Opinion
01 Civ. 11765 (CSH).
August 16, 2004
MEMORANDUM OPINION AND ORDER
This diversity action has been the subject of two prior decisions of this Court, reported at Network Enterprises v. APBA Offshore, 2002 WL 31050846 (S.D.N.Y. Sept. 12, 2002) ( Network I), and Network Enterprises v. APBA Offshore, et al., 2003 WL 124521 (S.D.N.Y. Jan. 15, 2003) ( Network II). Familiarity with these decisions is assumed. Presently before the Court are cross-motions under Rule 56, Fed.R.Civ.P., for summary judgment. For reasons set forth below, plaintiff's motion is denied and defendants' motion is granted in part and denied in part.
I. BACKGROUND
Plaintiff is a Tennessee corporation that operates a nationwide cable television channel called The Nashville Network (TNN). Defendant APBA Offshore Productions, Inc. ("Offshore") is a Florida corporation engaged in the business of promoting and publicizing powerboat racing competitions. Defendant Michael D. Allweiss is an attorney and, at all times relevant to this litigation, was the sole shareholder, officer, and director of Offshore.
Plaintiff's causes of action arise from an alleged breach of contract by Offshore. In each of the years 1999 and 2000, plaintiff, under separate contracts for each year, broadcast footage of powerboat races provided to it by Offshore. For that service, Offshore compensated plaintiff according to the terms of those contracts. The 2000 contract included a rider that gave Offshore the option to broadcast up to thirteen episodes of racing on plaintiff's network during the fall of 2001. While the rider contained terms of payment if the option was exercised, it did not specify the precise number of broadcasts or the times and dates when the broadcasts would occur. By the explicit terms of the option, those terms were left to separate negotiation and agreement by the parties.
During late 2000 and early 2001, Offshore, through Allweiss, engaged in a series of negotiations with plaintiff, represented by its then Senior Vice President, Brian Hughes, for future broadcasts of powerboat races on plaintiff's network. While those negotiations seemed to have shown some promise, they did not result in a contract. Offshore, again acting through Allweiss, elected to exercise its option under the 2000 rider. Plaintiff alleges that further negotiations between Allweiss and Hughes resulted in an agreement under the option contract for the broadcast of ten episodes of Offshore footage on each of ten successive Sunday mornings over the fall of 2001. Plaintiff further alleges that, in reliance on this agreement, it reserved space in its broadcast schedule for these episodes. Finally, plaintiff alleges that it suffered harm when Offshore breached this agreement and failed both to provide the required footage for broadcast and to pay plaintiff for the ten broadcasts. Defendant contends that there was no agreement and, thus, no breach.
After bringing suit against Offshore, plaintiff learned that Offshore, due to a series of transfers and corporate transactions, had no assets. Plaintiff then moved to add Allweiss and APBA-Offshore Power Boat Racing LLC (the "LLC") as defendants with additional claims of tortious interference with contract and fraudulent conveyance. The motion to add claims against Allweiss for fraudulent conveyance and as alter ego of Offshore was granted in Network I. See 2002 WL 31050846, at *8. The motion to add claims against the LLC was denied. Id. As a result, the LLC is not a named party in the present action.
Plaintiff now moves for summary judgment against Offshore for breach of contract and for breach of duty of good faith and fair dealing. Plaintiff also moves for summary judgment against Allweiss as the alter ego of Offshore and for fraudulent conveyance of Offshore assets. Both defendants have cross-moved for summary judgment, seeking to dismiss all of plaintiff's causes of action.
II. DISCUSSION
A federal court sitting in diversity applies the substantive law of the forum state. See Semtek v. Lockheed Martin, 531 U.S. 497 (2001); Gasperini v. Center for Humanities, 518 U.S. 415 (1996); Hanna v. Plumer, 380 U.S. 460 (1965); Guaranty Trust Co. v. York, 326 U.S. 99 (1945); Erie v. Tompkins, 304 U.S. 64 (1938). In contract cases a court must also consider any choice of law provisions that may appear in the contract. See e.g. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 63 (1995); Smith Barney v. Sacharow, 91 N.Y.2d 39, 49 (N.Y., 1997). This Court sits in the State of New York. The present parties have agreed, by contract, to have their dispute governed by New York law. See 2000 "Time Buy Agreement" at ¶ 26. In addition, all parties have relied upon New York cases in their briefs. In these circumstances, the Court will apply New York law in resolving the present motions. A. Plaintiff's Claim Against Offshore for Breach of Contract
The contract that plaintiff claims defendant Offshore breached called for plaintiff to broadcast ten half-hour shows during the Fall of 2001 featuring footage of powerboat races provided by defendant. Under the terms of this alleged contract, defendant was to have paid plaintiff $40,000 for each of these broadcasts. There is no dispute that these broadcasts did not occur. There is also no disagreement that defendant did not provide plaintiff with broadcast footage in 2001 or pay plaintiff for time on plaintiff's network during any of the disputed broadcast periods. What is principally at issue is whether or not the contract that plaintiff asserts as the basis of its cause of action ever existed.
In each of the years 1999 and 2000, plaintiff and defendant entered into and executed separate contracts for broadcast of race footage provided to plaintiff by defendant. As an addition to the 2000 contract, plaintiff and defendant entered into a signed option contract. The parties refer to this document as "the Renewal Option," and so will I. The Renewal Option provided in its entirety:
TNN hereby grants to Purchaser [Offshore] the option to exhibit up to thirteen (13) additional original Episodes over TNN's cable programming service from October 1, 2001 through December 31, 2001, under the same terms and conditions of this Agreement at a fee of Forty Thousand Dollars ($40,000.00) per Episode. The dates and times of such telecasts shall be mutually agreed to by the parties hereto. Such option shall be exercised, if at all, by Purchaser delivering notice thereof to TNN which notice shall be received by TNN no later than March 1, 2001.
The parties agree that defendant exercised this option on March 1, 2001. See Plaintiff's Motion at 12; Defendants' Response at 7-8. However, as written, the Renewal Option does not provide sufficient certainty of critical terms necessary to form an enforceable contract or to calculate damages. Specifically, it does not indicate how many "Episodes" shall be broadcast, on what dates, and at what times. These are material terms of the alleged contract. See 2001 "Time Buy Agreement" at page 1. Without these terms, the agreement is to price only. In particular, without some evidence of the number of episodes to be broadcast, there is no basis on which to determine damages and, thus, no enforceable contract to broadcast or pay for broadcasts.
Given its omission of material terms, the Renewal Option is, in essence, an agreement to attempt to agree. "[I]t is rightfully well settled in the common law of contracts in [New York] that a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable." Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher 52 N.Y.2d 105, 109 (N.Y. 1981). Thus, without further agreements providing necessary material terms, the Renewal Option provides neither party with an enforceable right against the other. The critical issue in dispute is, then, whether the parties did, by later agreement, establish sufficient additional terms to form a contract.
Plaintiff, relying principally on the testimony of Brian Hughes and a document titled "AMENDMENT TO THE TIME BUY AGREEMENT FOR ` APBA OFFSHORE NATIONAL RACES,'" claims that the parties agreed to a schedule of ten half-hour broadcasts to be made on ten consecutive Sunday mornings beginning on September 30, 2001. January 27, 2004, Hughes Aff. at ¶ 14. Defendant, relying on the testimony of Michael Allweiss, asserts that, while the parties entered into negotiations to settle terms of contract under the option, no final agreement was reached. January 27, 2004, Allweiss Aff. at ¶¶ 18, 20; Allweiss dep. at p. 218 (characterizing the "AMENDMENT TO THE TIME BUY AGREEMENT FOR ` APBA OFFSHORE NATIONAL RACES'" as a proposal that was never agreed to).
This presents the Court with squarely contradicting evidence on an issue of fact critical to a determination of plaintiff's breach of contract claim: whether a subsequent agreement supplied the material terms that cannot be found in the Renewal Option executed together with the 2000 contract. Plaintiff asserts that "the persuasive weight of the record evidence defeats" the testimony of Allweiss. Plaintiff's Response at 6. But assessing the weight and persuasiveness of conflicting evidence is the quintessential role played by the fact finder at a trial. The record on these motions demonstrates the existence of a genuine issue as to a material fact, as those terms are used in Rule 56(c), thereby precluding summary judgment for either party. Accordingly the cross-motions for summary judgment on plaintiff's claim for breach of contract are denied.
B. Plaintiff's Claim for Breach of Duty
Plaintiff has moved for summary judgment on its claim for breach of defendant Offshore's duty to act in good faith. The same critical dispute of facts that precluded summary judgment on the breach of contract claim is necessarily implicated by plaintiff's breach of duty claim. Therefore, plaintiff's motion for summary judgment on the breach of duty claim must be and is denied.
Offshore has moved for summary judgment dismissing the breach of good faith claim as a matter of law. "[A]s a general rule, `the cause of action alleging breach of good faith is duplicative of a cause of action alleging breach of contract.'" OHM Remediation Servs. Corp. v. Hughes Environmental Systems, Inc., 952 F. Supp. 120, 124 (S.D.N.Y. 1997) (quoting Apfel v. Prudential-Bache Securities, Inc., 583 N.Y.S.2d 386, 387 (1st Dep't 1992)). See also William Kaufman Org., Ltd. v. Graham James LLP, 703 N.Y.S. 2d 439, 442 (1st Dep't 2000) ("A cause of action for breach of fiduciary duty which is merely duplicative of a breach of contract claim cannot stand"). This general rule is derived from the fact that "[u]nder New York law, parties to an express contract are bound by an implied duty of good faith, but breach of that duty is merely a breach of the underlying contract." Harris v. Provident Life Accident Ins. Co., 310 F.3d 73, 80 (2d Cir., 2002) (quoting Fasolino Foods Co. v. Banca Nazionale del Lavoro, 961 F.2d 1052, 1056 (2d Cir. 1992)). See also Apfel v. Prudential-Bache Securities, Inc., 583 N.Y.S.2d 386, 387 (1st Dep't 1992), modified on other grounds and affirmed at 81 N.Y.2d 470 (N.Y. 1993) ("New York courts recognize an implied covenant of good faith and fair dealing in every contract."). This implied duty ensures that "neither party to a contract shall do anything which has the effect of destroying or injuring the right of the other party to receive the fruits of the contract." M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir. 1990).
Because the duty to act in good faith under a contract is not a duty separable from the contract, see Geler v. National Westminster Bank USA, 770 F. Supp. 210, 215 (S.D.N.Y. 1991), "breach of an implied covenant of good faith and fair dealing is intrinsically tied to the damages allegedly resulting from a breach of the contract." Canstar v. J.A. Jones Constr. Co., 622 N.Y.S.2d 730, 731 (1st Dep't 1995). As a result, most courts "faced with a complaint brought under New York law and alleging both breach of contract and breach of a covenant of good faith and fair dealing [have] dismissed the latter claim as duplicative." Alter v. Bogoricin, 97 Civ. 0662, 1997 WL 691332 at *7 (S.D.N.Y., Nov. 6 1997) (citing W.S.A., Inc. v. ACA Corp., 94 Civ. 1493, 94 Civ. 1868, 1996 WL 551599 at *9 (S.D.N.Y. Sept. 27, 1996)).
In the Amended Complaint, plaintiff alleges four specific acts by Offshore that plaintiff claims constitute a breach of duty to act in good faith. The first is Offshore's alleged use of concerns about plaintiff's broadcast schedule to "deflect inquiries about its intent to breach the Time Buy Agreement." Amended Complaint at para. 43(a). The second is Offshore's alleged failure to provide plaintiff with timely notice that Offshore intended to breach the contract. The third is Offshore's alleged failure to negotiate in good faith a time schedule for the broadcasts after August 7, 2001. The fourth is Offshore's alleged "misrepresentation that the parties had not come to a mutual understanding regarding the 2001 air times and dates for Offshore's programs under the Renewal Option." Leaving aside the apparent tension between the third and fourth allegations, all of these assertions of fact bear directly on and are equally applicable to plaintiff's breach of contract claim. In this circumstance, the breach of duty claim is duplicative of the breach of contract claim. Applying New York law, plaintiff's second cause of action will be dismissed.
C. Plaintiff's Claim for Damages Against Allweiss as Alter Ego of Offshore
After finding that Offshore had no assets, plaintiff brought its third cause of action against Allweiss as alter ego of Offshore. "Under New York law, a court may pierce the corporate veil where 1) the owner exercised complete domination over the corporation with respect to the transaction at issue, and 2) such domination was used to commit a fraud or wrong that injured the party seeking to pierce the veil." MAG Portfolio Consult, GmbH v. Merlin Biomed Group, LLC, 268 F.3d 58, 63 (2d Cir., 2001) (citations and internal quotation marks omitted). It remains plaintiff's burden to prove that a wrong has been committed. Having dismissed plaintiff's claim for breach of duty and having denied summary judgment on plaintiff's claim for breach of contract, summary judgment on plaintiff's third claim cannot be granted because the existence of any wrong remains a matter in dispute.
In addition, the undisputed facts on the present record do not unequivocally support the conclusion that Allweiss "exercised complete domination" over Offshore within the meaning of that phrase in the context of corporate veil piercing. "Determining that veil-piercing is appropriate is a fact specific inquiry, and courts consider many factors, including: (1) disregard of corporate formalities; (2) inadequate capitalization; (3) intermingling of funds; (4) overlap in ownership, officers, directors, and personnel; (5) common office space, address and telephone numbers of corporate entities; (6) the degree of discretion shown by the allegedly dominated corporation; (7) whether the dealings between the entities are at arms length; (8) whether the corporations are treated as independent profit centers; (9) payment or guarantee of the corporation's debts by the dominating entity, and (10) intermingling of property between the entities." MAG Portfolio, 268 F.3d at 63 (citations and internal quotation marks omitted). The purpose of this inquiry is to determine whether, in this case, Allweiss has used Offshore to exercise his own will and further his own interests while using the corporate shell to protect himself from personal liability. See United States v. Funds Held ex rel. Wetterer, 210 F.3d 96, 106 (2d Cir. 2000) ("Courts must be extremely reluctant to disregard corporate form, and should do so only when the corporation primarily transacts the business of the dominating interest rather than its own.") (citations omitted).
The defendants at bar acknowledge that "[t]here is no dispute that Allweiss was the sole shareholder, officer and director of [Offshore], that [Offshore] shared his business address and that [Offshore] was initially capitalized with Allweiss' funds." Defendants' Response at 9. However, defendants maintain that these facts reflect the necessities of a closely held corporation rather than the more nefarious interactions of offending alter egos. Defendants' Motion at 15-17. Further, defendants assert that Offshore maintained all required corporate formalities, that it had its own bank account, that assets of Allweiss and Offshore were not intermingled, that Offshore was appropriately capitalized, and that Allweiss never used Offshore assets or the Offshore shell to advance his personal interests or agenda. Defendants' Motion at 3, 15.
This presents the Court with numerous disputes of fact, all of which are relevant as portions of a greater factual milieu that, like so many tea leaves on the bottom of a cup, must be interpreted to make the critical factual determination as to whether or not Allweiss was the alter ego of Offshore, as that term is defined by case law. Without a sufficient record of undisputed facts that can support a determination that a corporate veil should be pierced, granting of summary judgment is inappropriate. See e.g. MAG Portfolio, 268 F.3d at 64 (where the court of appeals vacated an order of the district court in part because there was insufficient evidence on the record to support the factual findings required to ascertain the appropriateness of veil piercing). Such is the case on the present record. Disputed issues of fact necessary to determine both domination and a wrong remain to be settled by the finder of fact at trial. Cross-motions for summary judgment on plaintiff's claim against Allweiss as alter ego of Offshore are denied.
D. Plaintiff's Claim for Fraudulent Conveyance
Plaintiff alleges that Allweiss caused funds and assets belonging to Offshore to be conveyed to other entities in order to render Offshore "judgment proof." As the Court pointed out in Network I, "[a] fraudulent conveyance claim in New York requires a plaintiff to show the `status of plaintiff as creditor of transferors; the existence of a `debt' antecedent to the transfer; a conveyance; that the conveyance was made at a time of insolvency on the part of the transferors; the absence of fair consideration for the transfer; and intent to defraud." 2002 WL 31050846, at *6 (citations omitted).
In discussing plaintiff's prior motion to amend its complaint, which defendants resisted on the ground of legal insufficiency, the Court noted in Network I that "the precise timing of the alleged transactions" would be critical to plaintiff's fraudulent conveyance claim. 2002 WL 31050846, at *6. While plaintiff was not required to demonstrate a precise time line to resist a motion to dismiss, undisputed facts established during the discovery process present a different situation on the present motions for summary judgment.
According to plaintiff, "the LLC was formed in late February 2000 and, two weeks later, was capitalized by an infusion of cash from Allweiss. That cash had been obtained from [Offshore's] bank account and consisted of the entirety of its remaining funds." Plaintiff's Motion at 24. See also Defendants' Motion at 19. The earliest date upon which plaintiff can claim that the disputed contract underlying its claims was formed is March 1, 2001, when Offshore exercised its powers under the Renewal Option. It follows that the disputed debt in this case was not "antecedent" to the allegedly fraudulent conveyance.
In reply, plaintiff argues that "antecedent debt" in this context signals one possible justification for a justifiable transfer. That is, a transfer to pay an antecedent debt is, at least nominally, for consideration. But that is not the meaning of the phrase as used in listing the necessary elements for a fraudulent conveyance claim. In that context, the phrase is used to describe an existing, certain, or reasonably foreseeable debt that a defendant debtor seeks to avoid by transferring its assets to others.
Plaintiff is right to point out that an "antecedent" debt may refer to any legal liability, including a contingent liability not yet accrued at the time of the transfer. See Sunrise Indus. Joint Venture v. Ditric Optics, 873 F. Supp. 765 (E.D.N.Y., 1995) (pointing out that the "terms creditor and debt" in New York law "are defined to include contingent and unmatured claims or liabilities.") However, in February 2000, the date of the challenged transfer, Offshore was under no obligation, definite or contingent, to pay for broadcasts in 2001. Its obligation to do so, even accepting plaintiff's view of the underlying facts, did not arise until subsequently, when the option was exercised and the deficiencies in the Renewal Option were cured by the parties' later agreement. That did not occur until March 2001 at the earliest.
Plaintiff is left to argue that the transfer left Offshore with no assets and that, over a year later, plaintiff was negotiating a new contract with a corporation that did not have the immediate ability to meet the financial burdens contemplated by a contract for broadcasts in 2001. While this argument may be relevant to the alter ego claim, it cannot save plaintiff's fraudulent conveyance claim, since plaintiff cannot point to an existing and actionable "antecedent debt" owed to it by Offshore at the time of the transfer of assets in question. A conveyance undoubtedly occurred, but in these circumstances it cannot in law be condemned as fraudulent. Defendants' motion for summary judgment dismissing plaintiff's fourth cause of action is granted.
III. CONCLUSION
For the reasons set forth above, the Court makes the following ORDER:
1. The cross-motions for summary judgment on plaintiff's first cause of action are both denied.
2. Plaintiff's second cause of action is dismissed.
3. Cross-motions for summary judgment on plaintiff's third cause of action are denied.
4. Plaintiff's fourth cause of action is dismissed.
5. Trial of plaintiff's remaining two causes of action, one against Offshore for breach of contract and one against Allweiss as alter ego of Offshore, will commence on Monday, November 1, 2004, at 10:00 a.m., in Courtroom 17C, 500 Pearl Street.
6. On or before October 4, 2004, each of the parties are directed to file and serve Pre-Trial Statements setting forth:
(a) The relevant facts as to which the party contends there is no dispute.
(b) The names of the witnesses the party intends to call in its case in chief.
(c) A descriptive list of the exhibits the party intends to offer in its case in chief.
Witnesses not so identified will not be allowed to testify at the trial. Exhibits not so listed will not be received in evidence.
7. On or before October 18, 2004, the parties are directed to file and serve proposed jury voir dire requests and proposed requests to charge, the latter accompanied by citations to authorities.
8. On Wednesday, October 27, 2004, at 2:00 p.m. in Courtroom 17C, 500 Pearl Street, counsel are directed to attend a conference with the Court to consider any in limine motions.