United States District Court, D. New Jersey
August 18, 2005.
JOHN M. FLOYD & ASSOCIATES, INC. Plaintiff,
OCEAN CITY HOME SAVINGS BANK, Defendant.
The opinion of the court was delivered by: JOSEPH RODRIGUEZ, Senior District Judge
[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] OPINION
This matter has come before the Court on Defendant Ocean City
Home Savings Bank's ("Ocean City Bank" or the "Bank") Motion for
Summary Judgment, and Plaintiff John M. Floyd & Associates'
("Floyd") Cross Motion for Summary Judgment. Also before the
Court is a Motion in Limine filed by Floyd, with his cross motion
for summary judgment, to preclude the testimony of the Bank's
expert, Nicholas Ketcha ("Ketcha"). For the reasons discussed
herein, the Bank's motion for summary judgment is granted as to
Floyd's breach of contract and implied warranty of good faith and
fair dealing claims. Floyd's cross motion for summary judgment is
granted in-part and denied in-part; it is granted as to the
Bank's counterclaim for refund of its $25,000 retainer, but
denied in all other aspects. Additionally, Floyd's motion in
limine is denied as moot because no aspect of Ketcha's testimony
was relied upon by the Court in reaching this decision.
I. Factual Background
This litigation concerns a contract that was entered into
between Floyd and the Ocean City Bank, and allegedly breached
when the Bank rejected Floyd's recommendations and hired a different consulting firm. On May 16,
2001, a teleconference took place between Paul Esposito
("Esposito"), Regional Sales Director of the Bank, and Mark Roe,
Executive Sales Director for Floyd, whereby Roe proposed
consulting services for an overdraft privilege program. (Roe Dep.
at 9.) On June 27, 2001, Roe presented a written proposal (the
"Contract") to Esposito, in which Floyd sought to provide certain
computer consulting services to the bank in exchange for a
$25,000 retainer, out of pocket expenses, and a percentage of
future savings as a result of the program. (See Def.'s Exh. C.)
The Contract called for Floyd to analyze the Bank's current
computer systems, make recommendations, create and instal an
overdraft privilege program, and train the Bank's employees.
Esposito signed the Contract on August 21, 2001 and Floyd's
president, John Floyd, signed the agreement on August 27, 2001.
(Id. at 6.) It is undisputed that a contract was formed;
however, the parties dispute whether the Bank's actions
constitute a breach of that agreement.
The parties dispute the overall goals of the overdraft
privilege program. Esposito testified that one of the Bank's main
objectives in the program's implementation was to insure it was
fully-automated. (See Esposito Dep. at 47.) Further, Esposito
states that he had conversations in the summer of 2001 with Rick
Wade ("Wade") of Bisys Corporation, the company that provided
core processing services to the Bank, concerning compatibility
issues with the Bank's existing hardware and the overdraft
privilege program. (Id. at 182.) In August 2001, Roe testified
that he had two phone conversations with Esposito and Wade in which they discussed compatibility
issues. (Roe Dep. at 20.) In the first conversation, Roe
testified that he assured Wade and Esposito that Floyd had never
encountered a core processing system in which it could not
implement the overdraft program. (Id. at 20.) On October 2,
2001, at the request of Esposito, Roe and Floyd technician Eric
Hudgins, called Wade to talk about the compatibility problems.
Roe's notes from that conversation state:
After much discussion, thought I had him convinced to
let us make our recommendations to the bank, let the
bank approve or not approve them, and then Bisys
would be contacted to inform them of any
programming/modifications that would have to be made.
(Id. at 56.)
Another, and less significant dispute concerned a free checking
option, which, Esposito testified, was allegedly communicated to
Roe that the Bank was not interested in this feature in the
overdraft program. (Esposito Dep. at 20.) Roe admitted that one
of the concerns of the Bank was whether this aspect of the
program could be modified to have a no free checking program.
(Id. at 31-32.) Nevertheless, Roe stated that once the free
checking program was presented, the Bank would have the option to
approve or disapprove the recommendation. (Id. at 32.) The
full-automation and the no free checking options in the overdraft
program were not expressly mentioned in the Contract drafted by
The Contract called for a four phase implementation. First, was
the Analysis Phase where Floyd would identify existing account
structures and procedures through interviews, observation, and review of historical data. (Id. at
3.) Second, was the Presentation Phase, where Floyd would propose
recommended changes to the Bank's management, and identify those
recommendations that are approved by the Bank. (Id.) These were
followed by the Implementation Phase and the Follow-up Phase.
(Id. at 4.) The Contract did not include an exclusivity
provision, which prohibited the Bank from negotiating and
contracting with another consulting firm for a similar program,
nor did the Contract prohibit Floyd from selling is overdraft
program to other competing banks. The following portions of the
Contract are pertinent to the parties' motions for summary
Objectives Our objective is to install our
Overdraft Privilege program in Ocean City Home Bank.
There will be an emphasis on installing a product
that will result in a significant increase in
non-interest income without a disproportionate
increase in non-interest expense. We will install
systems to monitor income and associated costs to
ensure the bank is receiving the appropriate income
for the designed product. Accomplishing these
objectives will result in an estimated increase in
first-year pre-tax earnings between $370,000 and
$510,000. Moreover, we are so confident that this
increase is achievable that we offer our service on a
contingency basis. (Emphasis added).
(Def.'s Exh. C at 1.)
Overdraft Privilege Program.
1. Perform a comprehensive profile analysis of the
banks demand deposit customer base to establish
Overdraft privilege limits.
2. Perform an analysis of the banks NSF and Overdraft
processing and assist the bank in making the
necessary changes for an effective overdraft
* * *
8. Assist the bank in the installation of an
automated collection system that interfaces with the
core application processing system. (Emphasis
added). (Id. at 1-2.)
Cost of the Assignment
The cost to your institution of the engagement will
be one-third of the first year's quantified net
increase in pre-tax earnings plus out of pocket
expenses. At the beginning of the assignment the bank
agrees to pay a $25,000 fully refundable retainer.
(Emphasis added). After the recommendations have been
installed we will quantify the increased income and
the bank agrees to pay monthly one-third of the
quantified net increase in pre-tax earnings. After
the bank has recovered the retainer the bank agrees
to make these payments by the 15th of the
following month. We will invoice semi-monthly for
(Id. at 2.)
Quantification of Earnings.
If a recommendation is not approved it will not be
included in the fee calculation (emphasis added).
However, if any recommendation, within 24 months of
the initial engagement is approved or approved as
modified, or initially declined and later approved as
recommended or as subsequently modified it will be
included in the fee calculation.
(Id. at 3.)
Performance on the Contract began on or about November 5, 2001,
when Earl Shipp ("Shipp") was assigned by Floyd to be the project
manager for the Contract. (Shipp Dep. at 11.) Shipp testified
that he was simply given a copy of the Contract and was told by
Roe that the Contract explained the assignment. (Id. at 52.)
Roe did not advise Shipp that the Bank had compatibility
concerns. (Roe Dep. at 51.) Shipp conducted interviews with the
Bank's employees, reviewed the Bank's ledger, and visited
competing institutions. (Id. at 41.) On November 27, 200, Shipp
presented the results of his work, the "Overdraft Privilege
Study," to several of the Bank's officers, including Esposito and
the Bank's president. (See Def.'s Exh. G.) The presentation
included 32 recommendations, which included a free check service application,
but did not address whether the system was to be fully-automated,
or if modifications could be made to create a fully-automated
After the presentation, Esposito testified that the Bank's
management met to discuss Shipp's proposal, and that they were
disappointed that Shipp's presentation still included
recommendations for the free checking option, and that it did not
address the automation concerns. (Esposito Dep. at 159-60.) In
sum, the Bank's management believed that Shipp presented boiler
plate recommendations, and they did not have confidence in Floyd
continuing in its implementation of the overdraft program. (Id.
at 161-62.) In a December 19, 2001 phone conversation, and
followed by a letter dated December 24, 2001, Esposito advised
John Floyd that it was not satisfied with the presentation and
that it had decided not to implement the Floyd program. (Pl.'s
Exh. G.) In a letter dated January 11, 2002, Floyd acknowledged
receipt of the Bank's termination letter.
On January 2, 2002, following a referral from another bank,
Esposito contacted Pinnacle Financial Strategies, L.L.C.
("Pinnacle") to inquire about implementing an overdraft privilege
program at Ocean City Bank. (Esposito Dep. at 193.) On April 18,
2002, the Bank and Pinnacle entered into a Professional Services
Agreement and a Software Licensing Agreement, whereby Pinnacle
would implement an overdraft privilege program at the Bank.
(See Def.'s Exh. J.) The Bank is seeking summary judgment on Floyd's claims of
breach of contract and breach of the implied warranty of good
faith and fair dealing, and Floyd has filed a cross-motion for
summary judgment on these same claims, as well as the Bank's
counterclaim for return of the $25,000 retainer.
II. Standard for Summary Judgment
Summary judgment is proper if there is no genuine issue of
material fact and if, viewing the facts in the light most
favorable to the non-moving party, the moving party is entitled
to judgment as a matter of law. Pearson v. Component Tech.
Corp., 247 F.3d 471, 482 n. 1 (3d Cir. 2001) (citing Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986)); accord
Fed.R.Civ.P. 56 (c). Thus, this Court will enter summary judgment only
when "the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56 (c).
An issue is "genuine" if supported by evidence such that a
reasonable jury could return a verdict in the nonmoving party's
favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A fact is "material" if, under the governing substantive
law, a dispute about the fact might affect the outcome of the
suit. Id. In determining whether a genuine issue of material
fact exists, the court must view the facts and all reasonable
inferences drawn from those facts in the light most favorable to
the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). Initially, the moving party has the burden of demonstrating the
absence of a genuine issue of material fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met
this burden, the nonmoving party must identify, by affidavits or
otherwise, specific facts showing that there is a genuine issue
for trial. Id.; Maidenbaum v. Bally's Park Place, Inc.,
870 F. Supp. 1254, 1258 (D.N.J. 1994). Thus, to withstand a properly
supported motion for summary judgment, the nonmoving party must
identify specific facts and affirmative evidence that contradict
those offered by the moving party. Andersen,
477 U.S. at 256-57. "A nonmoving party may not `rest upon mere allegations,
general denials or . . . vague statements. . . .'" Trap Rock
Indus., Inc. v. Local 825, Int'l Union of Operating Eng'rs,
982 F.2d 884, 890 (3d Cir. 1992) (quoting Quiroga v. Hasbro, Inc.,
934 F.2d 497, 500 (3d Cir. 1991)).
the plain language of Rule 56(c) mandates the entry
of summary judgment, after adequate time for
discovery and upon motion, against a party who fails
to make a showing sufficient to establish the
existence of an element essential to that party's
case, and on which that party will bear the burden of
proof at trial.
Celotex, 477 U.S. at 322.
In deciding the merits of a party's motion for summary
judgment, the court's role is not to evaluate the evidence and
decide the truth of the matter, but to determine whether there is
a genuine issue for trial. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249 (1986). Credibility determinations are the province
of the fact finder. Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir.
1992). Moreover, the standard by which the court decides a
summary judgment motion does not change when the parties file
cross-motions. Weissman v. United States Postal Serv.,
19 F. Supp. 2d 254 (D.N.J. 1998). When ruling on cross-motions for
summary judgment, the court must consider the motions
independently, Williams v. Philadelphia House Auth.,
834 F. Supp. 794, 797 (E.D. Pa. 1993), aff'd, 27 F.3d 560 (3d Cir.
1994), and view the evidence on each motion in the light most
favorable to the party opposing the motion. See Matsushita
Elec. Indus. Co., 475 U.S. at 587.
In a diversity case, the Court must apply the forum state's
choice of law rule. General Star Nat. Ins. Co. v. Liberty Mut.
Ins. Co., 960 F.2d 377, 379 (3d Cir. 1992) (citation omitted).
With respect to contract disputes such as this, the New Jersey
Supreme Court has held that "the law of the place of the contract
will govern the determination of the rights and liabilities of
the parties." State Farm Mut. Auto. Ins. Co. v. Simmons Estate,
417 A.2d 488 (N.J. 1980).
A. Breach of Contract Claim
Where the terms of a contract are clear and unambiguous, it is
the court's duty to enforce the contract terms as written.
Levison v. Weintraub, 521 A.2d 909 (N.J.Super.Ct. App. Div.
1987), certif. denied, 527 A.2d 470 (N.J. 1987). Courts may not
rewrite a contract merely because one might conclude "it might
well have been functionally desirable to write it differently." Brick Twp. Mun.
Util. Auth. v. Diversified R.B.&T., 409 A.2d 80-6 (N.J.Super.
Ct. App. Div. 1979). Furthermore, it is a well settled legal
principle that a party to a contract is bound by the apparent
intention he or she outwardly manifests to the other party. It is
immaterial that he or she had a different, secret intention from
that outwardly manifested. Domanske v. Rapid-American Corp.,
749 A.2d 399 (N.J.Super.Ct. App. Div. 2000) (quotation
omitted). Thus, a party cannot be relieved from the language of
an agreement simply because it had a secret, unexpressed intent
that the language should have an interpretation contrary to the
words' plain meaning. Schor v. FMS Financial Corporation,
814 A.2d 1108 (N.J.Super.Ct. App.Div. 2002). Finally, where any
ambiguity appears in a written agreement, the writing is to be
strictly construed against the party preparing it. In re
Miller, 447 A.2d 549 (N.J. 1982).
Floyd argues that the Bank breached its contract when (1) the
Bank implemented any of Floyd's 32 recommendations, and
particularly any overdraft privilege program regardless who
implemented it; and, (2) the Bank did not pay the fee agreed to
in the parties' contract. (Pl. Br. at 10.) The Bank contends that
there was no breach in the contract, but rather, the Contract
enabled the Bank at its discretion to reject Floyd's
recommendations and establish a relationship with another
consulting firm. The Bank also asserts that it is entitled to the
$25,000 "fully-refundable" retainer it paid at the initiation of
Floyd's services. The express terms of the contract all weigh in favor of the
Bank's position, that it was free to walk away from the
relationship once the recommendations were made, and rejected by
the Bank. The contract called for a four-step implementation, and
"Step Two Recommendations Phase" stated that Floyd was to make
recommendations and that Floyd was to identify those
recommendations approved by the Bank. Only those recommendations
the Bank approved would be implemented. Further, the first
paragraph of the Contract stated, "Moreover, we are so confident
that this increase is achievable that we offer our service on a
contingency basis." (Def.'s Exh. C at 1.) As written, Floyd
only stood to make money if the overdraft program was implemented
and the Bank was able to recoup earnings from the program. In
this regard, the Contract's language is unambiguous and there was
no breach of the Contract by the Bank. The parties dispute the
facts concerning the alleged assurances made, and the Bank's
ability to reject recommendations; yet, these facts are not
relevant because the Contract did not prohibit the Bank for
severing the relationship when it did. Moreover, the disputed
facts on why the Bank made its decision not to continue with
Floyd, is also of no consequence.
The Bank did not breach the Contract by implementing the
Pinnacle overdraft program. Floyd's interpretation of its
Contract places an unnatural meaning on how it was to be paid, as
stated in the "Quantification of Earnings" provisions. The
argument that Floyd was entitled to compensation if any
consulting company implemented any of the same recommendations
made by Floyd, within 24 months of the initial agreement, is not supported by the entirety of the agreement because no mention
was made of this contingency. The fact that there was no
exclusivity or black-out provisions in the Contract supports the
conclusion that the parties intended that the Bank would be free
to contract with another consulting firm to provide similar
services. Furthermore, there was no "kick-back" or penalty
provisions, other than the retainer, which entitled Floyd to
royalties in the event the Bank choose another vendor in the
intervening time between approval and implementation. Thus, the
Contract does not support the contention that the Bank's conduct
constitutes a breach of the Contract.
Presumably, a follow-on consulting firm such as Pinnacle would
make several identical recommendations to the Bank in the
development of a similar overdraft privilege program. There is
some acknowledgment of this in Shipp's testimony, where he
revealed that some of the 32 recommendations were standard
"boiler plate" provisions that would later be customized to fit
the needs of Ocean City Bank. (See Shipp Dep. 133-135.)
Nonetheless, Floyd urges that because Pinnacle installed an
overdraft privilege program on the heels of Floyd's rejection, it
is entitled to payment because Pinnacle implemented Floyd's
recommendations. The submissions do not support this contention
because evidence was not provided that indicate that this is what
occurred. The Bank underwent a similar phased-implementation
process with Pinnacle, whereby the Bank approved the Pinnacle
program after several months of analysis. In a light most
favorable to Floyd, an inference cannot be made that the Bank, by
way of Pinnacle, implemented any of Floyd's preliminary, and uncustomized recommendations. Therefore, the
Bank did not breach the Contract by hiring Pinnacle.
The language of the Contract clearly and unambiguously provided
that it was contingent on the Bank's successful implementation
of Floyd's overdraft privilege program. Additionally, the Bank
was able to, and did, reject all of the recommendations made by
Floyd in a letter sent by Esposito to Floyd on December 24, 2001.
Hence, it was not a breach of the contract for the Bank to
approve the recommendations of Pinnacle and implement the
Pinnacle overdraft privilege program. Despite all favorable
inferences drawn in favor of Floyd, there is no genuine issue of
material fact as to its breach of contract claim. Therefore,
summary judgment will be granted as to Ocean City Bank.
B. Implied Duty of Good Faith and Fair Dealing
Despite the grant of summary judgment on Floyd's breach of
contract claim, this allegation is not duplicative, and
therefore, warrants an independent analysis under New Jersey law.
See Automated Salvage Transp., Inc. v. NV Koninklijke KNP BT,
106 F. Supp. 2d 606 (D.N.J. 1999) An implied duty of good faith
and fair dealing is implied into all contracts in New Jersey.
Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575 (N.J. 1997)
(citing cases). The New Jersey Supreme Court explained the duty
as requiring that "neither party shall do anything which will
have the effect of destroying or injuring the right of the other
party to receive the fruits of the contract." Id. (quoting
Palisades Props., Inc. v. Brunetti, 207 A.2d 522 (N.J. 1965)).
The implied covenant is an independent duty and may be breached even where there is no breach of the
contract's express terms. See Sons of Thunder, 690 A.2d at 588
(citing Bak-A-Lum Corp. v. Alcoa Bldg. Prods., Inc.
351 A.2d 349 (N.J. 1976)). Crucial to this determination is evidence of
bad motive or intention; thus, "an allegation of bad faith or
unfair dealing should not be permitted to be advanced in the
abstract and absent an improper motive." Wilson v. Amerada Hess
Corp., 733 A.2d 1121 (N.J. 2001).
Floyd alleges that the Bank by its actions, failed to act,
either or both, thwarted or frustrated Floyd in its performance
of the contract between the parties. (See Compl. Count II.)
Floyd's brief alleges that this implied covenant was breached
because, the Bank kept the rejection decision from Floyd for
"some time," the Bank initiated the termination on a "flimsy
pretext," the Bank was of little help in getting Bisys to
cooperate with Shipp. (Pl. Br. at 16-17.) These allegations,
however, are not wholly accurate based on the submission of the
First, it appears that Shipp's presentation was on November 27
and the Bank's desire to terminate the relationship was
communicated by telephone on December 19 (followed by the
December 24 letter); thus, in less than a month the Bank reached
its conclusion with nominal effects on Floyd since Floyd had the
$25,000 retainer and was being paid for out of pocket expenses.
This is not evidence of bad faith or improper motive. Second,
whether the Bank's stated reasons for rejecting Shipp's
recommendations were "flimsy" is beside the point. The Contract
allowed the Bank to reject the Floyd recommendations for any reason during the
"Presentation Phase" of the implementation. Moreover, the weight
of the evidence here indicates that the Bank's management had a
legitimate reason for its rejection of the recommendations;
namely, that they lost confidence in Shipp, and believed that the
Floyd program was not fully-compatible and fully-automated.
Finally, it seems that it was Shipp's duty to initiate contact
with Bisys and understand the compatibility issues involved since
he was after all the computer consultant. It is undisputed that
at least Roe made liaison with Bisys on several occasions and was
made aware of the Bank's compatibility concerns. No evidence has
been offered that the Bank improperly interfered with Floyd's
communication with Bisys.
In drawing all favorable inferences in favor of Floyd, there is
no genuine issue of material fact as to whether the Bank actions
"injured [Floyd's] right . . . to receive the fruits of the
contract." Pallisades Properties, Inc., 44 N.J. at 130. There
are no facts to substantiate a claim of bad faith or improper
motive on the part of the Bank. Moreover, Plaintiff's bad faith
allegation is especially problematic since the Contract that it
drafts attracts potential clients with appealing statements such
as "we are so confident that this increase is achievable that we
offer our service on a contingen[t] basis" or "If a
recommendation is not approved it will not be included in the fee
calculation," and then files suit, alleging bad faith, once the
potential client takes them up on its offer. Therefore, Floyd
fails to sustain a claim of breach of the implied covenant of
good faith and fair dealing, and summary judgment is granted in favor of the
Bank on this claim.
C. Bank's Counterclaim
The Bank's counterclaim that it is still owed the $25,000
retainer does not have traction based on the language of the
Contract. Naturally, at the beginning of the arrangement, Floyd
appreciated some risk because it had to spend considerable time
working with the customer before its overdraft program was
implemented and began generating revenue. To hedge its risk,
Floyd required a $25,000 retainer that was to be offset against
future revenues. The "fully-refundable" aspects of the retainer
were spelled out in the "Cost of Assignment" paragraph in the
Contract. Importantly, the clause stated, "After the Bank has
recovered the retainer that Bank agrees to make these payments by
the 15th of the following month." (Def.'s Exh. C at 2.) Thus, the
retainer, was to be used as an offset against "one-third of the
first year's quantified net increase in pre tax earnings plus out
of pocket expenses." (Id.)
The juxtaposition of the retainer with the "Cost of Assignment"
provisions undermine the Bank's argument that they are entitled
to a refund of the retainer now that they have decided not to
work with Floyd. A retainer is used for just this situation, and
the Contract's usage of the term is synonymous with the word's
commonly understood meaning. Therefore, summary judgement will be
granted as to Floyd on the Bank's counterclaim that sought
recovery of the retainer. VI. Conclusion
For the reasons set forth above, the Bank's Motion for Summary
Judgment will be granted as to Floyd's breach of contract and
breach of the implied covenant of good faith and fair dealing
claims. Floyd's Cross Motion for summary judgment will be granted
in-part and denied in-part. Floyd's motion is granted as to the
Bank's counterclaim for a refund of the $25,000 retainer that it
paid; however, Floyd's cross motion is denied in all other
aspects. Floyd's motion in limine will be denied as moot. The
accompanying Order is entered.
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