, JSC IPT, LLC D/B/A FM FACILITY MAINTENANCE, DEFENDANT. JOHN G. POWERS, ESQ., affirms under penalties of perjury as follows: 1. I am an attorney at law duly licensed to practice in the State of New York and I represent the Plaintiffs in this matter. Plaintiffs are OSI Restaurant Partners, LLC (“OSI”), and its affiliates Outback Steakhouse of Florida, LLC (“Outback”), Carrabba’s Italian Grill, LLC, (“Carrabas”)Bonefish Grill, LLC (“Bonefish”) , Bonefish Grill of Florida, LLC (“Bonefish FL”), and Outback/Fleming’s, LLC (“Flemings”) (collectively referred to as “OSI” or “Plaintiffs”). 2. I make this Reply Affirmation in further support of Plaintiffs’ motion brought pursuant under CPLR 3211(c), requesting conversion of the pending motion to one seeking partial summary judgment on three discrete issues. POINT I FM’S ARGUMENT THAT CONVERSION IS PROCEDURALLY IMPROPER IGNORES THE CPLR’S PLAIN LANGUAGE AND ITS OWN MOTION PAPERS 3. FM offers three justifications for its position that conversion under CPLR § 3211 (c) is “procedurally improper”: (a) it did not really rely on matters outside the pleadings for its original motion; (b) the issues raised by OSI as ripe for conversion do not relate to the issues {H3076433.1} 1 1 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 raised in FM’s original motion; and (c) issue has not yet been joined. See Opp. Br. at 4–5. FM cites no case law relative to its first two justifications. 4. First, FM’s position is hard to justify with its papers, because its primary motion argument regarding the preclusive effect of various states’ tax law relies directly on its gratuitous assertion that it knew which jurisdictions were at issue from “its own books and records, and . . . correspondence between the parties. . . .” Defs. Br. at p.5, n.8 (ECF # 8). By seeking dismissal of the Complaint based on information that is not in the Complaint but that it nonetheless represents is true based on its own books and records, FM certainly relied upon on matters outside the pleadings. FM cannot have it both ways. 5. Second, FM’s motion also represented that it was seeking dismissal under CPLR § 3211 (a) (1) based on “a defense founded on documentary evidence,” Defs. Br. at p.5 (ECF # 8) which by definition is reliant on documents submitted outside the pleadings. 6. Third, there is no authority for the argument that this Court’s conversion power is limited only to issues that mirror the grounds raised in FM’s original motion. Rather, case law demonstrates the opposite is true. See, e.g., Tupper v. City of Syracuse, 93 A.D.3d 1277, 1278 (4th Dep’t 2012) (affirming conversion of defendant’s motion to dismiss and granting plaintiff partial summary judgment on certain discrete issues upon which there was no material issues of fact). More importantly, the scope of FM’s original motion sought dismissal of the entire Complaint. It thus cannot be heard to complain that conversion of that motion to one for summary judgment on discrete issues that also fall within the scope of the Complaint is somehow unrelated to its original motion. {H3076433.1} 2 2 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 7. Finally, the argument that issue has not yet been joined completely ignores the text of CPLR § 3211 (c), which specifies that conversion is appropriate and permitted “[w]hether or not issue has been joined . . .” CPLR § 3211(c). POINT II FM’S ARGUMENT THAT THE AGREEMENTS ARE “AMBIGUOUS” AS TO WHETHER IT WAS REQUIRED TO ACCURATELY INVOICE FOR SALES TAX IS INCONSISTENT WITH THE PLAIN LANGUAGE OF THE AGREEMENTS 8. FM argues that it is at least “ambiguous” as to whether the MCAs and the MSA required it to accurately invoice Plaintiffs for sales tax when seeking reimbursement for maintenance and repair work performed by FM’s contractors. 9. FM’s argument assumes the fact that is, of course, undisputed—that it did in fact erroneously and inaccurately invoice Plaintiffs for millions of dollars in sales tax that was never properly due and owing. The import of FM’s argument, however, is that the MCAs and MSA freely allowed it to invoice the Plaintiffs for any amount of sales tax and that Plaintiffs had no contractual recourse under the contracts for it doing so. 10. Obviously, this argument is at best a stretch based on the intent of the parties’ contractual relationship. It is not as if the relevant agreements are silent as to the issue of sales tax. Rather, the MCAs contains an entire paragraph devoted to the issue of sales tax titled “Sales Tax and Permit Fees” detailing in several different ways that FM may invoice only for sales tax “required to be paid by applicable Laws. . . ” MCA ¶ 9. To argue that this provision created no contractual obligation on FM to determine the correct amount of sales tax under applicable state law defies logic and the plain meaning of this section of the contract. 11. FM cites to the above phrase in isolation without reference to a preceding sentence in the paragraph which defines what may be included within FM’s invoices—i.e., “such {H3076433.1} 3 3 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 Sales Taxes and Permit Fees.” Id. (emphasis added). Read together, the two sentences indicate that FM may invoice Plaintiffs for only sales tax required to be paid by applicable Laws. FM’s argument that it is free to over pay sales tax cannot be reconciled with this language. 12. The above language of course is enough. But the MCA’s contain further language assigning responsibility, and derivatively risk, by stating: FM and [Plaintiffs] acknowledge that it is not the intent for [Plaintiffs] to incur any additional sales tax liability (over and above what [Plaintiffs] would normally incur when directly performing the services to be performed by FM hereunder) as a result of this Agreement.” MCA ¶ 9 (emphasis added). 13. Importantly, this sentence confirms that FM assumed the contractual responsibility for any “additional sales tax liability,” i.e., any liability above that which Plaintiffs would have incurred if they were performing the work and remitting the sales tax themselves. When read together with the sentences that precede it—including the clear contractual responsibility placed on FM to determine the proper amount of sales tax is required by “applicable Law”—there is no credible argument that FM was free to invoice Plaintiffs for any amount of sales tax it arbitrarily chose. 14. Finally, FM’s argument that the contracts did not require it to accurately invoice Plaintiffs is directly contrary to other portions of the contracts—specifically Schedule N. Schedule N of the MCAs contains a list of “key performance indicators” under the contracts. See MCAs, Schedule N. The five performance indicators listed there constitute material terms of the contract because Schedule N expressly provides Plaintiffs the right “to terminate th[e] Agreement of Cause,” for non-performance of the listed indicators. Id. One the of the five material performance terms listed in Schedule N is “Reporting and Invoicing Accuracy.” Id. {H3076433.1} 4 4 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 Thus, in addition to provisions discussed above, FM had an express contractual obligation to invoice accurately. 15. Similarly, under the later MSA, the parties defined the Plaintiffs’ “sole financial obligation” under the MSA as being the payment of the “Fee” set forth in Schedule “B” of the Agreement. MSA ¶ 1.2. 16. In ¶ 4.1 of the MSA titled “Compliance with All Laws,” FM warranted that it would “comply” (i.e., “FM shall comply. . . .”) “with all statutes, laws, regulations . . . and other governmental rules and restrictions . . . applicable to (i) FM’s execution of this Agreement; (ii) FM’s business; or (iii) the performance of the Program and Services by FM and its Workers.” MSA ¶ 1.2 (emphasis added). This provision unmistakably places the contractual responsibility for interpretation of applicable sales tax statutes and regulations on FM. 17. Finally, Schedule “B,” which defined Plaintiffs’ “sole financial obligation,” unmistakably limited Plaintiffs’ responsibility for payment to “the actual cost of reactive and scheduled maintenance services rendered at such restaurants.” MSA, Schedule B at ¶ 1 (emphasis added). 18. While FM attempts to argue that the payment of sales tax has nothing to do with the performance of services under the Agreement, it cannot have it both ways. Because if sales tax is not part of the performance of services—FM had no right to invoice for it at all, as per Schedule B, and thus is liable to Plaintiffs for a refund of all sales tax. On the other hand, if it is considered to be a part of such costs, and appropriate for contractual reimbursement, the invoice must necessarily reflect the “actual cost” of the sales tax. 19. FM’s argument that the MSA allowed it to invoice for any cost regardless of whether it was correct renders the term “actual” unnecessary and superfluous. Indeed, FM’s {H3076433.1} 5 5 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 argument appears to be that it is permitted to invoice for “the [ ] cost of reactive and scheduled maintenance services rendered at such restaurants. . .” regardless of the amount—reading out the term “actual.” Such an argument is contrary to New York contract interpretation law. See Solco Plumbing Supply, Inc. v. Hart, 123 A.D.3d 798, 800 (2d Dep’t 2014) (holding that “in determining the meaning of contractual language, a court should not read a contract so as to render any term, phrase, or provision meaningless or superfluous.”) 20. Finally, the MSA expressly required FM to make “at its own expense” all necessary corrections “required by the Customer due to any errors or omissions in FM’s work product.” MSA ¶ 3.1(B). Thus, not only did FM warrant error and omission free work product, it agreed to correct such mistakes at its own expense. 21. Based on all of the above provisions, there can be no reasonable position taken that FM did not bear the responsibility for appropriately interpreting sales tax law and charging Plaintiffs the correct amounts. 22. In light of the plain meaning of the agreements, FM’s argument that it’s acknowledged over-invoicing of sales tax should be excused on account of “ambiguity” in the relevant agreements should be flatly rejected. “[C]lear contractual language does not become ambiguous simply because the parties to the litigation argue different interpretations.” Riverside South Planning Corp. v. CRP/Extell Riverside, L.P., 60 A.D.3d 61, 67 (1st Dep’t 2008). 23. At bottom, FM’s entire pitch to secure Plaintiffs as clients rested on FM’s representation that it was an expert in administering on-site repair and maintenance services for commercial parties. In return for a more than handsome fee, Plaintiffs turned over the entire responsibility such services to FM, including determining the applicability of taxes, permits and fees. But with responsibility comes accountability. FM’s efforts to deflect responsibility for its {H3076433.1} 6 6 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 own mistakes by suggesting that it had no responsibility to accurately invoice Plaintiffs—or worse yet, that it was somehow Plaintiffs’ fault they weren’t double checking FM’s calculations, catching FM’s errors, or policing FM’s interpretation of sales tax law should not be well received in light of the clear contractual scheme set forth in the agreements. POINT III FM’S PURPORTED PUBLIC POLICY ARGUMENT DOES NOT ELIMINATE A CLEAR CONTRACTUAL OBLIGATION 24. A portion of FM’s opposition brief appears to argue that the Court should not enforce the parties’ contract as written because to do so would violate important public policy. Opp. Br. at 6-9. 25. But none of the case law cited by FM seems to articulate a public policy that would prevent one sophisticated party from contracting with another sophisticated party for accurate payment of, and derivatively invoicing for, sales tax. 26. “Freedom of contract prevails in an arm’s length transaction between sophisticated parties such as these, and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain.” Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 695 (1995). 27. Ignoring the parties’ broad freedom to contract regarding the particulars of their transactional relationship, FM’s body of case law—including the Rhode Island case its cites as its main authority—all seem to deal with non-contract based, tax recovery actions by a consumer against a retailer. 28. In fact, Long v. Dell, 93 A.3d 988 (R.I. 2014)—FM’s principal authority—did not even involve a breach of contract claim. Rather, it considered whether, under Rhode Island law, {H3076433.1} 7 7 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 a retailer owed a consumer a duty in tort to accurately charge sales tax. Long v. Dell thus has no applicability to the enforceability of sophisticated parties’ contractual agreement regarding this responsibility. 29. FM has continually beat this drum in this case. But, for the same reasons set forth in Plaintiffs’ prior briefing, there is no logical basis to find these cases applicable, or even analogous. In a retailer/consumer context: (1) there is no written agreement, or negotiation of risks and responsibilities; (2) the consumer is typically an individual, often commercially unsophisticated, with little bargaining power; (3) the retailer is considered to be an agent of the state for tax collection; and, importantly, (4) there is no contractual promise of accuracy with respect tax assessment. 30. None of these attributes apply here. And, it is well within the regular, ordinary power of commercial parties to agree by contract that one party will accurately determine the applicability of state tax law on behalf of another commercial party. This type of agreement occurs every day in the representation of businesses by accounting and tax preparation firms and is a routine contractual requirement in most construction contracts. See e.g., Rubinberg v. Correia Designs, Ltd., 262 A.D.2d 474, 475 (2d Dep’t 1999) (finding questions of fact breach of contract claim brought against a construction contractor alleging in part that the contractor “improperly assessed sales tax”); TRU-Temp Indus. Supply Co. v. Flower City Asbestos, Inc., 283 A.D.2d 1003, 1003, (4th Dep’t 2001) (breach of contract action regarding 355 invoices claiming reimbursement for sales tax on projects that were non-taxable). 31. FM’s attempt to stretch cases like Long v. Dell—which is not even a New York or Florida case—to cover the parties’ contractual relationship, shoves a square peg in a round hole. {H3076433.1} 8 8 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 32. Moreover, as previously demonstrated in Plaintiffs’ opposition papers, even FM’s account of the legal authority regarding the viability of consumer/retailer actions is unreliable. 33. For example, directly contrary to FM’s view of the law, Florida state law expressly authorizes the lawsuit brought by Plaintiffs against FM. See Florida Administrative Code, Rule 12A–1.014(4) (“a taxpayer who has overpaid tax to a dealer, or who has paid tax to a dealer when no tax is due, must secure a refund of the tax from the dealer and not from the Department of Revenue). Similarly, the law of North Carolina, also a jurisdiction at issue, is also directly contrary to FM’s position, also expressly authorizing this particular suit. See N.C. GEN. STAT. § 105-164.11 (c) (authorizing purchaser to bring “cause of action against the seller for over-collected sales or uses taxes”). 34. These examples undermine the claimed pervasiveness of FM’s “public policy” argument; and, we respectfully submit that the Court should decline to adopt FM’s suggestion that the subject matter of the contracts at issue somehow alters the ordinary rules of contract enforcement. 35. In short, barring a clear statutory bar or case law from the New York Court of Appeals or Florida Supreme Court articulating some common law public policy—none of which has been identified—FM has not even approached its burden of voiding the parties’ contract on account of public policy. {H3076433.1} 9 9 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 POINT IV MICHAEL BARRETT’S TESTIMONY IS COMPETENT, BASED ON PERSONAL KNOWLEDGE, AND ADMISSIBLE FOR PURPOSES OF SUMMARY JUDGMENT 36. Citing mainly federal court cases and cases from other jurisdictions (rather than the CPLR and New York case law), FM criticizes the legal sufficiency of the testimony contained in the Affidavit of Michael Barrett. 37. Suffice it to say, the Affidavit is based on personal knowledge, well-detailed, consistent, and supported by adequate detail and specificity—it is precisely the type of affidavit that is routinely considered and accepted in New York courts. See, e.g., Reed Paving, Inc. v. Glen Ave. Builders, Inc., 148 A.D.2d 934, 935 (4th Dep’t 1989) (management level employee with personal knowledge is competent to testify to damages suffered by the company); CNP Mech., Inc. v. Allied Builders, Inc., 84 A.D.3d 1748, 1749 (4th Dep’t 2011) (“testimony provided by a witness with knowledge of the actual value of such extra work is sufficient and documentary evidence with respect thereto is not required”); People v. Pearson, 296 A.D.2d 861, 861 (4th Dep’t 2002) (A lay witness may testify as to opinions when it is based on his/her particular work experience/responsibilities and personal knowledge); Elec. Servs. Int'l, Inc. v. Silvers, 284 A.D.2d 367, 368 (2d Dep’t 2001) (Witnesses with firsthand knowledge of litigation involving an injured out-of-state employee was competent to testify as to damages). 38. Tellingly, despite offering a robust criticism of the procedural legitimacy of Mr. Barrett’s testimony, FM does not materially contradict the events narrated by Mr. Barrett. 39. Indeed, FM offers no reason to question—let alone evidence contrary to—the material facts and information contained within Barrett’s testimony, including Plaintiffs’ efforts to induce FM to correct its own mistakes, FM’s refusal to do so, Plaintiffs’ efforts to mitigate {H3076433.1} 10 10 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 their damages, and/or the amounts Plaintiffs have been able to collect or the costs of that collection. 40. And, it is not as if FM is learning this information for the first time in this lawsuit; the documents and data underlying Barrett’s testimony were all provided to FM in course of the parties’ pre-suit interaction regarding this dispute. Barrett Aff., ¶ 51. 41. Finally, Mr. Barrett offered testimony regarding FM’s delay, recalcitrance, and then outright refusal to cooperate with Plaintiffs’ mitigation efforts between November 2015 and June of 2016. Barrett Aff., ¶¶ 26 –29, 48. Such conduct by FM was an independent breach of contract by FM and a breach of the implied covenant of good faith and fair dealing—not to mention the catalyst for this lawsuit. 42. Rather than denying the facts underlying these events or denying that such communications occurred, FM instead argues they are inadmissible under CPLR § 4547, or, otherwise quibbles over the failure to identify the speaker. See Opp. Br. at 17–18. Once again, FM is wrong on the law. 43. First, inclusion of language in correspondence that it is being sent “in the context of settlement” does not make it a settlement document. Nineteen Eighty-Nine, LLC v. Icahn, 96 A.D.3d 603, 607 (1st Dep’t 2012). Second, § 4547 limits the “exclusion of settlement evidence . . . only when the purpose of admission is to prove the validity or weakness of a claim or the amount of damages.” CPLR §4547 (McKinneys Practice Commentaries) (emphasis added). “The usual rules of relevance apply when settlement-related evidence is offered for some other purpose.” Id. 44. FM’s refusal to cooperate in recovery efforts or its conditioning of cooperation in signing assignment of rights for recovery actions upon receipt of a release are not statements {H3076433.1} 11 11 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 regarding the validity of FM’s position nor the amount of Plaintiffs’ damages—they are, in and of themselves, independent conduct that breaches the parties’ contract and/or its implied covenant. §4547 does not shield FM from its own admitted conduct. 45. It would have been easy enough for one of the four FM witnesses to testify: “Mr. Barrett is incorrect, FM promptly executed all assignment of rights forms presented to it by Plaintiffs.” No such testimony was offered. Instead, all FM’s General Counsel can muster is that he did not “issue a blanket refusal to provide OSI with assignments of rights,” Janas Aff., ¶ 12, explaining that it was his preference to have the Plaintiffs’ requests “included as part of the wind up of the FM/OSI business relationship.” Id. ¶ 11. This artful, non-denial is, of course, completely consistent with Mr. Barrett’s representation that FM was holding up the execution of assignments of right—thereby preventing Plaintiffs from mitigating their damages—until Plaintiffs agreed to release FM from liability. POINT V FM’S VEILED ADMISSION THAT IT WITHHELD $186,136 OWED TO PLAINTIFFS JUSTIFIES THE ENTRY OF PARTIAL SUMMARY JUDGMENT 46. Although it engaged in deflection regarding admitting that it made a mistake, FM acknowledged that it set out to credit Plaintiffs for $548,438 for its past overcharges of sales tax. Opp. Br. at 20. FM’s brief refers to this credit of over a half million dollars as gratuitous, id., as if it was voluntary gift it gave to the Plaintiffs. 47. FM’s opposition papers also clarify that notwithstanding this reconciliation, FM could not be bothered to actually recover the overpayments from the state taxing authorities. This revelation is both emblematic and consistent with FM’s later conduct as described in Mr. Barrett’s Affidavit. {H3076433.1} 12 12 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 48. In any event, FM’s papers posit that even if hypothetically it was obligated to return $548,438 for its past overcharges, it was nonetheless entitled to retain $186,136, roughly thirty-four percent (34%), of that amount under the guise that it had saved Plaintiffs money and therefore was entitled to a percentage under the “Shared Savings” provision of the MCAs. 49. However, the overpayments made by FM to state authorities were never “Savings” as that term was defined in the MCAs and thus there was never any contractual basis for FM to retain a percentage of those amounts. 50. Specifically, as set forth in paragraph Exhibit G of the MCAs, “Shared Savings” are calculated based on the “actual cost of Covered Services.” See MCAs Exhibit G, ¶ 2. 51. Thus, amounts by FM that it had wrongfully charged Plaintiffs were not part of the “actual cost” of the services, and thus cannot be predicate basis from which “Shared Savings” are calculated under the agreement in the first instance. 52. Again, FM is trying to have it both ways. If, as suggested in FM’s papers, the $548,438 was truly gratuitous—i.e., a gift untethered to any contractual obligation by FM—then FM cannot rely on the provisions of the contract to enact a set off. FM’s set off argument, even if it were meritorious, works only if it is willing to concede that the $548,438 was mistakenly overcharged by it to Plaintiffs in the first instance—a step it is apparently unwilling to take. 53. Finally, it is also worth noting that in Mr. Greenebaum’s Affidavit, he claimed that “FM had no way of knowing whether, in fact, the OSI Companies’ claims regards such overcharges were valid.” Greenebaum Aff., ¶¶ 8-9. However, as testified to in Michael Barrett’s Reply Affidavit, correspondence sent by Thomas Greenebaum to OSI not only verifies that the accounting of the overpayment of taxes came from FM, but that FM verified the correctness of the numbers. Barrett Aff. ¶¶ 11-12. {H3076433.1} 13 13 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 POINT VI PLAINTIFFS’ MITIGATION COSTS TO DATE ARE UNDISPUTED AND ARE APPROPRIATELY AWARDED VIA PARTIAL SUMMARY JUDGMENT 54. FM offers no real defense to Plaintiffs’ entitlement to recover $209,415.35 in DMA fees charged in recovering the product of FM’s overpayments to various states—amounts that it erroneously invoiced Plaintiffs and then refused to recover itself. 55. As an initial matter, FM’s papers do not dispute that mitigation costs are an appropriate component of breach of contract damages. 56. And, it is beyond dispute that the money recovered by DMA was the direct result of FM’s sales tax miscalculations/overpayments. This objectively demonstrable because the applicable states would not be returning these funds if they were not improperly submitted in the first place. 57. It should also be noted that DMA’s efforts did not just benefit Plaintiffs—they benefited FM as well. But for DMA’s efforts, FM’s contract exposure to Plaintiffs in this lawsuit would be much larger and would necessarily include a healthy interest component. And, since FM’s lack of care and/or competence created the need for DMA’s efforts, it is only right and fitting that FM pay for these efforts. 58. FM’s defense to the request for partial judgment with respect to this liquidated amount argues that: (i) a small percentage of the amounts recovered arose from claims that are time barred (Opp. Br. at 22); (ii) there may be a factual question as to whether a portion of the claims under the MCAs may be subject to New York’s voluntary payment doctrine defense (id.); and (iii) there is a factual dispute as to whether DMA’s fees are “reasonable.” Opp Br. at 23. {H3076433.1} 14 14 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 Statute of Limitations 59. FM’s first argument does not provide a full defense to judgment on this issue; rather, if correct, it still results in a judgment entered against FM, but in a slightly reduced amount. Thus, in advancing this argument, FM concedes judgment on the issue of liability but disputes quantum. 60. But FM is wrong on the law, because it focuses exclusively on the date the sales tax was paid as the accrual date for the breach of contract. As an initial matter, the date when FM invoiced Plaintiffs incorrectly is only of one of the contract breaches relative to these amounts. 61. Specifically, the MSA expressly required FM to make “at its own expense” all necessary corrections “required by the Customer due to any errors or omissions in FM’s work product.” MSA ¶ 3.1(B). 62. Thus, once Plaintiffs (i) put FM on notice of the need for it correct their erroneous payments in June of 2015, (ii) FM refused, and (iii) Plaintiffs suffered damages (the incurrence of DMA fees), a separate and independent breach of the agreement occurred. See Barrett Aff., ¶¶ 26 – 30. 63. In other words, since FM had the express contractual obligation to correct its mistakes “at its own expense,” its refusal to do so in 2015 caused Plaintiffs instead to absorb this expense, which constituted an independent breach of the parties’ agreement. 64. Accordingly, all of the $209,415.35 DMA fees—which FM agreed it would bear—are breach of contract damages incurred well within either statutory period (i.e., under Florida or New York law). {H3076433.1} 15 15 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 Voluntary Payment Doctrine 65. Second, (as FM admits) the voluntary payment doctrine does not apply at all to contract actions under in Florida state law. See Florida Statue Annotated 725.04: When a suit is instituted by a party to a contract to recover a payment made pursuant to the contract and by the terms of the contract there was no enforceable obligation to make the payment or the making of the payment was excused, the defense of voluntary payment may not be interposed by the person receiving payment to defeat recovery of the payment. Fla. Stat. Ann. § 725.04 (West). 66. Obviously the portion of DMA fees relating to recovery of taxes remitted prior 2014, see Barrett Aff., ¶ 31, Ex. A., which fall under the MCA’s that have a Florida choice of law provision, are not subject to this argument. See MCAs ¶ 14A. 67. With respect to New York law, the choice of law specified in the later MSA, the common law voluntary payment doctrine provides no defense to the remainder of the claims. 68. First, it is an affirmative defense that FM has the burden of demonstrating its applicability. It made no effort to do so. 69. Second, it is a narrow doctrine that does not apply if payments were made under a mistake of law or fact. Kirby McInerney & Squire, LLP v. Hall Charne Burce & Olson, S.C., 15 A.D.3d 233, 233 (1st Dep’t 2005). Both occurred here: Plaintiffs made payments to FM based on a mistake in fact because it did not know FM was incorrectly overcharging sales tax, and FM’s incorrect sales tax calculations were a mistake of law. Thus, the doctrine does not apply 70. Third, the doctrine applies only to payments made where the receiving party was in complete possession of all the facts necessary to determine the erroneous nature of the payments. See, e.g., Rite Aid of New York, Inc. v. Chalfonte Realty Corp., 105 A.D.3d 470, 470 {H3076433.1} 16 16 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 (1st Dep’t 2013); Samuel v. Time Warner, Inc., 10 Misc.3d 537, 549 (Sup. Ct. New York 2005) (voluntary payment doctrine not applicable when claim predicated on lack of full disclosure). 71. Thus, FM could establish a question of fact as to this defense only if it showed that, for each of its invoices, it provided Plaintiffs with all of the underlying documentation associated with the work that was performed by its vendors, the invoices for their material purchases reflecting whether the vendors themselves paid sales tax and how much, as well as subcontractor invoices. See id. 72. FM made no attempt to offer evidence that this occurred—and in fact it did not provide this information with its invoices or otherwise share with Plaintiffs the analysis it performed on an invoice-by-invoice basis. Rather, its invoices contained a single figure for all taxes, not even differentiating between types of tax, and not containing any analysis, explanation, or back up documentation. Barrett Reply Affidavit at ¶¶ 5–10, Ex. “A.” {H3076433.1} 17 17 of 22 FILED: ONONDAGA COUNTY CLERK 05/26/2017 03:31 PM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 34 RECEIVED NYSCEF: 05/26/2017 73. Thus, even if the voluntary payment doctrine was available as a defense, it would not apply because Plaintiffs were not contemporaneously provided all the information they would need to challenge the payments. See Rite Aid of New York, Inc., 105 A.D.3d at 470; McCracken v. Verisma Sys., Inc., 131 F. Supp. 3d 38, 50 (W.D.N.Y. 2015) (applying New York law) (noting that courts have declined to apply the voluntary payment doctrine when “a plaintiff's claim is predicated on a lack of full disclosure by defendant.”) 74. As related in Mr. Barrett’s original affidavit at ¶ 11, “the scope of the over taxation was not immediately known understood by OSI.” This was because FM did not provide the information necessary to establish that certainty. Rather, the only reason Plaintiffs originally knew something was wrong was because the aggregate annual sales tax it was reimbursing FM for was significantly larger than what it had been paying pre-MCA. Barrett Reply. Aff. ¶ 3. It was only after Plaintiffs began a forensic review of past transactions, with the assistance of its consultants, that they were able to understand the specific nature of FM’s errors. Id., ¶ 4. Thus, the voluntary payment doctrine is not available under these circumstances. See, e.g. Samuel, 10 Misc.3d at 549. 75. Finally, the voluntary payment doctrine does not apply when “the parties have expressly contracted for repayment of excess funds.” Best Buy Stores, L.P. v. Developers Diversified Realty Corp., No. CIV 05-2310 DSD/JJG, 2010 WL 4628548, at *2 (D. Minn. Nov. 4, 2010). As previously indicated, the MSA expressly required FM to make “at its o