United Bank of Kuwait PLC v. Enventure Energy

• Decision Date: 21 September 1989
• Docket Number: No. 86 Civ. 4214 (JMC).,86 Civ. 4214 (JMC).
• Citation: 755 F. Supp. 1195
• Parties: The UNITED BANK OF KUWAIT PLC, Plaintiff, v. ENVENTURE ENERGY ENHANCED OIL RECOVERY ASSOCIATES — CHARCO REDONDO BUTANE, Enventure Energy, Inc., Joseph W. Hill, John P. Burke, Kenco Industries, Inc. d/b/a Energy Materials, Inc., Frederick J. Hughes, Courtland R. LaVallee, William G. Netols, Donald W. Yates, Michael D. Reed, Robert E. Rogers, Frank J. Burke, Bridgett K. Davis, M.D., Norman Deane, M.D., Cohen & Silverman, a New York Partnership, Ronald D. Wall, and Hodgson, Russ, Andrews, Woods & Goodyear, Defendants. HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR, Defendant and Third-Party Plaintiff, v. LeBOEUF, LAMB, LEIBY & MacRAE, Third-Party Defendant.
• Court: U.S. District Court — Southern District of New York

755 F. Supp. 1195

The UNITED BANK OF KUWAIT PLC, Plaintiff, v. ENVENTURE ENERGY ENHANCED OIL RECOVERY ASSOCIATES — CHARCO REDONDO BUTANE, Enventure Energy, Inc., Joseph W. Hill, John P. Burke, Kenco Industries, Inc. d/b/a Energy Materials, Inc., Frederick J. Hughes, Courtland R. LaVallee, William G. Netols, Donald W. Yates, Michael D. Reed, Robert E. Rogers, Frank J. Burke, Bridgett K. Davis, M.D., Norman Deane, M.D., Cohen & Silverman, a New York Partnership, Ronald D. Wall, and Hodgson, Russ, Andrews, Woods & Goodyear, Defendants.

HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR, Defendant and Third-Party Plaintiff, v. LeBOEUF, LAMB, LEIBY & MacRAE, Third-Party Defendant.

No. 86 Civ. 4214 (JMC).

United States District Court, S.D. New York.

September 21, 1989.

COPYRIGHT MATERIAL OMITTED

Lynn A. Dummett, LeBoeuf, Lamb, Leiby & MacRae, John Patrick Deveney, Kellner, Chehbar & Deveney, New York City, for plaintiff.

Glen J. Pogust, Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for defendant Hodgson, Russ, Andrews, Woods & Goodyear.

Michelle C. Lombino, Damon & Morey, Buffalo, N.Y., for defendant Davis.

MEMORANDUM AND ORDER

CANNELLA, District Judge:

Defendant and third-party plaintiff Hodgson, Russ, Andrews, Woods & Goodyear's "Hodgson" motion for summary judgment is granted. Fed.R.Civ.P. 56. Hodgson's motion to disqualify third-party defendant LeBoeuf, Lamb, Leiby & MacRae "LeBoeuf" as counsel to UBK is moot. LeBoeuf's motion to dismiss the third-party complaint is moot. Bridgett K. Davis' motion to set aside the default judgment is denied. Fed.R.Civ.P. 60(b).

BACKGROUND

Plaintiff, The United Bank of Kuwait PLC "UBK", is a banking corporation, chartered and existing under the laws of the United Kingdom, and licensed to conduct business in the United States. Defendant Enventure Energy Enhanced Oil Recovery Associates — Charco Redondo Butane "Charco Redondo", is a limited partnership organized and existing under the laws of the State of New York, the primary purpose of which was to explore and drill for oil and natural gas through the use of butane injection oil recovery technology. Defendant Enventure Energy, Inc. "Enventure" is the general partner of Charco Redondo. Ronald Allen, not a defendant in this action, but a principal player in the events giving rise to it, is president of Enventure.

Charco Redondo was formed by agreement, dated November 15, 1984, between Enventure and fifteen limited partners the "Charco Redondo Agreement". Defendants Joseph W. Hill, John P. Burke, Kenco Industries, Inc. d/b/a Energy Materials, Inc., Frederick J. Hughes, Courtland R. LaVallee, William G. Netols, Donald W. Yates, Michael D. Reed, Robert E. Rogers, Frank J. Burke, Bridgett K. Davis, M.D., Norman Deane, M.D., Cohen & Silverman, a New York partnership, and Ronald D. Wall,¹ are the limited partners of Charco Redondo the "limited partners".² Defendant and third-party plaintiff Hodgson is counsel to the Charco Redondo limited partnership and Enventure, the general partner. Third-party defendant LeBoeuf represented UBK in the loan transaction.

The Charco Redondo Agreement required each limited partner to execute an "Assumption Agreement" in favor of an anticipated financial institution willing to lend Charco Redondo $2,050,000 to fund its operations the "loan amount". Pursuant to the Assumption Agreement, each limited partner agreed to assume personal liability for their pro rata share of Charco Redondo's obligation to repay the loan amount. Prior to the execution of the Charco Redondo Agreement on November 15, 1984, each limited partner executed an Assumption Agreement in favor of Marine Midland Bank, Ltd., which had originally agreed to finance the loan amount the "Marine Assumption Agreements". In addition, each limited partner executed a Limited Power of Attorney in favor of Allen the "Limited Powers of Attorney". Sometime subsequent to November 15, Marine Midland withdrew as lender. At some point thereafter, Allen negotiated with UBK for it to finance the Charco Redondo limited partnership, under virtually the same financial terms as had been agreed upon by Charco Redondo and Marine Midland.

On December 7, 1984, UBK and Charco Redondo entered into a commercial installment loan agreement and note, whereby UBK lent Charco Redondo $2,050,000 the "loan agreement". At the same time, Charco Redondo posted a surety bond for the full amount of the loan. The bond was issued by the Glacier General Assurance Company "Glacier General". Since the loan agreement required each limited partner to execute an assumption agreement in UBK's favor, Allen took the signature pages from the Marine Assumption Agreements and attached them to virtually identical assumption agreements in favor of UBK the "UBK Assumption Agreements".

During the closing of the loan transaction on December 7, 1984, LeBoeuf, on behalf of UBK, requested that Hodgson issue an opinion letter to UBK concerning the validity and binding effect of the UBK Assumption Agreements. The Hodgson opinion letter was specifically addressed to UBK and contains three distinct sections: (1) a list of documents reviewed by Hodgson in its preparation of the letter; (2) those facts assumed by Hodgson without any investigation; and (3) the opinions themselves. The concluding paragraph of the opinion letter expressly authorizes reliance by the addressee, UBK. The paragraph provides that it "is intended solely for your UBK's benefit and may not be relied upon, referred to or otherwise used by any other person without our express written consent." Affidavit of Charles M. McCaghey, Exh. A, 86 Civ. 4214 (JMC) (S.D.N.Y. Mar. 27, 1989) "McCaghey Affidavit". The opinion most relevant to the instant action is contained in paragraph 6(b), which provides that "insofar as it purports to create an obligation ... each Assumption Agreement is a legal, valid and binding obligation of the Limited Partner on whose behalf it is executed and delivered, enforceable against such Limited Partner in accordance with its terms...."³ Id.

In December 1985, Glacier General, the surety company, was declared insolvent and forced into liquidation. By February 28, 1986, Charco Redondo had failed to make an interest payment due on that date. Each of these occurrences constituted events of default under the loan agreement, and UBK elected to accelerate payment of all principal, interest, and other amounts due. When no payment was forthcoming by Charco Redondo, or the limited partners, this action was commenced.

On November 16, 1987, the Court denied UBK's motion for partial summary judgment with respect to the validity and binding nature of the UBK Assumption Agreements and the Limited Powers of Attorney executed by ten of the fifteen limited partners. The motion was denied on the ground that a material issue of fact existed as to the intent of the limited partners when they executed the Limited Powers of Attorney which UBK relied upon in seeking enforcement of the UBK Assumption Agreements. See Memorandum and Order, at 15-16, 86 Civ. 4214 (JMC) (S.D.N.Y. Nov. 16, 1987) "Memorandum and Order".

The Court granted UBK's motion to amend its complaint to assert a claim against Hodgson, the law firm which issued the opinion letter to UBK. Memorandum and Order, at 15. UBK alleges that it relied to its detriment on the opinion letter in connection with UBK's loan to Charco Redondo. Amended Complaint, at ¶ 89. Specifically, UBK asserts that if the UBK Assumption Agreements are unenforceable, Hodgson is liable to the extent that UBK is unable to recover from any one or more of the Charco Redondo limited partners. Amended Complaint, at ¶ 90. Hodgson has brought a third-party action against LeBoeuf for contribution.

Hodgson now moves for summary judgment, claiming that it is not liable to UBK as a matter of law because no privity of contract existed between Hodgson and UBK. Hodgson also moves to disqualify LeBoeuf as counsel to UBK. LeBoeuf moves to dismiss Hodgson's third-party complaint. Lastly, Bridgett K. Davis moves to set aside a default judgment entered against her on March 30, 1987.

DISCUSSION

I. Summary Judgment Motion

A. Standards for the Application of Summary Judgment

Rule 56(c) of the Federal Rules of Civil Procedure provides that a district court shall grant a motion for summary judgment if it determines that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The court is not to resolve disputed issues of fact, but must "assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight v. United States Fire Insurance Co., 804 F.2d 9, 11 (2d Cir.1986) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-52, 106 S.Ct. 2505, 2509-12, 91 L.Ed.2d 202 (1986); Eastway Construction Corp. v. City of New York, 762 F.2d 243, 249 (2d Cir.1985)), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).

The mere existence of disputed factual issues, however, is not enough to defeat a motion for summary judgment. Knight, 804 F.2d at 11-12; Quarles v. General Motors Corp., 758 F.2d 839, 840 (2d Cir.1985) (per curiam). For the issues of fact to be "genuine," they must provide a basis for "a rational trier of fact to find for the non-moving party." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Most significantly, the issues of fact must be "material to the outcome of the litigation." Knight, 804 F.2d at 11. It stands to reason that, in order to be material, the disputed issues must implicate cognizable legal principles upon which recovery may be had, or liability denied, thus entitling the moving party to judgment "as a matter of law." Fed.R. Civ.P. 56(c); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); ...