Opinion
MEMORANDUM AND ORDER 00-C V-5980 (ILG).
August 1, 2001
SUMMARY
Plaintiff Munters Euroform GmbH ("Munters") brings this action against defendant Polymer Research Corporation of America ("Polymer" or "PRCA") seeking damages for an alleged breach of contract. Munters argues that Polymer failed to produce a substrate formulation according to specifications set forth in an unambiguous contract between the parties, and now moves for summary judgment. For the reasons that follow, Munters' motion for summary judgment is granted.
BACKGROUND
Munters is a German corporation that manufactures and sells waste-water treatment products and cooling tower components for use in Europe. (Compl. ¶¶ 2, 6) Polymer is a New York corporation engaged in the research and development of proprietary methods of "chemical grafting" for use as an industrial strength bonding, or adhesive, material. (Id. at ¶¶ 3, 7) Polymer sent Munters a letter contract dated March 31, 1998, addressed to Mr. Siegfried Bulang, the Managing Director of Munters, which was executed on April 6, 1998 (the "Contract"). (Contract dated March 31, 1998, annexed as Ex. A to Compl.) Since the nature of Polymer's performance under the Contract is in dispute, a lengthy excerpt of its key provisions is reproduced here:
You, as the representative of MUNTERS . . . have been introduced to a process developed by Polymer Research Corporation of America (PRCA) suitable to initiate chemical bonding of monomers . . . to a variety of substrates. . . . It exhibits a variety of desired properties including modification of substrates used to: graft to I) polypropylene and PVC [polyvinylchloride] for properties of permenent [sic] adhesion according to MUNTERS' specification (see Addendum A) for use in the wastewater and cooling tower industry. Inasmuch as MUNTERS is interested in evaluating some of these processes and related chemical solutions in order to establish their effectiveness and applicability mainly in the above field, and since MUNTERS's interest in and possible use of these processes and solutions in the aforementioned field of application, and on the strength of PRCA's proprietary position regarding their processes and solutions, PRCA is proposing the following course of action: In consideration of MUNTERS's payment of a fee of $80,000 per phase for a period of three (3) phases, MUNTERS will receive samples of product and information regarding processes for their use and evaluation. The first payment shall be made upon execution of this letter agreement by MUNTERS and the remaining payments shall be made at the start of the next two (2) phases. All payments made to PRCA will be applied to the cost of work on the project and retained by PRCA.
PRCA agrees to grant MUNTERS exclusivity in this area and will not engage in research for any firm in MUNTERS's area of interest.
During the evaluation period all necessary technical or legal information required for a full and objective evaluation of the processes and of the respective proprietorships will be freely exchanged between both parties.
At oral argument, defendant argued that "it" refers to the substrate, but the structure of the paragraph indicates that "it" refers to the process of chemical grafting.
(Id., 1-2) Addendum A to the Contract contains Munters' specific technical requirements "for a substrate for the permanent adhesion of PVC and Polypropylene sheets and profiles." (Addendum A to Contract, annexed as Ex. A to Compl.) Addendum A also contains the following provisions: "[t]he delivery time for future supply of the substrate no longer [sic] than four weeks including shipment to [Germany] . . . [and] [t]he cost for the substrate does not exceed 15 USD per gallon. . . ." (Id.)
Polymer admits that Munters fully performed its obligations under the Contract: (1) it paid Polymer $240,000; (2) it provided Polymer with technical and legal information as requested; and (3) it tested and evaluated the substrate samples that Polymer provided. (Compl. ¶ 11; Answer ¶ 11) For its part, Polymer assigned a team to develop a formulation to meet the specifications in Addendum A and sent samples to Munters for evaluation. The parties' relationship deteriorated, as Munters avers, because Polymer allegedly produced a PVC substrate that did not meet specifications and failed entirely to formulate the Polypropylene substrate. (Compl. ¶ 12) Polymer explains that "[b]ecause it was not Polymer's obligation to test each formulation, [it] cannot say with certainty whether certain of its formulations met or exceeded the specifications. . . ." (Def.'s Resp. to Interrogs., 5)
On December 18, 1998 Polymer's president, Carl Horowitz, responding to a letter sent by Munters, indicated that:
PRCA agrees for the following as well: 1. PRCA agrees to carry on the development of bonding agent (adhesive) for bonding of PVC to PVC sheets . . . and Polypropylene to Polypropylene sheets . . . during the 3rd phase of development work till both projects are completed to Munters Euroform Gmbh [sic] satisfaction. 2. Also, PRCA will not seek further funding from Munters on these two projects and will carry on the development work at its own expense till the projects are completed.
(Horowitz Letter dated Dec. 18, 1998, annexed as Ex. C to Jahn Aff.) Nearly nine months later, Horowitz again responded to a letter written by Munters' financial manager and wrote in part that:
We would like to inform you that based on formulation #91, we are continuing to work further for improvement in properties in terms of: 1. Open time for possible handling of 10 minutes as agreed upon. 2. To reduce the cost/gallon. 3. To reduce the open time lesser than 40 minutes. 4. To make sure that the product is environmentally friendly. Also, we are working on the modification of formulation for glueing of polypropylene. As soon as these formulations are optimized, we would send you the samples for your trial evaluation. This may be within 3-4 weeks time.
(Horowitz Letter dated Sept. 27, 1999, annexed as Ex. B to Jahn Aff.)
Munters argues in this motion that the Contract unambiguously required Polymer to produce a substrate that met specifications set forth in Addendum A. Polymer characterizes the Contract as a research agreement under which it promised only to deliver samples of substrate for Munters' evaluation and contends that the Contract does not contain a warranty that it would achieve a specific result.
DISCUSSION
I. Choice of Law
As an initial matter, New York law will govern the interpretation of the Contract in this dispute. A federal court sitting in diversity must apply the choice of law rules of the forum state, in this case New York.See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941). Both parties rely on New York law in their memoranda of law, but the Contract does not contain a choice of law provision, and neither party has briefed the choice of law issue. Having not been directed to any other controlling law, this court will apply New York substantive law.See Celle v. Filipino Reporter Enterprises Inc., 209 F.3d 163, 175 (2d Cir. 2000) ("Since no party has challenged the choice of [New York law], all are deemed to have consented to its application.")
II. Legal Standards
To attempt to review the voluminous treatise, law review, and judicial literature on summary judgment would be as foolhardy as it would be superfluous. Suffice it to be cognizant of the observation made by the Court in Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986):
Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.' . . . Rule 56 must be construed with due regard not only for the rights of persons asserting claims and defenses that are adequately based in fact to have those claims and defenses tried to a jury. but also for the rights of persons opposing such claims and defenses to demonstrate in the maimer provided by the Rule, prior to trial, that the claims and defenses have no factual basis.
In Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986), the Court said:
When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. . . . In the language of the Rule, the nonmoving party must come forward with `specific' facts showing that there is a genuine issue for trial. . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'
(emphasis in original).
And finally, in Anderson v. Liberty Lobby. Inc., 477 U.S. 242 (1986), the Court again emphasized that granting a motion for summary judgment requires that there be no genuine issue of material fact. "Only disputes over facts that might affect the outcome of the suit under the governing law will preclude the entry of summary judgment. . . . [S]ummary judgment will not lie if a dispute about a material fact is `genuine', that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." 477 U.S. at 248. The Court went on to instruct that: "If the evidence is merely colorable, . . . or is not significantly probative, summary judgment may be granted." Id. at 249-50.
In contract disputes, "summary judgment may be granted only where the language of the contract is unambiguous," Nowack v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1192 (2d Cir. 1996), and under New York law, whether a contract is ambiguous is a question of law. Id. (citation omitted). An ambiguity exists where the terms of a contract could suggest "more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business."Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906 (2d Cir. 1997). On the other hand, no ambiguity exists where the relevant language has a "definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion." Breed v. Ins. Co. of North America, 46 N.Y.2d 351, 355, 413 N.Y.S.2d 352, 355 (1978). Although both parties here offer different interpretations of Polymer's obligations under the Contract, "[p]arties to a contract may not create an ambiguity merely by urging conflicting interpretations of their agreement." Sayers v. Rochester Tel. Corp. Supplemental Mgt. Pension Plan, 7 F.3d 1091, 1095 (2d Cir. 1993) (citations omitted).
The court assesses the issue of ambiguity by looking within the four corners of the document and generally not to outside sources. See W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 162-163 (1990). Courts "should examine the entire contract and consider the relation of the parties and the circumstances under which it was executed. Particular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought." Kass v. Kass, 91 N.Y.2d 554, 567 (1998) (citation omitted).
III. The Contract is Clear
The only issue before this court on Munters' motion for summary judgment is the nature of the performance required of Polymer under the Contract. Munters argues that under the Contract, Polymer agreed to provide a substrate meeting the specifications in Addendum A. In contrast, Polymer contends that the Contract contemplated a research and development project with no guarantee of specific results, that is, Polymer was only required to submit samples to Munters for its evaluation. The heart of the agreement and the primary performances to be exchanged under the Contract are contained in the following sentence: "In consideration of MUNTERS's payment of a fee of $80,000 per phase for a period of three (3) phases, MUNTERS will receive samples of product and information regarding processes for their use and evaluation." (Contract, 1) Read alone, this sentence suggests that the evaluation itself is an end and not a means to an end as Munters would contend. The import of the three "phases" and the role of Munters' evaluation of the samples is revealed in a February 6, 1998 letter submitted in Polymer's opposition papers.
Read in conjunction with Polymer's letter of February 26, 1998, the Contract unambiguously requires Polymer to develop the polypropylene and PVC substrate to Munters' specifications. Polymer explained the three phases to Munters in a separate letter prior to forming the Contract:
While normally the purpose of an agreement should be gleaned from the instrument itself if possible, it is permissible to examine additional writings relating to the subject where necessary to ascertain the intention of the parties at the time the contract was made. See Hallmark Synthetics Corp. v. Sumitomo Shoji New York. Inc., 26 A.D.2d 481, 484, 275 N.Y.S.2d 587 (1st Dep't 1966), aff'd, 20 N.Y.2d 871, 285 N.Y.S.2d 615 (1967); see also Lowry Co. v. S.S. Le Moyne D'Iberville, 253 F. Supp. 396, 398 (S.D.N.Y. 1966). In its February 6, 1998 letter, Polymer stated that "[w]e . . . feel confident that we can solve your problem at hand utilizing our proprietary chemical grafting technology. Consequently, we are enclosing one (1) copy of a work agreement for your consideration." The three phases outlined in the Contract previously were defined by the parties and must correspond to the three phases of work explained in the February letter.
During the first phase, PRCA will develop formulations based upon your specifications. At the end of this phase, PRCA will send you these samples for you to test and evaluate. The second phase will be to optimize the formulation based upon your test results. Again, at the end of this phase samples will be sent . . . for evaluation and testing. During the third phase, if any fine tuning to the formulation is needed it is done now, but the bulk of the time will be devoted to `transfer of technology'.
(Polymer Research letter dated Feb. 6, 1998, annexed as Ex. B to Horowitz Aff.). The three phases demarcate a progression of development of a product to an end, that is a product meeting Munters' specifications. Polymer's obligation in phase three to work on technology transfer plainly contemplates a completed product, or a nearly completed product to be fine tuned. The Oxford English Dictionary cites the following definition of technology transfer: "the transfer of knowledge generated and developed in one place to another, where it is used to achieve some practical end." Oxford English Dictionary Online (2d ed. 1989). Therefore, Polymer in phase three was to share with Munters its practical know-how of the processes used to formulate a substrate that met the contractual specifications. Polymer's assertion that it merely promised to engage in a research and development project is belied by the fact that its work in phase three would be devoted to technology transfer. In sum, the Contract clearly required Polymer to develop a formulation meeting the specifications in Addendum A to the Contract, and accordingly, Munters' motion for summary judgment is granted.
CONCLUSION
For all of the foregoing reasons, Munters' motion for summary judgment is granted. The parties are hereby directed to appear on September 6, 2001 at 11 a.m. for the purpose of setting a trial date on the issue of damages.
SO ORDERED.