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holding that a denial without evidence to support the denial is "conclusory" and "wholly inadequate under Local Civil Rule 56.1(d)"
Summary of this case from Ezagui v. City of New YorkOpinion
95 Civ. 10543 (JGK)
December 4, 2000
OPINION AND ORDER
Plaintiffs Stanley Cooper, Sheila Cooper, and Richard Stein as trustee of the trusts for the benefit of Michael Cooper and Adam Cooper (collectively, the "Coopers") allege in their Second Amended Complaint in this diversity action that the defendants, three corporate directors of U.S. Petroleum ("USP"), breached a December 22, 1987 Voting Agreement (the "Voting Agreement") under which the defendants were given proxies to vote the plaintiffs' shares of stock in USP. The plaintiffs allege that as a result of the defendants' actions they lost the value of their shares in USP, which was subsequently dissolved in a Chapter 7 proceeding. The plaintiffs seek $100 million in compensatory damages and $100 million in punitive damages. The defendants move pursuant to Fed.R.Civ.P. 56 for summary judgment dismissing the Second Amended Complaint. For the reasons explained below, the motion is granted.
I.
The lengthy factual background of this case is set forth in Cooper v. Parsky, No. 95 Civ. 10543, 1997 WL 242534 (S.D.N.Y. Jan. 8, 1997) andCooper v. Parsky, 140 F.3d 433 (2d Cir. 1998), familiarity with which is assumed. The following is a summary of the relevant procedural history. The plaintiffs filed their original Complaint in this action in December 1995, and they filed a First Amended Complaint in April 1996. The First Amended Complaint, which was asserted against numerous defendants, alleged violations of various contractual, fiduciary, and other duties to the plaintiffs in connection with the plaintiffs' ownership of shares in USP. The defendants moved to dismiss the First Amended Complaint. This Court referred that motion to Magistrate Judge Naomi Reice Buchwald for a report and recommendation. The Magistrate Judge recommended the dismissal of the First Amended Complaint in its entirety on various grounds. See Cooper v. Parsky, No. 95 Civ. 10543, 1997 WL 242534 (S.D.N.Y. Jan. 8, 1997). This Court adopted the Magistrate Judge's report and recommendation and dismissed the First Amended Complaint with prejudice.See Cooper v. Parsky, No. 95 Civ. 10543, 1997 WL 150934 (S.D.N.Y. Mar. 27, 1997). On appeal, the Court of Appeals affirmed the dismissal of the First Amended Complaint with respect to all causes of action and all defendants except the plaintiffs' claims for breach of contract based on the Voting Agreement against defendants Richard K. Gottlieb, Charles G. Berg, and Alan Andreini. See Cooper v. Parsky, 140 F.3d 433 (2d Cir. 1998). The Court of Appeals suggested that the plaintiffs be instructed to file a new amended complaint confined to the reinstated claims for breach of contract against these three defendants. See id. at 442. Accordingly, the plaintiffs filed a Second Amended Complaint in July 1998. Thereafter, the defendants moved to dismiss the Second Amended Complaint or for summary judgment. Construing the motion as a motion for summary judgment, on September 1, 1999 this Court denied the motion without prejudice to renewal after the completion of discovery. After discovery was completed, the defendants filed this motion for summary judgment.
The Second Amended Complaint does not enumerate counts or causes of action, but rather contains sections entitled "Dilution of Shareholdings" and "Transfers and Self-Dealing." Because the only cause of action which has been reinstated is a claim for breach of the Voting Agreement, the Second Amended Complaint is construed as asserting solely that claim.
In its decision, the Court of Appeals left open the possibility that further proceedings may include a motion for summary judgment with respect to the plaintiffs' reinstated claim for breach of contract. See Cooper, 143 F.3d at 442.
The Court also denied the plaintiffs' application for a default judgment against defendant Richard Gottlied and set aside the default against him. The Court also denied defendant Gottlieb's motion to dismiss the Second Amended Complaint for improper service.
II.
The standard for granting summary judgment is well established. Summary judgment may not be granted unless "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); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party.See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). "In considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are factual issues to be tried." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986). On a motion for summary judgment, once the moving party meets its initial burden of demonstrating the absence of a genuine issue of material fact, the nonmoving party must come forward with specific facts to show there is a factual question that must be resolved at trial. See Fed.R.Civ.P. 56(e). The non-moving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998) (collecting cases); Wyler v. Unites States, 725 F.2d 156, 160 (2d Cir. 1983).
III.
As an initial matter, the defendants argue that New York law should govern the determination of the elements of a claim for breach of contract. The Voting Agreement contains a choice of law provision which states: "This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware governing corporations organized under the laws of that State." (Voting Agreement dated Dec. 22, 1987, attached as Ex. A to Second Am. Compl. ("Voting Agreement"), ¶ 9.) The defendants argue correctly that this clause is plainly limited to the application of Delaware corporate law, and it does not apply to a determination of the elements of a claim for breach of contract. The parties to the Voting Agreement could certainly have agreed to a choice of law provision that specified that the laws of the State of Delaware were to be applied without limitation, but they chose only the laws of Delaware governing corporations organized under Delaware law. That law would apply, for example, to the issue of the validity of a Voting Agreement for a Delaware corporation. There is, therefore, no applicable choice of law provision in the Voting Agreement that determines the law governing the elements of a claim for breach of contract.
In a case where jurisdiction is based on diversity of citizenship, a federal court applies the conflict of law principles of the forum state.See Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 313 U.S. 487, 496-97 (1941). In Brink's Ltd. v. South African Airways, 93 F.3d 1022 (2d Cir. 1996), the Court of Appeals for the Second Circuit explained the approach used by New York courts:
In contract cases, New York courts now apply a "center of gravity" or "grouping of contacts" approach. Under this approach, courts may consider a spectrum of significant contacts, including the place of contracting, the places of negotiation and performance, the location of the subject matter, and the domicile or place of business of the contracting parties. New York courts may also consider public policy "where the policies underlying conflicting laws in a contract dispute are readily identifiable and reflect strong governmental interests." The traditional choice of law factors, the places of contracting and performance, are given the heaviest weight in this analysis.Id. at 1030-31 (citations omitted); see also APC Commodity Corp. v. Ram Dis Ticaret A.S., 965 F. Supp. 461, 467 (S.D.N.Y. 1997). As the defendants argue, New York has the most significant contacts in this case because many of the acts pleaded in the Second Amended Complaint occurred in New York, the plaintiffs live in New York, and their alleged injuries were sustained in New York. (See Second Am. Compl. ¶ 21.) The plaintiffs do not dispute the application of New York law on the issue of breach of contract and they do not argue that the law of another jurisdiction should apply to that issue. The Court of Appeals applied New York law in determining the appropriate statute of limitations to apply to the remaining breach of contract claim. See Cooper, 143 F.3d at 440-41. The application of New York law is appropriate under these circumstances.
Even if the law of Delaware were to apply to the issue of the elements of a claim for breach of contract, the Court would reach the same result. The parties do not identify any relevant difference between the laws of the two states. The elements of a claim for breach of contract are the same in New York and in Delaware. A breach of contract claim requires proof of (1) a contract, (2) performance of the contract by one party, (3) breach by the other party, and (4) damages. See Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994) (citation omitted); Moore Business Forms, Inc. v. Cordant Holdings Corp., C.A. No. 13911, 1995 WL 662685 at *7 (Del.Ch. Nov. 2, 1995) (citations omitted). For the same reasons explained below, if the law of Delaware were to apply, the defendants would also be entitled to summary judgment.
IV.
The plaintiffs allege in their Second Amended Complaint that the defendants breached Paragraph 3 of the Voting Agreement which governs the standard of care the defendants were required to exercise in voting the plaintiffs' USP shares. Paragraph 3 states, in relevant part:
The Voters, who shall consist of the then directors of the Company . . . shall have the power and authority to vote the Shares with respect to all matters affecting the Company for which the action of the holders of the Common Stock of the Company is required or permitted. . . . In casting their votes, the Voters shall not be held by this Agreement to any specified standard of care on fiduciary responsibility and in no event shall they be liable to any of the Stockholders except for their gross negligence or wilfull [sic] misconduct.
The defendants contend that they did not sign the Voting Agreement but they do not dispute, for purposes of this motion, that when they became directors of USP in May, 1989, they succeeded to the Voting Agreement and they are therefore "Voters" within the meaning of the Voting Agreement. See Def.'s Mem., at 6, 17.) In light of the resolution of the defendants' motion, it is not necessary to resolve this issue.
The defendants contend that they did not sign the Voting Agreement but they do not dispute, for purposes of this motion, that when they became directors of USP in May, 1989, they succeeded to the Voting Agreement and they are therefore "Voters" within the meaning of the Voting Agreement. See Def.'s Mem., at 6, 17.) In light of the resolution of the defendants' motion, it is not necessary to resolve this issue.
(Voting Agreement, ¶ 3.)
The plaintiffs allege that the defendants violated this provision by committing numerous acts, particularly in 1990 and 1991, including improperly issuing USP common stock to USP officers; transferring assets from USP and its subsidiary, Petrowax PA Inc. in return for little or no consideration; diverting assets of those companies to themselves and to others; attempting to conceal the amount of compensation due to USP's President, Gene Blendermann, in order to avoid obligations to Stanley Cooper under his December 22, 1987 Employment Agreement; and approving the transfer of USP's principal remaining asset, its stock in Petrowax, to Petrowax at a time when USP was insolvent. The plaintiffs allege that these acts constituted gross negligence and willful misconduct in violation of the Voting Agreement.
The defendants argue that they are entitled to summary judgment because they did not vote the plaintiffs' USP shares and therefore they did not breach the Voting Agreement. In support of their motion, the defendants have submitted detailed evidence in the form of deposition testimony, affidavits, and other documentary evidence that they did not vote the plaintiffs' shares. (See Defs.' 56.1 Stmt. ¶¶ 27-29; Pls.' 56.1 Stmt. ¶¶ 27-29.) In order to demonstrate the existence of a triable issue of fact, the plaintiffs were required to submit affidavits or other evidence that the defendants voted the plaintiffs' shares. See Fed.R.Civ.P. 56 (e); Scotto, 143 F.3d at 114-15. The plaintiffs were also required to support any statement of a genuinely disputed material fact with citations to evidence. See Local Civil Rule 56.1(d). However, the plaintiffs have submitted no evidence at all that the defendants ever voted their shares. In their response to the defendants' 56.1 Statement the plaintiffs state that they "deny" the defendants' assertion that the defendants never voted the shares, although the plaintiffs cite no evidence at all to support the denials. (See Pls.'s 56.1 Stmt. ¶¶ 27-29.) However, the plaintiffs have submitted no evidence that the defendants voted the plaintiffs' shares, and the plaintiffs' conclusory denial is wholly inadequate under Local Civil Rule 56.1(d). See Monahan v. New York City Dep't of Corrections, 214 F.3d 275, 292 (2d Cir. 2000);Baker v. Dorfman, No. 99 Civ. 9385, 2000 WL 1010285, *1 n. 1 (S.D.N.Y. July 21, 2000); Ofudu v. Barr Laboratories, Inc., 98 F. Supp.2d 510, 512-13 (S.D.N.Y. 2000); Fernandez v. DeLeno, 71 F. Supp.2d 224, 227 (S.D.N.Y. 1999). Accordingly, the undisputed evidence is that the defendants did not vote the plaintiffs' shares.
At oral argument on this motion, counsel for the plaintiffs conceded that he had no evidence that the defendants ever voted the plaintiffs' shares, except he contended that the defendants approved the minutes of a July 18, 1989 shareholders meeting. However, the only vote of which there is evidence is a vote by the directors of USP at an April 25, 1990 USP Board of Directors meeting, not a vote of shareholders. (See Affidavit of Richard Stein dated March 23, 2000, at Ex. 28.) In any event, the plaintiffs themselves describe this action as "innocuous" (Opp. Mem., at 19) and there is no alleged connection between this action and any of the wrongs complained of by the plaintiffs, and no explanation how approval of minutes could constitute gross negligence or willful misconduct. In their opposition papers, the plaintiffs refer to a vote by shareholders when WSGP assumed majority control of USP in May 1989. However, the plaintiffs also recognize that this act occurred "prior to the entry on the scene of the three defendants." (Opp. Mem., at 3.) Moreover, any claim based on a vote in May 1989 is barred by the six-year statute of limitations in New York applicable to the claims for breach of contract since the original Complaint was filed in December 1995. See Cooper, 140 F.3d at 440-41. In addition, the plaintiffs refer to alleged instances of corporate waste which, the plaintiffs contend, the defendants did not ratify. These allegations are also not evidence that the defendants voted the plaintiffs' shares.
The plaintiffs argue, however, that the defendants are liable for breach of contract because they failed to vote the plaintiffs' shares on issues where they could have voted the shares but did not. The plaintiffs argue that because Paragraph 3 of the Voting Agreement states that the Voters "shall have the power and authority to vote the Shares with respect to all matters affecting the Company for which the action of the holders of the Common Stock of the Company is required or permitted," the defendants were required to vote the shares and they breached the Voting Agreement by failing to vote them. The plaintiffs also argue that Paragraph 1 of the Voting Agreement required the defendants to vote the shares in all instances where they could vote them. Paragraph 1 states: "Each Stockholder agrees that, for the term of this Agreement, his, her or its shares . . . shall be voted by the Voters in the manner hereafter provided, and to that end does hereby irrevocably constitute the Voters as his, her or its proxy to vote the same as so provided." The plaintiffs contend that the use of the language "shall be voted" means that the defendants had no choice but to vote the shares.
These arguments are without merit. Because the undisputed evidence is that the defendants did not vote the plaintiffs' shares, they did not breach the Voting Agreement. Under New York law, "the initial interpretation of a contract `is a matter of law for the court to decide.'" K. Bell Assocs., Inc. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir. 1996) (quoting Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 299 (2d Cir. 1996)). "Included in this initial interpretation is the threshold question of whether the terms of the contract are ambiguous." Alexander Alexander Servs. v. These Certain Underwriters at Lloyd's, London, 136 F.3d 82, 86 (2d Cir. 1998); see also Curry Road Ltd. v. K Mart Corp., 893 F.2d 509, 511 (2d Cir. 1990). A contract is unambiguous if it "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.'" Sayers v. Rochester Tel. Corp. Supplemental Management Plan, 7 F.3d 1091, 1095 (2d Cir. 1993) (quoting Breed v. Insurance Co. of N. Am., 385 N.E.2d 1280 (N.Y. 1978)); see also Alexander Alexander, 136 F.3d at 86; United Nat'l Ins. Co. v. Waterfront New York Realty Corp., 994 F.2d 105, 109 (2d Cir. 1993); Metropolitan Life Ins. Co. v. RJR Nabisco Inc., 906 F.2d 884, 889 (2d Cir. 1990).
If a contract is unambiguous, a court is "required to give effect to the contract as written and may not consider extrinsic evidence to alter or interpret its meaning." Consarc Corp. v. Marine Midland Bank. N.A., 996 F.2d 568, 573 (2d Cir. 1993); see also Alexander Alexander, 136 F.3d at 86; K. Bell Assocs., 97 F.3d at 637. Contractual language "whose meaning is otherwise plain is not ambiguous merely because the parties urge different interpretations in the litigation." Metropolitan Life Ins. Co., 906 F.2d at 889; see also United States Trust Co. of New York v. Jenner, 168 F.3d 630, 632 (2d Cir. 1999). Where the contractual language is subject to more than one reasonable meaning and where extrinsic evidence of the parties' intent exists, the question of the proper interpretation should be submitted to the trier of fact. See Alexander Alexander, 136 F.3d at 86; Consarc Corp., 996 F.2d at 573;Compania Financiera de Desarollo. S.A. v. Chase Manhattan Bank, No. 97 Civ. 5724, 1998 WL 74299, *3 (S.D.N.Y. Feb. 19, 1998), aff'd, 165 F.3d 13 (2d Cir. 1998), cert. denied, 119 S.Ct. 1455 (1999).
Paragraph 3 of the Voting Agreement is subject to only one reasonable interpretation. It gives to the Voters authority to vote the plaintiffs' shares on all matters where a shareholder vote is required or permitted. It does not require the Voters to vote the plaintiffs' shares on any issue. It clearly provides that in casting their votes, the Voters may only be held liable to the plaintiffs for gross negligence or willful misconduct. The plaintiffs' proposed reading of the Agreement to mean that the Voters were required to vote the shares on any issue where theycould vote them and that they became potentially liable if they failed to vote "would `strain the contract language beyond its reasonable and ordinary meaning.'" Metropolitan Life Ins. Co., 906 F.2d at 889 (quotingBethlehem Steel Co. v. Turner Const. Co., 141 N.E.2d 590 (N.Y. 1957)).
Paragraph 1 of the Voting Agreement is also unambiguous. It provides that the shareholders assign their voting rights to the Voters. The language "shall be voted" contained in Paragraph 1 plainly refers to the agreement that the Voters, and not the shareholders, have the authority to vote the shares under the Voting Agreement. No reasonable interpretation of this paragraph supports the plaintiffs' claim that the Voters were thereby required to vote the shares whenever they could do so. Furthermore, no other provision of the Voting Agreement supports the plaintiff's interpretation of the contract.
The clear terms of the Voting Agreement simply did not require the defendants to vote the shares on all issues, but rather gave them the authority and power to do so. By its plain terms, the Voting Agreement limits the Voters' liability to instances where they vote the shares and do so in a manner that is grossly negligent or constitutes willful misconduct. There is no basis for a breach of contract claim unless the defendants voted the plaintiffs' shares.
Accordingly, because the Voting Agreement is unambiguous and the undisputed evidence is that the defendants did not vote the plaintiffs' shares, the defendants did not breach the Voting Agreement. The defendants are therefore entitled to summary judgment on the plaintiffs' claim for breach of contract.
V.
The defendants also seek summary judgment on the ground that their actions did not cause the plaintiffs' alleged losses.
"Ordinarily, causation is required to recover damages for breach of contract." LNC Investments, Inc. v. First Fidelity Bank, N.A. New Jersey, 173 F.3d 454, 464 (2d Cir. 1999). Where, as here, a plaintiff seeks to recover damages for alleged losses, the plaintiffs are required to establish that the defendants' alleged breach was a proximate cause of the plaintiffs' injuries. See id. at 464-65; American Fed. Group, Ltd. v. Rothenberg, 136 F.3d 897, 907 n. 7 (2d Cir. 1998).
The undisputed evidence in this case shows that from May 5, 1989, and therefore at all times relevant to this action, WSG-USP LP held a majority interest in USP. (See Defs.' 56.1 Stmt. ¶ 11-12; Pls.' 56.1 Stmt. ¶¶ 11-12.) In addition, under USP's Certificate of Incorporation and By-Laws, any matter requiring a shareholder vote required the approval of no more than a majority of the votes cast. (See Certificate of Incorporation dated Oct. 8, 1986, attached as Exh. 12 to Affidavit of Richard T. Joffe dated March 3, 2000 ("Joffe Aff."), at BA 059751; By-Laws, attached as Exh. 12 to Joffe Aff., at 059755.) The defendants have also proffered unrebutted evidence that no USP shareholder vote requiring approval by more than a majority of the shares entitled to vote was ever taken during the period relevant to this case. (See Defs.' 56.1 Stmt. ¶ 36). While the plaintiffs conclusorily deny this statement, they cite no evidence at all to support their denial. (See Pls.' 56.1 Stmt. ¶ 36.) The plaintiffs have produced no evidence at all of any transaction during the relevant period which a minority of shares could have approved or prevented. Accordingly, the evidence demonstrates without any genuine dispute that there was no transaction during the relevant period that minority shareholders could have affected.
The only transaction cited by the plaintiffs in their papers is the alleged ratification of corporate waste which, the plaintiffs contend, required unanimity. This does not, however, support a finding of proximate cause because unanimous shareholder ratification is only a defense to a claim of waste that can be avoided, and is not a prior requirement of the transaction. See Michelson v. Duncan, 407 A.2d 211, 219 (Del. 1979); Harbor Fin. Partners v. Huizenga, 751 A.2d 879, 896 n. 58 (Del.Ch. 1999). And of course the plaintiffs have presented no evidence that the defendants ever voted the plaintiffs' shares.
Accordingly, any vote of the plaintiffs' minority shares by the defendants would have had no effect on the outcome of a USP shareholder vote, if any such vote had been taken. Any vote of the plaintiffs' shares could not, therefore, have been a proximate cause of the plaintiffs' alleged injuries. See Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1099-1106 (1991); Grace v. Rosenstock, ___ F.3d ___, 2000 WL 1209416, *9-10 (2d Cir. Aug. 25, 2000); Thouret v. Hudner, No. 95 Civ. 1793, 1996 WL 38824, *2-*3 (S.D.N.Y. Feb. 1, 1996); Hoover v. Allen, 241 F. Supp. 212, 231-32 (S.D.N.Y. 1965). Because the plaintiffs are unable to prove that the defendants' actions were a proximate cause of their alleged injuries, the defendants are entitled to summary judgment on this basis.See Lexington 360 Associates v. First Union Nat'l Bank, 234 A.D.2d 187, 651 N.Y.S.2d 490 (1st Dep't 1996). This is an independent basis for granting the defendants' motion for summary judgment.
The defendants assert several other grounds in support of their motion for summary judgment which, in light of this disposition, it is not necessary to address.
CONCLUSION
For all of the foregoing reasons, the defendants' motion for summary judgment is granted. The Clerk is directed to enter judgment dismissing the complaint and closing the case.SO ORDERED.