China Grill, Inc. v. ADP, LLC

Background

ADP provided payroll services to China Grill under a 2005 Master Services Agreement. China Grill alleged that ADP prepared wage statements that did not comply with wage-and-hour laws. Those alleged defects were part of the claims asserted in a later labor-law class action involving China Grill and other entities in the China Grill Management group.

The labor-law action was settled for $1.2 million. China Grill Management, Inc. wired $1,262,238.41 to the settlement fund, but China Grill itself did not pay any part of the settlement, mediation fee, defendants’ legal fees, or its own legal fees in this case. China Grill sued ADP for breach of contract, negligence, and breach of the implied covenant of good faith and fair dealing. It later voluntarily dismissed the negligence and implied-covenant claims, leaving the breach-of-contract claim.

Summary Judgment on the Contract Claim

ADP moved for summary judgment, which is a decision without a trial when the evidence shows that no genuine factual dispute requires a trial and the moving party is legally entitled to judgment. ADP argued principally that China Grill could not prove damages because it had not paid the settlement or related expenses.

The court applied New Jersey law, which governed the agreement. To prove breach of contract, China Grill had to establish a valid contract, its own adequate performance, ADP’s breach, and damages caused by that breach. The court held that China Grill had not shown that it suffered damages because it was undisputed that China Grill did not contribute to the settlement, mediation, or attorneys’ fees in the labor-law action, or even to attorneys’ fees in this case.

China Grill argued for the first time in opposition to summary judgment that the fees it paid ADP for payroll services were direct damages. The court rejected that theory because China Grill had not pleaded it or identified it during discovery, and allowing the change at that stage would prejudice ADP. China Grill also argued that it could recover costs paid by other entities as the sole signatory to the agreement. The court ruled that, even if those entities were third-party beneficiaries entitled to sue under the agreement, China Grill could not recover damages incurred by entities that were not parties to this case.

Motion to Amend and Remand

China Grill sought to add entities that had incurred costs from the labor-law action as plaintiffs, add an implied-contract claim, and remand the case to state court. Because the motion came after the deadline in the scheduling order for joining parties or amending pleadings, the court applied the requirement that China Grill show good cause for missing that deadline.

The court denied the motion to amend and join additional plaintiffs as untimely, unsupported by good cause, and futile. China Grill had known who paid the relevant costs and had ample time to amend its pleading. The court also held that adding the entities would not allow recovery of the settlement and litigation costs because the agreement barred special, indirect, incidental, consequential, and similar damages. The court treated settlement and litigation costs as consequential damages, and held that a third-party beneficiary could not obtain greater rights than the contracting party.

Disposition

The court granted ADP’s motion for summary judgment. It denied China Grill’s cross motion to amend and remand, and directed the Clerk of Court to close the case.