Readco, Inc. v. Marine Midland Bank

• Decision Date: 10 April 1996
• Docket Number: D,No. 369,369
• Parties: READCO, INC., R.D.P. Associates, Lan Associates XII and Antonio Reale, Plaintiffs-Appellants, v. MARINE MIDLAND BANK; Eagle Rock Holding, Inc., a New York Corp., Defendants-Appellees. ocket 95-7317.
• Court: U.S. Court of Appeals — Second Circuit

Page 295

81 F.3d 295

READCO, INC., R.D.P. Associates, Lan Associates XII and Antonio Reale, Plaintiffs-Appellants, v. MARINE MIDLAND BANK; Eagle Rock Holding, Inc., a New York Corp., Defendants-Appellees.

No. 369, Docket 95-7317.

United States Court of Appeals Second Circuit.

Argued Nov. 20, 1995.

Decided April 10, 1996.

Plaintiffs appeal from an order of the United States District Court for the Southern District of New York (Duffy, J.), reported at 879 F.Supp. 355 (S.D.N.Y.1995), granting summary judgment in favor of defendants. Plaintiffs argue that they demonstrated a material issue of fact as to whether the contract is ambiguous. They also contend that genuine issues of material fact exist on their claims for estoppel and waiver.

Joseph M. Cerra, New York City (A. Dennis Terrell, Shanley & Fisher, P.C., New York City), for Plaintiffs-Appellants.

Aaron Rubinstein, New York City (Jeffrey A. Fuisz, Kaye, Scholer, Fierman, Hays & Handler, New York City), for Defendants-Appellees.

Before: CARDAMONE, WALKER, and PARKER, Circuit Judges.

WALKER, Circuit Judge:

Plaintiffs Readco, Inc., R.D.P. Associates, Lan Associates XII, and Antonio Reale appeal from a memorandum and order of the United States District Court for the Southern District of New York (Kevin T. Duffy, District Judge ) that granted summary judgment on all causes of action in favor of defendants Marine Midland Bank ("Marine") and Eagle Rock Holding, Inc. ("Eagle Rock") and dismissed the amended complaint. See Readco, Inc. v. Marine Midland Bank, N.A., 879 F.Supp. 355 (S.D.N.Y.1995). Plaintiffs alleged in their amended complaint seven causes of action, which can be grouped into four categories: breach of contract, common law fraud, waiver, and estoppel (both promissory and equitable). The district court granted summary judgment in favor of defendants on the breach of contract claims on the ground that, even interpreting the contract in the light most favorable to plaintiffs, there was "no rational legal basis on which to base a finding for Plaintiffs." Id. at 360. The district court entered summary judgment against plaintiffs on the common law fraud and estoppel causes of action, because, in its view, plaintiffs had failed to offer any evidence that defendants had made a material omission. Id. at 361-62, 363. Finally, the court dismissed the waiver claim on the ground that the complaint failed to allege a voluntary and intentional abandonment of a known right. Id. at 362. Plaintiffs now appeal the dismissal of the breach of contract, estoppel, and waiver claims.

BACKGROUND

This litigation arises out of the construction of a residential condominium building, known as Crown View Manor, in West Orange, New Jersey. Marine made loans to Readco for the purpose of purchasing land and constructing the condominium units. As In June 1992, after the forbearance agreement expired, Marine and Eagle Rock, an affiliate of Marine, entered into a settlement agreement (the "Settlement Agreement") with Readco and the guarantors, in which Readco conveyed the land and buildings at Crown View Manor to Eagle Rock, and Marine agreed not to sue Readco for the debt, released the guaranties, and assumed certain liabilities.

                part of its consideration for the loans, Marine received various guaranties from Readco, R.D.P., and Reale, among others.   In 1989, Readco defaulted on the loan agreements and in June 1991, Marine, Readco, and the guarantors entered into a forbearance agreement, in which Marine agreed not to exercise certain of its contractual rights until January 1992
                

As part of the earlier financing of Crown View Manor, Chase Manhattan Bank ("Chase") had issued a $3,000,000 letter of credit in favor of Marine, which Reale had personally guaranteed up to the amount of $1,250,000. After Readco defaulted under the loan agreements, Marine called the letter of credit and Chase paid the full $3,000,000. As part of § 17A of the Settlement Agreement, the parties agreed that

Upon the joint written request of Chase and Antonio Reale, made within six (6) months of the Closing Date and accompanied by the duly executed agreement of Chase ... that, subject to the payment of $1,250,000 in immediately available funds to Chase, all obligations of Antonio Reale ... are paid and discharged in full, Lender agrees to promptly make such payment of $1,250,000 to Chase, ... provided, further, that in the event that the Audit referred to in Section 6(r) of this Agreement indicates that greater than $1,980,000 in aggregate Loans by the Lender to the Borrower have been used for purposes other than as expressly permitted under the Loan Agreement or as elsewhere consented to in writing by the Lender, then, and in any such event, the maximum amount of the payment to Chase available under this Section 17A shall be reduced by the amount of such excess over $1,980,000.

The closing of the Settlement Agreement occurred on October 15, 1992. Reale and Chase subsequently negotiated a settlement agreement (the "Chase Settlement") between them and, on March 15, 1993, made a written request to Marine for the $1,250,000, pursuant to § 17A. On April 30, 1993, Marine informed Reale that it would not pay the $1,250,000 to Chase because its "KPMG audit report" revealed that Readco had improperly diverted more than $3,300,000.

In July 1993, plaintiffs filed the instant action in New Jersey Superior Court, alleging that defendants were obligated to make the $1,250,000 payment. Defendants timely removed the action to federal court in New Jersey, pursuant to 28 U.S.C. §§ 1441 and 1446. In December 1993, the parties consented to transfer the case to the Southern District of New York and in February 1994, defendants moved to dismiss the amended complaint under Fed.R.Civ.P. 9(b) and 12(b)(6). On January 31, 1995, the district court entered an order sua sponte, which transformed the motion into one for summary judgment pursuant to Fed.R.Civ.P. 56 and granted the parties twenty days to file any additional affidavits or other supporting documents with the court. On March 15, the district court granted summary judgment to defendants and dismissed the complaint. Readco, 879 F.Supp. 355.

DISCUSSION

It is well-settled that in ruling on a motion for summary judgment, a

judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the [non-movant] on the evidence presented. The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant].

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986). Furthermore, a district judge must view the evidence in the light most favorable to the non-moving party and must draw all inferences in favor of that party. See Hanson

                v. McCaw Cellular Communications, Inc., 77 F.3d 663, 667 (2d Cir. 1996).   When reviewing the grant of a summary judgment motion, we must determine whether "there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party."  Anderson, 477 U.S. at 250, 106 S.Ct. at 2511
                

A. The Breach of Contract Claims.

On appeal, plaintiffs pursue three breach of contract theories. First, they claim that defendants' failure to complete an audit by the time of the closing was a breach of the Settlement Agreement. Second, they argue that § 17A of the Settlement Agreement allows defendants to use only a pre-closing audit to reduce the obligation to pay the $1,250,000 to Chase, and that the use of a post-closing audit is a breach. Finally, plaintiffs contend that defendants have breached an alleged obligation to conduct the audit in good faith. We address each argument in turn.

The first theory rests upon § 6 of the Settlement Agreement, which states in pertinent part:

Neither [Marine Midland] nor [Eagle Rock] shall have any obligation to execute or deliver any Document (other than this Agreement) or any other document or make any payment or take any other action under Section 2 of this Agreement unless on or prior to the Closing Date the following conditions shall have been satisfied in full or waived in writing by the party or parties for whose benefit the condition exists:

....

(r) [Marine Midland] and [Eagle Rock] shall have received an audit (the "Audit") of the books and records of the Borrower in form and scope satisfactory to [Marine Midland] and [Eagle Rock], and such audit shall find no more than $1,980,000 in aggregate of the Loans provided by the [Marine Midland] to the Borrower have been used for purposes other than as expressly permitted under the Loan Agreement or as otherwise expressly approved by [Marine Midland] in writing.

Plaintiffs contend that, under § 6(r), if defendants failed to conduct a pre-closing audit, defendants breached the Settlement Agreement. This argument has no merit.

Under New York law, which governs here pursuant to § 21(c) of the Settlement Agreement, whether a contract is ambiguous is a matter of law for the court to decide, and parol evidence is not admissible to create an ambiguity. W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162-63, 565 N.Y.S.2d 440, 566 N.E.2d 639 (1990). A contract is ambiguous where reasonable minds could differ on what a term means, see Van Wagner Advertising Corp. v. S & M Enters., 67 N.Y.2d 186, 191, 501 N.Y.S.2d 628, 492 N.E.2d 756 (1986), but no ambiguity exists where the alternative construction would be unreasonable, see, e.g., Mandelblatt v. Devon Stores, Inc., 132 A.D.2d 162, 167, 521 N.Y.S.2d 672 (1st Dep't 1987) (construction which produces unreasonable result is against general policy of law).

Section 6(r) states that Marine and Eagle Rock shall not be required to take any action under § 2 of the Settlement Agreement unless they have...