Action Against Referral Service Fails

On June 9, 2014, Justice Sherwood of the New York County Commercial Division issued a decision in Vista Food Exchange, Inc. v. Benefitmall, 2014 NY Slip Op. 31491(U), dismissing an action against a referral/management service.

In Vista Food Exchange, the parties' dispute began when the defendants allegedly referred the plaintiff, a small food wholesaler, to a third party for HR services. After the HR firm apparently collapsed, leaving the plaintiffs' employees without health or workers' compensation coverage, and the plaintiff's tax obligations unpaid, the plaintiff sued the defendants under several legal theories.

The Court dismissed most of the plaintiff's causes of action with prejudice. Negligent misrepresentation was dismissed because no special relationship existed that would create a duty independent of contract (the parties' 20-year relationship was insufficient) and the economic loss rule also restricted the plaintiff to a contract remedy. Breach of fiduciary duty and professional malpractice claims were also dismissed because—absent facts not found here—a relationship with a management consultant is not of sufficient "trust and confidence" to elevate it beyond a "conventional business relationship."

The breach of contract claim was more complicated. The defendants moved to dismiss for a number of different reasons, including: (1) that the plaintiff failed to specify which contract provisions were breached; (2) that to be enforceable, any contract to provide referrals must be in writing, pursuant to GBL § 5-701(a)(10); (3) the plaintiff's allegation that the defendants' duties extended beyond mere referral to due diligence and monitoring are purely conclusory; and (4) the plaintiff's failure to allege actual damages—as opposed to possible future damages due to a double tax liability—makes their contract claim unripe. The contract claim was dismissed upon the court's finding that the plaintiff had failed to allege the elements of a contract, including damages, but the plaintiff was given leave to replead that cause of action.