Intercontinental Mon. Corp. v. Performance Guar.

• Decision Date: 27 January 1989
• Docket Number: No. 88 Civ. 4462 (RLC).,88 Civ. 4462 (RLC).
• Citation: 705 F. Supp. 144
• Parties: INTERCONTINENTAL MONETARY CORP., Plaintiff, v. PERFORMANCE GUARANTEES, INC., Fred Hayward, and Hayward & Company Limited, Defendants.
• Court: U.S. District Court — Southern District of New York

705 F. Supp. 144

INTERCONTINENTAL MONETARY CORP., Plaintiff, v. PERFORMANCE GUARANTEES, INC., Fred Hayward, and Hayward & Company Limited, Defendants.

No. 88 Civ. 4462 (RLC).

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

January 27, 1989.

Rosemary C. Byrne and Cadwalader, Wickersham & Taft, New York City (Jean E. Burke, of counsel), for plaintiff.

Franklin, Weinrib, Rudell & Vassallo, P.C., New York City (Neil Rosini, of counsel), and Dern, Mason & Floum, P.C., Los Angeles, Cal., for defendant Performance Guarantees, Inc.

OPINION

ROBERT L. CARTER, District Judge.

In an opinion filed November 10, 1988, Intercontinental Monetary Corporation v. Performance Guarantees, Inc., et al. No. 88 Civ. 4462, (S.D.N.Y. Nov. 10, 1988) 1988 WL 125679 (hereinafter cited as "November 10 opinion"), the court reserved decision in this case on the issue of whether defendant Performance Guarantees, Inc. ("PGI") consented to the jurisdiction of the Southern District of New York. Decision was also reserved on a motion by PGI for a transfer of the case pursuant to 28 U.S.C. § 1404(a). An evidentiary hearing was held December 12, 1988, (the "December 12 Hearing") on the jurisdictional issue. Prior to the hearing, plaintiff Intercontinental Monetary Corporation ("IMC") moved for reargument of a holding in the November 10 opinion that is relevant to a determination of the consent issue. PGI opposed this motion and, in addition, cross moved for sanctions on the grounds that IMC's motion for reargument was not warranted by existing law or a good faith argument for its modification. The substantive issues raised by the contested holding were thoroughly briefed by both parties in their submissions on IMC's motion for reargument, so no further argument is needed for the court to decide the ultimate question raised by that motion.

The general factual background of the case is described in the court's November 10 opinion. The consent to jurisdiction issue presently before the court concerns the legal effect of a Term Loan And Security Agreement ("loan agreement") which PGI signed and transmitted to IMC on or about May 31, 1988, along with a number of other documents needed to close the loan described in the loan agreement. The loan agreement contains a choice of forum clause which provides that:

This Agreement shall be construed in accordance with and governed by the laws of the State of New York without giving effect to the principles thereof relating to the conflict of laws. For any dispute arising under this agreement or in connection therewith, Borrower hereby irrevocable sic submits to, consents to, and waives any objection to, the jurisdiction of the courts of the State of New York or the United States courts for the Southern District of New York.

Intercontinental Monetary Corporation v. Performance Guarantees, Inc., et al., No. 88 Civ. 4462, Hearing, December 12, 1988, Plaintiff's Exhibit 1, Art. 14(j) (hereinafter cited as the "loan agreement").

The packet of documents which included the loan agreement was transmitted to IMC under cover of a letter from PGI's attorney, Kenneth H. Wennergren, (the "Wennergren letter"). This letter contains the following passage, upon which PGI relies in claiming that its consent to jurisdiction contained in the loan agreement is ineffective:

You are authorized to utilize these documents only upon the funding of the loan called for therein through payment of the amounts owing to First National Bank of Minneapolis related to the film "RED SCORPION", with the remainder of the net proceeds going to our client, Performance Guarantees, Inc.

Intercontinental Monetary Corporation v. Performance Guarantees, Inc., et al., No. 88 Civ. 4462, Hearing, December 12, 1988, Plaintiff's Exhibit 2. It is PGI's position that this letter conditioned the effectiveness of the loan agreement on the disbursement of the loan funds. The court's November 10 opinion supported this position, stating that "If PGI did in fact send the loan agreement under cover of the Wennergren letter, then PGI's alleged consent to jurisdiction is ineffective." November 10 opinion at 7. This holding is the focus of IMC's motion to reargue.

Before considering IMC's motion for reargument, the court must address a choice of law question raised by PGI for the first time in response to the motion. Without suggesting that a relevant conflict exists between California and New York law, PGI argues that California law would be controlling if such a conflict did exist.

In deciding a choice of law question, a federal court sitting in diversity is bound by the choice of law rules of the forum state. Loebig v. Larucci, 572 F.2d 81, 84 (2d Cir.1978), citing Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). On issues of substantive law, New York courts employ the "paramount interest" test which gives "controlling effect to the law of the jurisdiction which has the greatest concern with, or interest in, the specific issue raised in the litigation." Neumeier v. Kuehner, 31 N.Y.2d 121, 335 N.Y.S.2d 64, 69, 286 N.E.2d 454, 457 (1972); see also Intercontinental Planning v. Daystrom, 24 N.Y.2d 372, 383, 300 N.Y.S.2d 817, 825, 248 N.E.2d 576, 581 (1969). "The task of the court is first to ascertain what the relevant legal issues are and then to determine, if more than one state is involved, which state's legitimate interests are most crucially implicated." Hutner v. Greene, 572 F.Supp. 49, 52 (S.D.N.Y.1983) (Carter, J.).

The issue presently before the court is whether PGI entered a binding agreement consenting to the jurisdiction of the Southern District of New York for purposes of adjudicating disputes arising out of the loan transaction which PGI and IMC commenced but never completed. The interest of both New York and California in the determination of this issue can be characterized partly as a concern to protect the legitimate personal and economic interests of their citizens and partly as an interest in regulating the formation of contracts within their boundaries. In the circumstances of this case, these interests are evenly weighted between the two states. Each is represented in the litigation by one of the parties, and the communications by means of which PGI either did or did not consent to this court's jurisdiction occurred between the two states. Based on these facts, neither state can claim a greater interest than the other in determining whether the jurisdictional agreement at issue was concluded.

Since the interests of California and New York are evenly divided on the specific question of contract formation which is presently at issue,¹ the court will decide the question on the basis of New York law. Both parties have argued their positions on the basis of New York rather than California law, and no claim of conflict has been made.

IMC argues that the effect of the Wennergren letter had not been properly briefed to the court, because the existence of the letter was mentioned for the first time in a PGI reply brief to which IMC had no opportunity to respond. With regard to the substantive point at issue, IMC argues that the Wennergren letter could not condition PGI's consent to jurisdiction. While a number of grounds are cited in support of this claim, the essence of IMC's argument is that the doctrine of conditional delivery, upon which the court relied in its holding, is inapplicable to the circumstances at issue here, and that even if it does apply, the parol evidence rule bars proof of the condition precedent which PGI seeks to establish.

IMC takes the position that the doctrine of conditional delivery applies only to "formal contracts,"² and is therefore inapplicable to the loan agreement. The only authority cited by IMC in support of this proposition, however, is a bankruptcy court decision, In re Roman Crest Fruit, Inc., 35 B.R. 939 (Bankr.S.D.N.Y.1983), which appears to have ignored controlling New York precedent.³

In Roman Crest a contract providing for the assignment of a leasehold was fully executed by both parties on the understanding that it would be submitted to the seller's attorney for his approval and that "if his approval doesn't come through there is no deal." Id. at 942. When the seller told his attorney that he was seeking a fraudulent under-the-table payment from the buyer in connection with the sale, the attorney refused to have anything further to do with the transaction and returned the executed contract to the buyer's attorney with both a handwritten cover note stating that his failure to approve was the result of a disagreement between him and the seller and a cover letter purporting to prohibit use of the documents.

The court held that the formation of the contract was validly conditioned upon the approval of the seller's attorney, but that "the condition is deemed to have been satisfied and the contract formed since it was the seller's breach of his implicit duty of good faith and fair dealing in the performance of this condition that caused his attorney to withhold his approval." Id. at 944.

The court then went on to consider the seller's contention that delivery of the contract without the approval of its terms by the seller's attorney was tantamount to no delivery, and that this failure of delivery invalidated the agreement. The court rejected this argument, holding that delivery is a requirement for the effectiveness only of formal contracts. Id. at 944.

It is this latter holding upon which IMC relies for its contention that the doctrine of conditional delivery applies only to formal contracts. In so holding, however, the Roman Crest court appears to have ignored the holding in 219 Broadway Corp. v. Alexander's, Inc., 46 N.Y.2d 506, 414 N.Y.S. 2d 889, 387 N.E.2d 1205 (1979), that:

A lease, as in the case of conveyances of an interest in land generally, requires the fulfillment by the parties of certain prerequisites to take effect. It is the

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