Wadsworth, Inc. v. Schwarz-Nin

• Decision Date: 11 December 1996
• Docket Number: Civil No. 93-1541 (JP).
• Citation: 951 F.Supp. 314
• Parties: WADSWORTH, INC. d/b/a Thomson International Publishing, Plaintiff, v. Rodolfo SCHWARZ-NIN, Defendant.
• Court: U.S. District Court — District of Puerto Rico

951 F.Supp. 314

WADSWORTH, INC. d/b/a Thomson International Publishing, Plaintiff, v. Rodolfo SCHWARZ-NIN, Defendant.

Civil No. 93-1541 (JP).

United States District Court, D. Puerto Rico.

December 11, 1996.

COPYRIGHT MATERIAL OMITTED

Harry R. Segarra-Arroyo, Puerto Nuevo, PR, Francisco J. Amundaray-Rodríguez, Mercado & Soto, San Juan, PR, for Plaintiff.

Siro Gutiérrez-McCormick, San Juan, PR, for Defendant.

OPINION AND ORDER

PIERAS, District Judge.

The Court has before it plaintiff's and defendant's cross-motions for summary judgment (docket Nos. 71 and 72). The Court hereby GRANTS the defendant's motion and DENIES the plaintiff's motion.

I. INTRODUCTION AND BACKGROUND

Plaintiff, Wadsworth, Inc. d/b/a Thomson International Publishing ("Thomson") brings this action against Rodolfo Schwarz-Nin, president¹ of Cultural Puertorriqueña, Inc./Nueva Cultural Puertorriqueña, Inc.² ("Cultural") for the payment of debt owed by the corporation. The plaintiff assails the defendant's conduct on two fronts. First, alleging that Schwarz-Nin perpetrated fraud through Cultural, Thomson argues that Cultural's corporate entity should be disregarded and Schwarz-Nin held personally liable. Specifically, Thomson argues that Schwarz-Nin wrote post-dated checks, knowing that there would be insufficient funds on the postdate, in order to induce Thomson to extend further credit to Cultural.

Second, Thomson claims that Schwarz-Nin violated 14 L.P.R.A. § 1404, which provides that:

"If the directors or officers of any corporation organized under the laws of this Commonwealth, shall knowingly cause to be published or give out any written statement or report of the condition or business of the corporation that is false in any material respect, the officers and directors causing such report or statement to be published, or given out, or assenting thereto, shall be jointly and severally, individually liable for any loss or damage resulting therefrom." (Official Translation)

Thomson points to a forced devaluation of part of Cultural's inventory, due to its obsolescence, that allegedly occurred sometime in 1989 but was not reported in Cultural's financial statements until 1991. This, Thomson appears to argue, induced it to extend credit to Cultural that it otherwise would not have extended, thereby injuring Thomson.

The following facts are undisputed. Cultural Puertorriqueña, Inc., a corporation organized under the laws of Puerto Rico, sells high school and college textbooks at the retail level through company owned stores. In 1989, Cultural was purchased by Nueva Cultural Puertorriqueña, of which Rodolfo Schwarz-Nin was president. Wadsworth, Inc., d/b/a Thomson International Publishing, a Delaware corporation with its principle place of business in California, publishes and distributes high school and college textbooks. Thomson maintains offices in Kentucky and Illinois. Thomson and Cultural developed a contractual relationship, in force from 1989 until February of 1992, whereby Thomson delivered books to Cultural, on credit, and Cultural sold the books to the public.

By late 1990, Cultural had begun experiencing financial difficulties. Under its credit arrangement with Thomson, Cultural was approximately $200,000 in arrears by the start of 1991. Before February 1991, the defendant signed and delivered to Thomson a corporate check for just over $50,000 (check No. 548), post-dated for February 1. See Plaintiff's Exhibit 7. That check was intended to reduce Cultural's account debt. It bounced, and the defendant sent a replacement check (No. 729) for approximately the same amount, also dated February 1. The replacement check also bounced. See Plaintiff's Exhibit 6. Thomson alleges that it extended additional credit to Cultural based on these partial payments.

Schwarz-Nin signed and delivered a third corporate check for $50,000, dated March 15, 1991 (no record of this check has been forwarded to the Court). That check also bounced. Some time prior to July, he signed and delivered to the plaintiff yet another draft (No. 528), this one for $100,000, postdated July 30, 1991. When Thomson attempted to redeem this instrument on the post-date, it too was dishonored for insufficient funds. See Plaintiff's Exhibit 10A and 12. At the beginning of August, however, Schwarz-Nin signed and delivered to Thomson a certified check for $100,000, dated August 9, 1991, which was honored and credited to Cultural's account. See Defendant's Exhibit A.

Sometime prior to August, Schwarz-Nin signed and delivered another check (No. 529) to the plaintiff for $100,000, post-dated August 15, 1991. This one was backed by insufficient funds. See Plaintiff's Exhibit 14. In an attempt to resolve the debit this payment was intended to settle, Cultural, through defendant Schwarz-Nin, requested Thomson's permission to pay the $100,000 in ten weekly installments of $10,000. On September 4, Thomson responded with its own offer. This offer required Cultural to pay approximately $22,600, the amount Cultural owed over and above the $100,000, before September 30, 1991, and then to begin paying the weekly $10,000 installments beginning on October 15. See Plaintiff's Exhibit 15.

Cultural never paid the $22,600. Schwarz-Nin signed and delivered another corporate check (No. 1009) to Thomson on October 15³ for $10,434.12. True to form, this one also bounced. Check number 1009 represents Cultural's final attempt to satisfy its debts. Thomson claims that during the period beginning January 1991 and ending October 1991, its credit manager extended credit to Cultural in the amount of $76,072.11.

On July 13, 1992, Thomson obtained a judgment against Cultural for $148,129.26. See Civ. No. 92-1420(JP). Thomson, however, has never been able to execute its judgment against Cultural, which is now in bankruptcy. Thomson filed this action on April 7, 1993, seeking to hold the directors of Cultural liable for Cultural's debt. In its complaint, Thomson presents two theories in support of its claim. Both of these theories boil down to the premise that Schwarz-Nin fraudulently misrepresented Cultural's creditworthiness, thereby causing Thomson to extend credit it otherwise would not have. Thus, Thomson argues, because Schwarz-Nin's fraud caused Thomson to hold unpaid and uncollectible debts, Schwarz-Nin should be held to blame. Thomson asks the Court to hold Schwarz-Nin liable for Cultural's entire debt, not just for the additional credit extended after January 1991.

On December 9, 1994, the Court granted the directors' motion to dismiss Thomson's complaint as inadequate under Rule 9(b) of the Federal Rules of Civil Procedure. Specifically, the Court agreed with the defendants that the complaint did not allege fraud with the requisite specificity. Thomson subsequently amended its complaint. On March 4, 1996, the Court dismissed Thomson's amended complaint as to Angel Collado-Schwarz and Juan Zalduondo-Viera, leaving Schwarz-Nin as the sole defendant. The remaining parties have filed cross-motions for summary judgment, which are now before the Court.

II. SUMMARY JUDGMENT STANDARD

Rule 56(c) of the Federal Rules of Civil Procedure provides:

"[Summary judgment] shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show 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 purpose of summary judgment is "to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for a trial." Garside v. Osco Drug, Inc., 895 F.2d 46, 50 (1st Cir.1990). Usually, this entails the following methodology. First, the court must identify material factual disputes, drawing all reasonable inferences in favor of the party against whom summary judgment is sought. See Kennedy v. Josephthal & Co., 814 F.2d 798, 804 (1st Cir.1987); but see Medina-Muñoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990) (a court need not credit "conclusory allegations, improbable inferences, and unsupported speculation"). If there are material factual disputes, summary judgment is inappropriate. Where there are none, the court proceeds to search the undisputed facts in an effort to discern whether the moving party has shown that there is an absence of evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Where the moving party would bear the burden of persuasion at trial, it must first show that there is no genuine dispute as to the material facts, and then it must satisfy the burden it would have at trial. To do this, it must show that it would be entitled to a directed verdict at trial. Id. Where the moving party does not bear the burden of proof at trial, it must show "that there is an absence of evidence to support the non-moving party's case." Id. at 325, 106 S.Ct. at 2554. In other words, when the moving party does not bear the burden of persuasion, it must establish that no reasonable judge or jury could find that the non-movant had established the requisite elements of its claim. If the moving party has not met its respective summary judgment standard, the motion should be denied.

However, where the moving party has met its initial burden of proof, the burden shifts to the non-moving party to show that some triable issue, whether factual or legal, remains unresolved. If it succeeds, the motion must be denied; if it does not, the motion will be granted.

Where, as in the case at bar, the parties agree to all the relevant facts, the Court must look to those facts and determine whether the moving party has shown that it is entitled to judgment on the legal issues. Where the issue would be one for the jury at trial, the moving party must show that, given the undisputed facts, no reasonable jury could find that the party bearing the...