Dick Corp. v. Geiger

• Decision Date: 17 February 2003
• Docket Number: No. 29A03-0206-CV-212.,29A03-0206-CV-212.
• Citation: 783 N.E.2d 368
• Parties: DICK CORPORATION, Appellant-Plaintiff, v. Gordon H. GEIGER, Eduardo Calanog, and Albert Lucas, Appellees-Defendants.
• Court: Indiana Appellate Court

783 N.E.2d 368

DICK CORPORATION, Appellant-Plaintiff, v. Gordon H. GEIGER, Eduardo Calanog, and Albert Lucas, Appellees-Defendants.

No. 29A03-0206-CV-212.

Court of Appeals of Indiana.

February 17, 2003.

J. Bradford McIlvain, John J. Higson, Dilworth Paxson LLP, Philadelphia, PA, David B. Vornehm, Richard S. Pitts, Drewry, Simmons, Pitts & Vornehm, Indianapolis, IN, Attorneys for Appellant.

Robert D. MacGill, Anne C. McGown, Terri L. Bruksch, Barnes & Thornburg, Indianapolis, IN, Attorneys for Appellees.

OPINION

KIRSCH, Judge.

This case arises from a complaint filed by Dick Corporation ("DC") alleging inter alia civil and criminal conversion and constructive fraud against Gordon Geiger, Eduardo Calanog, and Albert Lucas ("Defendants"), who served as former officers and directors of Qualitech Steel Corporation ("Qualitech"), based upon their use of loan proceeds to pay Qualitech creditors other than DC. Following the trial court's grant of summary judgment in favor of Defendants on the conversion claims, DC appealed. Defendants subsequently filed an interlocutory appeal challenging the trial court's denial of their summary judgment motion on the issue of constructive fraud. Both cases have been consolidated for purposes of appeal, and we find the following issue dispositive: whether the parties' mutual release was conditioned upon the performance of certain obligations excluded from the release.

Because we conclude that the excluded obligations were not conditions precedent to the release, we affirm in part, reverse in part, and remand.

FACTS AND PROCEDURAL HISTORY¹

On June 20, 1996, Qualitech and DC entered into a contract for the construction of a state of the art special bar quality steel mill in Pittsboro, Indiana. Qualitech was a start-up company with virtually no other assets other than the mill it was building. Gordon Geiger served as Qualitech's CEO and Chairman of the Board, Eduardo Calanog functioned as Qualitech's President and was a board member, and Albert Lucas served as Treasurer, Director of Finance and Accounting, and Assistant Secretary.² DC served as the general contractor of the construction project with the responsibility to build the facility, including providing foundations, buildings, and roads and installing the steelmaking equipment.

Pursuant to a March 1998 contract amendment, the contract price for the integrated design and construction of the mill was in excess of $118 million with payments to be made according to a fixed payment schedule. The final payment of $4,399,504.75 was due to be paid following completion of the project and subject to certain performance criteria, namely "hot and cold test guarantees" being satisfied. Qualitech obtained financing for the construction project from various lenders, which included a $40 million revolving credit line to be used as working capital. The terms of the construction loan required a Qualitech officer to certify that a draw on the revolving credit line would be used to pay project costs, which included "capital expenditures, working capital or other operating costs [that] are necessary for the construction and operation of the Project." Appellant's Appendix at 342a.

By the beginning of 1998, although the mill was still several months from completion, it was becoming apparent to Qualitech that it was in deteriorating financial condition. An operating budget completed in March 1998 and presented to Defendants forecast that Qualitech would continue to suffer a cash-flow problem and be unable to pay its debts by November 1998. This projected shortfall was not specifically discussed with DC prior to its execution of the contract amendment in March 1998.

DC completed the mill on schedule. In May 1998, DC turned over the mill building to Qualitech and in July 1998 turned over the melt shop and equipment. DC sent its final invoice to Qualitech on September 25, 1998 seeking payment of $4,399,504.75. On October 20, 1998, Qualitech sent a letter to DC stating that it had reviewed the project and identified certain items that needed to be "cleared up" before payment of the final invoice. Appellant's Appendix at 312a. Qualitech's letter also declared that once agreement was reached on the items that it was "prepared to provide payment." Appellant's Appendix at 312a. A solution was reached and sometime later in October or November 1998, Geiger sent a memorandum to all those who worked on the mill construction, which in pertinent part stated:

On behalf of myself and the Qualitech family I want to express my sincere thanks to you for your hard work and efforts in building our steel mill. You will have built the mill in just 17 months from the first concrete pour, which is close to, if not in fact, a record. Most importantly, you have done so very safely, with an excellent safety record of which you can be very proud. Your productivity has been outstanding, allowing us to keep within our budget parameters.

Appellant's Appendix at 315a.

In November 1998, Qualitech submitted notice in accordance with its credit agreement with its lenders that it was requesting a term loan in the amount of $41,815,790 from which it would prepay the outstanding revolving credit loan of $13,500,000 thereby leaving it with net proceeds of $28,315,790 to pay project costs. In further compliance with the credit agreement, Qualitech prepared a "Use of Advance Certificate" for its lenders in which it certified that the loan would be used only to pay project costs that had been incurred or were scheduled to be incurred along with supporting documentation. Appellant's Appendix at 342a. The lenders refused to fund the November 4 draw request until receiving further information concerning Qualitech's open invoices. On November 13, 1998, a revised draw request was sent to the lenders, which included project costs that had not been paid, including DC's final invoice for $4.399 million. The draw request was still not funded because the lenders again requested more detailed information. A second revised draw request was submitted on November 16, 1998, and on or about November 17, 1998, the lenders wired $28,315,790 to Qualitech's operating account at Mellon Bank.

Despite the designation of the $4.399 million for payment to DC, Qualitech did not make final payment. Aware that Qualitech had received funding, DC wrote in a December 18, 1998 letter to Qualitech that it had been awaiting final payment (excluding pending change orders) for almost three months and that if payment was not received by December 23, 1998, DC would "have no choice but to declare Qualitech in default and [to] exercise all available legal remedies to secure and recover the funds due us." Appellees' Appendix at 165B. On December 23, 1998, Geiger and Peter Matt of Credit Suisse First Boston met at the Pittsburgh airport with Ken Martin, Roger Peters, Esq., and Ken Burk, all with DC, to discuss Qualitech's financial situation, the outstanding final payment, and efforts Qualitech was taking to arrange payment. The next day, DC sent Qualitech a letter in which it thanked Qualitech for the meeting and its candor concerning its financial situation, declared Qualitech in default, and expressed the desire to resolve the outstanding final contract payment of $4.399 million and open change orders.

Negotiations between the parties occurred in January, and on February 4, 1999, DC sent a letter to Qualitech confirming their agreement with respect to the final contract payment of $4.399 million and payment for the outstanding change orders in the amount of $3 million. DC requested a Qualitech signature on the "letter agreement," which Geiger executed and returned to DC. Appellees' Appendix at 181-182B. By letter dated February 5, 1999, DC sent its Change Order No. 106 ("Settlement Change Order"), which confirmed the previous letter agreement. The Settlement Change Order was executed on February 25, 1999 by Qualitech and on March 1, 1999 by DC. Attachment A to the Settlement Change Order contains four paragraphs, one of which is a mutual release of claims and three of which provide for payment in the event of: 1) Qualitech's continued operation; 2) Qualitech's sale of the business or assets and/or additional investment; and 3) Qualitech's bankruptcy.

Qualitech filed for bankruptcy on March 22, 1999. DC submitted a claim for over $7 million, which amount represents the $4.399 million final payment and the $3 million change order agreement less the total amount of $550,000 paid by Qualitech in February 1999.³ Qualitech does not dispute the claim, and the bankruptcy court has not confirmed a final plan.

On November 12, 1999, DC filed its complaint against Defendants alleging constructive fraud, conversion, and negligent misrepresentation. Defendants subsequently filed their motion for summary judgment, and following a hearing on May 9, 2002, the trial court granted summary judgment in favor of Defendants on DC's conversion claims and denied them summary judgment on the constructive fraud claim.

DISCUSSION AND DECISION

Our standard of review of a summary judgment order is well-settled: summary judgment is appropriate if the "designated evidentiary matter shows 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." Ind. Trial Rule 56(C). Relying on specifically designated evidence, the moving party bears the burden of making a prima facie showing that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. I/N Tek v. Hitachi Ltd., 734 N.E.2d 584, 586 (Ind. Ct.App.2000),trans. denied. If the moving party meets these two requirements, the burden shifts to the nonmovant to set forth specifically designated facts showing that there is a genuine issue for trial. Id. A genuine issue of material fact exists where facts concerning an issue that would dispose of the litigation are in dispute...