Cramer v. Devon Group, Inc.

• Decision Date: 17 September 1991
• Docket Number: No. 90 CIV. 7748 (PKL).,90 CIV. 7748 (PKL).
• Citation: 774 F. Supp. 176
• Parties: Andrew I. CRAMER, Plaintiff, v. DEVON GROUP, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

774 F. Supp. 176

Andrew I. CRAMER, Plaintiff, v. DEVON GROUP, INC., Defendant.

No. 90 CIV. 7748 (PKL).

United States District Court, S.D. New York.

September 17, 1991.

Pryor, Cashman, Sherman & Flynn, New York City (Andrew H. Bart and Charles B. McKenna, of counsel), for plaintiff.

O'Sullivan Graev & Karabell, New York City (Charles E. Bachman, of counsel), for defendant.

OPINION AND ORDER

LEISURE, District Judge.

In this diversity action plaintiff Andrew I. Cramer ("Cramer") seeks monetary damages, asserting fraud, breach of contract and breach of fiduciary duty by defendant Devon Group, Inc. ("Devon"). This is the second time this matter has come before the Court: an earlier Opinion and Order, dated December 12, 1990, denied plaintiff's motion for a preliminary injunction and temporary restraining order based on these same claims. The matter is now before the Court on defendant's motion for summary judgment.

BACKGROUND

This case was initially filed in the New York Supreme Court on December 3, 1990. Plaintiff sought a temporary restraining order and preliminary injunction enjoining defendant Devon from calling and holding a special meeting of the Board of Directors of Aztech Document Systems, Inc. ("Aztech"), of which Devon is the majority shareholder; from merging Aztech with Chas P. Young Company ("Young"), another Devon division; from acting outside the normal course of business to change the nature of Aztech's operations; and from making any unilateral decisions on behalf of Aztech. Justice Phyllis Gangel-Jacobs struck the provision enjoining the meeting, but issued a temporary restraining order against the defendant on the other points. Following removal to this Court on December 4, oral argument was heard on December 10. This Court denied the injunctive relief sought by plaintiff and dissolved Justice Gangel-Jacob's temporary restraining order based, inter alia, upon plaintiff's failure to demonstrate both irreparable harm and likelihood of success on the merits.

At all times relevant to this action, plaintiff Andrew Cramer was the President and Chairman of the Board of Aztech, a financial printing company, of which he was a founder. In February 1987, pursuant to a Stock Purchase Agreement between the defendant and Cramer (the "1987 Agreement"), Devon, a graphic arts company, became the majority shareholder of Aztech. Subsequent to the 1987 acquisition of Aztech shares from Cramer, Devon loaned considerable sums to Aztech. In March 1989, the parties underwent a restructuring: Devon's Aztech debt was converted into equity, Devon provided additional cash to Aztech, and Cramer was left with only 20 percent ownership of Aztech. As part of the 1989 restructuring, the 1987 Agreement was renegotiated in a Shareholders' Agreement dated March 31, 1989 (the "1989 Agreement"). Under both Agreements Devon had the right to purchase Cramer's shares, and if it did not exercise that right, Cramer had an opportunity to buy out Devon's interest. Although the parties dispute the effect of the 1989 amendments, Cramer concedes that Devon had no obligation to purchase his interest in Aztech. Affidavit of Andrew I. Cramer, sworn to on December 2, 1990, at 5 ("Plaintiff's Dec. 2 Affidavit").

Early in 1990 Devon began to explore the acquisition of some of the assets of Young, another financial printing company then in bankruptcy reorganization. Although Devon completed the acquisition of the Young assets in April 1990, the parties dispute the events leading to the acquisition. The parties agree that, concurrent with the negotiations concerning Devon's purchase of Young, they discussed Devon's buying out Cramer's remaining interest in Aztech. The parties also agree that the purchase of Cramer's shares was never consummated. However, they dispute whether an agreement was ever reached concerning the purchase. In his first cause of action, Cramer alleges that Devon fraudulently induced him to acquiesce in the purchase of Young, based on a false promise to purchase his remaining 20% interest in Aztech. Cramer claims that Devon only intended to buy his Aztech shares if the Young acquisition proved successful; that if the acquisition were unsuccessful, Devon intended not to buy Cramer's shares, but rather to merge the assets of Aztech and Young, rendering Aztech, and Cramer's investment therein, worthless. The second cause of action asserts that Cramer and Devon entered into a contract in which Devon agreed to purchase Cramer's shares for $1,570,000, and that defendant breached this contract. Defendant responds that it never agreed to purchase Cramer's shares, that Cramer can point to no writing evidencing any agreement that satisfies the statute of frauds, and that there is no evidence to show that it made any promise to Cramer with a then present intent not to honor that promise.

After the 1990 acquisition of Young by Devon, the Young assets, including accounts receivable, work in progress and fixed assets, were transferred to Aztech. The transfer was recorded by adjusting Aztech's books to reflect added assets of $4.63 million, the purchase price of the Young assets. A corresponding liability was added on Aztech's books as an inter-company payable to Devon. Cramer claims that these bookkeeping changes served to commingle Young's liabilities with Aztech's assets; he asserts as his third cause of action that these changes breached covenants included in his 1987 Agreement with Devon. For example, the 1987 agreement barred "any action which would cause Aztech to be operated other than in its normal ordinary course consistent with past practices," and also required maintaining Aztech's accounting procedures. See 1987 Agreement ¶ 3.1(a)(xvi) & (xvii). Devon responds that these covenants were superseded by amendments in the 1989 Agreement, and that Cramer consented to any changes that were effectuated.

Plaintiff's fourth cause of action alleges that Devon, as a majority shareholder in Aztech, breached the fiduciary duties it owed to Cramer, a minority shareholder. Cramer claims that by intermingling Aztech's and Young's assets and liabilities, Devon used Young as a vehicle to deplete Aztech's assets and thereby reduce the value of Cramer's investment in Aztech. Devon responds, and plaintiff concedes, that Cramer was enthusiastic about and actively promoted Devon's purchase of Young. In fact, defendant contends that Cramer admits that there was no breach of fiduciary duty. Cramer categorically denies admitting that the transaction was not a breach of fiduciary duty and claims that his optimism was procured by the fraudulent promise of Devon's President, Marne Obernauer ("Obernauer"), to buy Cramer's shares.

Plaintiff's fifth and final cause of action alleges that Devon breached Cramer's employment agreement. Defendant moves for summary judgment on this claim based on an arbitration clause in the employment contract. Although decrying defendant's refusal to adjudicate all of the claims in one forum, plaintiff concedes that the arbitration clause is binding. Therefore, he does not oppose the grant of summary judgment on his fifth cause of action. See Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment ("Plaintiff's Response"), at 7 n. *.

DISCUSSION

I. Standard for Summary Judgment

Federal Rule of Civil Procedure 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "Summary judgment is appropriate if, `after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the non-moving party.'" United States v. All Right, Title & Interest in Real Property, etc., 901 F.2d 288, 290 (2d Cir.1990) (quoting Murray v. National Broadcasting Co., 844 F.2d 988, 992 (2d Cir.), cert. denied, 488 U.S. 955, 109 S.Ct. 391, 102 L.Ed.2d 380 (1988)). Summary judgment may be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

The substantive law governing the case will identify the facts that are material, and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). "The judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there does indeed exist a genuine issue for trial." Id. at 249, 106 S.Ct. at 2511; see also R.C. Bigelow, Inc. v. Unilever N.V., 867 F.2d 102, 107 (2d Cir.), cert. denied, 493 U.S. 815, 110 S.Ct. 64, 107 L.Ed.2d 31 (1989). The party seeking summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion" and identifying which materials it believes "demonstrate the absence of a genuine issue of material fact." Celotex, supra, 477 U.S. at 323, 106 S.Ct. at 2553; see also Trebor Sportswear Co. v. Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir.1989). "The burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex, supra, 477 U.S. at 325, 106 S.Ct. at 2554.

Once a motion for summary judgment is properly made, the burden then shifts to the nonmoving party, which "`must set forth facts showing that there is a genuine issue for trial.'" Anderson, supra, 477 U.S. at 250, 106 S.Ct. at 2511 (quoting Fed.R.Civ.P. 56(e)). "The mere existence of some alleged...