Rje Corp. v. Northville Industries Corp.
| Decision Date | 15 May 2003 |
| Docket Number | Docket No. 02-9116. |
| Parties | RJE CORP., Plaintiff-Appellee, v. NORTHVILLE INDUSTRIES CORP., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Second Circuit |
John J. Kuster, D.A. Jeremy Telman, Fernando Menedez, Sidley Austin Brown & Wood LLP, New York, NY, for Plaintiff-Appellee.
Maria T. Vullo, Andrew G. Frank, Matthew J. Kalmanson, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendant-Appellant.
Before: FEINBERG, KATZMANN, Circuit Judges, and MURTHA, District Judge.1
Defendant-appellant Northville Industries Corp. appeals from a judgment of the United States District Court for the Eastern District of New York (Block, J.), granting summary judgment in favor of plaintiff-appellee RJE Corp. as to the meaning of "the fair market value of the Pipeline System" for purposes of interpreting a contract between the parties, and from an order of the District Court denying Northville's motion for reconsideration. Because we conclude that the plain and unambiguous language of the contract defines "the fair market value of the Pipeline System" as only including the assets, not ongoing liabilities, of the Pipeline System in the event of abandonment, we affirm the judgment of the District Court. We also conclude that the District Court did not abuse its discretion in denying Northville's motion for reconsideration.
Northville is a large petroleum products company whose businesses include the operation of oil terminals (the "Pipeline System"). For many years, Northville was owned by two brothers and their respective families, with the Harold Bernstein family owning 55.66% of Northville and the Raymond Bernstein family owning the remaining 44.34%. As disputes between the two families intensified in the mid-to-late 1980s, the families began to negotiate an agreement by which the Harold Bernstein family would purchase all of the Raymond Bernstein family's Northville stock. The Raymond Bernstein family incorporated RJE Corp. for the purpose of entering into this stock sale.
As these negotiations were proceeding, Northville discovered significant underground gasoline leaks at two of its oil terminals. These leaks, which gave rise to various governmental investigations and a class action lawsuit brought by local landowners, resulted in potential and indeterminate environmental liabilities that presented an obstacle for the parties' negotiations.
The parties executed a series of agreements in 1988 pertaining to the stock sale. The Stock Purchase Agreement sets forth the terms for Northville's purchase of RJE's Northville stock. Under the Stock Purchase Agreement, Northville would maintain and operate the Pipeline System, with the parties continuing to share a joint interest in the Pipeline System. The Stock Purchase Agreement lists various "related agreements," including the Purchase Price Adjustment Agreement and the Option and Proceeds Distribution Agreement ("Option Agreement").
The Option Agreement enumerates five methods by which the parties could sever their joint interest in the Pipeline System: 1) Purchase Option Provision; 2) Purchase Option Termination Provision; 3) Right of First Refusal Provision; 4) Sale Provision; and 5) Abandonment Provision. On July 27, 2001, Northville triggered the Abandonment Provision, which governs the disposition of the Pipeline System should Northville decide to shut down or cease operating the Pipeline System. The provision states:
In the event [Northville] determines to shut down or cease operating all or substantially all of the Pipeline System (an "Abandonment"), [Northville] shall promptly notify RJE in writing and use its best efforts to obtain and deliver to RJE within 60 days of the date of abandonment, an appraisal from an investment banking firm or independent appraiser, in each case mutually agreed upon by [Northville] and RJE ..., as to the fair market value of the Pipeline System.
Option Agreement § 2.03 (emphasis added). Once the parties receive an appraisal of the fair market value of the Pipeline System, RJE and Northville "shall have the right to submit to each other, within thirty days of the receipt of the appraisal, a bid ... at which price it will purchase the Pipeline System or effect a Pipeline Option Termination, respectively." Id. If neither bid exceeds the fair market value, Northville "shall use its best efforts for a period of one-year to obtain a third-party buyer for the Pipeline System." Id.
Unable to agree on an appraiser, the parties altered the process so that each party would choose its own appraiser. The parties agreed to utilize the average of these appraisals as the appraised price, unless the appraisals were more than 10% apart, in which case the two appraisers would choose a third appraiser. The parties exchanged appraisals on December 21, 2001. Northville's appraiser took into account environmental liabilities in calculating "the fair market value of the Pipeline System," and appraised the Pipeline System at a negative $12,857,000. RJE's appraiser, who ignored environmental liabilities, appraised the Pipeline System to be worth $45,000,000. Because the difference in appraisals exceeded 10%, a third appraiser was selected. On February 13, 2002, the third appraiser, who like RJE did not consider environmental liabilities, appraised the Pipeline System at $40,500,000.
The parties agreed to submit bids on March 15, 2002, but they continued to dispute how to calculate "the fair market value of the Pipeline System" for purposes of bidding. Northville declared that it was only willing to sell the Pipeline System on an "as is" basis, which would include environmental liabilities, and that if RJE bid on any other basis, Northville would consider that bid invalid. RJE brought the instant litigation seeking a declaratory judgment and specific performance as to the meaning of "the fair market value of the Pipeline System" under the Abandonment Provision in order to enable it to proceed with the bidding process. Northville agreed to toll the bidding process, and the court promptly conducted a two-day evidentiary hearing.
In a published decision dated April 25, 2002, the District Court "declare[d] that the `fair market value of the Pipeline System' is to be based on the fair market value of the assets comprising the Pipeline System, without offset for the costs of future remediation for existing environmental liabilities." RJE Corp. v. Northville Indus. Corp., 198 F.Supp.2d 249, 271 (E.D.N.Y.2002). The court "conclude[d] that the parties unambiguously intended a straight asset sale, meaning that the fair market value of the Pipeline System shall not take into account the appraised costs of future remediation." Id. at 263. The court also explained that "[e]ven if the meaning of `fair market value of the Pipeline System' be deemed ambiguous, extrinsic evidence establishes that the bids are to proceed on the basis of a straight asset sale." Id. at 267. Finally, although the court concluded that the elements of specific performance were present, it permitted Northville to elect whether to proceed with the bidding process in accordance with the ruling or to withdraw from abandonment altogether, on the assumption that Northville would then compensate RJE for the incidental costs incurred by RJE.
Northville moved for reconsideration of the District Court's decision, requesting that the court omit certain portions of the decision that it contended are dicta and therefore should not be binding in future proceedings. Because Northville was not seeking to alter the court's conclusion, the District Court denied the motion. RJE Corp. v. Northville Indus. Corp., No. 02-CV-1440, 2002 WL 1750763 (E.D.N.Y. July 29, 2002). The court noted that Northville's argument that certain language is dicta "should be reserved for any such future litigation" and refused to express an opinion as to the merits of those arguments. Id. at *1.
The heart of this appeal is the meaning of "the fair market value of the Pipeline System," under the Abandonment Provision of the Option Agreement. Northville argues that the District Court erred because "the fair market value of the Pipeline System" must take into account environmental liabilities. RJE responds that the parties contracted for a straight asset sale that did not consider such liabilities in the event of abandonment. Both parties contend that the unambiguous language of the contract, as well as extrinsic evidence, support their interpretation.
Because this case was brought in a district court within the State of New York, we turn to New York substantive law. Schiavone Constr. Co. v. City of New York, 99 F.3d 546, 548 (2d Cir.1996). Section 7.08 of the Option Agreement sets forth a choice of law provision selecting New York law: "This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to its [] conflict of laws rules." It is the general policy of New York courts to enforce choice of law provisions, and we therefore apply New York contract law to determine the meaning of "the fair market value of the Pipeline System" under the Abandonment Provision. See Finucane v. Interior Constr. Corp., 264 A.D.2d 618, 619-20, 695 N.Y.S.2d 322, 324 (1st Dept. 1999); see also Schiavone, 99 F.3d at 548.
Where a "contract is clear and unambiguous on its face, the intent of the parties must be gleaned from within the four corners of the instrument, and not from extrinsic evidence." De Luca v. De Luca, 300 A.D.2d 342, 342, 751 N.Y.S.2d 766, 766 (2d Dept.2002). In assessing ambiguity, we consider the entire contract to "safeguard against adopting an interpretation that would render any individual provision superfluous." Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1095 (2d Cir.1993). Contract terms are not ambiguous if they "have a...
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