Opinion
603393/07.
Decided June 11, 2008.
Attorneys for Plaintiffs Scolaro, Shulman, Cohen, Fetter Burstein, P.C., Syracuse, New York.
Att: Ronald A. Mittleman, Esq. and Chaim J. Jaffe, Esq., Attorneys for Defendants, Skadden Arps Slate Meagher Flom, Four Times Square, New York, New York.
Att: Jay B. Kasner, Esq., Scott D. Musoff, Esq. and Joseph A. Matteo, Esq.
Plaintiffs sue defendants claiming that defendants breached a contract or agreement to finance an acquisition, make a loan, and establish a Revolving Operating Credit Facility and a Non-Revolving Term Loan Facility, for an aggregate of $22 million Canadian dollars, causing plaintiffs to sustain damages in excess of $45 million. The claim for breach is based on in a document entitled Summary of Terms and Conditions ("Summary"), dated August 31, 2001 that was executed by two representatives of Canadian Imperial Bank of Commerce ("CIBC" or "Lender") and presumably by Richard E. Gray representing Chariot Investors, Inc., B.F. Rich Company, Inc. and ESP Asset Holdings, Inc., although no copy executed by plaintiff is furnished. The "Summary" document contains fifteen pages and outlines terms and conditions of the loan and upon which the credit facilities were to be established. Plaintiffs also sue for breach of the implied covenant of good faith and fair dealing.
Plaintiff Amcan was formerly known as ESP Asset Holdings, Inc., plaintiff CWD Windows Company ("Windows") and plaintiff CWD NSULC Holdings, Inc. ("NSULC") are wholly-owned subsidiaries of of Amcan, and plaintiff Chariot Management, Inc. ("Chariot") is a company owned by Richard E. Gray. The law suit was commenced just about six years after the alleged breach of the contract.
Defendants move to dismiss all claims pursuant to CPLR 3211(a)(1) and (7) on the ground that no agreement was ever reached because the document upon which plaintiffs rely was merely an agreement to agree and not a binding agreement or commitment. Defendants also move to dismiss the claims against Canadian Imperial Holdings, Inc., CIBC World Markets Corp., and CIBC, Inc. on the ground that none of these entities were parties or signatories to any agreement with plaintiffs or their predecessors.
Plaintiffs denominate the August 31, 2001 document as a "Commitment Letter." However, the document was entitled "Summary of Terms and Conditions" and bears the following italicized statement in a rectangle box at the beginning:
This summary represents an outline of the basis on which CIBC will provide its commitment under the Credit Facilities. The Credit Facilities will only be established upon completion of definitive loan documentation including a credit agreement (the "Credit Agreement") which will contain the terms and conditions set out in this Summary in addition to such other representations, warranties, covenants, indemnities, defaults, and other terms and conditions (including increased costs, reserve tax, capital adequacy, currency of payment and other provisions) as CIBC may reasonably require.
A subsequent document dated October 13, 2001 entitled Credit Agreement was marked "Fourth External Draft For Discussion Purposes Only" was never executed.
Plaintiffs aver that the Summary was a binding agreement inasmuch as CIBC had agreed to make the loan, the parties had negotiated the final loan documents as provided for in the agreement and were prepared to close on the loan. They claim that as a result of defendants' refusal to close on the loan plaintiffs could not obtain alternative financing to (a) repay a certain promissory note issued in connection with Amcan's purchase of the outstanding stock of BF Rich Co., Inc., or (b) fund the acquisition of the assets of the CWD Windows Division of a subsidiary of Nortek, Inc., and that they incurred costs including the C$150,000 commitment fee paid at the time they accepted Defendants' "offer. "Plaintiffs contend that the reservation contained in the above cited box only related to the funding line of the credit facilities and not to defendants' commitment to make the loan. A previous document entitled "Draft Summary of Terms and Conditions" contained reservations specifying that it could not be used to create an obligation while the latter document contained no such reservation. Further, the plaintiffs cite the language of the Summary on page 14 stating, "Please indicate your acceptance of the Summary of Terms and Conditions of this offer by September 7, 2001 by signing and returning to the undersigned."
Additionally, plaintiffs refer to the Fees provision of the document, providing that $500,000 was to be paid to the Lender as follows:
1) $50,000 payable on accept of the Draft Summary of Terms and Conditions (received)
2)$150, payable upon acceptance of this committed offer.
3) $300,000 payable upon closing of this transition.
Citing the second provision using the terms "acceptance of this committed offer", plaintiffs contend that defendants cannot establish the document at issue was not a binding commitment because plaintiffs paid the C$150,000 (CW paid U.S. $95,000)and that the loan documents that they were in the process of finalizing provided that their agreement "shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as an Ontario contract." Plaintiffs cite cases from Ontario holding that a "contract to make a contract" can impose a binding obligation upon the parties to create and execute a formal document embodying the specific agreed upon terms and conditions. In. Bawitko Investments Ltd. v. Kernels Popcorn Ltd., 1991 O.A.C. LEXIS 2416 the Ontario Court held that "when the parties have agreed on the essential provisions to incorporated in a formal document with the intention that their agreement shall . . . become binding, they will have fulfilled all the prerequisites for the formation of a contract." See also, Northwood Mortgage Ltd. v. Gensol Solutions, Inc., 2004 ON.C Lexis 1273 (Ontario Superior Court, 2004).
With respect to the claims against entities other than CIBC, plaintiffs claim that Canadian Imperial Holdings, Inc., CIBC, World Markets Corp. and CIBC, Inc. are related entities to to the Canadian Imperial Bank of Commerce and all conduct business in New York under the latter name.
Defendants allege that the open terms in the Summary were material and critical. Specifically, the Credit Facilities would only be established upon completion of definitive loan documentation including a credit agreement and that the "Governing Law was "TBD" (to be determined). They also aver that the parties had not agreed on the following terms: 9i) conditions precedent, (ii) representations and warranties, (iii) reporting requirements, (iv) affirmative and negative covenants, (v) events of default, (vi) general indemnities, (vi) definitions, or (vii) the closing date. Additionally, defendants contend that unbeknown to CIBC, on October 21, 1996, Hon. Lewis Friedman of this Court had entered an "Injunction Order" against Richard Gray and various corporate entities that he controlled, finding that he had looted the assets and money from his companies and engaged in self-dealing transactions. The language of that Order was extremely strong, and defendants contend that the Order prevented Gray from fulfilling one of the negotiating conditions, namely that Gray assign B.F.Rich shares to CIBC as security for the proposed loan. Defendants claim that Gray did not disclose the existence of this injunction until after he signed the Summary. Moreover, in 1999 Gray was held in contempt of court for violating the Injunction Order by making payments from Chariot Management, Inc. The First Department affirmed the contempt order twice in 200 and 2001. Richardson v. Gray, 284 AD2d 198 (1st Dept. 2001).
Discussion
On a motion to dismiss, the court must construe pleadings liberally, looking to the four corners of the Complaint to determine whether a cause of action exists. EBCI, Inc. v. Goldman Sachs Co., 5 NY2d 11 (2005). The issue is not whether plaintiff has clearly stated a cause of action, but whether in fact there is one. Guggenheimer v. Ginzberg, 43 NY2d 268 (1977) Assuming the truth of the claims set forth in the Complaint, there appears to be a viable cause of action based on breach of contract, at least against CIBC.
In order to prevail on a motion to miss based on documentary evidence, the moving party must show that the documentary evidence conclusively refutes plaintiff's allegations. AG Capital Funding Partners, L.P. v. State Street Bank and Trust Co., 5 NY2d 582 (2005). Therefore, the issue is whether the Summary constitutes a contract or merely and agreement to agree. Clearly, a preliminary agreement is not an enforceable contract unless the parties intend to be bound by it. In Prospect St. Ventures I, LLC v. Eclipsys Solutions Corp. , 23 AD3d 213 (2005), the First Department held that a letter agreement constituted a "mere agreement to agree' rather than an enforceable contract." The words "proposed agreement" and "proposed contract" indicated an intent not to be bound. Similarly, a letter of intent was held not to be binding in Aksman v. Xiongwei Ju, 21 AD2d 260 (1st Dept. 2005) where the letter repeatedly stated that it would be replaced by a contract. See also Joseph Martin, Jr. Delicatessen v. Schumacher, 52 NY2d 105 (1981). Defendants argue that the language to the effect that "The Credit Facilities' will only be established upon completion of definitive loan documentation, including a credit agreement" indicates that a further contract or document is necessary and "definitive loan documentation" will be forthcoming. Defendants contend that the actual establishment of the Credit Facilities were intrinsic and crucial to the completion of the loan contract. Moreover, defendants contend that plaintiff has failed to define exactly what provision(s) of the "agreement" has or have been breached; they have merely cited Richard Gray's affidavit that defendant was obligated to provide him with a loan.
On the other hand, the Summary specifically asks plaintiff to "Please indicate your acceptance of the Summary of Terms and Conditions of this offer by September 7, 2001 by signing and returning to the undersigned. Additionally, $150,000 was "payable upon acceptance of this committed offer". According to plaintiffs, the Summary was signed and $150,000 was paid in accordance with the terms of the Summary. The Summary is a fifteen page document which sets forth numerous specific terms and conditions, including methods for calculating the EBDITA, management fees, LIBOR determinations and collateralization for the loan and the establishment of the Credit Facilities, all of which plaintiff apparently agreed to. The To Be Determined items are limited to which Provincial law applies and counsel fees.
Conclusion
Clearly, plaintiffs have set forth no basis for holding Canadian Imperial Holdings, Inc., CIBC World Markets Corp. and CIBC. Inc. as defendants and all claims against them must be dismissed. Among other things, these corporations are separate entities, incorporated in Delaware rather than Canada as is CIBC, and are not parties to any agreements. Similarly, plaintiffs' claims for breach of good faith and fair dealing depend upon the validity of the breach of contract claim and are thus duplicative of it. See Cerberus Int'l, Ltd. v. BancTec, Inc. , 16 AD3d 126 (1st Dept. 2005); Empire State Bldg. Assocs. v. Trump, 247 AD2d 214 (1st Dept. 1998).
Additionally, it is unclear how Chariot Management has standing as either a party or a third-party beneficiary of the agreement. Plaintiff argues that Chariot was a third party beneficiary or would have been it the Credit Agreements haf closed. At this time, however, it is not necessary to dismiss it as a plaintiff.
With respect to the basic claim of breach of contract, that claim shall remain at this time. Although it is ordinarily a question of law as to whether a document constitutes an agreement or an agreement to agree, the circumstances here do not lend themselves to such a determination at this preliminary stage. While defendants argue that the Summary of Terms and Conditions was merely an agreement to agree, the document suggests that it may have been more than that. The provisions were very extensive and the language at the end of the document purported to make an offer, which if accepted required the payment of C$150,000. The offer was accepted and payment was made. Additionally, the language contained earlier in the Summary stating that $150,000 was "payable upon acceptance of this committed offer" suggests the possibility that this was an offer that was more than an agreement to agree. The language at the beginning of the document, which defendant relies on, seems to indicate that other documentation was needed for Credit Facilities to be established, but it is a question of fact as to whether the entire loan depended upon establishing these facilities and whether the documentation called for was proffered. Plaintiffs state that they accepted t he October 13, 2001 draft of the Credit Agreement that the Bank prepared and that all of the terms had been "negotiated" and "finalized" for execution.
However, as defendants have noted, it appears that plaintiff might well have been unable to fulfill conditions under the terms of the Summary. Specifically, the Summary stated that CIBC was to be given a First security interest in all of the Borrower(s)BFR and CWD) owned personal and real property and an assignment of shares in the same. The decisions of this Court and the Appellate Division concerning Gray's contumacious behavior could well have prevented plaintiff from fulfilling pre-conditions. That would, in all likelihood, constitute a valid defense to the claims here. Nevertheless, without some discovery, it is premature to dismiss the breach of contract claims against CIBC for that reason.
For the reasons stated above, it is hereby
ORDERED that all claims against Canadian Imperial Holdings, Inc., CIBC World Markets Corp. and CIBC, Inc. are dismissed; and it is further
ORDERED that all claims for breach of good faith and fair dealing are dismissed; and it is further
ORDERED that the clerk shall proceed accordingly; and it is further
ORDERED that the breach of contract claim against Canadian Imperial Bank of Commerce remains at this time; and it is further
ORDERED that defendant answer the remaining portions of the Complaint on or before July 15, 2008; and it is further
ORDERED that the parties are directed to appear for a preliminary conference in
Room 208 at 9:30 a.m. on August 5, 2008.