Amco Ukrservice v. American Meter Co.
| Decision Date | 29 March 2004 |
| Docket Number | No. Civ.A. 00-2638.,Civ.A. 00-2638. |
| Citation | 312 F.Supp.2d 681 |
| Parties | AMCO UKRSERVICE & Prompriladamco v. AMERICAN METER COMPANY |
| Court | U.S. District Court — Eastern District of Pennsylvania |
John W. Morris, Steven M. Coren, David Dormont, Kaufman, Coren & Ress, P.C., Philadelphia, PA, for Plaintiff.
Craig E. Ziegler, Montgomery, Mc Cracken, Walker & Rhoads, Philadelphia, PA, for Defendant.
Plaintiffs Amco Ukrservice and Prompriladamco are Ukrainian corporations seeking over $200 million in damages for the breach of two joint venture agreements that, they contend, obligated defendant American Meter Company to provide them with all of the gas meters and related piping they could sell in republics of the former Soviet Union.
After extensive discovery, American Meter and Prompriladamco filed the cross-motions for summary judgment now before us. American Meter asserts that it is entitled to judgment against both plaintiffs as a matter of law because the joint venture agreements are unenforceable under both the United Nations Convention on Contracts for the International Sale of Goods ("CISG") and Ukrainian commercial law. Prompriladamco claims that its agreement is enforceable, that there is no genuine issue of material fact as to whether American Meter is in breach of that agreement, and that the only remaining issue is the extent of the damages it has sustained.
Upon consideration of this complex web of law, we conclude that American Meter is not entitled to summary judgment because the CISG does not apply to the joint venture agreements and because, under Pennsylvania's choice of law regime, Pennsylvania law, and not Ukrainian law, governs the plaintiffs' claims. We further find that Prompriladamco is not entitled to summary judgment on the liability issue because there remains a genuine issue of material fact as to whether C. Douglas Prendergast, the American Meter employee who signed the Prompriladamco joint venture agreement, had actual or apparent authority to make the momentous commitments on the corporation's behalf that have occasioned this suit.
The origins of this action lie in the collapse of the Soviet Union and the newly-independent Ukraine's fitful transition to a market economy. American Meter began to explore the possibility of selling its products in the former Soviet Union in the early 1990s, and in 1992 it named Prendergast as Director of Operations of C.I.S. [Commonwealth of Independent States] Projects. See Pl.'s Reply (Pl.'s Mot. S.J.) Ex. A. Sometime in 1996, a Ukrainian-born American citizen named Simon Friedman approached Prendergast about the possibility of marketing American Meter products in Ukraine.
Ukraine was a potentially appealing market for American Meter at that time. During and immediately after the Soviet era, Ukrainian utilities had not charged consumers for their actual consumption of natural gas but instead had allocated charges on the basis of total deliveries to a given area. That system penalized consumers for their neighbors' wastefulness and saddled them with the cost of leakage losses. In 1997, the Ukrainian government enacted legislation requiring utilities to shift toward a usage-based billing system. Prendergast's early prediction was that implementation of the legislation would require the installation of gas meters in millions of homes and apartment buildings. See Mem. from Prendergast to Skilton of 11/10/97, at 1-2 (Pls.' Resp. (Def.'s Mot. S.J.) Ex. 22).
After some investigation, Prendergast and his superiors at American Meter concluded they could best penetrate the Ukrainian market by forming a joint venture with a local manufacturer. To this end, American Meter Vice-President Andrew Watson authorized Friedman1 on June 24, 1997 to engage in discussions and negotiations with Ukrainian organizations, and the corporation also hired a former vice-president, Peter Russo, to consult on the project. Mandate of 6/24/97 (Pls.' Resp. (Def.'s Mot. S.J.) Ex. 14); Russo Dep. at 9 (Pls.' Resp. (Def.'s Mot. S.J.) Ex. 7). Prendergast, Russo, and Friedman began to identify potential joint venture partners, and by late 1997, they had selected Promprilad, a Ukrainian manufacturer of commercial and industrial meters based in Ivano-Frankivsk, the industrial capital of western Ukraine. On December 11, 1997, Prendergast (representing American Meter), Friedman (representing his firm, Joseph Friedman & Sons, International, Inc.), and representatives of Promprilad and American-Ukrainian Business Consultants, L.P. ("AUBC") met in Kyiv (the current preferred transliteration of "Kiev") and entered into the first of the agreements at issue here.
The agreement provided for the establishment of a joint venture company, to be called Prompriladamco, in which the four signatories would become shareholders. Prompriladamco would work in conjunction with its principals to develop the market for American Meter products in the former Soviet Union and, most important for the purposes of this action, the agreement committed American Meter to the following obligations:
9. AMCO shall grant Joint Venture PrompryladAmco exclusive rights to manufacture and install Meters within the former Soviet Union....
10. AMCO shall grant Joint Venture PrompryladAmco exclusive rights to distribute the products manufactured by PrompryladAmco and all products manufactured by AMCO in the former Soviet Union....
13. AMCO will deliver components and parts for Meters taking into account 90% assembly.
14. PrompryladAmco (at the first stage) shall perform 10% of the work required to assembl[e] the Meters using components and parts delivered by AMCO.
15. AMCO will deliver the components and parts for Meters by lots in containers, payments for the delivery being subject to at least a 90-day grace period.
16. The number of the components and parts for Meters to be delivered to Ukraine shall be based on demand in the former Soviet Union.
17. Orders for the components and parts for Meters, with the quantities and prices according to paragraph 16 above shall be an integral part of this Agreement.
Agreement of 12/11/97 .2
After executing the agreement, the parties incorporated Prompriladamco in Ukraine, and Friedman became its Chief Executive Officer. The new corporation set out to obtain Ukrainian regulatory approval for American Meter products, which required bringing Ukrainian officials to the United States to inspect American Meter's manufacturing process, and it sponsored a legislative measure that would give those products a competitive advantage in the Ukrainian market.
On April 20, 1998, Friedman3 and a representative of AUBC executed a second joint venture agreement for the purpose of marketing the gas piping products of Perfection Corporation, a wholly-owned subsidiary of American Meter. Again, the parties agreed to create and fund a corporation, this one to be called Amco Ukrservice, and American Meter committed itself to deliver, on credit, a level of goods based on demand in the former Soviet Union. Agreement of 4/29/98 (Def.'s Mot. S.J. Ex. B). The parties duly formed Amco Ukrservice, and Friedman became its Chief Executive Officer.
By early summer, Prompriladamco and Amco Ukrservice had begun submitting product orders to American Meter. In late June or early July, however, American Meter President Harry Skilton effectively terminated the joint ventures by stopping a shipment of goods that was on its way to Ukraine and by refusing to extend credit to either Prompriladamco or Amco Ukrservice. See Skilton Dep. at 123-24 (Pls.' Resp. (Def.'s Mot. S.J.) Ex. 5) (admitting that, as a result of his decisions, the project "died a natural death from then on out"). Finally, at a meeting on October 27, 1998, American Meter Vice-President Alex Tyshovnytsky informed Friedman that the corporation had decided to withdraw from Ukraine "due to unstable business conditions and eroding investment confidence in that country." Letter from Tyshovnytsky to Friedman of 10/29/98 (Pls.' Resp. (Def.'s Mot. S.J.) Ex. 41).
On May 23, 2000, Prompriladamco and Amco Ukrservice filed parallel complaints claiming that American Meter had breached the relevant joint venture agreement by refusing to deliver the meters and parts that the plaintiffs could sell in the former Soviet Union. Prompriladamco's complaint alleges that the breach caused it to lose $143,179,913 in profits between 1998 and 2003, and Amco Ukrservice claims lost profits of $88,812,000 for the same period. We consolidated the actions on August 18, 2000.
American Meter argues that summary judgment is warranted here because the joint venture agreements are invalid under the CISG and Ukrainian law. It also contends that it is entitled to summary judgment because the plaintiffs' claims for damages are based on nothing but "rank speculation." Def.'s Mem. (Mot.S.J.) at 28. We consider each of these arguments in turn.
The United States and Ukraine are both signatories to the CISG, which applies to contracts for the sale of goods where the parties have places of business in different nations, the nations are CISG signatories, and the contract does not contain a choice of law provision. Fercus, S.R.L. v. Palazzo, 2000 WL 1118925, at *3 (S.D.N.Y. Aug. 8, 2000). American Meter argues that the CISG governs the plaintiffs' claims because, at bottom, they seek damages for its refusal to sell them goods and that, under the CISG, the supply provisions of the agreements are invalid because they lack sufficient price4 and quantity terms.
Apart from a handful of exclusions that have no relevance here, the CISG does not define what constitutes a contract for the sale of goods. See CISG art. 2, reprinted in 15 U.S.C.A.App., at 335 (West 1998). This lacuna has given rise to the problem of the Convention's applicability to...
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