Priestley v. Headminder Inc.
| Decision Date | 28 July 2011 |
| Docket Number | Docket No. 09–4931–cv. |
| Citation | 80 Fed.R.Serv.3d 267,647 F.3d 497 |
| Parties | Katherine PRIESTLEY, Plaintiff–Appellee,v.HEADMINDER, INC., Defendant–Appellant,PanMedix, Inc., Electronic Knowledge Publishing, Inc., McDonald Comrie, Philip Yee, Dr. David Erlanger, Defendants. |
| Court | U.S. Court of Appeals — Second Circuit |
OPINION TEXT STARTS HERE
Dwight Yellen, Ballon Stoll Bader & Nadler, P.C., New York, New York, for Defendant–Appellant.Philip A. Byler, Nesenoff & Miltenberg, LLP, New York, New York, for Plaintiff–Appellee.Before: McLAUGHLIN and HALL, Circuit Judges, and BERMAN, District Judge.*PER CURIAM:
Defendant Headminder, Inc. appeals from the October 20, 2009 order and the October 27, 2009 amended judgment of the United States District Court for the Southern District of New York (Harold Baer, Jr., J.). The district court's order denied in part Headminder's Rule 60 motion 1 brought under the Federal Rules of Civil Procedure to amend the court's August 28, 2008 judgment (“2008 judgment” or “original judgment”). That motion, inter alia, requested that the court strike Headminder as a party subject to the judgment because Priestley had not moved for summary judgment against it. The court concluded that because Plaintiff Katherine Priestley's complaint asserted contract claims against all of the corporate defendants—including Headminder—and because she was subsequently granted summary judgment on those claims, Headminder should not be relieved from the effects of the original judgment.
Because Priestley did not move for summary judgment against Headminder, we hold that the district court erred in granting summary judgment against it. Additionally, we hold that the district court's determination that Headminder defaulted in failing to file a timely answer to the complaint does not otherwise provide a valid basis for maintaining Headminder as a party liable on the amended judgment. We therefore reverse the decision of the district court insofar as it granted summary judgment against Headminder, and we remand to the court with instructions to strike Headminder as a party subject to the amended judgment.
In 1997 Katherine Priestley became a shareholder in Xcape, Inc., which in 2000 was restructured into PanMedix Corporation, a biotechnology company. PanMedix and Headminder, also a biotechnology company, entered into a joint venture agreement in 2000 to produce and sell a new line of biotechnology products. In 2001 Priestley loaned PanMedix $750,000 subject to the terms of a one-year promissory note (the “note”). PanMedix's president, McDonald Comrie, signed the note and also signed an unconditional agreement of guarantor in his capacity as president of Electronic Knowledge Publishing, Inc. (“EKP”), a subsidiary of PanMedix. The note evidenced a debt of $750,000 in principal, with interest at 11.5% for the one-year term of the note and thereafter at 13% per annum from April 6, 2002 onward until the principal was paid.
In April 2002, PanMedix defaulted on the note. Although Priestley sent a notice of default, she was told that if she called the note due, PanMedix would declare bankruptcy, its operations would cease, and the value of the collateral pledged in support of the loan would no longer cover the monies due on the loan. As a result Priestley declined to enforce the note's provisions at that time and instead loaned PanMedix an additional $85,000, subject to the terms of the original note, based upon Comrie's representation that these funds would allow the company to recapitalize successfully.
Despite this additional loan PanMedix continued to suffer from undercapitalization and insufficient revenue generation. As a consequence it again defaulted on the note. Priestley sent PanMedix a notice of default on November 30, 2005, declaring the entire principal amounts and all accrued interest due and payable at that time. No payments were made.
On February 23, 2007, Priestley filed a complaint in the United States District Court for the Southern District of New York asserting four causes of action. In counts one and two Priestley alleged that PanMedix, EKP, and Headminder breached the terms of the note by failing to repay the principal and interest of the 2001 and 2002 loans. More specifically, she asserted that PanMedix was directly obligated to repay the loans, that EKP was the guarantor of the amounts owed by PanMedix, and that Headminder was also liable on the note based on what she alleged was a de facto merger between PanMedix and Headminder. In counts three and four Priestley asserted a derivative action on behalf of PanMedix for damages proximately caused by three named directors and officers of the corporation (the “directors and officers”) who are alleged to have breached their fiduciary duties of loyalty and care.
On November 27, 2007, the district court granted in part and denied in part defendants' motion to dismiss Priestley's direct and derivative claims, dismissing only the derivative claims against the directors and officers. Priestley subsequently moved for summary judgment on January 15, 2008 against PanMedix and EKP. Notably, Priestley did not move for summary judgment against Headminder. In fact, Priestley made no reference to Headminder in any of her motion papers filed with the district court.
About two weeks later, and over sixty days after the district court's disposition of their motion to dismiss, the defendants collectively filed an answer to the complaint and asserted counterclaims. Priestley then moved to strike the answer and sought a default judgment pursuant to Rule 6 and Rule 55 of the Federal Rules of Civil Procedure.
After defendants filed oppositions to Priestley's motions and an attempt at settlement negotiations failed, the district court granted summary judgment in an August 25, 2008 order against all the named defendants—PanMedix, EKP, and Headminder, as well as the three directors and officers. In doing so the district court granted summary judgment not only against parties against which Priestley had not sought summary judgment, but also against parties the court had already dismissed from the case. Additionally, in the course of awarding summary judgment, the district court determined that the defendants' answer and counterclaims were untimely and that they had procedurally defaulted. The district court, however, did not enter a default judgment. The court's August 28, 2008, judgment was based solely on its August 25 grant of summary judgment in favor of Priestley.
Defendants filed a letter motion on September 9, 2008 requesting the district court to amend the judgment to clarify which of the defendants were subject to the grant of summary judgment. While this request was pending, defendants filed a notice of appeal on September 23, 2008 as to the August 28 judgment. Less than a month later defendants again submitted a letter to the district court stating the August 28 judgment contained an inadvertent error. Specifically, they asserted that even though the district court dismissed the derivative claims against the PanMedix directors and officers in 2007 and that Priestley's motion for summary judgment was brought only against PanMedix and EKP, the court had nonetheless entered judgment against all of the defendants. The court responded to these requests stating it lacked jurisdiction to address them. The court directed the defendants to request an amended judgment from this Court on appeal.
On October 30, 2008, the parties entered into a stipulation withdrawing the appeal from active consideration. The stipulation provided that the appeal could be reactivated by written notice to this Court by January 15, 2009. Having received no such notice, in March 2009 this Court dismissed the appeal as withdrawn.
Following the dismissal of the appeal and another failed round of settlement negotiations, on August 20, 2009 Headminder and the directors and officers filed a Rule 60 motion to amend the judgment. They argued that while the district court had properly entered judgment against PanMedix and EKP, the court erred in entering judgment against them. In its October 20, 2009 order the district court concluded that the directors and officers should not have been included in the 2008 judgment. The court determined, however, that the entry of judgment against Headminder was appropriate because Priestley had “asserted Contract Claims against all of the Corporate Defendants, including Headminder, and was granted summary judgment on those claims.” The district court ordered that defendants' “motion to correct the 2008 judgment is GRANTED IN PART and that an amended judgment that reflects the dismissal of the Individual Defendants, but not Headminder, be entered forthwith.” It entered an amended judgment on October 27, 2009 that withdrew the original judgment but explicitly maintained Headminder as a liable party. This appeal followed.
Headminder argues on appeal that the district court erred by including it as a party liable on the judgment because Priestley neither moved for summary judgment against it nor provided any facts in her motion that would support such a result. Furthermore, Headminder submits that Priestley's alternate basis in support of Headminder's inclusion on the judgment—a de facto merger—is unavailing because the complaint fails to state a claim against Headminder pursuant to the de facto merger doctrine. We agree and therefore reverse the district court's decision granting summary judgment against Headminder.
As a preliminary matter we must first determine our scope of review. Priestley argues that our review is limited to whether the district court abused its discretion in denying Headminder's August 2009 Rule 60 motion. See Malik v. McGinnis, 293 F.3d 559, 561 (2d Cir.2002) ...
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