Chock Full O'Nuts Corp. v. Tetley, Inc.

• Decision Date: 17 August 1998
• Docket Number: Docket No. 97-9166
• Citation: 152 F.3d 202
• Parties: CHOCK FULL O'NUTS CORPORATION, Plaintiff-Appellant, v. TETLEY, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 202

152 F.3d 202

CHOCK FULL O'NUTS CORPORATION, Plaintiff-Appellant, v. TETLEY, INC., Defendant-Appellee.

Docket No. 97-9166.

United States Court of Appeals Second Circuit.

Argued April 9, 1998.

Decided Aug. 17, 1998.

Frederick P. Schaffer, New York, N.Y. (Bridget Calhoun, Schulte Roth & Zabel LLP, New York, N.Y., Of Counsel), for Plaintiff-Appellant.

David E. Brodsky, New York, N.Y. (Steven M. Knecht, Cleary, Gottlieb, Steen & Hamilton, New York, N.Y., Of Counsel), for Defendant-Appellee.

Before: WALKER and LEVAL, Circuit Judges, and BRIEANT, District Judge. ^*

Judge BRIEANT dissents by separate opinion.

LEVAL, Circuit Judge:

Plaintiff Chock Full O'Nuts Corporation ("Chock"), appeals from a judgment of the United States District Court for the Southern District of New York (Peter K. Leisure, Judge ), dismissing Chock's complaint against defendant Tetley, Inc. Chock claimed it was entitled to payment for a shortfall in the funding of a pension plan covering a facility acquired by Chock from Tetley. The district court determined that the contract of sale was not susceptible of an interpretation under which Chock would be entitled to recover and therefore granted summary judgment in favor of Tetley. We affirm.

BACKGROUND

From 1982 to 1989, Tetley owned and operated a plant to process and package instant coffee in Linden, New Jersey ("the Linden plant" or "the plant"). Tetley sold the coffee produced there nationwide, in part to "private label" customers. Apparently all the instant coffee sold by Tetley was produced at the plant. Chock operated a small instant coffee plant, in Queens, New York.

On November 7, 1989, Tetley entered into an agreement to sell its instant coffee business to Chock ("the contract" or "the agreement"). A recital clause of the contract defined the business as follows:

[Tetley] is engaged in the business of processing and packaging in Linden, New Jersey and selling instant coffee (the "Business").

The contract provided that Chock pay Tetley a total of $8 million for, inter alia: (i) with some exceptions, "all of the assets and properties of every kind and description used in the Business," (ii) "all inventory of instant coffee (whether raw materials, work-in-process or finished goods) and packaging supplies, used in the Business"; and (iii) a covenant under which Tetley agreed not to compete with the business for a period of five years. In addition to the lease of the physical plant, the purchased assets included "all customer lists, production records and other records relating to the Business", "all intangible assets relating to the Business", and "the labor and collective bargaining agreement with respect to the Business...."

Pursuant to the contract, Chock assumed Tetley's liabilities under the collective bargaining agreement between Tetley and Local 478 of the International Brotherhood of Teamsters, including sponsorship of a union pension plan ("the pension plan" or "the plan"). As of mid-1989, the pension plan had an "Unfunded Actuarial Accrued Liability"--a shortfall between the plan's assets and its accrued liabilities--of approximately $1.5 million. As partial assurance against the possibility that Chock would be unable to operate the business profitably but would nonetheless incur a substantial pension liability, the parties agreed in the contract that:

If within five (5) years of the Closing Date of the sale, [Chock] elects to close the Business and terminate the Plan, [Tetley] shall pay [Chock] ... an amount equal to the lesser of [the Unfunded Actuarial Accrued Liability as of September 1, 1989 or the date of the closing of the business].

Because the Closing Date was determined to be October 30, 1989, Chock could trigger Tetley's obligation to pay for any deficiency in the pension plan by "clos[ing] the Business and terminat[ing] the Plan" at any time before October 30, 1994. ¹

Beginning in November 1989, Chock operated the Linden plant and sold the instant coffee produced there ("Linden-produced coffee") to customers nationwide, including customers obtained from Tetley. Chock experienced high production costs at the plant. Thus, in early 1994 Chock executives informed Tetley that Chock intended to close the Linden plant within several months. Chock stated that it would continue selling instant coffee, which would be packed for Chock by a Mexican company. ² Chock subsequently informed Tetley by letter dated June 23, 1994 that it would close the Linden plant by July 9, 1994 "at which time all production will cease and production personnel will be terminated" and that it would terminate the pension plan on or before October 8, 1994. By letter dated July 6, 1994, Chock informed Tetley that the plan trustees had voted, on July 1, to terminate the plan on or before October 8, 1994, and that, pursuant to the contract, Tetley would be liable for a plan deficiency of some $1.6 million.

Chock permanently ceased operations at the Linden plant in July and terminated the plan on September 30. After the expiration of the five-year period, however, Chock made liquidating sales of inventory produced at the Linden plant. In addition, Chock continued to sell instant coffee produced by its Mexican source to customers it had obtained from Tetley in the purchase of the plant. Tetley refused to pay for the pension deficiency, arguing that its obligation to do so had lapsed because Chock had failed to "close the Business" by October 30, 1994.

Chock brought this action for breach of contract in the Supreme Court of New York, New York County, on October 6, 1994, seeking declaratory relief that Tetley was obligated to pay Chock for the unfunded pension liability in the amount of $1,683,467 plus interest. Tetley removed the case to the United States District Court for the Southern District of New York, on the basis of diversity of citizenship.

Tetley moved for summary judgment. It was undisputed that Tetley's liability depended on Chock's "clos[ing] the Business" by October 30, 1994. Because the contractual definition of "the Business" included "the selling of instant coffee," Tetley argued that the requirement of "closing the Business" would not be satisfied unless by October 30, 1994, Chock either (i) ceased selling instant coffee (whether or not produced at the Linden plant), (ii) ceased selling instant coffee to customers acquired from Tetley, or (iii) ceased selling Linden-produced instant coffee, none of which Chock had done.

In an Opinion and Order dated August 8, 1997, the district court granted Tetley's motion for summary judgment. Judgment was entered on August 14, 1997. This appeal followed.

DISCUSSION

Although in the conventional formulation of the rule, "in a contract dispute, summary judgment may be granted only where the language of the contract is unambiguous," Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1192 (2d Cir.1996), this case illustrates a refinement of that principle.

Notwithstanding the existence of contractual ambiguities, summary judgment may be granted if under any of the reasonable interpretations the moving party would prevail. In such a case, the non-movant will have failed to show that there is any issue of material fact for trial; however the ambiguity were resolved, the movant would prevail. "If 'the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no "genuine issue for trial" ' and summary judgment is appropriate." Bouzo v. Citibank, N.A., 96 F.3d 51, 56 (2d Cir.1996)(quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986)).

It is undisputed that Chock was required to "close the Business" before October 30 to trigger Tetley's liability. In light of the contract's definition of "the Business" as "processing and packaging in Linden, New Jersey and selling instant coffee," three plausible interpretations of the phrase "close the Business" have been advanced.

Under the first interpretation, in order to trigger Tetley's liability, Chock was required to close the Linden plant and stop selling instant coffee regardless where produced, since "the Business" includes "selling instant coffee." Neither the source of the coffee nor the identity of the buyers would be material. Under the second interpretation, Chock was required to close the plant and stop selling instant coffee to customers it had obtained from Tetley. On this view, the "Business" purchased by Chock under the contract was Tetley's business of processing, packaging, and selling instant coffee. Given that Chock had an instant coffee business before entering into the contract, the contract could be read as requiring only that Chock "close" that which it bought from Tetley--including the plant in Linden and the business of selling instant coffee to customers acquired from Tetley. Finally, under the third interpretation, the Business included sales of instant coffee only to the extent it was processed at the Linden plant, and Chock could close the Business by closing the plant and ceasing to sell that instant coffee.

It is undisputed that Chock failed to satisfy any of these three alternative conditions: after October 30, Chock continued to sell instant coffee; it continued to sell instant coffee to customers acquired from Tetley; and it continued to sell instant coffee produced at the Linden plant. Unless Chock identified some other plausible interpretation of the contract, summary judgment in favor of Tetley was appropriate. ³

Chock maintains the contract is susceptible of such an interpretation, under which it could "close the Business" by closing the Linden plant, notwithstanding its subsequent sales of Linden-produced instant coffee to liquidate its inventory. The district court rejected this interpretation on the ground that the definition of "the Business" unambiguously included "selling instant coffee." We agree.

In making this argument,...