1997 WL 154044 Page 1
(Cite as: 1997 WL 154044 (S.D.N.Y.))
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United States District Court, S.D. New York.

MAHARAJA TRAVEL, INC., Plaintiff,
v.
BANK OF INDIA, Defendant.

No. 94 CIV. 8308 (KTD).
April 2, 1997.

Krishnan Chittur, New York City, for
Plaintiff.

Joseph C. Kaplan, Tenzer, Greenblatt, Fallon & Kaplan, New York City, for
Defendant.

MEMORANDUM AND ORDER

KEVIN THOMAS DUFFY, District Judge. *1 Plaintiff Maharaja Travel Agency ("Maharaja") commenced this action to recover damages from Defendant Bank of India ("BOI") for BOI's refusal to extend any portion of a credit facility issued in Maharaja's favor. Plaintiff alleges the following seven causes of action: (1) breach of contract; (2) promissory estoppel; (3) breach of the implied covenant of good faith and fair dealing under UCC § 1-203; (4) fraudulent misrepresentation; (5) negligent misrepresentation; (6) intentional interference with a business relationship; and (7) prima facie tort. BOI's motion to dismiss is now being treated as one for summary judgment pursuant to an Order of this Court dated December 1, 1995. [FN1] For the reasons stated below, Defendant's motion for summary judgment is granted with respect to Plaintiff's second, fourth, fifth, sixth, and seventh claims. Plaintiff's third cause of action for breach of the implied covenant of good faith and fair dealing is deemed incorporated into Plaintiff's first cause of action for breach of contract. Defendant's motion for summary judgment on the breach of contract claim is denied and further discovery is ordered.

FN1. BOI annexed an affidavit and several exhibits to its motion to dismiss. Consequently, this Court ordered that the motion be considered as one for summary judgment and Plaintiff was permitted to submit further factual items to support its claim. Plaintiff submitted an affidavit alleging that its offices were burglarized and its business records destroyed or vandalized. (Sanghvi Aff. at 2). Thus, Maharaja lacks significant documentation relevant to this case. Id. Although Maharaja has served a discovery request upon BOI, BOI apparently has not produced al l responsive documents. Id. Significantly absent are the closing documents for the credit facility. Id. at 12. Thus far, no depositions have been taken.

(Cite as: 1997 WL 154044 (S.D.N.Y.))

Background

As a general practice, the airline industry requires travel agencies to provide a letter of credit as security for plane tickets issued in an agency's name. In accordance with this practice, BOI agreed to make available to Maharaja a $110,000 [FN2] credit facility to satisfy any guarantees or letters of credit needed by Maharaja. The Commitment Letter signed by the parties specifically stated that "These facilities are available at the [Bank of India's] discretion." Plaintiff allegedly paid approximately $7500 in closing fees for the agreement. FN2. The parties dispute the amount of the Commitment Letter at issue. Plaintiff maintains that it is for an additional $110,00.

Defendant states that only $60,000 is at issue.

Maharaja claims that BOI precluded it from drawing on its new line of credit in violation of the Commitment Letter. Maharaja further alleges that BOI's withholding of the new credit facility made it impossible for Maharaja to meet its financial obligations to the airlines and consequently destroyed Maharaja's travel agency business.

Maharaja alleges that BOI denied it access to the funds one day after the parties executed the agreement, stating "procedural issues" needed to be "ironed out." Maharaja also alleges that BOI continued to give it "the runaround" by repeatedly promising that it would soon be authorized to draw on its standby letter of credit. Maharaja alleges instances in which BOI promised access to the facilities within a short period of time and other instances in which BOI simply refused to discuss access. BOI largely denies these allegations and asserts that Maharaja's first and only written request for access occurred nine months after the agreement was executed. Maharaja also complains that BOI eventually justified the delay by citing a $465.25 checking account overdraft and by incorrectly informing Maharaja that its $100,000 Term Loan had fallen due. Finally, Maharaja speculates that BOI was "in a league with [Maharaja's] competitors," and that BOI's refusal to extend the funds was intended to cause Maharaja to default on the pre-existing Term Loan.

Discussion

*2 Summary judgment is appropriate when "there is no genuine issue of material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.' " Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1985) (quoting First Nat. Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)). In considering a motion for summary judgment, all inferences and ambiguities must be drawn in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The standard for summary judgment, in turn, is further "qualified by Rule 56(f)'s provision that summary judgment be refused where the nonmoving party has not had the opportunity to discover information that is essential to his opposition." Anderson, 477 U.S. at 250 n. 5. Thus, Rule 56(f) requires that parties have a reasonable opportunity to make their record before the court rules on a motion for summary judgment. Allstate v. Administratia Asigurarilor De Stat, 948 F.Supp. 285, 293 (S.D.N.Y.1996) (citations omitted). This rule, however, does not permit a plaintiff to engage in a "fishing expedition." Id. at 295. Rather, Rule 56(f) requires the opponent of a motion for summary judgment to file an affidavit explaining (1) the facts that are sought and how they are to be obtained, (2) how these facts are reasonably expected to create a genuine issue of material fact, (3) what efforts the affiant has made, and (4) why these efforts were unsuccessful. Burlington Coat Factory Warehouse v. Espirit De. Corp., 769 F.2d 919, 926 (2d Cir.1985).

Maharaja's first cause of action alleges that BOI breached the express terms of the Commitment Letter by withholding all funds under the credit facility. BOI responds that, according to the plain language of the agreement, funds were to be available at BOI's discretion. Maharaja counters by asserting that Defendant's right to withhold the entire credit facility after Maharaja paid $7500 in closing costs was not within the reasonable expectations of the parties. Under New York law, "[w]hen the interpretation of a contract is at issue, summary judgment is proper where the language of the contract is unambiguous, lending itself to only one reasonable interpretation." Hanson v. McCaw Cellular Communications, Inc., 77 F.3d 663, 667 (2d Cir.1996) (citations omitted). Thus, a threshold issue with respect to Maharaja's first claim is whether the terms of the contract are unambiguous. It is well settled under New York law that where the express terms of a loan agreement grant a lender discretion as to whether it will continue to advance credit, the lender has a "contractual right" to refuse to advance credit. National Westminister Bank v. Ross, 130 B.R. 656, 675 (S.D.N.Y.1991), aff'd, 962 F.2d 1 (2d Cir.1992); see also Pinky Originals, Inc. v. Bank of India, No. 94 Civ. 3568, 1996 WL 603969 at *14 (S.D.N.Y. Oct.13, 1996) (granting summary judgment on breach of contract claim where Commitment Letter made lending discretionary). Here, the express terms of the Commitment Letter unambiguously state that the funds shall be available at BOI's discretion. Thus, BOI did not breach the express terms of the Commitment Letter.

*3 Notwithstanding the fact that BOI did not breach the express terms of the contract, Summary Judgment is not warranted on Maharaja's first cause of action. Maharaja has pleaded, in its third cause of action, a claim for breach of the implied covenant of good faith and fair dealing. Under New York law, this claim is actionable in the form of a claim for breach of the underlying contract. Geler v. National Westminister Bank USA, 770 F.Supp. 210, 215 (S.D.N.Y.1991).

As such, Maharaja's third cause of action is deemed incorporated into its first cause of action for breach of contract.

In general "a party's actions implicate the implied covenant of good faith if it acts so directly to impair the value of the contract for another party that it may be assumed that they are inconsistent with the intent of the parties." Bank of China v. Chan, 937 F.2d 780, 789 (2d Cir.1991). When a contract grants discretion to a party, that party is required to exercise its discretion in good faith and to not act arbitrarily. See Ciutiis v. NYNEX Corp., No. 95 Civ. 9745, 1996 WL 512150 at *3 (S.D.N.Y. Sept.9, 1996) (denying motion to dismiss on issue of breach of covenant of good faith and fair dealing).

In this case, there exist several facts that could lead a rational trier of fact to conclude that BOI acted in bad faith. Maharaja paid $7500 in contract closing fees. According to Maharaja, it then was denied access to those funds one day later. Furthermore, Maharaja alleges a course of conduct in which BOI continually lead it to believe that it would soon be able to access the standby credit facility yet never granted access. Maharaja alleges that BOI's officers were aware of the exigency of Maharaja's situation but never made clear that it planned to withhold all funds indefinitely. Maharaja maintains that BOI eventually justified its denial of funds by claiming that Maharaja's Term Loan was past due. Finally, Maharaja contends that BOI exacerbated Maharaja's financial demise by enforcing an exclusivity clause in their Term Loan Agreement which precluded it from seeking financing elsewhere.

Clearly some of these allegations may be resolved with further discovery. In particular, documents relating to the contract closing, documents relating to when Maharaja's Term Loan had become due, and evidence of the alleged various requests for access to the credit may be probative. In light of Maharaja's showing under Rule 56(f) and the existence of disputed material facts, BOI's motion for summary judgment on Maharaja's first cause of action must be denied. Although BOI did not breach the express terms of the agreement, there remains a genuine issue of fact as to whether BOI breached the implied covenant of good faith and fair dealing by exercising its discretion in bad faith.

Maharaja's second claim alleges promissory estoppel. "Promissory estoppel is a narrow doctrine designed to enforce a contract in the interest of justice where some contract formation problem would otherwise prevent enforcement." In re Gulf Oil / Cities Serv. Tender Offer Litig., 725 F.Supp. 712, 735 (S.D.N.Y.1989); see also NCC Sunday Inserts Inc. v. World Color Press, Inc. 759 F.Supp. 1004, 1011 (S.D.N.Y.1991). In this case, the June 20 Commitment Letter is an enforceable contract and Maharaja does not claim that BOI breached any promise aside from those explicit or inherent in the contract. Hence, a claim of promissory estoppel is not actionable here. Accordingly, BOI must be granted summary judgment with respect to Maharaja's second cause of action.

*4 Maharaja's fourth cause of action alleges fraudulent misrepresentation. Specifically, Maharaja asserts that BOI fraudulently represented an intention to perform under the contract. Under New York law, to maintain a fraud claim in this situation, Maharaja must either: (1) demonstrate a legal duty separate from the duty to perform under the contract; (2) demonstrate a fraudulent misrepresentation that was collateral or extraneous to the contract; or (3) seek special damages that are caused by the misrepresentation and are unrecoverable as contract damages. Bridgestone / Firestone Inc., v. Recovery Credit Serys., 98 F.3d 13, 20 (2d Cir.1996). BOI here does not owe a duty to Maharaja separate from the contractual obligation at issue. Likewise, the alleged fraudulent misrepresentation in this case, namely that BOI intentionally lied about its intent to perform under the Commitment Letter, is not in any way collateral to the contract. Both claims arise out of the same alleged breach by BOI--the failure to extend funds under the credit facility agreement. See Reuben H. Donnelley Corp. v. Mark I Mktg. (S.D.N.Y.1995) ("When the alleged fraud is not separate and distinct from a failure to perform under a contract, the claim is treated as one sounding in contract rather than fraud."). Finally, Maharaja is not seeking special damages that are unrecoverable as contract damages. All damages alleged by Maharaja as arising from the alleged fraud are recoverable as damages under Maharaja's breach of contract claim. Thus, Maharaja fails to meet any of the three alternative requirements for maintaining a fraudulent misrepresentation claim. Accordingly, BOI's motion for summary judgment must be granted regarding Maharaja's fourth cause of action.

Maharaja's fifth cause of action for negligent misrepresentation must fail for the same reason that its fraud claim fails. It is insufficient as a matter of law to assert a tort claim along with a breach of contract claim unless the Complaint alleges negligent misrepresentation regarding circumstances wholly collateral to the breach of contract claim or there is a legal duty independent of the contract that exists between the parties. Fort Ann Central School District v. Hogan, 206 A.D.2d 723, 614 N.Y.S.2d 803, 805 (3d Dept.1994). Maharaja alleges as material misrepresentation that "[Defendant] was committed to loan an additional $110,000 to plaintiff." (Compl. at 5). This obligation arises from the Commitment Letter, wherein BOI agreed to make the credit facility available. Breach of this commitment is, in essence, breach of the underlying contract. Thus, as a matter of law, the contract claim governs and the tort claim fails. Accordingly, BOI's motion for summary judgment on the fifth cause of action must be granted.

Maharaja's sixth and seventh cause of action for intentional interference with business relations and prima facie tort also must be rejected. The tort of intentional interference with a business relationship is actionable if effected by unlawful means or, under the theory of prima facie tort, by lawful means without justification. Quail Ridge Assoc. v. Chemical Bank, 162 A.D.2d 917, 558 N.Y.S.2d 655, 658 (3d Dept.1990) (citing Mandelblatt v. Devon Stores, Inc., 132 A.D.2d 162, 521 N.Y.S.2d 672, 676 (1st Dept.1987). BOI's conduct in withholding the credit facility was not unlawful as there is no law prohibiting a lender from exercising discretion under a loan agreement. Thus, the only question is whether BOI's conduct is actionable as a prima facie tort.

*5 A cause of action for prima facie tort requires a plaintiff to show that disinterested malevolence was the sole motive for BOI's conduct. Quail Ridge Assoc., 558 N.Y.S.2d at 657 (holding that bank's valid business interest in protecting loan under financing agreement precluded claim of prima facie tort). Maharaja's claim of prima facie tort fails as a matter of law because a business or profit motive exists on the face of the Complaint. See Sharma v. Skaarup Ship Management Corp., 699 F.Supp. 440, 445-46 (S.D.N.Y.1988) (dismissing claim of prima facie tort for failure to plead "exclusive malicious motivation" despite plaintiff borrower's supported allegation that lender and competitors engaged in scheme to deprive plaintiff of property because such scheme had valid business purpose), aff'd, 916 F.2d 820. In light of this business reason for not advancing credit, it cannot be said that BOI's actions were motivated solely by malice. Because such a claim is necessary to sustain Maharaja's claim, summary judgment must be granted for BOI on the sixth and seventh causes of action.

Accordingly, Defendant's motion for summary judgment is granted with respect to Plaintiff's second, fourth, fifth, sixth, and seventh claims. Plaintiff's third cause of action for breach of the implied covenant of good faith and fair dealing is deemed incorporated into Plaintiff's first cause of action for breach of contract. Defendant's motion for summary judgment on the breach of contract claim is denied and further discovery is ordered.

SO ORDERED.

(Cite as: 1997 WL 154044 (S.D.N.Y.))

Copr. © West 2003 No Claim to Orig. U.S. Govt. Works