TBG, INC. v. Bendis

• Decision Date: 17 February 1994
• Docket Number: Civ. A. No. 89-2423-EEO.
• Citation: 845 F. Supp. 1459
• Parties: TBG, INC., Plaintiff, v. Richard A. BENDIS, et al., Defendants.
• Court: U.S. District Court — District of Kansas

845 F. Supp. 1459

TBG, INC., Plaintiff, v. Richard A. BENDIS, et al., Defendants.

Civ. A. No. 89-2423-EEO.

United States District Court, D. Kansas.

February 17, 1994.

J.D. Lysaught, Mustain, Higgins, Kolich, Lysaught & Tomasic, Kansas City, KS, Herbert E. Milstein, Lisa M. Mezzetti, and Daniel S. Sommers, Cohen, Milstein, Hausfeld & Toll, Washington, DC, for TBG, Inc. and George A. Bridgmon.

Bruce Keplinger, John Benge, Michael G. Norris and Michael B. Lowe, Richard G. Norris, Payne & Jones, Chtd., Overland Park, KS, for Richard A. Bendis.

Karen J. Halbrook and John R. Cleary, Husch & Eppenberger, Kansas City, MO, for W. Terrance Schreier.

Anthony F. Rupp, Shughart, Thomson & Kilroy, Overland Park, KS, John M. Kilroy, R. Lawrence Ward, Shughart, Thomson & Kilroy, P.C., Kansas City, MO, and Emmett E. Eagan, Jr., Ernst & Young, Cleveland, OH, for Ernst & Whinney.

J.D. Lysaught, Mustain, Higgins, Kolich, Lysaught & Tomasic, Kansas City, KS, Herbert E. Milstein, Lisa M. Mezzetti, Daniel S. Sommers, Cohen, Milstein, Hausfeld & Toll, Washington, DC, and Martin E. Karlinsky, Scheffler, Karlinsky & Stein, New York City, for Richard S. Masinton and Continental Healthcare Systems, Inc.

J.D. Lysaught, Mustain, Higgins, Kolich, Lysaught & Tomasic, Kansas City, KS, M. Michael Gill, Tamara Wilson Setser, Julia A. Riggle, Hillix, Brewer, Hoffhaus, Whittaker & Wright, Kansas City, MO, Herbert E. Milstein, Lisa M. Mezzetti and Daniel S. Sommers, Cohen, Milstein, Hausfeld & Toll, Washington, DC, for Paul R. Billington.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, District Judge.

This matter is before the court on motions to reconsider the court's Memorandum and Order dated December 21, 1993, 841 F.Supp. 1538, by defendant Richard Bendis (Doc. # 963), Terrance Schreier (Doc. # 965), and defendant Ernst and Whinney (Doc. # 966). For the reasons set forth below, defendants Bendis and Schreier's motions will be granted and defendant Ernst's motion will be denied.

The decision of whether to grant or deny a motion for reconsideration is committed to the court's discretion. See Hancock v. City of Oklahoma City, 857 F.2d 1394, 1395 (10th Cir.1988) (district court's decision on motion for reconsideration is reviewed under abuse of discretion standard). It is well established that a motion for reconsideration is the opportunity for the court to correct manifest errors of law or fact and to review newly discovered evidence or to review a prior decision when there has been a change in the law. Harsco Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d Cir.1985), cert. denied, 476 U.S. 1171, 106 S.Ct. 2895, 90 L.Ed.2d 982 (1986). Appropriate circumstances for a motion to reconsider are where the court has obviously misapprehended a party's position on the facts or the law, or the court has mistakenly decided issues outside of those the parties presented for determination. Anderson v. United Auto Workers, 738 F.Supp. 441, 442 (D.Kan.1990); Refrigeration Sales Co. v. Mitchell-Jackson, Inc., 605 F.Supp. 6, 7 (N.D.Ill.1983). A party's failure to present its strongest case in the first instance does not entitle it to a second chance in the form of a motion to reconsider. Van Skiver v. United States, 952 F.2d 1241, 1243 (10th Cir.1991), cert. denied, ___ U.S. ___, 113 S.Ct. 89, 121 L.Ed.2d 51 (1992); Renfro v. City of Emporia, 732 F.Supp. 1116, 1117 (D.Kan.1990) (quoting Paramount Pictures Corp. v. Video Broadcasting Sys., Inc., No. 89-1412-C, slip op. at 2 (D.Kan., unpublished, Dec. 15, 1989)).¹

Bendis and Schreier's Motions for Reconsideration

Defendants Bendis and Schreier suggest that the court reconsider the portion of our prior order which discussed the contractual limitation on liability of Paragraph 9 of their respective stock purchase agreements with TBG. Defendants do not submit any new authority, but argue that the court misconstrued and/or misapplied New York law, which governs interpretation of the agreements, as set forth in Soviero Bros. Contracting Corp. v. New York, 286 A.D. 435, 142 N.Y.S.2d 508 (1955), Agristor Leasing-II v. Pangburn, 162 A.D.2d 960, 557 N.Y.S.2d 183 (1990), and Grumman Allied Ind., Inc. v. Rohr Ind., Inc., 748 F.2d 729 (2d Cir.1984).

Defendants argue that TBG may not affirm part of the contracts without affirming them in their entirety. In Soviero Bros., the court stated,

No authority in this state has been found which would permit a contractor to continue— by conscious and deliberate election — with the performance of his contract, thereby affirming it, reap its profits, and thereafter sue beyond the period of limitation contained in that contract for damages based upon fraudulent inducement.

142 N.Y.S.2d at 514 (emphasis added). Defendants also quote from Agristor Leasing-II, "a party may not avoid an agreement on grounds of fraud if, after acquiring knowledge of the fraud, he affirms the contract by accepting a benefit under it." 557 N.Y.S.2d at 185. From this, defendants conclude that because TBG has chosen to affirm the contracts and sue for damages, instead of rescinding based on fraudulent inducement, TBG is bound by the damage limitation provision in Paragraph 9 of the agreements.

Bendis argues that Edwards v. North American Van Lines, 129 A.D.2d 869, 513 N.Y.S.2d 895, 897 (1987) (an arbitration clause in a storage contract was enforceable absent evidence of fraud in the inducement), a case cited in our prior order, supports his position because the court held that the plaintiff had failed to make a prima facie showing of fraud and enforced the arbitration clause in the contract. See id. The Edwards court held that the provision requiring arbitration was not procured by fraud because there were no allegations that the arbitration clause was hidden in the fine print or otherwise concealed from the plaintiff by the defendant and the plaintiff's failure to read the contract did not relieve him from application of the arbitration provision. Id.; see also Grumman Allied Ind., Inc. v. Rohr Ind., Inc., 748 F.2d 729 (2d Cir.1984) (the "procured by fraud" exception only applies to a situation where the party against whom the disclaimer is asserted was "entirely unaware of the existence of the disclaimer — for example, where the disclaimer is inserted surreptitiously into the final draft of the contract"). In the instant case, TBG admits it was aware of and negotiated the limitation on liability in Paragraph 9. Consequently, the limitation provision in the contract may not be avoided on the grounds of fraud in the inducement.

Even if TBG could allege facts entitling it to rescind the contract for fraud, the rule against partial rescission of a contract mandates enforcement of the limitation with regard to TBG's claims on the contract. See Soviero, 142 N.Y.S.2d at 514; Agristor Leasing-II, 557 N.Y.S.2d at 185. We, therefore, conclude that the liability limitation of Paragraph 9 will be enforced to limit defendants' liability on TBG's claims for breach of contract and indemnity.

However, the liability limitation will not be similarly enforceable to shelter defendants from liability for the consequences of their own intentional wrongdoing. In Novak, the court considered the enforceability of a contractual limitation disallowing damages for delay "from any cause" and declined to enforce the provision as a matter of law at the summary judgment stage. 480 N.Y.S.2d at 409-12.

In considering a shortened notice period in the contract, the Novak court contrasted I.C.C. Metals, Inc. v. Municipal Warehouse Co., 50 N.Y.2d 657, 431 N.Y.S.2d 372, 375, 409 N.E.2d 849, 852 (1980) (holding that the parties' contractual limitation on damages was not applicable to an action for conversion,² and permitted the bailor to recover the full value of the bailed goods) with Soviero: Soviero involved nonintentional "innocent" or "reckless" misrepresentations, while I.C.C. Metals involved allegations of intentional wrongdoing. Id. In Novak, the court noted,

The policy announced in Soviero is that of allowing a municipal contracting agency to protect itself from state claims and thereby preserve the scarce funds in the city coffers. The policy of I.C.C. Metals ... is to prevent a party from disclaiming liability for its own intentional wrongdoing, regardless of whether such disclaimer is direct or indirect.

Novak, 480 N.Y.S.2d at 407. The court referred to Judge Rabin's dissent in Soviero, which distinguished between an action on the contract and an independent action for misrepresentation, as having "risen to the fore." Id.

In Kalisch-Jarcho v. City of New York, the New York Court of Appeals, considering an exculpatory agreement which limited the defendant's liability for damages caused by defendant's intentional construction delays, stated,

An exculpatory agreement, no matter how flat and unqualified its terms, will not exonerate a party from liability under all circumstances. Under announced public policy, it will not apply to exemption of willful or grossly negligent acts ... An exculpatory clause is unenforceable when, in contravention of acceptable notions of morality, the misconduct for which it would grant immunity smacks of intentional wrongdoing.

58 N.Y.2d 377, 461 N.Y.S.2d 746, 749-50, 448 N.E.2d 413, 416-17 (1983); see also Jackson v. State, 210 A.D. 115, 205 N.Y.S. 658, 661-62 (1924) (distinguishing between liability limitations for negligence and those for intentional misrepresentations and stating, "A contract to take a thing with all faults does not mean that it is to be taken with all frauds."); Young Fehlhaber Pile Co. v. State, 177 Misc. 204, 30 N.Y.S.2d 192, 194-95 (N.Y.Ct.Cl.1941) (refusing to enforce contractual limitation on damages where it was alleged that the defendant intentionally misrepresented the physical conditions of the construction site notwithstanding contractual provision requiring plaintiff to conduct full inspection of the site prior to accepting the contract).

Guided by the language of Kal...