CBS, INC. v. Film Corp. of America

• Decision Date: 30 August 1982
• Docket Number: Civ. A. No. 80-1698.
• Citation: 545 F. Supp. 1382
• Parties: CBS, INC. v. FILM CORPORATION OF AMERICA.
• Court: U.S. District Court — Eastern District of Pennsylvania

545 F. Supp. 1382

CBS, INC. v. FILM CORPORATION OF AMERICA.

Civ. A. No. 80-1698.

United States District Court, E. D. Pennsylvania.

August 30, 1982.

COPYRIGHT MATERIAL OMITTED

Douglas E. Ress, Morgan, Lewis & Bockius, Philadelphia, Pa., for plaintiff.

Steven E. Angstreich, Krimsky, Luterman, Stein, & Levy, P.C., Philadelphia, Pa., for defendant.

MEMORANDUM

RAYMOND J. BRODERICK, District Judge.

In this action, over which this Court has jurisdiction on the basis of diverse citizenship of the parties, 28 U.S.C. § 1332(b), plaintiff CBS, Inc. ("CBS"), as the surviving corporation of a merger with Fawcett Publications, Inc. ("Fawcett"), seeks to enforce against defendant Film Corporation of America ("FCA") a guaranty agreement between FCA and Fawcett for the debts of American Consumer, Inc. ("American Consumer") and/or Lipenwald Advertising ("Lipenwald"). Plaintiff has moved for summary judgment, contending that the facts are undisputed, that the law of New York applies to this action, and that under New York law, CBS as the successor corporation of a merger between CBS and Fawcett, may enforce the guaranty against FCA. FCA agrees that there exists no dispute as to any material fact, (Defendant's Memorandum in Opposition to Plaintiff's Motion for Summary Judgment, at 2), but contends in its cross-motion for summary judgment that Pennsylvania law and, if not Pennsylvania, Connecticut law, applies and that the laws of Pennsylvania and Connecticut do not permit the survivor of a corporate merger to enforce a contract of guaranty which guaranteed the obligations of the corporation which merged into the survivor corporation. For the reasons hereinafter set forth, the Court will enter an order granting plaintiff's motion and enter summary judgment in favor of the plaintiff and against the defendant.

Facts

American Consumer and Lipenwald are advertising companies. Lipenwald is a wholly owned subsidiary of American Consumer. FCA owns 48 percent of American Consumer. American Consumer, as part of its services for clients, placed advertisements in various media, frequently using Lipenwald as a conduit for placing such advertisements. In the course of this business, American Consumer and Lipenwald contracted with Fawcett to purchase advertising in various publications of Fawcett. During 1976, Fawcett became concerned about the ability of American Consumer and Lipenwald to pay bills accumulating with Fawcett. On January 17, 1977, FCA guaranteed in writing "all indebtedness which American Consumer and/or Lipenwald Advertising have incurred or may incur and performance of all obligations of said firm." The one-page unconditional guaranty, given in consideration of Fawcett's willingness to enter into further contractual relations with the advertising companies, is presented in Appendix A of this Memorandum. FCA does not dispute the authenticity and accuracy of the guaranty, nor does it assert that the guaranty was in any way conditional.

At the time the guaranty was executed, Fawcett was a wholly owned subsidiary of CBS. On February 14, 1977, approximately one month after the guaranty was executed, Fawcett merged into CBS. American Consumer and Lipenwald continued to place advertisements in Fawcett publications such as Women's Day and Mechanix Illustrated until May, 1979. Between June, 1978 and May, 1979, American Consumer and Lipenwald incurred debts to Fawcett of which $153,531.17 remains unpaid. The parties agree as to both the default of principal debtors, American Consumer and Lipenwald, and the amount unpaid to Fawcett.

Choice of Law

In order to adjudicate the legal rights of the parties, this Court must determine which substantive law of guaranty contracts governs the transactions of the parties. A federal court sitting in diversity will apply the choice of law principles of the forum state. Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Melville v. American Home Assurance Co., 584 F.2d 1306, 1308 (3d Cir. 1978). In contract actions, Pennsylvania courts employ the "most significant relationship" test of the Restatement (Second) of Conflict of Laws coupled with governmental "interest analysis" to reach a quantitative and qualitative conclusion as to the location of the center of gravity of the matters at issue. Melville v. American Home Assurance Co., 584 F.2d at 1311; Schoenkopf v. Brown & Williamson Tobacco Corp., 483 F.Supp. 1185, 1194-95 (E.D. Pa. 1980) aff'd, 637 F.2d 205 (3d Cir. 1980); Culbreth v. Simone, 511 F.Supp. 906, 913 (E.D. Pa. 1981); Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964); Gillan v. Gillan, 236 Pa.Super. 147, 345 A.2d 742 (1975).

"Interest analysis" involves a qualitative appraisal of the relevant states' policies with respect to the controversy before the court so that the court may determine the state which has the most significant interest in the dispute. Melville, supra, 584 F.2d at 1311. The Restatement (Second) examines the totality of the contact which each state has with various portions of the controversy, counting and weighing those contacts in order to determine which state possesses the "most significant relationship" with the dispute. Melville, supra, 584 F.2d at 1311.

Section 6 of the Restatement directs a court to consider, when weighing contacts with a given forum, (a) the needs of the interstate and international systems; (b) the relevant policies of the state forums; (c) the relevant policies of other interested states and their relative interests in the determination of the controversy; (d) the protection of justified expectations; (e) the basic policies underlying the particular field of law; (f) certainty, predictability and uniformity of result; and (g) ease in the determination and application of the law to be applied.

Section 188 of the Restatement, pertaining to contracts in which the parties have not specified the governing law, states:

(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.

(2) In the absence of an effective choice of law by the parties, the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided...."

Section 194 of the Restatement, pertaining to contracts of suretyship, states:

The validity of a contract of suretyship and the rights created thereby are determined, in the absence of an effective choice of law by the parties, by the law governing the principal obligation which the contract of suretyship was intended to secure, unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the transaction and the parties, in which event the local law of the other state will be applied.

Comment a. of Section 194 states that contracts of guaranty are to be included within the term "suretyship." Thus, a Pennsylvania court would in this case apply the principles of the Restatement to this agreement between FCA and Fawcett and would also examine the governmental interests involved in determining the law to be applied in interpreting the FCA guaranty. See Griffith v. United Air Lines, supra; Gillan v. Gillan, supra; Melville v. American Home Assurance Co., supra. This Court has employed the Pennsylvania choice of law methodology and concluded that New York law should be applied.

Section 194 of the Restatement requires that the Court examine "the principal obligation which the contract of guaranty was intended to secure." FCA's guaranty of January 17, 1977 was intended to secure payment of a continuing series of advertising commitments made by American Consumer and Lipenwald to place advertisements in various publications of Fawcett. These advertisements were placed by Fawcett's New York division, which billed American Consumer and Lipenwald from New York. Without doubt, credit was extended in New York by Fawcett to American Consumer and Lipenwald. The record indicates that negotiations regarding the specific advertising commitments took place in New York or in Connecticut. At the time of the guaranty, American Consumer and Lipenwald were incorporated in Connecticut and had their principal places of business in Connecticut. Fawcett was a Delaware corporation and had its principal place of business in Connecticut. However, these factors do not outweigh the substantial negotiation, contracting, and performance contacts with New York.

The Reporter's Note to Section 194 of the Restatement observes that, in the majority of cases, courts have held that the law governing the suretyship contract is the local law of the state where the creditor acted upon the guaranty by extending credit. Restatement (Second) of Conflict of Laws, § 194 Reporter's Note, at 619 (1971). The draftsmen of the Restatement preferred the more flexible standard of § 194 to the more traditional "locus of credit extension" rule. Nevertheless, it is clear that under either the traditional approach or that of the Restatement, the state with the most significant relationship to the underlying obligation guaranteed by FCA is New York.

Were this Court to construe the guaranty as a contract completely separate...