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Leone v. Cataldo

October 5, 2010

ERNESTO LEONE, ANGELO DUVA, PLAINTIFFS,
v.
ANTHONY CATALDO, DEFENDANT.



The opinion of the court was delivered by: Anita B. Brody, J.

MEMORANDUM

Plaintiffs Angelo Duva ("Duva") and Ernesto Leone ("Leone") bring suit against Anthony Cataldo ("Cataldo"), raising five claims: (1) breach of contract; (2) common law fraud; (3) intentional misrepresentation; (4) negligent misrepresentation; and (5) breach of the implied covenant of good faith. Cataldo counterclaims asserting a breach of contract. Both parties now move for summary judgment. For the reasons that follow, I will GRANT in part and DENY in part Defendant's Motion for Summary Judgment, and DENY Plaintiffs' Motion for Summary Judgment.*fn1

I. BACKGROUND*fn2

On March 14, 2006, Cataldo ran an advertisement in the Italian-language newspaper America Oggi for the sale of an Italian restaurant (the "Oggi advertisement"). The Oggi advertisement represented that the restaurant earned $60,000 in gross weekly sales. The advertisement did not disclose the name or location of the restaurant for sale, but directed all inquires to a real estate agency in Little Ferry, New Jersey. Duva, an experienced restauranteur who owned multiple restaurants in Pennsylvania and New Jersey, saw the advertisement while reading the March 14 issue of the newspaper. Considering a purchase, Duva called the listed real estate agency to inquire about the restaurant. The agency informed him that the advertisement referred to Tony's Italian Grill (the "Pizzeria"), a pizzeria in Endicott, New York owned by Cataldo Pizzeria & Restaurant, Inc.

On April 24, 2006, Duva and his brother met with Cataldo-the owner of Cataldo Pizzeria & Restaurant Inc. in Endicott, New York. Duva alleges that Cataldo unequivocally stated at this meeting that the Pizzeria earned $60,000 in gross income per week. Cataldo contends that he made clear that the Oggi advertisement did not accurately reflect the Pizzeria's income. Duva and Cataldo met multiple times over the next several weeks. In May 2006, Duva brought Leone, who owned several restaurants in Pennsylvania, into the deal as an equal partner.

From this point on, Leone became the point person for the venture, and led the discussions that ensued. Id.

In June 2006, Duva and Leone telephoned attorney Donald Cofsky ("Cofsky"), asking him to represent them in closing the deal. Cofsky agreed to represent Duva and Leone, and on June 27, 2006, Cofsky sent Cataldo a letter outlining the terms of the deal as he understood them. On July 11, 2006, Fred Griffen ("Griffen"), an attorney representing Cataldo, contacted Cofsky to discuss the terms that Cofsky proposed. Cofsky and Griffen negotiated the deal over the next several months.

After negotiations had completed, the parties eventually signed four relevant contracts:

(1) a Sales Agreement; (2) a Lease Agreement; (3) a Post-Closing Agreement; and (4) a Note financing Duva and Leone's obligation under the Sales Agreement (the "Note"). On October 6, 2006, the parties signed the first of these contracts-the Sales Agreement. The basic terms of the Sales Agreement were as follows:

The Purchaser Price shall be One Point One Million Dollars ($1,100,000.00) payable as follows: Fifty Thousand Dollars ($50,000.00) on signing of this Agreement; Five Hundred Fifty Thousand Dollars ($550,000.00) payable at closing; and the balance in the amount of Five Hundred Thousand Dollars ($500,000) payable at six percent (6%) interest over a six (6) year period amortized over six (6) years.

The Sales Agreement also included a representation and warranty concerning the Pizzeria's gross weekly income, and permitting Duva and Leone to conduct due diligence on this warranty:

The Seller represents and warranties that the gross income of the restaurant is Fifty Thousand Dollars ($50,000.00) per week. Upon signing of this Agreement Buyer shall have two (2) weeks to verify said representation and Seller will cooperate in enabling Buyer to do so. If the representation proves to be false then at the option of the Buyer this Agreement can be cancelled. If the representation is true and if Buyer decides not to purchase then the Fifty Thousand Dollars ($50,000.00) paid upon signing of this Agreement shall be forfeited and belong to the Seller.

Finally, the Sales Agreement included a general merger clause that incorporated specific sections of an attached letter from Cofsky to Griffen (the "Cofsky Letter"), an early offer from Cofsky which had since been rejected:

This Agreement reflects the agreement of the parties and any matter contained in the attached [Cofsky Letter] NOT incorporated herein is not part of this Agreement.

The Sales Agreement did specifically incorporate the restrictive covenant in the Cofsky Letter that provided:

Seller shall provide Buyer with a covenant not to compete as part of this transaction, the terms of which will be included in the Agreement of Sale, but shall generally provide that it will cover a ten mile radius and will continue for six years which is the term of the note.

In his Letter, Cofsky also stated that Duva and Leone "are not willing to guarantee the obligations" in the Cofsky Letter. This statement was not explicitly incorporated into the Sales Agreement.

Upon signing the Sales Agreement, Plaintiffs immediately hired Frank Grasmuck ("Grasmuck"), a restaurant owner who had previously worked for Leone, to observe the Pizzeria and perform the requisite due diligence. Both parties dispute what happened during due diligence. Duva and Leone allege that Cataldo did not cooperate with them sufficiently to allow them to conduct a rigorous due diligence. Specifically, Cataldo allegedly withheld information that would have raised questions about the $50,000 representation, and also allegedly prevented Grasmuck from accessing important data and documents. Cataldo disputes Duva and Leone's account arguing that he provided accurate information and did not impede Grasmuck's due diligence in any way.

Duva and Leone did not opt out of the Sales Agreement at the close of the two-week due diligence period. On November 30, 2006, the parties signed a Lease Agreement for the premises. Article 21 of the Lease Agreement laid out the terms governing default of the Lease Agreement, and how Cataldo might terminate the lease, providing as follows:

Tenant shall not be held in default of any term or provision of this Lease unless:

(a) It shall have defaulted in its payment of any rental or additional rental due as per Article 7 hereunder and within fifteen days after receipt of written notice of default sent to it by Landlord, said default remains uncured; or

(b) Unless it shall have failed to undertake and reasonably pursue a cure of any other default within thirty (30) days after receipt of written notice from Landlord; or . . .

(d) The Premises are vacant and no business is being conducted as a restaurant thereon

(e) In the event that Tenant's premises shall be vacant or closed at any time during the term of this Lease for more than thirty (30) days, . . . Landlord shall have the right to terminate the said Lease by giving thirty (30) days notice in writing of such termination, which, if not reopened at the expiration of the thirty (30) days the Lease shall be terminated.

(f) In the event of such termination, Landlord may enter into possession of said premises and lease such premises to another tenant. . . .

(g) In the event of any default, Tenant shall be responsible to reimburse the Landlord for all of Landlord's costs of collection . . . . In the event of such default, Landlord may declare upon fifteen (15) days written notice, the term of this Lease terminated, if the default remains uncured at the expiration of the fifteen (15) days. Landlord may then enter into possession of said premises with or without judicial process including self help without process of law and remove Tenant's effects and take complete possession of the Premises. Landlord further shall ...


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