Bonnie & Co. Fashions, Inc. v. Bankers Trust Co.
| Decision Date | 20 November 1996 |
| Docket Number | No. 91 Civ. 0341 (DNE).,91 Civ. 0341 (DNE). |
| Citation | 945 F.Supp. 693 |
| Parties | BONNIE & COMPANY FASHIONS, INC. and Bonnie Boerer, individually, Plaintiffs, v. BANKERS TRUST COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Budd Larner Gross Rosenbaum Greenberg & Sade (Paul A. Marber, of counsel), New York City, for plaintiffs.
Bankers Trust Company, New York City (Jack H. Weiner, of counsel), Moses & Singer, New York City (Joel David Sharrow, of counsel), Kravet & Vogel (Joseph A. Vogel, of counsel), New York City, for defendant.
Currently before this Court is a motion for summary judgment brought by defendant Bankers Trust Company ("BTC," "the Bank," or "defendant"). In addition, defendant and Bonnie & Company Fashions, Inc. ("Bonnie & Co." or "the Company") and Bonnie Boerer ("Boerer") ("plaintiffs") each have brought motions related to defendant's summary judgment motion. Plaintiffs have filed: (1) an affidavit, pursuant to Federal Rule of Civil Procedure ("Rule") 56(f), requesting additional time to conduct discovery; (2) a motion for leave to file additional affidavits in response to defendant's motion for summary judgment; and (3) a motion to take a second deposition of a non-party witness. Defendant has moved for a protective order staying discovery until their summary judgment motion is resolved. In addition, defendant disputes plaintiffs' request for a jury trial.
For the following reasons, defendant's summary judgment motion is granted in part and denied in part. Plaintiffs' request for additional discovery under Rule 56(f) is denied, as are their motions to file additional affidavits and to take a second deposition of a non-party witness. Defendant's motion for a protective order is dismissed as moot. This Court also finds that plaintiffs are not entitled to a jury trial.
Because of the complexity of the factual background and the parties' competing claims in this case, this Court will discuss each individually.
The instant case involves a commercial dispute over a factoring agreement (the "Factoring Agreement") between Bonnie & Co., signed by both its President, individual plaintiff Boerer, and BTC. (Notice of Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Notice of Motion") at Exh. B (Apr. 8, 1994).) From 1983 to 1990, Bonnie & Co. was "a corporation dealing in the manufacture and sales of women's fashions." (Complaint and Jury Demand, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Complaint") ¶ 1 (Jan. 2, 1991)); (Affidavit of Bonnie Boerer in Opposition of Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Boerer Aff.") ¶ 10(a) (June 13, 1994)); (Affidavit of John Contrucci in Support of Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Contrucci Aff.") ¶ 16 (Apr. 1, 1994).) Boerer, a New Jersey citizen, founded, owned and operated Bonnie & Co., a New Jersey corporation with offices in New York and Hong Kong. (Boerer Aff. ¶¶ 7, 10(a), 39); (Complaint ¶¶ 1, 39.) Bonnie & Co.'s goods were produced in Hong Kong and China. (Complaint ¶ 12.) BTC is a New York banking corporation which "operated a division engaged in the factoring of retail accounts." Id. ¶¶ 2, 6.
"Factoring" is defined as "[t]he purchase of accounts receivable from a business by a factor who thereby assumes the risk of loss in return for some agreed discount." Black's Law Dictionary 532 (5th ed.1979). The factor purchases accounts receivable without recourse to its client if the client's customers subsequently prove unable to pay. See Exportos Apparel Group, Ltd. v. Chemical Bank, 593 F.Supp. 1253, 1256 (S.D.N.Y.1984). The factor undertakes a credit check of its clients' proposed customers to determine whether to accept an absolute risk of their solvency. If the factor approves the proposed customer, the factor's client may consummate the sale to the proposed customer and the factor then purchases the account receivable. In this way, the factor advances funds to its client. If a dispute arises between the factor's client and one of the client's customers over the goods or invoices, however, the factor is entitled to "charge back" to its client the full amount of the disputed accounts receivable. See Tex Styles Group, Inc. v. Republic Factors Corp., 106 A.D.2d 257, 258, 482 N.Y.S.2d 24, 25 (N.Y.App.Div.1984), aff'd, 64 N.Y.2d 959, 477 N.E.2d 1105, 488 N.Y.S.2d 651 (1985). This is true irrespective of the merits of the dispute between the factor's client and its customer. See Danleigh Fabrics, Inc. v. Gaynor-Stafford Indus., Inc., 95 A.D.2d 719, 720, 463 N.Y.S.2d 828 (N.Y.App.Div.1983), aff'd, 62 N.Y.2d 677, 464 N.E.2d 985, 476 N.Y.S.2d 287 (1984). In effect, the factor acts as the insurer only of its client's customers' insolvency, Exportos Apparel, 593 F.Supp. at 1256, not of the quality of its clients' goods.
In the case at bar, plaintiffs contend that "[i]n June 1984, [Bonnie & Co.] entered into a Factoring Agreement with BT[C] with Security Agreement and Letter Agreement." (Complaint ¶ 8.) At that time, Boerer also signed an "Unlimited Guaranty," rendering herself personally liable to BTC for all debts of Bonnie & Co. Id. ¶ 9; (Notice of Motion at Exh. C.) On August 7, 1987, the parties entered into a "letter of credit supplement" to the Factoring Agreement which provided that BTC "may from time to time at [Bonnie & Co.'s] request, but in [BTC's] sole discretion, cause a bank or banks or other financial institutions" to issue letters of credit to Bonnie & Co. (Affidavit of Salvatore Prizzi in Support of Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Prizzi Aff.") ¶ 23 (April 7, 1994).) Boerer maintains that, although she had "extensive experience in the retail, design, importing and manufacturing aspects of the women's apparel business," she possessed "minimal training and experience in the management and financial affairs of a company." (Boerer Aff. ¶¶ 10(b)(c).) Boerer therefore claims to have relied upon BTC "for their advice and guidance with respect to all financial matters involving [her] business." Id. ¶ 10(c). Boerer also asserts that "[f]rom the time Bonnie & Co. entered into the Factoring Agreement BT[C] was its primary and only bank, factor and lender." Id. ¶ 10(d).
Plaintiffs claim that "[p]ursuant to the Factoring Agreement, the Company agreed that it would sell to defendant, and defendant agreed to purchase and ... to make advances against all accounts receivable approved by defendant arising out of the Company's sale of merchandise to those customers which defendant approved." Id. ¶ 13. Plaintiffs contend that "[p]ursuant to the terms of the Factoring Agreement, as to each account created by the Company with the credit approval of defendant, which approval had not been withdrawn, defendant assumed the `Credit Risk' on every such approved account." Id. ¶ 15. Plaintiffs further allege that the Factoring Agreement required defendant to: (1) render a proper accounting of transactions; (2) pay Bonnie & Co. on specified dates; (3) collect receivables in a diligent manner; and (4) act in accordance with factoring industry standards. Id. ¶¶ 16-19.
Defendant states that, pursuant to the Factoring Agreement, Bonnie & Co. "sold and assigned to the bank various accounts receivable ... for goods consisting of ladies' clothing which were sold by [Bonnie & Co.] to others." (Prizzi Aff. ¶ 13.) Defendant maintains that, in consideration of Bonnie & Co.'s sales of accounts to defendant, from 1984-1989, "the Bank made periodic payments, loans, cash advances, and over-advances, and gave other financial accommodations to [Bonnie & Co.]." Id. ¶¶ 13-14.
Boerer asserts that, in fiscal year 1987, Bonnie & Co. registered gross sales of over $29,000,000 and earned a net profit of $2,900,000. (Boerer Aff. ¶ 17.) As a "Subchapter S" corporation under the Internal Revenue Code, those profits were distributed to Bonnie & Co.'s shareholders. Id. Boerer, as ninety-eight percent shareholder, received the lion's share of these profits, in addition to her salary. Id. In fiscal year 1988, Bonnie & Co.'s gross sales were approximately $33,890,000, but the Company reported a net loss of $208,567. Id. ¶ 18.
In May 1989, John F. Contrucci ("Contrucci"), a BTC Vice President, became concerned that BTC had a "total exposure" on the Bonnie & Co. account of approximately $3,982,000, which was above its projected exposure of $2,711,000. Id. ¶ 20. At that time, BTC sought an explanation from plaintiffs for the discrepancy. Id. ¶ 21. Boerer contends that, after consulting with plaintiffs' accountants, BTC was satisfied that Bonnie & Co.'s 1989 finances were sound, but perceived a need for an infusion of working capital into Bonnie & Co. Id. ¶ 22. Negotiations between BTC and plaintiffs ensued and the parties allegedly reached an agreement on May 25, 1989 ("the May 1989 agreement"). Id. ¶¶ 22-23. Pursuant to this agreement Boerer personally was to pledge a $1,000,000 Treasury Bill as "liquid side collateral" to BTC and BTC was to reduce Boerer's then unlimited personal guaranty to $2,000,000. Id.
The May 1989 agreement gives rise to two issues in this litigation. First, the parties dispute the agreement's terms concerning the timing of the termination of the Treasury Bill. Boerer claims that the parties agreed that the Treasury Bill would expire on September 15, 1989. Id. ¶¶ 28-29. However, Contrucci forwarded to one of Boerer's former attorneys, M. David Baker ("Baker"), a draft of a security agreement and a limited guaranty, neither of which conformed to Boerer's understanding of the May 1989 agre...
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