Joey Bagadonuts Beninati and Jimmy Cabrera lost control of their last possession, 100 West Putnam Avenue, Greenwich, to their creditors last year and are suing to recover management fees they claim are owed them, even though their written contract says otherwise. Here’s a partial transcript of a court hearing in the matter; the judge doesn’t believe them. Had they better counsel, they could have called anyone in Greenwich familiar with their business acumen to back up their claim.
THE COURT: I’m not talking about fraud in the inducement, I’m talking about fraud. You have a clear contract between sophisticated parties, black and white, signed off on. Where is there fraud?
[Counsel for Antares] MR. LEVINE: By making promises — not to fraud in the inducement. By making promises to us that we are entitled to certain — an oral agreement that we’re entitled to certain provisions, notwithstanding what is contained in the language of the agreement. We either have the — we’re either entitled to those things under —
THE COURT: Well, according to this — I believe there’s a merger clause in here stating it’s the entire agreement.
MR. FORTINSKY: Yes there is, Your Honor.
THE COURT: And, in fact, when it talks about amendments it talks about a writing.
MR. LEVINE: Yes. But under the — under New York law you cannot — the merger clause does not apply if — if the party — if one of the parties is reasonably led to believe that there’s something they’re going to be entitled to that they don’t get.
THE COURT: So what good is a merger clause? I never could understand that really.
MR. LEVINE: I’m only relying on New York law which provides that in the event there’s — notwithstanding a merger clause, if one party is frustrated in what their reasonable expectation is under the contract by the conduct of the other party, the merger clause does not preclude them —
THE COURT: It always seemed to me that that sort of says there’s no such thing as a merger clause. But let’s move on, because I really don’t understand that law. Just, I’m too thick.
MR. LEVINE: I try to be guided by the law.
THE COURT: But you’ve got, as I said, very sophisticated parties —
MR. LEVINE: Yes.
THE COURT: — and they’ve signed a contract.
MR. LEVINE: Yes.
THE COURT: Why would a sophisticated party assume things outside of the contract are part of a written
MR. LEVINE: ….[T]o your point about what — why would a sophisticated party: First, the issue of being a sophisticated party only applies under New York law if the sophisticated party could look to some objective fact to know that what they’re being told is unreasonable —
THE COURT: Well, it applies in all fraud cases, because there’s a reasonable reliance piece to every fraud case —
MR. LEVINE: Right.
THE COURT: — and that’s where it kicks in. So my question is: How could — Even if I would buy this argument, how could a sophisticated businessman, very sophisticated businessperson sign off on a contract and reasonably rely on oral — an alleged oral agreements that fly in the face of the contract language?
MR. LEVINE: The issue of whether or not my client is dumb –
THE COURT: It’s not dumb, it’s –
MR. LEVINE: No, no, no. Well, it is. Because,Your Honor, because your question assumes that — The flip side to your question is this: What sophisticated businessman would forego $1.6 million essentially would enter into a contract whereby he would (forego] million he had already earned, which is two years of management agreement — management services …
THE COURT: Doesn’t that happen in business all the time? Shouldn’t there have been a writing to protect your client?
MR. LEVINE: That comes back to the issue of whether or not they’re dumb. And if I can just finish my point, Your Honor?
THE COURT: But you can’t be dumb in business.