Opinion
01 Civ. 10580 (GWG).
July 11, 2003
OPINION AND ORDER
Plaintiff Boscov's Department Stores, LLC ("Boscov's") brought this action against AKS International AA Corp. ("AKS") and its sole shareholder and president, Kalman Strobel, to recover an alleged overpayment of $198,868.00 for repaired jewelry. The parties have consented to disposition of this matter by a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). Strobel has moved pursuant to Fed.R.Civ.P. 56 for summary judgment dismissing the claims alleged against him personally. Boscov's has cross-moved for summary judgment in its favor against Strobel. For the reasons stated below, Boscov's motion is granted in part and denied in part. In addition, Strobel's motion is denied.
I. BACKGROUND
A. Facts
Except as otherwise noted, the following facts have not been disputed.
Boscov's is a limited liability company organized under the laws of Pennsylvania with its principal place of business in Reading, Pennsylvania. Complaint, dated February 20, 2001 ("Complaint"), ¶ 1. Boscov's owns a number of department stores that sell consumer goods, including jewelry. Id., ¶ 6. AKS is a New York corporation with its principal place of business in New York, New York. Id., ¶ 2. AKS was in the business of manufacturing and repairing jewelry products. Id., ¶ 7. In 2000, AKS was purchased by an entity called American Jewelers. See Deposition of Kalman Strobel, dated April 2, 2002 (reproduced in Declaration, dated November 18, 2002 (Docket #11), Ex. C), at 12. Strobel was the owner and sole shareholder of AKS at the time of the incidents giving rise to this lawsuit. Id. at 10.
During 1998 and 1999, Boscov's shipped a number of pieces of jewelry to AKS to be repaired. Plaintiff's Statement of Material Facts with Triable Issues, filed December 20, 2002 (Docket #15) ("Pl. 56.1 Resp."), ¶ 1. Due to a clerical error, Boscov's overpaid AKS for this service by $198,868.00. Id., ¶ 6. After discovering the overpayment, Boscov's contacted Strobel. Id., ¶ 7. Strobel acknowledged that AKS had been overpaid and agreed to reimburse Boscov's by deducting the overpayment from the price of merchandise that Boscov's would purchase from AKS.Id., ¶¶ 8, 9. Boscov's agreed to the transaction and placed an order with AKS. Id., ¶ 10.
The new order, however, was not filled by AKS but instead by a company called MIG Manufacturing ("MIG"). Id., ¶ 12. Upon receipt of the jewelry order from MIG, Boscov's contacted Strobel to discuss repayment of the $198,868.00. Id., ¶ 13. Strobel said that AKS had been unable to fill the order and that he had requested that MIG fill the order instead. Id., ¶ 14. However, Strobel stated that because AKS had not filled the order, Boscov's could not deduct the overpayment from the MIG order. Id., ¶ 15. Strobel suggested that Boscov's pay the MIG invoice in full and place a new order with AKS. Id., ¶ 16. The complaint alleges, and the defendants have not denied, that Strobel personally guaranteed that if Boscov's paid the MIG invoice and placed an additional order with AKS, Strobel would personally ensure that AKS would satisfy the order and that Boscov's could deduct the overpayment from the AKS invoice. See Complaint, ¶ 16; Answer with Affirmative Defenses and Counterclaims, dated February 11, 2002 ("Answer") (annexed to Plaintiff's Memorandum of Law in Further Opposition to Defendant Kalman Strobel's Motion for Summary Judgment and in Support of Plaintiff's Cross-Motion for Summary Judgment, filed April 2, 2003 (Docket #20) ("PI. Mem. II"), Ex. B), ¶ 1.
While the defendants apparently served the Answer on the plaintiff, the docket sheet does not reflect that they filed the Answer as mandated by Fed.R.Civ.P. 5(d) ("papers . . . must be filed with the court within a reasonable time after service"). The Answer has now been filed, however, inasmuch as it was included in the papers filed with the respective motions for summary judgment. See, e.g., Answer with Affirmative Defenses and Counterclaims, dated February 11, 2002 (reproduced in Notice of Motion, filed November 20, 2002 (Docket #11), Ex. B).
Boscov's asserts that, in reliance on Strobel's assurance, it paid the MIG invoice and placed a new order with AKS. Pl. 56.1 Resp., ¶ 17. However, Boscov's asserts that the later order placed with AKS was never filled and therefore it was not compensated for the overpayment. Id., ¶ 18; Complaint, ¶ 18. Boscov's asserts that it repeatedly attempted to contact AKS and Strobel to discuss the order and reimbursement of the overpayment. Pl. 56.1 Resp., ¶ 19. However, Strobel and AKS allegedly refused to respond to Boscov's, fill the second order or reimburse the overpayment. Id., ¶ 20. The defendants dispute these allegations and claim that Boscov's had underpaid AKS for numerous jewelry repair orders. See Answer, ¶¶ 16-37. Based on these assertions, the defendants have interposed seven counterclaims against Boscov's claiming to be entitled to damages of either $405,739.75 or $635,000.00 based on the alleged underpayments. See id., ¶¶ 38-76. Neither party has moved for summary judgment with respect to the defendants' counterclaims.
B. Procedural History
Boscov's filed suit against AKS and Strobel on February 20, 2001 in the United States District Court for the Eastern District of Pennsylvania asserting subject matter jurisdiction based on the diversity statute, 28 U.S.C. § 1332. See Complaint, ¶ 4. On October 15, 2001, that court held that no personal jurisdiction existed over the defendants and transferred the case to this district. See Order, filed October 15, 2001 (Penn. Docket #11), at 1-2.
Strobel filed a motion for summary judgment on November 20, 2002. See Notice of Motion, filed November 20, 2002 (Docket #11). Boscov's responded to the motion on December 20, 2002. See Plaintiff's Memorandum of Law in Opposition to Defendant Kalman Strobel's Motion for Summary Judgment, filed December 20, 2002 (Docket #13) ("Pl. Mem. I"). Because some discovery remained outstanding, Strobel's motion was deemed withdrawn without prejudice to renewal following discovery. See Order, filed January 9, 2003 (Docket #18). Strobel renewed his motion on February 28, 2003 and Boscov's filed its cross-motion for summary judgment on April 2, 2003. See Notice of Motion, filed April 2, 2003 (Docket #20).
II. SUMMARY JUDGMENT STANDARD
Summary judgment "shall be rendered forthwith if 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 a judgment as a matter of law." Fed.R.Civ.P. 56(c). A fact is material if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "An issue of fact is 'genuine' if 'the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Gayle v. Gonyea, 313 F.3d 677, 682 (2d Cir. 2002) (quoting Anderson, 477 U.S. at 248).
The moving party has the burden to "demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Koch v. Town of Brattleboro, 287 F.3d 162, 165 (2d Cir. 2002). "Once a moving party has demonstrated the absence of any genuine issue of material fact, the non-moving party 'must set forth specific facts showing that there is a genuine issue for trial.'" Koch, 287 F.3d at 165 (quoting Fed.R.Civ.P. 56(c)). All factual inferences and ambiguities are drawn in favor of the nonmoving party. See Anderson, 477 U.S. at 255; Tri-State Employment Servs., Inc. v. Mountbatten Sur. Co., Inc., 295 F.3d 256, 260 (2d Cir. 2002). "Summary judgment is improper if there is any evidence in the record that could reasonably support a jury's verdict for the non-moving party." Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir. 2002) (citing Pinto v. Allstate Ins. Co., 221 F.3d 394, 398 (2d Cir. 2000)). "[O]nly admissible evidence need be considered by the trial court in ruling on a motion for summary judgment." Raskin v. Wyatt Co., 125 F.3d 55, 66 (2d Cir. 1997) (citations omitted).
III. DISCUSSION
As an initial matter, Strobel's motion may properly be denied because he failed to comply with Local Civil Rule 56.1(a), which requires a party moving for summary judgment to "annex to the notice of motion a separate . . . statement of the material facts as to which the moving party contends there is no genuine issue to be tried." The rule specifically provides that "[f]ailure to submit such a statement may constitute grounds for denial of the motion." Id. The Court need not rely on this ground, however, because — as described further below — Strobel's motion must be denied for other reasons.
Boscov's complaint makes two claims against Strobel. First, Boscov's alleges that Strobel personally entered into and subsequently breached an agreement with Boscov's to guarantee the repayment of the disputed funds. Complaint, 31-35. Boscov's also claims that Strobel is liable to Boscov's under a theory of promissory estoppel. Id., Strobel argues that, as a matter of law, he cannot be held personally liable for the repayment sought in this matter. See Memorandum of Law in Reply and in Further Support of Defendant's Motion for Summary Judgment, filed December 31, 2002 (Docket #16) ("Def. Mem. II"), at 2-4.
In his original motion papers, Strobel sought summary judgment on the ground that the obligation at issue was AKS's and that Boscov's could not pierce the corporate veil to reach him personally. See Memorandum of Law in Support of Defendant's Motion for Summary Judgment, filed November 20, 2002 (Docket #12) ("Def. Mem. I"), at 3-4. Boscov's responded that it was not seeking to pierce the corporate veil but rather was claiming that Strobel could be held liable based on a contract he made personally to guarantee payment by AKS. See Pl. Mem. I at 6. Because Boscov's has disclaimed any argument that it seeks to hold Strobel liable based on the piercing of the corporate veil, it is unnecessary to reach Strobel's contention that he could not properly be held liable under such a theory.
Boscov's cross-motion for summary judgment is based on its argument that Strobel has admitted the existence of his guarantee of repayment by failing to deny the pertinent allegations in the complaint and that the testimony of a Boscov's employee, Michelle Figueroa, proves that he made such a promise. See Pl. Mem. II at 1-5. Strobel argues that any effort to enforce this promise is barred by the applicable Statute of Frauds. See Memorandum of Law in Opposition to Plaintiff's Motion for Summary Judgment and in Further Support of Defendant's Motion for Summary Judgment, filed May 20, 2003 (Docket #23), at 2-3.
The parties agree that New York law applies to this matter. Under New York law, "a corporate officer is not normally liable in his or her personal capacity on contracts executed on behalf of the corporation unless the officer expresses some intention to be personally bound." W. Joseph McPhillips Inc. v. Ellis, 278 A.D.2d 682, 683 (3d Dep't 2000) (citations omitted); see also Westminster Const. Co., Inc. v. Sherman, 160 A.D.2d 867, 868 (2d Dep't 1990) ("corporate officers may not be held personally liable on contracts of their corporations provided they did not purport to bind themselves individually under such contracts") (citations omitted). Boscov's argues that Strobel bound himself individually to the contract and thus can be held personally liable. See Pl. Mem I at 6-8.
Strobel's guarantee on behalf of AKS is alleged to have been made orally. See Deposition of Michelle Figueroa, dated February 13, 2003 (reproduced in Pl. Mem. II, Ex. C), at 32, 39, 41. Strobel has not contested that he made such a promise. Indeed, he has not contested any of the allegations in the plaintiff s Rule 56.1 statement as he submitted no counterstatement pursuant to Local Civil Rule 56.1(b). Nor has he provided his own affidavit or one by anyone else based on personal knowledge contesting that claim. His defense to the enforceability of the agreement rests exclusively on the Statute of Frauds.
At her deposition, Figueroa testified to the following
MR. WEISS: When you did contact [Strobel], did there come a time that you had a conversation where Strobel acknowledged that AKS received the overpayment?
THE WITNESS: Yes.
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MR. WEISS: Do you recall having a conversation with Mr. Strobel —
THE WITNESS: Yes, I do.
MR. WEISS: To the effect that he proposed that if he paid the invoice, he would personally guarantee that AKS would satisfy the order and that Boscov's could deduct the overpayment from them in the future?
THE WITNESS: Yes.
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[MR. WEISS]: Okay; anything else that you recall about that conversation?
[THE WITNESS]: Just to finish that I told him that I understood that . . . he had to understand that the next step for us was to take this to court because this had been outstanding for a while and he at that point, said he would make good, he says, "Don't worry, I'll make good on it."
New York's Statute of Frauds provides that a promise "to answer for the debt, default or miscarriage of another person" must generally be in writing to be enforceable. N.Y. Gen. Oblig. L. § 5-701(a)(2). Consistent with this statute, case law makes clear that an oral promise to pay the debts of a corporation cannot normally support a claim for breach of contract or promissory estoppel. See, e.g., Al Sayegh Bros. Trading (LLC) v. Doral Trading Exp., Inc., 219 F. Supp.2d 285, 293 (E.D.N.Y. 2002) (oral statement that an officer "would be personally responsible" did not satisfy the Statute of Frauds); Martin Roofing, Inc. v. Goldstein, 60 N.Y.2d 262, 266 (1983) (promise that "I guarantee I will make sure you get paid" was unenforceable), cert. denied, 466 U.S. 905 (1984); PSI Int'l, Inc. v. Ottimo, 272 A.D.2d 279, 280 (1st Dep't 2000) (assurance that the defendants "would never stick [plaintiff] for the money" was unenforceable).
Nonetheless, the Statute of Frauds provides an exception to this rule as follows: "[t]here is sufficient evidence that a contract has been made if . . . [t]he party against whom enforcement is sought admits in its pleading, testimony, or otherwise in court that a contract was made." N.Y. Gen. Oblig. L § 5-701(b)(3)(c). Thus, if a party admits in its Answer or other pleading the existence of a contract otherwise unenforceable under the Statute of Frauds, the defense has been waived.See, e.g., Fiske v. Fiske, 95 A.D.2d 929, 931 (3d Dep't 1983) ("it does not appear that [a Statute of Frauds] defense was raised by defendants in this action in . . . their answer. . . . Accordingly, any defense based on the Statute of Frauds was waived.") (citations omitted), aff'd, 62 N.Y.2d 828 (1984); Holender v. Fred Cammann Prods., Inc., 78 A.D.2d 233, 235 (1st Dep't 1980) ("As the defendants by their answer admitted, an oral agreement . . . it is clear that the Statute of Frauds has been waived.") (citation omitted); accord Rail Europe., Inc. v. Rail Pass Express, Inc., 1996 WL 157503, at *4 (S.D.N.Y. Apr. 3, 1996) ("Since defendant has admitted [in its answer] to the existence of an agreement between the parties, the Statute of Frauds does not bar enforcement of that agreement.").
Here, Strobel admitted the relevant allegation in two distinct ways. First, he admitted in the Answer the Complaint's allegation that "Strobel . . . represented and warranted that in the event Boscov's paid the MIG invoice and placed an additional order with AKS, Strobel would personally ensure that AKS would satisfy the order and Boscov's could deduct the overpayment from the AKS invoice." Complaint, ¶ 16; see Answer, ¶ 1. In the Answer, the defendants denied the allegations of a number of paragraphs in the Complaint, but conspicuously avoided denying the allegations contained in paragraph 16. See Answer, ¶ 1. Nor did the defendants set forth as an affirmative defense that the Statute of Frauds barred suit against Strobel.
Second, the defendants admitted the statement in plaintiff's Rule 56.1 statement that "Strobel told [Ms. Figueroa] he personally guaranteed repayment of the $198,868.00 overpayment." Plaintiff's Statement of Undisputed Material Facts, filed April 2, 2003 (Docket #20), ¶ 9;accord id., ¶ 11 (Strobel stated that he would "make good on it"). Strobel admitted this fact through his failure to controvert it by opposing plaintiff's Rule 56.1 statement. See Local Civil Rule 56.1(c) ("All material facts set forth in the statement required to be served by the moving party will be deemed to be admitted unless controverted by the statement required to be served by the opposing party.").
Citing no authority, Strobel argues that "even if the allegations were admitted, and true, the statute of frauds would still bar recovery." Declaration, filed May 20, 2003 (Docket #22), ¶ 7. General Obligations Law § 5-701(b)(3)(c), however, specifically states otherwise and Strobel does not even provide an argument why it may be avoided in this situation.
Strobel, relying on Martin Roofing, also argues that Boscov's may not sue upon Strobel's promise to guarantee payment of AKS's obligation because no benefit or consideration flowed to Strobel as a result of his promise. See Def. Mem. II at 3-4. In Martin Roofing, however, the alleged debtor had successfully asserted the Statute of Frauds defense. Because the defense applied, the court in Martin Roofing stated the rule that where a party promises to answer for the debt of another, there must either be a "writing" or the "plaintiff must prove [the promise] is supported by a new consideration moving the promisor." 60 N.Y.2d at 265 (citations omitted). Here, the Statute of Frauds is not at issue because any requirement of a writing has been satisfied by operation of General Obligations Law § 5-701(b)(3)(c). Accordingly, the plaintiff need not provide evidence of new consideration.
While this disposes of the Statute of Frauds argument, it does not dispose of the claim against Strobel because his guarantee was not unconditional. Instead, his promise was conditioned on AKS not fulfilling its own obligation to Boscov's. It is unclear from the record whether AKS's performance is still being contested by the defendant and in any event the issue was not the subject of briefing on either party's motion for summary judgment. If AKS is not liable to Boscov's on its claims then neither is Strobel.
Conclusion
For the foregoing reasons, plaintiff is granted summary judgment on the issue of whether Strobel's promise to answer for the debt of AKS is enforceable despite the Statute of Frauds. The parties' motions are denied in all other respects, except those consistent with this ruling.