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FILED: NEW YORK COUNTY CLERK 02/22/2011 INDEX NO. 601148/2009
NYSCEF DOC. NO. 173 RECEIVED NYSCEF: 02/22/2011
By order of Justice Ramos, these motion papers may not Motion Seq. # 13
be taken apart or otherwise tampered with.
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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GoSMILE, Inc., dba GO SMiLE, FKA GoSmile Index No. 601148/09
Corporation,
IAS Part 53
Plaintiff,
Hon. Charles E. Ramos
-against-
Dr. Jonathan B. Levine,
Defendant.
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Dr. Jonathan B. Levine,
Third Party Plaintiff,
-against-
John C. Hansen, JH Partners LLC, JH Investment
Partners, L.P., JH Investment Partners GP Fund, LLC,
JH Investment Management, LLC, and GS Acquisition
Co., LLC,
Third Party Defendants.
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DEFENDANT’S REPLY MEMORANDUM OF LAW IN FURTHER
SUPPORT OF MOTION FOR SUMMARY JUDGMENT SEEKING
DISMISSAL OF PLAINTIFF’S FIRST, SECOND, AND THIRD CAUSES
OF ACTION AND DETERMINING THAT, IRRESPECTIVE OF THE
SURVIVING CLAIMS, RESCISSION IS NOT AN AVAILABLE REMEDY
DAVIDOFF MALITO & HUTCHER LLP
Attorneys for Defendant
605 Third Avenue
New York, New York 10158
(212) 557-7200
February 22, 2011
00418168.7
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES .................................................................................................... ii
I. PRELIMINARY STATEMENT ......................................................................................... 1
II. LEGAL ARGUMENT…….................................................................................................. 2
A. Irrespective of Whether GoSMILE’s Claims are Dismissed,
Rescission Is Not An Available Remedy Given The Undisputed Facts
Of This Case................................................................................................................. 2
B. The Court Should Dismiss GoSMILE’s First Cause Of Action For
Fraudulent Inducement................................................................................................. 8
1. Recital 7 is not a Material Term................................................................................ 8
2. The Release Bars any Claim for Breach of Recital 7. ............................................ 11
C. The Court Should Dismiss GoSMILE’s Second Cause Of Action For
Breach Of The 2003 Agreement. ............................................................................... 12
D. The Court Should Dismiss GoSMILE’s Third Cause Of Action For
Breach Of The Settlement Agreement On Summary Judgment. ............................... 12
1. The Release Controls Over Recital 7. ..................................................................... 12
2. GoSMILE’s Claim for Breach of the Settlement Agreement is
Duplicative of its Claim for Breach of the Consulting Agreement......................... 14
E. GoSMILE’s Cross-Motion For Sanctions Should Be Denied. .................................. 15
III. CONCLUSION………….. ................................................................................................. 15
00418168.7
TABLE OF AUTHORITIES
Page
CASES
Amarant v. D’Antonio,
197 AD2d 432 [1st Dep’t 1993] ................................................................................................ 7
Amatulli v Delhi Constr. Corp.,
77 NY2d 525 [1991] ................................................................................................................... 2
Centro Empresarial Cempresa S.A. v. América Móvil, S.A.B. de C.V.,
76 AD3d 310 [1st Dep’t 2010] .......................................................................................... 11, 12
Citigifts, Inc. v. Pechnik,
112 AD2d 832 [1st Dep’t 1985], aff’d, 67 NY2d 774 [1986] ................................................. 15
Gem Global Yield Fund, Ltd. v. Surgilight, Inc.,
2006 WL 2389345 [SD NY 2006]........................................................................................... 15
Lattanzio v. Lattanzio,
13 Misc 3d 1241(A), 2006 WL 3409907 [Sup Ct NY Co 2006],
aff’d, 55 AD3d 431 [1st Dep’t 2008]......................................................................................... 4
Musman v. Modern Deb, Inc.,
56 AD2d 752 [1st Dep’t 1977] ................................................................................................ 14
Northville Indus. Corp. v. Fort Neck Oil Terminals Corp.,
100 AD2d 865 [2d Dep’t 1984] ............................................................................................... 15
Rudman v. Cowles Commcn’s, Inc.,
30 NY2d 1 [1972] .................................................................................................................. 3, 7
Sokolow, Dunaud, Mercadier & Carreras LLP v. Lacher,
299 AD 2d 64 [1st Dep’t 2002] ................................................................................................. 5
Urfirer v. Cornfeld,
17 AD3d 129 [1st Dep’t 2005] ................................................................................................ 11
W.W.W. Assoc., Inc. v. Giancontieri
77 NY2d 157 [1990] .................................................................................................................. 9
Williams v Barkley,
165 NY 48 [1900] .................................................................................................................... 14
Worldcom, Inc. v. Segway Mktg. Ltd.,
262 AD2d 164 [1st Dep’t 1999] .............................................................................................. 11
00418168.7 ii
STATUTES
CPLR 201........................................................................................................................................ 5
CPLR 3211............................................................................................................................ 2, 8, 11
CPLR 3212.......................................................................................................................... 8, 13, 15
8 Del C § 141(b) ............................................................................................................................. 4
00418168.7 iii
By order of Justice Ramos, these motion papers may not Motion Seq. # 13
be taken apart or otherwise tampered with.
Dr. Levine1 respectfully submits this reply memorandum of law in response to the
opposition memorandum of law dated February 16, 2011 submitted by GoSMILE (“GoSMILE
Opp Br”), and in further support of his motion for summary judgment dismissing GoSMILE’s
first, second and third causes of action in its Amended Complaint, and determining that
rescission is not an available remedy to GoSMILE given the undisputed facts of this case.
I. PRELIMINARY STATEMENT
GoSMILE concurs with Dr. Levine’s assessment as to the steps that must be undertaken
to rescind the 2008 Agreements. These facts will not change over time even if, as GoSMILE
suggests, years more of discovery is conducted at extraordinary expense—nothing will change
the fact that GoSMILE’s board will have to be reconstituted retroactively with two new board
seats for Dr. Levine; nothing will change the fact that a lawsuit will have to be revived years
after it has been dismissed with prejudice, the statute of limitations has run and
evidence/witnesses have grown stale; nothing will change the fact that GLO Science will have to
be dissolved after outside investors, suppliers, distributors and others have spent millions of
dollars and untold number of man hours in reliance on the 2008 Agreements; nothing will
change the fact that GoSMILE will have to dilute its ownership retroactively for two and a half
years to restore the Levines’ stock in GoSMILE; and nothing will change the fact that GLO
Science has already launched its products into the marketplace which consumers are now using.
As such, whether complete rescission is possible is a legal conclusion the Court may reach now.
Moreover, rescission is an equitable remedy, available only to those whose conduct can
pass muster, which GoSMILE’s conduct does not. Dr. Levine’s Reply Affidavit2 confirms
1
Capitalized terms herein shall have the same meanings as ascribed in Dr. Levine’s opening
memorandum of law, dated February 2, 2011 (“Levine S/J Memo”).
2
Submitted herewith and sworn to on February 21, 2011 (“Levine Reply Aff.”)
00418168.7
GoSMILE’s course of misconduct and its intent to use this litigation for improper purpose.
GoSMILE’s main substantive argument is that the First Department has held, on a CPLR
3211 motion to dismiss, that the remedy of rescission may be available once the facts are
established. However, the First Department did not hold that rescission was proper based on the
actual facts—it never addressed the actual facts since under CPLR 3211, it could not. Now, over
two years into this litigation, the undisputed facts establish that rescission is unavailable under
New York law. The only reason GoSMILE seeks to delay this result is that it hopes to bleed Dr.
Levine dry with legal fees and damage his infant business with the ongoing prospect of
dissolving his new company. This should be addressed now—since the facts regarding
rescission are undisputed and GoSMILE’s intent is not to reach the merits of its claim for
fraudulent inducement but to ruin Dr. Levine with ongoing, massively expensive litigation.
II. LEGAL ARGUMENT
A. Irrespective of Whether GoSMILE’s Claims are Dismissed, Rescission Is
Not An Available Remedy Given The Undisputed Facts Of This Case.
Dr. Levine has made a prima facie showing of undisputed facts demonstrating that
restoring the status quo is impractical if not impossible. Now the burden is on GoSMILE to
present admissible evidence that summary judgment on the issue of rescission should not be
granted. Amatulli v Delhi Constr. Corp., 77 NY2d 525, 533 [1991]. GoSMILE ignores its
burden of proof and, instead, relies on the allegations of its Amended Complaint. GoSMILE
argues that since the First Department permitted rescission to be plead as a potential remedy on a
motion to dismiss, that somehow precludes Dr. Levine from making his case on summary
judgment that rescission is not available as a remedy based on undisputed facts.
GoSMILE now has had full disclosure of Dr. Levine’s files relating to its claim for fraud.
At this juncture, GoSMILE may not rely on the allegations of its pleadings. As this Court held in
00418168.7 2
the Synthetic Security Order, “GoSMILE’s allegations that Dr. Levine breached the Consulting
Agreement, in the absence of submitting any proof, are merely conclusory.” Ex. G, p 9. The
same rationale applies here. GoSMILE may not cite to its pleading as evidence, nor may it rely
on mere conjecture as to whether restoring the status quo is possible. In short, GoSMILE offers
no admissible evidence sufficient to refute the affidavits submitted Dr. Levine, which
demonstrate the impossibility of restoring the status quo and the damage to Dr. Levine as well as
innocent third parties that would result. For that reason alone, summary judgment should be
granted. While GoSMILE is correct that a party is certainly entitled to plead entitlement to the
harsh remedy of rescission in a complaint for fraudulent inducement, GoSMILE conflates a
pleading standard with a summary judgment standard. GoSMILE would have this Court believe
that merely pleading entitlement to rescission is sufficient to withstand a summary judgment
motion seeking to dismiss rescission as a potential remedy. Such is obviously not the case.
Motions to dismiss rely on mere allegations while motions for summary judgment rely on
admissible evidence. Here GoSMILE has submitted no affidavits or other admissible evidence to
support its argument that restoring the status quo is possible.
GoSMILE’s may only rescind the 2008 Agreements if the “status quo may be
substantially restored.” Rudman v. Cowles Commcn’s, Inc., 30 NY2d 1, 13-14 [1972]. On this
narrow question, GoSMILE fails to create an issue of fact and discusses the issue in its
opposition papers only through the speculation of its counsel. First, GoSMILE fails to address
whether it is factually possible to restore the Levines’ 29.57% ownership in GoSMILE
retroactive to April 21, 2008. Such a restoration would likely be impossible, given that all of
GoSMILE’s shareholders, including those who have more recently invested in GoSMILE, would
have to be diluted retroactively from April 21, 2008 to the present, which would be a logistical
00418168.7 3
nightmare and likely barred by anti-dilution provisions.
Second, GoSMILE summarily concludes, without analysis or evidence, that restoring Dr.
Levine’s two board seats retroactively to April 21, 2008 would not be a problem since “no
decisions made by the company since entry into the 2008 Agreements would be any different”
because “Dr. Levine was a minority shareholder and held a minority of Board seats.” GoSMILE
Opp Br p 18. GoSMILE cannot possibly make this assertion without evidence, and even if true,
GoSMILE ignores Delaware law, which requires a quorum of directors at every meeting to take
board action. See 8 Del C § 141(b). The absence of two directors from every single corporate
action taken by GoSMILE since April 21, 2008 cannot be restored. Significantly, while Hansen
submits an affidavit stating in conclusory fashion that Recital 7 was a material term to the 2008
Agreements,3 Hansen is utterly silent on the issue of restoring the status quo and the
consequences of restoring the Levines’ stock and board seats retroactively to April 21, 2008.
Third, GoSMILE proclaims that it would be no problem for Dr. Levine to dissolve GLO
Science and “disgorge to GO SMiLE any profits made from the oral hygiene products developed
and marketed” by Dr. Levine’s new company. GoSMILE Opp Br p 18; GoSMILE Rule 19-b
Statement (NYSCEF Doc # 171), ¶ 25. Again, no evidence is submitted to support this mere
speculation. GoSMILE’s wishful thinking notwithstanding, it is flatly impossible to require the
nearly 9,000 customers who purchased Dr. Levine’s products to return those products—all of
3
Hansen’s affidavit is Exhibit Q to the affidavit of Heather J. Macklin, sworn to on February 16, 2011.
Hansen’s affidavit should not be considered since it is a self-serving affidavit directly contradicted by the
contemporaneous evidence (Exs. I & J – the Term Sheet and GoSMILE’s immediate disclosure to its
shareholders), and by GoSMILE’s admissions in its Rule 19-b Statement. GoSMILE Rule 19-b
Statement, ¶¶ 9 & 14-17. The Term Sheet was signed by Hansen (Ex. I, p 4), evidencing that he agreed to
general releases, and superseding the 2003 Agreement, without any representations by Dr. Levine
concerning compliance with the 2003 Agreement. See eg Lattanzio v. Lattanzio, 13 Misc 3d 1241(A),
2006 WL 3409907, at *7 [Sup Ct NY Co, Fried, J. 2006], aff’d, 55 AD3d 431 [1st Dep’t 2008]
(discounting self-serving affidavit testimony by defendant since it was contradicted by his
“contemporaneous emails”).
00418168.7 4
which are under warranty by GLO Science—since many of them are likely beyond the
jurisdiction. This says nothing about the millions of dollars that would be forfeited by the outside
investors, suppliers, vendors and distributors and the thousands of man-hours expended by them
that would be wasted.
Fourth, GoSMILE admits that as part of the 2008 Agreements, Dr. Levine dismissed his
suit against GoSMILE and Hansen with prejudice, and that the applicable statute of limitations
on some claims “has since run.” GoSMILE Opp Br p 19. GoSMILE again argues, without any
evidence, analysis or legal support, that if rescission were granted “a return to the status quo
would likely entail the tolling of the statute of limitations and reinstatement of that suit.” Id.
GoSMILE ignores that this Court has no discretion to revive those claims. CPLR 201 (“No court
shall extend the time limited by law for the commencement of an action.”)
GoSMILE relies on Sokolow, Dunaud, Mercadier & Carreras LLP v. Lacher, 299 AD 2d
64, 72 [1st Dep’t 2002] for the proposition that “[t]he rule that rescission is unavailable where a
party cannot be returned to the status quo ante will not be strictly enforced where the party
against whom rescission is sought is a wrongdoer who is exploiting its change of position to
shield its wrongdoing.” However, even on summary judgment, GoSMILE fails to present any
evidence in admissible form that Dr. Levine was a “wrongdoer” or that Dr. Levine “exploit[ed
his] position to shield [his] wrongdoing.” Instead, the record shows that GoSMILE is the party
that unilaterally determined that it would cease performance of the Consulting Agreement, and
then failed to perform its obligations under the Synthetic Security, notwithstanding the clear
direction by this Court. Ex. G, pp 7-8. GoSMILE is also the party that impermissibly continued
to utilize Dr. Levine’s name and likeness in promoting its products, even after Dr. Levine left the
company. Id. p 13.
00418168.7 5
The record shows that it is GoSMILE that failed to move for injunctive relief from this
Court, fully aware that Dr. Levine’s non-compete was expiring and that he was going to market
his new products. Indeed, GoSMILE filed its first complaint in January 2009 – in plenty of time
to seek an injunction prior to the July 10, 2009 expiration of Dr. Levine’s non-compete – but
never did, even though it knew Dr. Levine’s new products were being fully developed and
launched into the marketplace in reliance on the 2008 Agreements, and third parties would make
significant investments in same. In short, GoSMILE knowingly waited until restoration of the
status quo would be completely impossible and now argues that it is Dr. Levine’s fault that the
status quo ante cannot be restored. GoSMILE offers no evidence to support its argument and, in
fact, the record demonstrates precisely the opposite.
Further, and perhaps most significantly, GoSMILE engages in wild speculation regarding
the impact of rescission on investors, arguing that “[t]here is no reason the Court could not direct
[Dr. Levine to] return money he voluntarily took from third-party investors.” GoSMILE Opp Br
p 18. GoSMILE assumes they can be made whole, as well as the numerous suppliers, distributors
and consumers who would be impacted. GoSMILE surely recognizes that such a vast order of
restitution and rescission lacks legal support or precedent. GoSMILE also fails to address the
caselaw holding that rescission is unavailable where it would damage the interests of third parties
that relied in good faith on the enforceability of the contract. See Levine S/J Memo pp 22-23.
Finally, the evidence confirms that GoSMILE is responsible for Dr. Levine and the
innocent third parties irreparably changing their position in reliance on the 2008 Agreements. As
described in the Levine Reply Affidavit, GoSMILE belatedly filed a complaint in federal court in
November 2010, seeking injunctive relief, arguing that Dr. Levine’s trademark “GLO Brillant” is
confusingly similar to “GoSMILE.” GoSMILE made this claim without an expert, and on
00418168.7 6
February 17, 2011, the federal court concluded a hearing on GoSMILE’s claim for entitlement to
injunctive relief. Notably, in over two years of litigation, and being well-aware that Dr. Levine
was about to launch a competitive product, GoSMILE has failed to move for injunctive relief in
this Court. It waited until November 2010, on the eve of Dr. Levine’s product launch, to institute
a new federal action seeking overlapping relief it pleads for herein. As such, GoSMILE cannot
be heard to complain that Dr. Levine and innocent third parties changed their position in reliance
on the 2008 Agreements, given GoSMILE’s failure to seek injunctive relief in a timely fashion.
Nor does GoSMILE make any effort to dispute that rescission is an equitable remedy.
Rudman, 30 NY2d at 13. “It is an ancient maxim that he who comes to equity must come with
clean hands.” Amarant v. D’Antonio, 197 AD2d 432, 434 [1st Dep’t 1993]. Here, GoSMILE
comes to this Court with unclean hands. As described in the Levine Reply Affidavit, GoSMILE
has commenced three baseless lawsuits against Dr. Levine, including this action, not to litigate
on the merits, but instead to cripple an infant competitive business with exorbitant legal
expenses. Levine Reply Aff. ¶¶ 4, 7, 9-12. While subject to an outstanding Protective Order
issued by this Court, GoSMILE ran to federal court to institute a parallel action and obtain the
very documents it was prohibited from demanding in this case. Id. ¶ 6. Over 7,725 documents
were demanded and obtained at massive expense to Dr. Levine. Id.
GoSMILE also solicited stolen trade secret information from Dr. Levine’s disgruntled ex-
employee. After Dr. Levine fired Leslie French for malfeasance and incompetence on or about
October 31, 2008, GoSMILE paid to fly French and her attorney to San Francisco (GoSMILE’s
headquarters) in January 2009. French had stolen confidential information from Dr. Levine’s
office and provided that information to GoSMILE and/or counsel for GoSMILE. GoSMILE even
entered into a purported Joint Defense Agreement with French to shield the communications
00418168.7 7
between them from discovery – the propriety of which is currently before Special Referee
Crespo. Levine Reply Aff. ¶ 8.
The record shows that GoSMILE’s conduct in the federal case is consistent with its
conduct here. GoSMILE gave an “exclusive” to the New York Post and issued a press release
through its public relations company and attorneys after it commenced the federal action, which
was picked up by the national newswires, in an extrajudicial means of tarnishing Dr. Levine and
his new business. Levine Reply Aff. ¶ 11. GoSMILE even tried to admit these stolen documents
into evidence in the federal action over Dr. Levine’s objection and notwithstanding the fact that
the limitation on their use is an issue currently pending before Special Referee Louis Crespo.
It is respectfully submitted that the evidence submitted by Dr. Levine herein
demonstrates the impossibility of restoring the parties and innocent third parties to their
respective states prior to the 2008 Agreements, and that GoSMILE comes to this Court with
unclean hands. These undisputed facts require this Court to dismiss rescission as a potential
remedy for GoSMILE under any circumstance.
B. The Court Should Dismiss GoSMILE’s First Cause Of Action For
Fraudulent Inducement.
1. Recital 7 is not a Material Term.
GoSMILE mistakenly argues that the First Department already decided that Recital 7 was
a material term by reinstating GoSMILE’s fraudulent inducement claim. GoSMILE Opp Br p 6.
Again, GoSMILE overlooks that the First Department’s decision was based on a motion to
dismiss, CPLR 3211 standard, without the benefit of the two-plus years of discovery herein. On
a CPLR 3212 motion, GoSMILE does not receive the benefit of its allegations being deemed
true. Here, the undisputed evidence developed in discovery demonstrates beyond dispute that
Recital 7 is immaterial. Exs. I, p 3; Ex. J, ¶ 4; GoSMILE Rule 19-b Statement, ¶¶ 14-19.
00418168.7 8
GoSMILE also erringly chides Dr. Levine for arguing inconsistent positions. GoSMILE
Opp Br p 8. Dr. Levine previously successfully argued that the Consulting Agreement was
unambiguous on its face, precluding parol evidence “as to what was really intended but unstated
or misstated.” Macklin Aff. Ex. P, p 8 (citing W.W.W. Assoc., Inc. v. Giancontieri, 77 NY2d 157,
162 [1990]). Dr. Levine’s introduction of parol evidence herein – the Term Sheet and
GoSMILE’s amendment to tender offer – is consistent with Dr. Levine’s prior argument. Dr.
Levine’s parol evidence is not submitted for the purpose of altering the express terms of the 2008
Agreements “as to what was really intended but unstated or misstated.” Instead, the parol
evidence is consistent with the unambiguous terms of the 2008 Agreements, and is introduced to
simply demonstrate that Recital 7 – while unambiguous – is not a material term.
Further, GoSMILE’s protestation that the instant motion was “brought before any
substantive discovery into the newly revived claims even began” (GoSMILE Opp Br p 5) is
false. Dr. Levine has already provided GoSMILE with all non-privileged and non-trade secret
documents in his possession concerning GoSMILE’s fraudulent inducement claim and has not
withheld anything from disclosure based on that disclosure being related to GoSMILE’s claim
for fraudulent inducement. In this action, Dr. Levine has produced approximately 8 gigabytes of
electronic information, in addition to thousands of pages of hard copy documents, much of it
exclusively concerning GoSMILE’s fraudulent inducement claim, in addition to the extensive
discovery provided to GoSMILE in the overlapping federal action. Levine Reply Aff. ¶ 6.
GoSMILE even submitted to this Court discovery received from Dr. Levine relating
exclusively to its fraudulent inducement claim. See June 14, 2010 Gniot Affidavit, Ex. B (on the
Court’s electronic docket at Docket ID# 91-2). Tellingly, GoSMILE does not identify any
document or category of documents withheld by Dr. Levine. GoSMILE may not transport the
00418168.7 9
parties back in time to the pre-discovery stage to argue that the First Department’s decision
somehow precludes summary judgment based on the undisputed facts. GoSMILE waited more
than eight months to perfect its appeal from this Court’s dismissal of its claim for fraud – all the
while this case proceeded through discovery and into the next stage of litigation.
GoSMILE then argues that the absence of Recital 7 from the Term Sheet has no bearing
on materiality, as evidenced by several other “material issues” not addressed in the Term Sheet,
subsequently included in the 2008 Agreements: (i) resolution of a related derivative lawsuit; (ii)
protection of Dr. Levine’s intellectual property; (iii) specific terms governing the Synthetic
Security; and (iv) when consulting fee payments were to commence. GoSMILE Opp Br pp 9-10.
However, none of the four items identified by GoSMILE had a wholly contradictory term
in the Term Sheet. What GoSMILE ignores is that the Term Sheet unequivocally states that
“This agreement supersedes all prior non-compete agreements between the parties.” Term Sheet,
p 3 (Ex. I). Recital 7, which seemingly seeks to revive the prior 2003 Agreement, is directly at
odds with a clause in the Term Sheet that was disclosed by GoSMILE to its shareholders in an
amendment to tender offer. Ex. J, ¶ 4 (“The settlement agreement and consulting agreement shall
supersede all prior non-compete agreements among the Settlement Parties.”)
In stark contrast, Recital 7 is (i) not contained in the Term Sheet that was the basis for the
2008 Agreements; (ii) not disclosed by GoSMILE to its shareholders in its amendment to tender
offer describing the Term Sheet; (iii) directly contradicted by a clause in the Term Sheet stating
that the 2003 Agreement was being superseded entirely; (iv) the contradictory term, stating that
the 2003 Agreement was superseded, was placed into the 2008 Agreements after agreement was
reached on the Term Sheet disclosed to shareholders; (v) is a recital and not contained in the
operative part of the 2008 Agreements; and (vi) is not carved out of the comprehensive and
00418168.7 10
general Release contained in the 2008 Agreements. Dr. Levine submits that these undisputed
facts lead to the inescapable conclusion that Recital 7 is not a material term to the 2008
Agreements, and the Court should dismiss GoSMILE’s cause of action for fraudulent
inducement. Urfirer v. Cornfeld, 17 AD3d 129, 130 [1st Dep’t 2005]; Worldcom, Inc. v. Segway
Mktg. Ltd., 262 AD2d 164, 164 [1st Dep’t 1999].
2. The Release Bars any Claim for Breach of Recital 7.
In response to Dr. Levine’s argument that the Release bars GoSMILE’s fraud claim
(Levine S/J Memo, pp 12-16), GoSMILE argues that the First Department already rejected this
argument. GoSMILE Opp Br pp 10-11. Again, the First Department reviewed the Amended
Complaint within the vacuum of a CPLR 3211 motion. On summary judgment, GoSMILE has
no credible argument that Recital 7 survives the comprehensive Release. Centro Empresarial
Cempresa S.A. v. América Móvil, S.A.B. de C.V., 76 AD3d 310, 318 [1st Dep’t 2010] (“[w]hen a
party releases a claim for fraud, it can later challenge that release for fraudulent inducement only
by identifying a separate and distinct fraud from that contemplated by the agreement”).
GoSMILE flatly admits that the First Department misread the Release at issue in
GoSMILE’s responsive Rule 19-b Statement. GoSMILE Rule 19-b Statement, ¶ 12. It is
disingenuous for GoSMILE to claim that Dr. Levine’s argument concerning the scope of the
Release lacks merit when GoSMILE recognizes the First Department’s misreading in this regard.
In the event this Court rules that rescission is unavailable as a remedy herein, then the
2008 Agreements control. GoSMILE concedes that the 2008 Agreements expressly supersede
the 2003 Agreement. GoSMILE Rule 19-b Statement, ¶4 [citing Ex. B, § 28 & Ex. C, § 4(g)].
Thus, GoSMILE’s remedies are governed by the 2008 Agreements, which specify that the only
remedy available to GoSMILE is termination of the consulting fee, and in the event of a breach
of the non-compete, injunctive relief. Ex. C, § 9(a)-(b). GoSMILE used self-help to unilaterally
00418168.7 11
cease payments of the consulting fee but never sought injunctive relief from this Court.
GoSMILE concedes that the Release in the 2008 Agreements covers all claims, whether
known or unknown, or based on unknown facts. GoSMILE Rule 19-b Statement, ¶ 5 [citing Ex.
B, §§ 13 & 16 (GoSMILE releases all claims against Dr. Levine “whether known or unknown …
that [] GOSMILE ever had or now has,” and that GoSMILE “expressly acknowledges that [] it is
assuming the risk that the facts giving rise to the claims are different than [] it believes them to
be.”)] GoSMILE also concedes that, absent rescission, this broad Release in the 2008
Agreements controls. GoSMILE Rule 19-b Statement, ¶ 13.
Under these circumstances, there can be no question that, based on the undisputed terms
of the 2008 Agreements and the facts of this case, GoSMILE’s first three causes of action should
be dismissed.
C. The Court Should Dismiss GoSMILE’s Second Cause Of Action For Breach
Of The 2003 Agreement.
GoSMILE concedes that if the Court dismisses GoSMILE’s cause of action for
fraudulent inducement, then GoSMILE’s cause of action for breach of the superseded 2003
Agreement must also fail. Centro Empresaria, 76 AD3d at 317-18.
D. The Court Should Dismiss GoSMILE’s Third Cause Of Action For Breach
Of The Settlement Agreement On Summary Judgment.
1. The Release Controls Over Recital 7.
GoSMILE alleged in the Amended Complaint that a breach of Recital 7 constitutes a
breach of the Settlement Agreement and has asserted its third cause of action for breach of
contract on that basis. However, GoSMILE now concedes that [1] the Release covers all known
and unknown claims arising from a misrepresentation of fact, and [2] the 2008 Agreements
supersede the 2003 Agreement in its entirety. GoSMILE Rule 19-b Statement, ¶¶ 4, 5, 13. Based
on these undisputed facts, this cause of action should be dismissed on summary judgment.
00418168.7 12
Notably, dismissal of this claim was never before the First Department and, in any event,
GoSMILE now concedes that the First Department misread the terms of the Release when it was
considering the earlier motions to dismiss. Id. ¶ 12. Given GoSMILE’s concession as to these
undisputed facts, GoSMILE may not credibly argue that Dr. Levine is somehow precluded from
moving for summary judgment dismissing this claim under CPLR 3212.
Having conceded that the Release covers existing unknown claims, GoSMILE now tries
to construe a breach of Recital 7 as a “future claim” not covered by the Release. GoSMILE Opp
Br p 15. While the Release does not bar “future claims,” Recital 7 does not concern “future
claims.” Recital 7 is a representation as to past and present conduct. See Ex. B, § 7 (“Dr. Levine
represents and warrants that he has not breached and is not now in breach of the [2003
Agreement].”) (emphasis added). Past and current conduct are specifically included in the
Release. To wit, GoSMILE agreed to “fully release and forever discharge the Levines … from
any and all claims … whether known or unknown … GoSMILE ever had or now has.” Ex. B,
§ 13 (emphasis added). The Release even went further, providing that:
GoSMILE expressly acknowledges that this Agreement is intended
to include in its effect, without limitation, all claims, known or
unknown, each may have, and this Agreement further contemplates
the extinction of any and all such claims. … GoSMILE expressly
waives any right hereafter to assert that such claim has, through
ignorance or oversight, been omitted from this Agreement. …
GoSMILE expressly acknowledges that [] it is assuming the risk
that the facts giving rise to the claims are different than [] it
believes them to be.
Ex. B, § 16. Since Recital 7 does not concern “future claims” as argued by GoSMILE, it is not in
dispute that Recital 7 is contradicted by the Release.
GoSMILE also ignores the two provisions of the 2008 Agreements that specifically state
that Dr. Levine’s obligations under the 2003 Agreements are superseded by the Consulting
Agreement. Ex. B, § 28 (“This Consulting Agreement supersedes all prior non-compete
00418168.7 13
agreements between the Levines and GoSMILE.”); Ex. C, § 4(g) (“This Agreement supersedes
all prior non-compete agreements between the parties.”)
The Release and the superseding clause are both found in the operative section of the
Settlement Agreement, and as a matter of law, control over a recital – Recital 7 – which purports
to revive the 2003 Agreement. Williams v Barkley, 165 NY 48, 57 [1900]; Musman v. Modern
Deb, Inc., 56 AD2d 752, 753 [1st Dep’t 1977]. To this, GoSMILE has no response.
GoSMILE’s argument that Recital 7 only concerns “future claims” is belied by the plain
terms of Recital 7, which is contradicted by the operative – and thus controlling – terms of the
2008 Agreements. As such, the Court should dismiss GoSMILE’s third cause of action, for
breach of the Settlement Agreement since the only alleged breach is the breach of Recital 7,
which is rendered superfluous by the contradictory operative clauses.
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