Summary
discussing Delaware law
Summary of this case from Wash. House Condominum Ass'n of Unit Owners v. Daystar Sills, Inc.Opinion
No. 653706/2013.
07-24-2014
SPECTRIS INC., Plaintiff, v. The 1997 MILTON B. HOLLANDER FAMILY TRUST and The 1999 Betty Ruth Hollander Family Trust No. 1, Defendants
Colin J. Garry, Rollin A. Ransom, and Patrick E. Kennell III, of Sidley Austin LLP, attorneys for the Plaintiff. Timothy E. Hoeffner, Constance C. Tse, and Scott B. Czerwonka, of DLA Piper LLP (US), attorneys for Defendants.
Colin J. Garry, Rollin A. Ransom, and Patrick E. Kennell III, of Sidley Austin LLP, attorneys for the Plaintiff.
Timothy E. Hoeffner, Constance C. Tse, and Scott B. Czerwonka, of DLA Piper LLP (US), attorneys for Defendants.
Opinion
EILEEN BRANSTEN, J.
Before the Court is Plaintiff Spectris Inc.'s motion, pursuant to CPLR 7601 and 7503, to compel a valuation “for the purpose of determining the Total Purchase Price associated with a Purchase Agreement between Plaintiff and Defendants the 1997 Milton B Hollander Family Trust and the 1999 Betty Ruth Hollander Family Trust No.1.” (Plaintiff's Notice of Motion at 1.) Also before the Court is Defendants The 1997 Milton B. Hollander Family Trust and The 1999 Betty Ruth Hollander Family Trust No. 1's motion to dismiss, pursuant to CPLR 3211(a)(1), (a)(5), and (a)(7). For the reasons that follow, Defendants' motion to dismiss is denied, and Plaintiff's motion to compel is granted.
BACKGROUND
This action arises out of the purchase of Newport Electronics, Inc. (“Newport”), Omega Engineering, Inc. (“Omega”), and related entities (collectively, the “Companies”) on September 30, 2011. (First Amended Complaint (“Compl.”) ¶ 1.) “Plaintiff is a corporation organized under the laws of Delaware and has a principal place of business in Westborough, Massachusetts.” (Compl.¶ 6.) Its business is the “develop[ment] and market[ing of] productivity-enhancing industrial instrumentation and controls.” (Compl.¶ 6.) Defendants are “trust[s] organized under the laws of Connecticut ... [with their] principal place of business in Connecticut.” (Compl.¶¶ 7–8.)
On August 14, 2011, the parties entered into an agreement (the “Purchase Agreement”) whereby Plaintiff would “purchase [from Defendants] substantially all of the business and operations of the Companies.” (Compl.¶ 11.) Plaintiff contends that “as an “inducement” for Spectris to enter the Purchase Agreement, Defendants made contractual representations and warranties that the relevant financial statements, including the valuation of the inventory contained therein, complied with generally accepted accounting principles (“GAAP”), and Spectris relied on these contractual representations and warranties in entering into the Purchase Agreement.” (Compl.¶ 12.)
Following Plaintiff's acquisition of the Companies, it “began an evaluation of the inventory and financial statements of the entities[,] ... conducted a comprehensive audit of the Companies' inventory and assessed the propriety of the manner in which that inventory had been accounted for in the Companies' financial statements.” (Compl.¶ 14.)
As a result of that evaluation, Plaintiff concluded that Defendants breached a number of the representations and warranties made in the Purchase Agreement. Specifically, Plaintiff alleges that the accounting methodology used for obsolete and excess inventory in certain of the pre-closing financial statements was not compliant with GAAP. It is further alleged that the Companies had certain pre-closing liabilities which were not disclosed by Defendants, as required by the Purchase Agreement.
Separately, Plaintiff alleges that Defendants breached their obligation to jointly retain the accounting firm Grant Thornton LLP to resolve the parties' purchase price dispute. Plaintiff details the correspondence exchanged by the parties, noting that “[s]ince March 16, 2012 the parties have attempted to resolve the purchase price dispute, but remain millions of dollars apart in their respective calculations.” (Compl.¶ 30.) With respect to Plaintiff's “demand[ ] that the Parties retain Grant Thornton LLP to resolve the purchase price dispute pursuant to Section 1.04(d) of the Purchase Agreement,” (Compl.¶ 31), Defendants separately commenced a declaratory judgment action in this Court on November 5, 2013, seeking a determination that Plaintiff is not entitled to the relief sought in this motion to compel.
That action is captioned Joel D. Hollander v. Spectris, Inc., index number 653852/2013.
Lastly, Defendants are alleged to have breached the Purchase Agreement by “fail[ing] to cause Omega to pay for the entirety of the premium” for a tail directors and officers liability insurance policy “prior to the closing, which resulted in a post-closing payment by Omega of $108,753,” as well as by failing to indemnify Plaintiff for certain pre-closing “under-declared U.K. customs duty ... in an amount then-estimated at $39,970.34.” (Compl.¶¶ 33–37.) The specific sections of the Purchase Agreement related to these claims are discussed in detail below.
Prior to the commencement of this action, a related proceeding was commenced in Delaware. The defendants in that action were the Companies. They were sued by two Nevada Corporations, Newport Disc, Inc., and Omega Disc, Inc. (collectively, the “Disc Entities”), which are owned by Defendants in this action. The Delaware court described the relationship between the Disc Entities and the Companies as follows:
Prior to execution of the Purchase Agreement, Omega Disc and Omega Engineering were parties to a commission agreement. Newport Disc and Newport Engineering were parties to a separate commission agreement. Section 6.05 of the Purchase Agreement required that the commission agreements be terminated as of the closing date of the Purchase Agreement. To effectuate Section 6.05, on September 30, 2011, Newport Electronics and Newport Disc entered into a Termination Agreement. Omega Engineering and Omega Disc entered into a similar Termination Agreement.
Newport Disc, Inc. v. Newport Elecs., Inc., 2013 WL 987936, at *1 (Del.Super.Ct. Mar. 11, 2013). The Disc Entities claimed that under the Termination Agreements, the Companies were required to pay certain commissions totaling $1,666,784. Citing their failure to do so, the Disc Entities commenced the Delaware action, asserting claims against the Companies for breach of the Termination Agreements. These liabilities form the basis for the portion of Plaintiff's claim described above, which asserts that Defendants failed to disclose certain of the Companies' pre-closing liabilties.
Ultimately, the Delaware court granted summary judgment in favor of the Disc Entities. Of particular relevance here, that court also dismissed the Companies' fraud defense with prejudice. That dismissal with prejudice forms the basis of Defendants' claim that dismissal is warranted in this action on the basis of res judicata and collateral estoppel.
This action was commenced on October 24, 2013. Plaintiff asserts a single claim for breach of contract, citing the alleged breaches discussed above.
ANALYSIS
I.Defendants' Motion to Dismiss (Sequence Number 004)
Defendants move to dismiss the first amended complaint, arguing that a portion of Plaintiff's breach of contract claim is barred by res judicata (or “claim preclusion”) and collateral estoppel (or “issue preclusion”). In addition, Defendants assert that Plaintiff's claim fails to state a cause of action on the basis of the language of the Purchase Agreement. Lastly, Defendants contend that the portion of Plaintiff's claim related to the unpaid tail insurance premium and tax liability should be dismissed as moot based on a prior settlement agreement.
“On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction. We accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory.” Leon v. Martinez, 84 N.Y.2d 83, 87–88 (1994).
A motion to dismiss under CPLR 3211(a)(7), for failure to state a cause of action, must be denied if the factual allegations contained within “the pleadings' four corners ... manifest any cause of action cognizable at law.” 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 151–52 (2002). While factual allegations contained in a complaint should be accorded a favorable inference, bare legal conclusions and inherently incredible facts are not entitled to preferential consideration. Sud v. Sud, 211 A.D.2d 423, 424 (1st Dep't 1995).
Where the motion to dismiss is based on documentary evidence, CPLR 3211(a)(1), the claim will be dismissed “if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law.” Leon, 84 N.Y.2d at 88;see 150 Broadway N.Y. Assocs., L.P. v. Bodner, 14 AD3d 1, 5 (1st Dep't 2004).
CPLR 3211(a)(5) provides for dismissal where “the cause of action may not be maintained because of arbitration and award, collateral estoppel, discharge in bankruptcy, infancy or other disability of the moving party, payment, release, res judicata, statute of limitations, or statute of frauds.” CPLR 3211(a)(5).
A. Res Judicata
Defendants seek dismissal of the portion of Plaintiff's claim alleging that Defendants failed to disclose certain pre-closing liabilities incurred by the Companies in breach of Section 3.12(d) of the Purchase Agreement (the “Liabilities Claims”). Specifically, Defendants argue that the Liabilities Claims are barred by the doctrine of res judicata.
Defendants contend that in the Delaware action, the Companies' fraud defense, which was dismissed with prejudice, included the assertion that Defendants falsely represented that the Companies had no liabilities other than certain types enumerated in Section 3.12(d) of the Purchase Agreement. Moreover, “[i]n both its defense in the Delaware action and its complaint here, Spectris quotes the language of the representation made in Section 3.12(d) of the Purchase Agreement, and claims that the commissions were not disclosed and were outside of the ordinary course of business.” (Defendants' Memorandum in Further Support (“Defs.' Reply”) at 5.) Defendants note further that “Spectris admitted that the defense was based upon a representation and warranty contained in the Purchase Agreement that gave rise to the Termination Agreements at issue in [the Delaware] action; the defense centered on whether that representation and warranty was false....' “ (Defs.' Reply at 5–6.)
Under Delaware law, the doctrine of res judicata will bar a claim if the following five elements are satisfied:
The parties do not dispute that Delaware law governs the analysis of Defendants' request for dismissal on the basis of res judicata and collateral estoppel. “New York courts apply the law of the rendering jurisdiction to determine the preclusive effect of the decisions of sister states.” Bruno v. Bruno, 83 AD3d 165, 169 (1st Dep't 2011).
(1) the court making the prior adjudication had jurisdiction, (2) the parties in the present action are either the same parties or in privity with the parties from the prior adjudication, (3) the cause of action must be the same in both cases or the issues decided in the prior action must be the same as those raised in the present case, (4) the issues in the prior action must be decided adversely to the plaintiff's contentions in the instant case, and (5) the prior adjudication must be final.
Villare v. Beebe Med. Ctr., Inc., 2013 WL 2296312, at *3 (Del.Super.Ct. May 21, 2013) ; accord RBC Capital Mkts., LLC v. Educ. Loan Trust IV, 87 A.3d 632, 643 (Del.2014).
Plaintiff raises two arguments in opposition to dismissal of its claim on the basis of res judicata. First, the cause of action asserted here is different than the defense that was dismissed with prejudice in the Delaware action. Second, Plaintiff could not have brought the instant breach of contract claim in Delaware action as a result of the Purchase Agreement's forum selection clause.
1. Whether the Two Causes of Action Are the Same
“In determining whether two claims constitute the same' cause of action for res judicata purposes, Delaware follows a transactional approach.” RBC Capital Mkts., LLC v. Educ. Loan Trust IV, 87 A.3d 632, 645 (Del.2014). That is, “res judicata bars all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the actions arose.' “ Levinhar v. MDG Med., Inc., 2009 WL 4263211, at *10 (Del. Ch. Nov. 24, 2009) (quoting Restatement (Second) of Judgments § 24(1) ).
“Two claims derive[d] from a common nucleus of operative fact[s]' arise from the same transaction.” LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 193 (Del.2009). Furthermore, “[w]hat constitutes a transaction' or series of connected transactions' is to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.' “ Levinhar, 2009 WL 4263211, at *10 (quoting Restatement (Second) of Judgments § 24(2) ). In performing this analysis, “no single factor is determinative.” Best Drywall, Inc. v. Feeheley, 2005 Del.Super. LEXIS 429, at *10 (Del.Super.Ct.Jan.6, 2005) (quoting DeRamus v. Redman, 1986 WL 13089, at *5 (Del.Super.Ct. Nov. 14, 1986) ).
As described above, the relationship between the Purchase and Termination Agreements makes it seem as though the transactional requirement is easily met. However, the court in the Delaware action repeatedly distinguished the Purchase Agreement from the Termination Agreements. That action was brought by the Disc Entities against the Companies, seeking damages for breach of the Termination Agreements.
Early on, the Companies sought dismissal on the basis of the Purchase Agreement's forum selection clause, arguing that the interrelation between the Purchase and Termination Agreements merited the application of the forum selection clause, notwithstanding the absence of such a clause in the Termination Agreements, which also contained its own integration clause. Significantly, the Delaware court rejected the Companies' assertion that the Delaware action could not “be determined without examination of the Purchase Agreement as part and parcel' of a larger, more complex, contractual relationship.” Newport Disc, Inc. v. Newport Elecs., Inc., 2013 WL 987936, at *4 (Del.Super.Ct. Mar. 11, 2013). Defendants acknowledge that “the Disc Entities successfully argued that the Termination Agreements were independent and not subject to the forum selection clause in the Purchase Agreement.” (Defs.' Reply at 6.)
The Delaware court subsequently granted summary judgment to the Disc Entities and dismissed the Companies' fraud defense with prejudice. In reaching its conclusion, the court analyzed the Companies' mutual mistake defense, which was incorporated by reference into the fraud defense. Emphasizing the distinction between the Purchase and Termination Agreements' respective integration clauses, the court declined to “find Spectris' intent regarding the Purchase Agreement, which was executed between Spectris and the Hollander Trusts, to be interchangeable with the parties' intent in entering into the Termination Agreements.” Newport Disc, Inc. v. Newport Elecs., Inc., 2013 WL 5797350, at *9 (Del.Super.Ct. Oct. 7, 2013).
In addition, there is a recent Delaware Court of Chancery decision, Zutrau v. Jansing, 2013 WL 1092817 (Del. Ch. Mar. 18, 2013), which is instructive. There, Jansing sought dismissal of a breach of fiduciary duty claim, arguing that it was barred by res judicata because “Zutrau [was] re-litigating her wrongful dismissal' claim.” Zutrau, 2013 WL 1092817, at *3. In opposition, Zutrau argued that her claim for breach of fiduciary duty was not merely a “re-litigat[ion][of] the wrongful removal' claim, but rather alleges that by removing and not replacing Zutrau, Jansing breached his fiduciary duties to the Company.” Zutrau, 2013 WL 1092817, at *3. Ultimately, the court found that Jansing had not established that “that the original cause of action or the issues decided in it were the same as the case at bar,” and concluded that the breach of fiduciary duty claim was not barred by res judicata. Zutrau, 2013 WL 1092817, at *4.
Here, certain of the of the allegations made with respect to the fraud defense asserted in the Delaware action, such as the false representation made by Defendants with respect to Section 3.12(d) of the Purchase Agreement, also underlie Plaintiff's instant breach of contract claim. Likewise, the removal of Zutrau from her position was an allegation shared by both the wrongful removal and breach of fiduciary duty claims. Nevertheless, the court there found that the claims were distinct despite being asserted by the same parties.
The outcome in Zutrau is consistent with the proposition that “[r]es judicata applies to a total cause of action or method of recovery,” while other doctrines, such as collateral estoppel and the law of the case doctrine, “appl [y] more narrowly and will preclude a specific issue that has already been decided previously.” Villare v. Beebe Med. Ctr., Inc., 2013 WL 2296312, at *3 (Del.Super.Ct. May 21, 2013) ; see generally Advanced Litig ., LLC v. Herzka, 2006 WL 2338044 (Del. Ch. Aug. 10, 2006) (discussing collateral estoppel and the law of the case doctrine). As such, it is “possible for res judicata to be inapplicable,” while specific factual issues are precluded on some other basis. Villare, 2013 WL 2296312, at *3.
2. Whether Plaintiff's Claim Could Have Been Asserted in the Prior Action
Separately, even if “the same transaction formed the basis for both the present and former suits, the defendant must show that the plaintiff neglected or failed to assert claims which in fairness should have been asserted in the first action.' “ LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 193–94 (Del.2009) (quoting Kossol v. Ashton Condominium Ass'n, 1994 Del. LEXIS 16, 1994 WL 10861, at *2). That is, “[c]laim preclusion applies not only to those claims that were raised and decided in earlier litigation, but also to claims that could have been raised and decided.' “ T.A.H. First, Inc. v. Clifton Leasing Co., 90 A.3d 1093, 1096 n. 8 (Del.2014) ; see Branson v. Branson, 2013 WL 1164827, at *2 (Del. Mar. 19, 2013) (explaining that “res judicata encompasses every claim that was actually raised, and also claims that could have been raised, in the prior litigation”).
Here, the parties do not dispute the validity of the Purchase Agreement's forum selection clause. That clause plainly requires that Plaintiff's breach of contract claim be brought in New York. The corollary of that requirement is that Plaintiff would have been unable to bring that claim in the Delaware action. Defendants hardly, if at all, address this issue, except with the speculative statement contained in a footnote, that if “Spectris did not withdraw its fraud/breach ... defense and ultimately prevailed after trial, there is no question that Spectris would not be asserting the claim now.” (Defs.' Reply at 6 n. 3.) Mere speculation does not alter the fact that Plaintiff could not have brought its instant claim in the Delaware action, nor should it have, as it would have been precluded from doing so by the Purchase Agreement's forum selection clause.
Based on the foregoing, the Court finds that Plaintiff's breach of contract claim is not barred by the doctrine of res judicata.
B. Collateral Estoppel
Defendants also seek dismissal on the basis of collateral estoppel (or issue preclusion), arguing that “the question of whether the commission payments were required to be disclosed pursuant to Section 3.12(d) of the Purchase Agreement was unquestionably litigated and ruled on by a valid and final judgment in the prior Delaware Action.” (Defendants' Memorandum in Support (“Defs.' Mem.”) at 18.) Specifically, the Companies “alleged that Sellers fraudulently induced Spectris to enter into the Purchase Agreement by failing to disclose the commission payments, which they contend were outside the ordinary course of business.” (Defs.' Mem. at 18–19.) As such, Defendants contend, “Spectris is precluded from asserting that Sellers made any false representations or warranties regarding the commission payments.” (Defs.' Mem. at 19.)
Under Delaware law, “[t]o determine whether collateral estoppel applies to bar consideration of an issue, a court must determine whether:”
(1) The issue previously decided is identical with the one presented in the action in question, (2) the prior action has been finally adjudicated on the merits, (3) the party against whom the doctrine is invoked was a party or in privity with a party to the prior adjudication, and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action.
Betts v. Townsends, Inc., 765 A.2d 531, 535 (Del.2000) ; accord DeFelice v. Deiter, 2013 WL 3809385, at *2 (Del. Ch. July 10, 2013). As explained above, “[c]ollateral estoppel applies more narrowly [than res judicata] and will preclude a specific issue that has already been decided previously. It is therefore possible for res judicata to be inapplicable, but for collateral estoppel to prevent a specific issue from being raised again.” Villare, 2013 WL 2296312, at *3.
Delaware law provides that “[a]s a general rule, a dismissal with prejudice has the effect of a final adjudication on the merits.' “ Tsipouras v. Check & Go, 2014 WL 3032434, at *1 n. 3 (Del.C.P. Apr. 1, 2014) (quoting Jackson v. Pikulik, 2007 WL 5006531, at *2 (Del.C.P. Dec. 18, 2007) ). Plaintiff does not dispute that the Companies' fraud defense was dismissed with prejudice, but rather asserts that “the Delaware court never made any findings with regard to any of the factual issues associated with that defense.” (Plaintiff's Memorandum in Opposition “Pl.'s Opp.”) at 12.) Thus, argues Plaintiff, because the doctrine “treats as final only those factual issues that were actually litigated and necessarily decided in a prior suit,” collateral estoppel is unavailable. (Pl.'s Opp. at 13.)
1. Whether the Issues Were Actually Litigated
Plaintiff is correct that Delaware law additionally requires that “[f]or collateral estoppel to apply, the issue must have been actually raised, fully litigated, and identical to the issue concluded in the earlier action, the issue must have been material and relevant to the disposition of the prior action, and the determination of the issue in the prior action must have been necessary and essential to the resulting judgment.” Sprout v. Ellenburg Capital Corp., 1997 WL 716901, at *6 (Del.Super.Ct. Aug. 26, 1997).
Delaware courts distinguish between the concept a final adjudication on the merits and the actual litigation of facts. For example, in Rochen v. Huang, 1989 WL 5160 (Del.Super.Ct.Jan.13, 1989), a case cited favorably by Defendants, the court explained that “a dismissal with prejudice is not a determination of the facts of the case by the Court but is as binding upon the parties as such a final decree would be.” Rochen, 1989 WL 5160, at *1. Rather, the effect of a dismissal with prejudice absent specific factual determinations is that “defendant will be barred from ever reasserting this claim against these parties.” Rochen, 1989 WL 5160, at *1 (emphasis added). Notably, the use of the word “claim” comports with the doctrine of res judicata (which is a/k/a “claim preclusion”) barring the re-litigation of claims that have previously been dismissed with prejudice. This concept is distinct from collateral estoppel (or “issue preclusion”) which can operate to bar the re-litigation of issues underlying those claims.
Furthermore, the parties both state that in advance the dismissal with prejudice, the Companies withdrew their fraud defense. Though not discussed in the decision, as a result of the withdrawal, the Delaware court may have been left with the issue of only whether the dismissal should be with or without prejudice, as opposed to whether the defense should have been dismissed at all. There are, however, no factual findings or other references to the defense beyond the statement that the Disc Entities had requested that dismissal of the defense be with prejudice and a decretal paragraph actually dismissing that defense with prejudice. Indeed, Defendants concede that the Delaware court “did [not] make any factual determinations because Spectris abandoned the defense after discovery.” (Defs.' Reply at 8.) In the absence of such determinations, the applicability of collateral estoppel is dubious. Cf. NTC Group, Inc. v. West Point–Pepperell, Inc., 1990 WL 143842, at *4 (Del. Ch. Sept. 26, 1990) (where a final consent order “stated no findings as to NTC's rights to the mill under the Purchase Agreement and the question of ownership of the mill, as between West Point and NTC, was not before the FTC,” collateral estoppel did not apply to bar the subsequent litigation of the mill's ownership).
2. Whether the Differing Burdens of Persuasion Are Dispositive
Plaintiff separately argues that because the fraud defense that was dismissed in the Delaware action had a higher burden of persuasion than the breach of contract claim asserted here, collateral estoppel is unavailable “[e]ven if the Delaware court had determined any factual issues against Omega and Newport in connection with its dismissal of the fraud defense.” (Pl.'s Opp. at 14.) Delaware does recognize an exception to the doctrine where “the party against whom preclusion is sought had a significantly heavier burden of persuasion with respect to the issue in the initial action than in the subsequent action.' “ Berkowitz v. Vari, 1999 WL 167818, at *4 (Del.Super.Ct. Mar. 3, 1999) (quoting Miller v. Falconetti, 1993 WL 603298, at *1).
Defendants contend that the exception is inapplicable, however, because the Delaware court made “made no determination of the evidentiary burden that Spectris was required to prove to satisfy its fraud/breach of representation and warranty defense, nor did it make any factual determinations because Spectris abandoned the defense after discovery.” (Defs.' Reply at 8.) Furthermore, Defendants aver that it would be inequitable to permit Plaintiff to benefit from such an exception in light of the Companies' last-minute withdrawal of that defense.
Delaware law does not appear to set forth any caveats or conditions to the differing burden of proof exception. In addition, the absence of a lack of factual findings is meaningless, as burdens of proof or persuasion are determined by law, not fact. To the extent that the Companies or some other litigant denominates its claim or defense as fraud or as some other legal action, the court then in turn determines the applicable standard.
In Delaware, the burden of persuasion associated with fraud is “clear and convincing evidence.” Eastburn v. Eastburn (In re Skrzec), 2010 WL 2696257, at *6 (Del. Ch. June 30, 2010). In New York, for a claim for breach of contract must be proven by a preponderance of the evidence. Clayton Int'l, Inc. v. Charles Offset Co., 191 A.D.2d 190, 190 (1st Dep't 1993) ; Scientific Elec. Co., Inc. v. ADG Park Constr. Group, LLC, 2013 N.Y. Slip Op. 31251(U), at *15 (Sup.Ct. N.Y. Cnty. June 13, 2013). “The clear and convincing standard is substantially higher than a preponderance of the evidence standard.' “ Berkowitz, 1999 WL 167818, at *4 (citation omitted).
The only case of which this Court is aware, in which a Delaware court declined to apply the exception, is TR Investors, LLC v. Genger, 2013 WL 603164 (Del. Ch. Feb. 18, 2013). See Genger, 2013 WL 603164, at *15–16. There, the court found that the existence of the differing burdens of persuasion was due to Genger's own conduct. Genger, 2013 WL 603164, at *15–16. The higher burden was imposed on Genger in a prior action in the context of spoliation sanctions and contempt of court. Genger, 2013 WL 603164, at *15. As the Court of Chancery explained, “[i]t would defeat the equitable nature of the doctrine of issue preclusion if Genger, having been held to a higher burden of proof because of his contempt, was able to benefit from this higher burden later by using it to deny preclusive effect to the prior judgment.” Genger, 2013 WL 603164, at *15.
However, that is not the case here. The higher burden was created as a matter of law by the Companies' assertion of their fraud defense in the Delaware action. While Defendants argue that it would be inequitable to apply the exception here because of the Companies' late withdrawal of that defense, there is nothing in the Delaware court's decision to indicate that the dismissal of that defense with prejudice constitutes a sanction or other punitive measure. Indeed, in contrast to Defendants' characterization of Plaintiff and the Companies' conduct, the Delaware court declined to grant the Disc Entities' request for an award of attorneys' fees, finding that “there [were] no grounds for a finding of bad faith that would justify shifting attorneys' fees.” Newport Disc, Inc. v. Newport Elecs., Inc., 2013 WL 5797350, at *9. As such, this Court does not find that as a matter of equity, the differing burden exception should be inapplicable.
Based on the foregoing, the Court finds that Plaintiff's breach of contract claim is not barred by the doctrine of collateral estoppel.
C. The GAAP Claims
Defendants also seek dismissal of the portion of Plaintiff's breach of contract claim based on allegations that the Companies' obsolete and excess inventory were not accounted for properly under GAAP, arguing that such dismissal is mandated by the language of the Purchase Agreement. Relatedly, Defendants argue that Plaintiff was aware of the Companies' accounting methodology when it entered the Purchase Agreement, such that it is now precluded from asserting these claims.
1. Whether the Language of the Purchase Agreement Mandates Dismissal
“[W]hen parties set down their [contract] in a clear, complete document, their writing should ... be enforced according to its terms.” ' Consedine v. Portville Cent. Sch. Dist., 12 NY3d 286, 293 (2009) (quoting Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 NY3d 470, 475 (2004) ). Indeed, “[i]n the absence of any ambiguity, [courts] look solely to the language used by the parties to discern the contract's meaning.” Vermont Teddy Bear, 1 NY3d at 475. It follows that courts “may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.' “ Consedine, 12 NY3d at 293 (quoting Vermont Teddy Bear, 1 NY3d at 475). Furthermore, “[a] contract should be read as a whole to ensure that undue emphasis is not placed upon particular words and phrases.” Consedine, 12 NY3d at 293.
Two sections of the Purchase Agreement underlie Plaintiff's claim. Section 3.12(b) provides in part that, “[e]xcept as set forth in Section 3.12(b) of the Disclosure Schedule,” the “Financial Statements” of Omegadyne and Newport Electronics “were prepared in accordance with GAAP.” (Purchase Agreement at 16.) That section further provides that the “Financial Statements” of “Omega Engineering and its Subsidiaries” “were prepared in accordance with GAAP,” without reference to the exception set forth in Section 3.12(b) of the Disclosure Schedule. (Purchase Agreement at 16.)
Section 3.23(b) separately provides in part:
The inventories of the Companies and the Subsidiaries ... (I) are reflected in the Recent Balance Sheet ... in accordance with GAAP, and (ii) other than inventory that is determined to be Unsaleable Inventory (as defined in Exhibit B) in connection with the determination of the Closing Net Working Capital Amount, are, in the case of finished goods, of a quality saleable in the ordinary course of business and, in the case of all other inventories, are of a quality useable in the ordinary course of business. The inventory obsolescence policies of the Companies and the Subsidiaries are consistent with the policies, practices and procedures set forth in Exhibit B.
(Purchase Agreement at 31.) As such, Plaintiff claims that the Companies' financial statements—specifically those sections related to excess and obsolete inventory—were not prepared in accordance with GAAP, constituting a breach of representation and warranty by Defendants (the “GAAP Claims”).
Defendants contend that “by entering into Exhibit B as part of the Purchase Agreement, Spectris expressly acknowledged and agreed that there was more than one accounting method in accordance with GAAP,” and therefore cannot state a claim for breach of Sections 3.12(b) or 3.23(b). The first paragraph of Exhibit B states as follows:
For all purposes under the [Purchase] Agreement, the preparation of the calculation of a Company's Net Working Capital Amount shall in each case be performed in accordance with GAAP, provided that, with respect to any matter as to which there is more than one such generally accepted accounting policy or as to which the applicable accounting convention, practice or calculation methodology is not specified in GAAP the calculation for such matter shall be prepared in accordance with the accounting policies, conventions, practices and calculation methodologies used to prepare the Company's consolidated fiscal year-end statements consistently applied (the “Historic Principles”) provided further that, to the extent that the accounting policy, convention, practice or calculation methodology for the matter in question is not specified in GAAP nor in the Historic Principles then the practices, conventions and calculation methodologies set forth in Exhibit B–1 and Exhibit B–2 shall apply to the calculation of the relevant element of a Company's Net Working Capital Amount.
(Purchase Agreement, Exhibit B at B–1.) That paragraph thereafter makes specific reference to the accounting methodology used for inventory: “Notwithstanding the foregoing and for the avoidance of doubt, all inventory of a Company that does not conform to Product specifications or is defective, is damaged, obsolete or otherwise not fit for sale (“Unsaleable Inventory”) shall be excluded from the determination of a Company's Net Working Capital Amount.” (Purchase Agreement, Exhibit B at B–1.) Lastly, “[f]or the further avoidance of doubt, inventory that is undamaged, not obsolete and present in excess quantity relative to a Company's requirements based on current trading volumes shall not be deemed to be Unsaleable Inventory and shall be subject to all other provisions of this Exhibit B.” (Purchase Agreement, Exhibit B at B–1.) Thus, Defendants' contend that the accounting methodologies for inventory provided in Exhibit B are GAAP-compliant (Defs.' Reply at 11), and in any event that the methodology described in Exhibit B applies generally to the Companies' accounting treatment of inventory, such that no claim for breach of Sections 3.12(b) or 3.23(b) can be stated.
A review of these provisions reveal several unresolved factual issues. First, it is unclear whether the methodologies described in Exhibit B are limited in applicability to “the preparation of the calculation of a Company's Net Working Capital Amount.” Outside of Exhibit B, the references to that calculation appear limited to the Working Capital Adjustment process set forth in Section 1.04, by which the parties agreed to resolve their disputes as to purchase price.
While Section 3.23(b) includes the statement that “[t]he inventory obsolescence policies of the Companies and the Subsidiaries are consistent with the policies, practices and procedures set forth in Exhibit B,” Defendants have not yet established a link between those policies and the methodologies used to prepare the financial statements underlying Plaintiff's claim. Simply put, it is also unclear whether these methodologies were actually used in the preparation of the financial statements underlying Plaintiff's claim. This is true regardless of whether, as Defendants point out, “the relevant entities' financial statements, the vast majority of which by value were consistently audited by PricewaterhouseCoopers LLP ... since 1969.” (Defs.' Mem. at 23.)
Second, that statement in Section 3.23(b) makes reference to “obsolescence” only, and not to the Companies' policies for excess inventory. Thus, it is unclear whether the accounting methodologies included in Exhibit B for excess inventory are also consistent with policies of the Companies and their relevant financial statements.
Third, even if the methodologies set forth in Exhibit B were the same as those used in the relevant financial statements, it is unclear whether the methodologies referenced in Exhibit B are, in fact, GAAP-compliant. While Exhibit B specifically makes reference to the accounting methodology applied to inventory in certain situations, there is a disconnect between the inclusion of that methodology in this paragraph and the question of whether the methodology is actually GAAP-compliant. Furthermore, while Defendants are correct that more than one methodology can be GAAP-compliant and that consistency in application is of paramount importance, consistent application of a particular methodology does not, in and of itself, make the particular methodology GAAP-compliant.
2. Whether the Plaintiff's Awareness of the Companies' Accounting Methodology Mandates Dismissal
In addition, while Defendants separately contend that “Spectris was fully aware of the historical accounting policies regarding inventory at the time they entered into the Purchase Agreement and that the Target Companies would continue to use the procedures of Exhibit B for their financial statements through the time of the closing of the transaction,” neither that statement, nor the language of Exhibit B, make clear what Plaintiff knew or should have known at the time it entered into the Purchase Agreement such that its right to bring this action would now be foreclosed.
“On a motion to dismiss pursuant to CPLR 3211(a)(1), the defendant has the burden of demonstrating that the documentary evidence conclusively resolves all factual issues and that plaintiff's claims fail as a matter of law.” Robinson v. Robinson, 303 A.D.2d 234, 235 (1st Dep't 2003). The presence of these issues precludes dismissal under CPLR 3211(a)(1) at this juncture. Likewise, to the extent Defendants alternatively seek dismissal of the GAAP Claims under CPLR 3211(a)(7), accepting the facts as alleged in the complaint as true, and according Plaintiff the benefit of every possible favorable inference, the facts as alleged state a viable breach of contract claim, and the provisions referenced by Defendants are insufficient to alter that result. See Leon v. Martinez, 84 N.Y.2d 83, 87–88 (1994) ; see also Kurt Wayne, Inc. v. Lead Underwriters at Lloyds London, 14 Misc.3d 614, 620 (Sup.Ct. N.Y. Cnty.2006) (denying a motion to dismiss under CPLR 3211(a)(7) “in view of the numerous factual issues which must be resolved in this litigation”).
Based on the foregoing, Defendants' motion to dismiss is denied as to the GAAP Claims.
D. The Remaining Claims
Plaintiff's remaining claims include Defendants' alleged “fail[ure] to cause Omega to pay for the entirety of the premium for such Tail Policy prior to the closing, which resulted in a post-closing payment by Omega of $108,753.” (Compl.¶ 34.) Separately, Plaintiff seeks indemnification with respect to “an under-declared U.K. customs duty with respect to the period from January 1, 2011 to September 30, 2011 (i.e., the period prior to the Closing Date) in an amount then-estimated at $39,970.34” (collectively, the “Remaining Claims”). (Compl.¶ 37.)
Defendants seek dismissal, asserting that these claims were “long-ago settled among the parties” and that “[f]or reasons that can only be considered tactical to unnecessarily drive up legal fees and harass the Trusts, Spectris has failed to finalize the required documentation to reflect this agreement, despite repeated requests by counsel for Sellers.” (Defs.' Mem. at 25.) As such, Defendants contend that these claims should be dismissed as moot. Plaintiff responds that the settlement documents submitted by Defendants were never signed by Plaintiff “because the parties have a fundamental disagreement as to how the resolution of these issues needs to be documented,” (Pl.'s Opp. at 23), and Plaintiff has received no payments to date with respect to these claims.
Defendants have not established that the purported settlement agreement provides a basis for dismissal of the Remaining Claims. See Robinson, 303 A.D.2d at 235 (“On a motion to dismiss pursuant to CPLR 3211(a)(1), the defendant has the burden of demonstrating that the documentary evidence conclusively resolves all factual issues and that plaintiff's claims fail as a matter of law.”); cf. Options Group, Inc. v. Vyas, 91 AD3d 446, 447 (1st Dep't 2012) (where “the record demonstrate[d] that both parties intended to be bound by the agreement,” the fact that it was “never formally executed” did not preclude enforcement against plaintiff); Friedman v. Garey, 8 AD3d 129, 129 (1st Dep't 2004) (holding that an unsigned settlement agreement was nonetheless enforceable where it “was stipulated to by counsel in open court” and “defendant implicitly ratified the settlement by accepting substantial sums under its terms”). There is likewise no evidence of prior payment or release under CPLR 3211(a)(5), nor does the purported agreement undo the sufficiency of Plaintiff's allegations in support of the Remaining Claims.
Lastly, the fact that these claims should be settled does not mean that they have actually been settled. At bottom, the parties' submissions raise a triable issue of fact as to whether an enforceable settlement agreement was entered into such that Plaintiff may now be precluded from litigating these claims.
Based on the foregoing, Defendants motion to dismiss is denied as to the remaining claims.
II.Plaintiff's Motion to Compel a Valuation (Sequence Number 003)
Plaintiff moves to compel a valuation by the accounting firm Grant Thornton LLP, pursuant to CPLR 7601, which provides in pertinent part that “[a] special proceeding may be commenced to specifically enforce an agreement that a question of valuation, appraisal or other issue or controversy be determined by a person named or to be selected. The court may enforce such an agreement as if it were an arbitration agreement, in which case the proceeding shall be conducted as if brought under article seventy-five of this chapter.” CPLR 7601.
Plaintiff contends that it is entitled, under the Purchase Agreement, to compel the retention of Grant Thornton as a means of resolving its purchase price dispute with Defendants. Defendants dispute Plaintiff's entitlement to this relief. They argue that by asserting claims for breach of representations and warranties included in the Purchase Agreement, Plaintiff is limited to seeking indemnification through litigation before this Court. As such, several sections of the Purchase Agreement are implicated by this motion.
Section 1.04(d) specifically addresses the valuation sought by Plaintiff, providing in pertinent part that if, following a timely objection by “Sellers' Representative,” the parties are unable to “obtain a final resolution with regard to the Closing Net Working Capital Amount, Closing Cash Amount or Closing Debt Amount within 30 days after Buyer's receipt” of such objection, then “Sellers' Representative and Buyer will jointly retain Grant Thornton LLP (the Firm') to resolve any remaining disagreements.” (Purchase Agreement at 4.)
Section 10.01(a) provides, among other things, that Defendants shall indemnify Plaintiff “from all Indemnifiable Liabilities ... as a result of or arising from: (I) any breach of or inaccuracy in any representation or warranty made by Sellers in Article III of this Agreement ...; [or] (ii) any breach of any covenant or agreement of Sellers, or any failure by Sellers to perform any of their obligations, in this Agreement.” (Purchase Agreement at 58).
Section 10.02(b) further provides that if such a claim for indemnification cannot be resolved among the parties, then “the matter shall be resolved by any Court of competent jurisdiction in accordance with Section 11.04 hereof.” (Purchase Agreement at 61–62 .) Section 11.04 includes a forum selection clause and choice of law provision requiring the application of New York law and providing that the parties to the Purchase Agreement “irrevocably submit[ ] to the exclusive jurisdiction of the state courts and federal courts sitting in New York County ... for the purpose of any Action arising out of or relation to” the Purchase Agreement. (Purchase Agreement at 64.)
Section 10.04 provides that the remedies set forth in Article X, that is, indemnification, “are exclusive of and limit any other remedies for any Indemnifiable Liabilities that may be suffered by any party hereto ... as a result of any breaches of this Agreement.” (Purchase Agreement at 63.) Notably, that section further provides that “nothing set forth in this Article X shall affect any party's rights to specific performance or other equitable remedies with respect to the covenants referred to in this Agreement .” (Purchase Agreement at 63.)
Westmoreland Coal Co. v. Entech, Inc., 100 N.Y.2d 352 (2003), is cited extensively by both sides and involved a similar situation, arising out of “a stock purchase agreement whereby Westmoreland Coal Company acquired all of the outstanding capital stock of several of Entech's coal mining subsidiaries.” Westmoreland, 100 N.Y.2d at 354. Defendants contend that Westmoreland is controlling and precludes Plaintiff from pursuing its claims by any means other than litigation.
Like the Purchase Agreement at issue here, section 1.04(b) of the Westmoreland agreement provided that if Westmoreland made “an objection to a material aspect' “ of the closing date certificate and the parties were unable to resolve the dispute amongst themselves within a set period of time, then “their disagreements [would be] promptly submitted to a nationally recognized independent accountant.' “ Westmoreland, 100 N.Y.2d at 356. The Westmoreland agreement contained a provision for remedies similar to Article X of the Purchase Agreement, which the court described as follows:
Disputes over representations and warranties, if not amicably reconciled, were to “be resolved by litigation in a court of competent jurisdiction” (§ 10.02[b] ). Moreover, after the closing, the remedies set forth in the indemnification provisions were the parties' “exclusive remedies” for misrepresentation or breach of any warranty contained in the Agreement; and the parties were not entitled to rescission or “any further indemnification rights or claims of any nature whatsoever in respect [of the Agreement], all of which the parties ... waive” (§ 10.03).
Westmoreland, 100 N.Y.2d at 357. Also like this case, “Westmoreland objected to the closing date certificate, claiming an adjustment in its favor of about $74 million ... because many of the asset values in the closing date certificate allegedly did not comply with GAAP.” Westmoreland, 100 N.Y.2d at 355. Westmoreland thereafter commenced a special proceeding pursuant to CPLR 7601, seeking to refer the dispute to an independent accountant under section 1.04(b) of that agreement. Westmoreland, 100 N.Y.2d at 357.
Ultimately, the court held that “Westmoreland's objections related to noncompliance with GAAP are, in fact, claims for breach of a representation or warranty. These claims may only be pursued in a court of law, with its attendant protections of discovery, rules of evidence, burden of proof, and full appellate review.” Westmoreland, 100 N.Y.2d at 360. In reaching its conclusion, the court summarized the relevant provisions of the stock purchase agreement:
Entech specifically represented and warranted that the interim financial statements complied with GAAP. The Agreement's indemnification provisions afford a complete, comprehensive remedy for any and all claims for breach of a representation or warranty. The indemnification provisions further set out a detailed method for asserting claims for breach of a representation or warranty and require that, if negotiations fail, these claims are to be resolved exclusively by litigation.Westmoreland waives all other indemnification rights and claims.
Westmoreland, 100 N.Y.2d at 359. Adopting “Westmoreland's interpretation of the purchase price adjustment provisions to provide a remedy for breach of a representation or warranty ... would subvert this exclusive remedies' limitation and waiver.” Westmoreland, 100 N.Y.2d at 359.
There are several aspects of the Purchase Agreement which make it distinguishable from the agreement in Westmoreland. The first of those is the parenthetical phrase in Section 10.04, stating that “nothing set forth in this Article X shall affect any party's rights to specific performance or other equitable remedies with respect to the covenants referred to in this Agreement.” (Purchase Agreement at 63.)
At first glance, it appears as though Article V of the Purchase Agreement, titled, “COVENANTS AND AGREEMENTS,” may resolve the issue. (Purchase Agreement at 35.) The parenthetical in Section 10.04 makes reference “to the covenants referred to in this Agreement.” (Purchase Agreement at 63.) Because the title of Article V includes the word “COVENANTS,” one might conclude that the parenthetical's scope extends only to those covenants included in Article V. This reasoning is particularly appealing when one compares title of Article III, “REPRESENTATIONS AND WARRANTIES OF SELLERS,” and considering the fact that a portion of Plaintiff's claim is admittedly predicated on alleged breaches representations and warranties. (Purchase Agreement at 8.) Thus, one might conclude that such remedy is not available here.
However, this position is contradicted by Section 11.06. That section provides, among other things, that “[t]he table of contents and the headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.” (Purchase Agreement at 64.) As such, the title of Article V may not be used to interpret the meaning of the word “covenants,” as used in the parenthetical of Section 10.04. To do otherwise would render the language of Section 11.06 meaningless, in violation of “the canon of contract interpretation that every clause and word should be given meaning.” See Patrolmen's Benevolent Ass'n of N.Y. v. City of New York, 46 AD3d 378, 380 (1st Dep't 2007).
Because no other interpretation seems possible or contemplated by the Purchase Agreement or the parties' submissions, the word “covenants” should be given its plain and ordinary meaning. 45 Broadway Owner LLC v. NYSA–ILA Pension Trust Fund, 107 AD3d 629, 631 (1st Dep't 2013) (holding that “where a clause is unambiguous, contract language and terms are to be given their plain and ordinary meaning”). Black's Law Dictionary defines a “covenant” as “[a] formal agreement or promise, usu[ally] in a contract or deed, to do or not do a particular act.” Black's Law Dictionary (9th ed.2009).
The Purchase Agreement provides non-permissively that the parties “will jointly retain Grant Thornton LLP,” “[i]f they do not obtain a final resolution.” (Purchase Agreement at 4.) That is, they have agreed or promised to retain Grant Thornton, if they cannot resolve the dispute on their own. Such agreement or promise would qualify as a “covenant” based on the definition above. As such, it appears that specific performance of the remedy of valuation is available to Plaintiff here.
That result is also consistent with Section 11.05, which provides in pertinent part that “[t]he rights and remedies of the parties hereto shall be cumulative.... [I]n addition to and not in limitation of any other remedies available to the parties hereto for a breach or threatened breach of this Agreement, the parties shall be entitled to seek specific performance of this Agreement.” (Purchase Agreement at 64.)
While Defendants dispute the procedural nature of the remedy sought, the Court of Appeals has held that under CPLR 7601, “a court would have the option to ... order specific performance of the appraisal agreement, a remedy not available at common law.” Penn Cent. Corp. v. Consolidated Rail Corp., 56 N.Y.2d 120, 129 (1982) (emphasis added). The First Department has likewise stated that “CPLR 7601... provides for specific performance of an agreement, such as this, that a question of valuation, appraisal or other issue or controversy be determined by a person named or to be selected.” Cargill Inc. v. Bunge Foods, Ltd., 306 A.D.2d 101, 102 (1st Dep't 2003) (emphasis added). As such, the remedy sought qualifies as a type of “specific performance” and is therefore permissible under the Purchase Agreement.
Plaintiff's characterization of “Section 3.23 of the Purchase Agreement ... specifically contemplat[ing] that an issue may simultaneously be implicated by both an expert determination of purchase price and a claim for breach of representations and warranties” is also instructive. (Plaintiff's Memorandum in Further Support (“Pl.'s Reply”) at 4.) The language to which Plaintiff refers is in Section 3.23(c), which provides that “Sellers shall have no liability for breach of the representations contained in Section 3.23 to the extent the item or items that form the basis of such breach are taken into account in determining, and result in a reduction of, the Closing Net Working Capital Amount.” (Purchase Agreement at 31.) Plaintiff contends that this section permits a dual-track proceeding, by which it may use both a valuation and litigation to resolve its claims.
One can easily imagine a situation where the valuation sought here would have taken place in advance of litigation. In that situation, such “item or items” could be considered by Grant Thornton in calculating the amount of the purchase price adjustment. However, one can just as easily imagine the result which Plaintiff seeks here, that is, allowing Grant Thornton to conduct its valuation, which in turn would lead to a determination which may resolve certain of the remaining issues in this litigation—an outcome seemingly consistent with the language of Section 3.23(c). Indeed, the latter scenario also appears to be consistent with the policy underlying CPLR 7601. See Alexander, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 7601, at 366 (observing that “a valuation or appraisal of a party's damages or losses typically is ancillary to some larger contractual or property-related dispute. The parties litigate the main controversy in a plenary action or arbitration and then seek review of the appraisal when it is introduced into evidence”); Legislative Studies and Reports, McKinney's Cons Laws of NY, Book 7B, CPLR 7601, at 368 (stating that “the agreement for appraisal extends merely to the resolution of the specific issues of actual cash value and the amount of loss, all other issues being reserved for determination in a plenary action' “ (quoting In re Delmar Box Co., 309 N.Y. 60, 63 (1955) ).
Based on the foregoing, Plaintiff's motion to compel is granted, and the parties are directed to retain Grant Thornton LLP to conduct a valuation in accordance with Section 1.04(d) of the Purchase Agreement.
CONCLUSION
Accordingly, it is hereby
ORDERED, that Plaintiff Spectris, Inc.'s motion to compel a valuation by Grant Thornton LLP, pursuant to Section 1.04(d) of the Purchase Agreement, is granted; and it is further
ORDERED, that Defendants The 1997 Milton B. Hollander Family Trust and The 1999 Betty Ruth Hollander Family Trust No. 1's motion to dismiss is denied in its entirety; and it is further
ORDERED, that Defendants are directed to serve an answer to the first amended complaint within 20 days after service of a copy of this decision and order with notice of entry; and it is further
ORDERED, that the parties are directed to appear for a compliance conference on August 26, 2014, at 10:00 a.m.