Phoenix Technologies, Inc. v. TRW, INC., 92-CV-5863.

• Decision Date: 05 January 1994
• Docket Number: No. 92-CV-5863.,92-CV-5863.
• Citation: 840 F. Supp. 1055
• Parties: PHOENIX TECHNOLOGIES, INC., Plaintiff, v. TRW, INC., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

840 F. Supp. 1055

PHOENIX TECHNOLOGIES, INC., Plaintiff, v. TRW, INC., Defendant.

No. 92-CV-5863.

United States District Court, E.D. Pennsylvania.

January 5, 1994.

COPYRIGHT MATERIAL OMITTED

A. Charles Peruto, Sr., Philadelphia, PA, for plaintiff.

Michael F.R. Harris, Jeffrey G. Weil, Thomas Dolgenos, Dechert, Price & Rhoads, Philadelphia, PA, Jennifer E. Millson, Deborah P. Warner, TRW Inc., Cleveland, OH, for defendant.

Frederic J. Baker, pro se.

MEMORANDUM AND ORDER

Joyner, District Judge.

At issue before the Court is defendant TRW, Inc.'s motion for summary judgment and the response of plaintiff, Phoenix Technologies, Inc. On October 9, 1992, plaintiff filed a six count complaint against defendant, stating claims for breach of contract, breach of an implied covenant of good faith and fair dealing, bad faith tort, fraud and misrepresentation, negligent misrepresentation and promissory estoppel/detrimental reliance. Plaintiff's claims all stem from the circumstances surrounding an Agreement of Purchase and Sale ("Agreement") between the parties, which was terminated by defendant pursuant to section 2.1 of the fourth amendment to the Agreement. Defendant has also filed a counterclaim against plaintiff sounding in fraud. Defendant now seeks summary judgment on the ground that there is no genuine issue of material fact with respect to any of plaintiff's claims against defendant.

In its motion for summary judgment, defendant makes the following arguments: first, summary judgment on the breach of contract claim is warranted because there is no evidence that defendant breached the contract, and even if there was, plaintiff was not damaged by the breach. Second, there are no causes of action in Ohio for breach of an implied covenant of good faith and fair dealing and for the tort of bad faith in cases involving commercial contracts. Third, plaintiff has no evidence to support its claims for fraud and negligent misrepresentation. Finally, plaintiff has not introduced sufficient evidence to state a claim for promissory estoppel. For the reasons set forth more fully below, we will grant defendant's motion as to all counts of the complaint.

Facts

This case arises pursuant to the Agreement entered on October 26, 1990 between the parties. Under the Agreement, plaintiff was to buy and defendant was to sell a portion of defendant's business called the Customer Service Division ("CSD")¹ for forty million dollars. Under the Agreement, closing was supposed to occur on November 30, 1990. If closing did not occur by that date, the Agreement provided that defendant would be entitled to retain a one million dollar prepayment made by plaintiff that went towards the purchase price.²

Closing did not occur by that date, and subsequently the parties entered into four amendments to the Agreement, each extending the date for closing and also requiring option payments by plaintiff that went towards the purchase price. These option payments were also subject to a similar condition of retention by defendant that, as with the original prepayment, defendant could retain the option payments if closing did not occur by the dates specified in the amendments. The total amount of option payments and the prepayment paid by plaintiff was 3.5 million dollars.

The final amendment included a provision which stated:

Unless otherwise extended by the parties in writing, this Agreement shall terminate on the date which is not less than ten (10) days after delivery of written notice by one party to the other given at any time after June 3, 1991, if the Closing has not occurred on or before the date specified in the notice.

Section 2.1 of the Fourth Amendment.

The date for closing specified in the fourth amendment was May 3, 1991. Closing did not occur by that date; thus, on June 4, 1991, defendant sent plaintiff a 10-day notice letter stating that the Agreement would be terminated unless closing occurred by June 14, 1993. The parties failed to close by June 14.

Standard

In considering a motion for summary judgment, the court must consider whether the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, show there is no genuine issue as to any material fact, and whether the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). The court is required to determine whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). In making this determination, all reasonable inferences must be drawn in favor of the nonmoving party. Anderson, 477 U.S. at 256, 106 S.Ct. at 2512. While the movant bears the initial burden of demonstrating an absence of genuine issues of material fact, the nonmovant must then establish the existence of each element of its case. J.F. Feeser, Inc., v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3rd Cir.1990), cert. denied, 499 U.S. 921, 111 S.Ct. 1313, 113 L.Ed.2d 246 (1991) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986)).

Discussion

I. Choice of law

Jurisdiction in this case is based on diversity of jurisdiction. Thus, before we can address the issues raised in defendant's motion, we must first decide what state law to apply in this case. Plaintiff argues that it is possible to apply either Pennsylvania, New Jersey or Ohio law to this case, and suggests that we use Ohio conflict of law rules in order to make our determination. However, it is well settled that federal courts apply the conflict of law rules of the state in which they sit when confronted with this issue. American Air Filter Co., Inc. v. McNichol, 527 F.2d 1297, 1299 n. 4 (3rd Cir.1975); McCoy v. Marriott Corp., 91 F.R.D. 610, 612 n. 2 (E.D.Pa.1981) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). Thus, we must apply Pennsylvania conflict of law rules in order to determine which state's substantive laws govern this case.

Plaintiff correctly states that the laws of Pennsylvania, New Jersey and Ohio all appear to be applicable in this case. Plaintiff resides in Pennsylvania, numerous correspondence was initiated in Pennsylvania, plaintiff executed the amendments in Pennsylvania and it is also the state where plaintiff intended to headquarter the CSD. Defendant is headquartered in Ohio, and it is also the state where defendant's representatives executed the amendments to the Agreement. The Agreement itself appears to have been executed by the parties at their respective headquarters. In addition, the CSD was headquartered in New Jersey, and many of the negotiations prior to the Agreement occurred in New Jersey.

However, the parties included a forum selection clause in the Agreement designating Ohio law as the law governing this case. The clause states: "This Agreement will be governed by and construed in accordance with the internal substantive laws of the State of Ohio, except where the substantive laws of another jurisdiction mandatorily apply." § 11.11 of the Agreement. Generally, a federal court sitting in diversity in Pennsylvania will honor the parties' forum selection clause. American Air Filter, 527 F.2d at 1299, n. 4 (citing Boase v. Lee Rubber & Tire Corp., 437 F.2d 527 (3rd Cir.1970)); Composiflex, Inc. v. Advanced Cardiovascular Sys., Inc., 795 F.Supp. 151, 155 (W.D.Pa.1992) (citations omitted). It is only where plaintiff's ability to pursue its cause of action would be impaired or because of some other compelling reason that the clause would not be honored. Instrumentation Assoc. v. Madsen Elec., 859 F.2d 4, 7-8 (3rd Cir.1988) (citing Central Contracting Co. v. C.E. Youngdahl & Co., 418 Pa. 122, 133, 209 A.2d 810, 816 (1965)); LCI Communications, Inc. v. Wilson, 700 F.Supp. 1390, 1396 (W.D.Pa.1988).

We can find no reason why Ohio law should not be applied in this case. It does not impair plaintiff's ability to pursue its cause of action by applying Ohio law here; indeed, plaintiff admits that no matter which laws of the three states are applied, the result would be the same. Nor does plaintiff identify any reason why Ohio law should not be applied. Finally, we note that the decision to apply Ohio law is also appropriate under the laws of both Ohio and New Jersey because both states recognize the validity of forum selection clauses. Instructional Sys., Inc. v. Computer Curriculum Corp., 130 N.J. 324, 341, 614 A.2d 124, 133 (1992) (courts will uphold contractual choice provisions unless it violates New Jersey's public policy); Jarvis v. Ashland Oil, Inc., 17 Ohio St.3d 189, 192, 478 N.E.2d 786, 789 (1985) (law chosen will not be applied if it is repugnant to and in violation of public policy of laws of Ohio, and if Ohio has materially greater interest than the state chosen). As such, Ohio law will be applied in this case.

II. Breach of contract

A. Recovery of compensatory damages

In its complaint, plaintiff alleges that defendant breached the contract for the following reasons:

(a) defendant TRW accelerated the CSD billing cycle in May which was inconsistent with the ordinary course of business and had the effect of providing cash to TRW at the expense of future working capital; (b) defendant TRW accelerated its accounts receivable collection efforts which was inconsistent with the ordinary course of business and had the effect of providing cash to TRW at the expense of plaintiff's future working capital; (c) defendant TRW implemented a restructuring out of the ordinary course of business; (d) the represented CSD receivables included one million dollars ($1,000,000.00) to two million dollars ($2,000,000.00) of accounts relating to customers with expired contracts and who do not continue to use the services of CSD; (e) defendant TRW failed to obtain and deliver environmental clearances; (f) defendant TRW failed to obtain and deliver

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