601 F.3d 57 (2nd Cir. 2010), 06-1467-cv(L), Israel v. Chabra

Docket Nº:06-1467-cv(L), 06-1473-cv(CON).
Citation:601 F.3d 57
Opinion Judge:PER CURIAM:
Party Name:Michael ISRAEL and Steven Israel, Plaintiffs-Appellees, v. Surinder S. CHABRA, Defendant-Appellant, Paran Realty Corp., Defendant.
Attorney:Susan R. Nudelman, Dix Hills, NY, for Plaintiffs-Appellees. Howard W. Burns, Jr., New York, NY, for Defendant-Appellant.
Judge Panel:Before: CALABRESI, RAGGI, and HALL, Circuit Judges.
Case Date:April 01, 2010
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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601 F.3d 57 (2nd Cir. 2010)

Michael ISRAEL and Steven Israel, Plaintiffs-Appellees,

v.

Surinder S. CHABRA, Defendant-Appellant,

Paran Realty Corp., Defendant.

Nos. 06-1467-cv(L), 06-1473-cv(CON).

United States Court of Appeals, Second Circuit.

April 1, 2010

Argued: Aug. 7, 2007.

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Susan R. Nudelman, Dix Hills, NY, for Plaintiffs-Appellees.

Howard W. Burns, Jr., New York, NY, for Defendant-Appellant.

Before: CALABRESI, RAGGI, and HALL, Circuit Judges.

PER CURIAM:

This is an appeal from an order of the United States District Court for the Southern District of New York (Chin, J.), finding Defendant Surinder " Sonny" Chabra

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liable to Plaintiffs Michael Israel and Steven Israel (" the Israels" ) for debts owed them by AMC Computer Corp. (" AMC" ) pursuant to Chabra's guaranty of those debts. We previously certified a controlling question of law to the New York Court of Appeals. Having received that Court's answer to the certified question, we now vacate the judgment of the district court and remand for further proceedings.

BACKGROUND

A detailed recitation of the relevant facts and procedural history can be found in our previous opinion in this case, and we assume the reader's familiarity with that opinion. See Israel v. Chabra, 537 F.3d 86, 88-92 (2d Cir.2008) (" Israel I " ). We set forth herein a condensed version of the facts in order to explain our disposition of the appeal following the answer to the certified question.

In brief: the Israels entered into separate employment agreements with AMC in May 2000, at the same time that AMC was in the process of merging with a third-party investor. See Id. at 89. In a Letter of Intent, which was signed by AMC, both of the Israels, Chabra (who signed both as an individual and as an officer of AMC), and the third-party investor, Chabra promised to pay each of the Israels a $2 million bonus if the third-party investor completed its planned investment in AMC. Id. In July 2000, the parties agreed to what they call the " First Amendment" to the agreements, which made the following changes to the agreements: (1) AMC assumed primary responsibility for paying the bonuses, but Chabra agreed to guaranty the payments; (2) the bonus amount was reduced to $1.75 million for each of the Israels; (3) the bonuses became due upon completion of a proposed merger between AMC and the third-party investor; and (4) the payments were to be made in twelve equal quarterly installments, the first of which would be due three months after the merger. Id.

Pursuant to the First Amendment's requirement that he guaranty the bonuses, Chabra signed an identical Guaranty for each of the Israels, reading in relevant part as follows:

Surinder (Sonny) Chabra (" Guarantor" ) hereby absolutely, unconditionally and irrevocably guarantees to Israel (i) the full, due and punctual payment, whether at stated payment dates, by acceleration or otherwise, of any amounts owed under Section 3.4 of the Employment Agreement (including interest as described therein), and (ii) the prompt reimbursement of or payment for any and all ... expenses and liabilities (including reasonable attorneys' fees) incurred by Israel in enforcing any rights under this Guaranty (collectively, the " Obligations" ), and further guarantee[s] that any such amounts shall be paid when due without presentation, demand, notice or protest of any kind with the same effect as though the Guarantor was AMC in and for the purposes of Section 3.4 of the Employment Agreement; provided, however, that Israel has given Guarantor written notice (" Notice" ) of AMC's failure to pay any Obligation within 60 days of the occurrence of each failure. Guarantor will then have 30 days to make such payments (or to cause AMC to make such payments).

... The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of ... any change in the time, manner or place of payment of, or in any other term of, all or any of such provisions or the Obligations....

... The Guarantor hereby waives promptness, diligence, dishonor, default, forbearance, notice of acceptance and

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any other notice with respect to any of the Obligations and this Guaranty, except the Notice.

... References to the Employment Agreement shall mean the Employment Agreement immediately after the execution of Amendment No. 1 and shall not be affected by subsequent amendments to the Employment Agreement unless Guarantor has agreed in writing to such amendments.

Id. at 89-90 (emphasis in original). The merger occurred on August 30, 2000, and the first bonus payments thus became due on November 30, 2000. Id. at 89.

AMC did not make all of the scheduled payments, and the Israels sent notices of default to AMC on February 26, 2003, March 5, 2003, and March 17, 2003, copying Chabra in his individual and corporate capacities. Id. at 90. In April 2003, the Israels and AMC signed a modified payment schedule, which the parties refer to as the " Second Amendment," and which: (1) restated the amount remaining due on the bonuses; (2) established a new payment schedule that was to start on April 20, 2003, and end with a final payment on December 5, 2003; and (3) expressed " the intention of the parties that the guaranty agreement by and among Employee and Surinder (Sonny) Chabra shall continue in full force and effect until the Employer has made all payments." Id. Chabra signed the Second Amendment only on lines indicating his role as an officer of AMC. Id. AMC made its last payment on February 15, 2004, and the Israels sent AMC and Chabra notices of default starting on March 31, 2004. Id.

An attempt at arbitration failed. Id. at 91. The Israels then brought this action to enforce the Guaranty, and the district court granted summary judgment in their favor, ruling that: (1) Chabra remained bound by the Guaranty despite the modifications to the payment schedule made by the Second Amendment; (2) Chabra had consented to the Second Amendment in his individual capacity by signing it; (3) even if Chabra had not consented to the Second Amendment, the payment schedule did not discharge the Guaranty because the Guaranty stated that it was " unconditional irrespective of ... any change in the time, manner or place of payment" ; (4) the provision of the Guaranty requiring written notice to Chabra within 60 days of AMC's failure to pay any obligation was not a condition precedent to Chabra's obligations under the Guaranty; and (5) AMC did not default until it failed to make payments after February 15, 2004 (under the schedule set forth in the Second Amendment). Id. at 91 (internal quotation marks omitted). The district court awarded each of the Israels $332,816.57 in damages and later awarded them $299,890.51 in attorneys' fees and costs, to be divided between them. Id. at 91.

Chabra appealed, and, in our opinion in Israel I, we were able to resolve two key questions presented by the appeal. Id. at 92-95. First, we held that the notice requirement in the Guaranty was a condition precedent to Chabra's obligations, that the district court had erred in holding otherwise, and that it was therefore necessary to consider whether that condition precedent had been satisfied. Id. at 92-94. Second, we held that because the Guaranty required notice for " each failure" by AMC to make a payment, the notice requirement was divisible and Chabra's obligations were " payment-specific," meaning that Chabra's obligations must be discharged with respect to any missed payment for which the Israels failed to provide timely notice but that his obligations would remain in place with respect to any missed payments for which the Israels had provided timely notice. Id. at 94-95.

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We were not, however, able to resolve a third question at that time: Is Chabra's liability governed by the First Amendment payment schedule (as contended by Chabra) or by the Second Amendment payment schedule (as contended by the Israels)? Id. at 96-100. Each party pointed to a clause in the Guaranty that supported his preferred result. Id. at 96. The Israels relied upon what we have come to refer to as the " Consent Clause," the part of the Guaranty stating that Chabra's obligations under the Guaranty are " absolute and unconditional irrespective of ... any change in the time, manner or place of payment of, or in any other term of, all or any of such provisions or the Obligations." Id. Chabra relied upon what we have called the " Writing Requirement," which stated that " [r]eferences to the Employment Agreement shall mean the Employment Agreement immediately after the execution of [the First Amendment] and shall not be affected by subsequent amendments to the Employment Agreement unless Guarantor has agreed in writing to such amendments." Id. Chabra argued that the Second Amendment was a " material alteration of the terms" of the Guaranty and that the Writing Requirement prohibited it from being effective without his written consent. Id. The Israels argued that the Second Amendment, which merely modified the payment schedule, was within the scope of the Consent Clause because it effected only a " change in the time, manner or place of payment." Id.

We rejected the district court's conclusion that Chabra had agreed to the Second Amendment in writing. We held that he had signed it only in his capacity as an officer of AMC and not as an individual. Id. at 96-98. That left us with the question we must answer in today's opinion in order to determine which payment schedule controls: Can the Consent Clause and the Writing Requirement be reconciled, and, if not, which controls? Id. at 98-100. The...

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