The opinion of the court was delivered by: GURFEIN
On June 29, 1971 plaintiff Neonex International Ltd. (Neonex) filed this action seeking $32,000,000 in damages for breach of a stock acquisition contract. On August 20, 1971 defendants served their answers, together with this omnibus summary judgment motion
which seeks dismissal of the complaint and recovery on two counterclaims, based on the argument that it was the plaintiff who breached, in the total amount of about $2,000,000.
Defendants' motion also seeks, inter alia, a protective order pursuant to Fed. R. Civ. P. 26(c) which would limit any discovery, if summary judgment is denied, to any issues of fact found to be in dispute.
Neonex is a Canadian corporation. Norris Grain Company (Norris Illinois) is an Illinois corporation which has its principal place of business in Illinois and does business in New York. Bruce A. Norris, the other defendant, is Chairman and President of Norris Illinois, and is a citizen of Illinois and a resident of New York. Diversity of citizenship and the jurisdictional amount exist.
The complaint contains two claims for relief. The first claim is against the defendant Norris Illinois for breach of contract.
The first claim, with supporting affidavits, sets forth the following allegations:
In 1969, Norris Illinois owned directly 171,271 common shares of the Canadian corporation Maple Leaf Mills Ltd. (Maple Leaf), which comprised 10.5% of its outstanding capital stock. Norris Illinois also owned 100% of Norris Grain Company Ltd. (Norris Winnipeg), a Canadian corporation. Norris Winnipeg, in turn, owned 66 2/3% of still another Canadian corporation, Upper Lakes Shipping Ltd. (Upper Lakes). This 66 2/3% was represented by 235,728 shares of the preferred stock and 117,864 shares of the common stock. Upper Lakes, in its turn, owned 450,771 shares of Maple Leaf, amounting to 28% of Maple Leaf's outstanding capital stock.
Norris Winnipeg, in addition to its 66 2/3% ownership of Upper Lakes, also owned 331,672 shares of Dominion Foundries and Steel, Ltd. (Dofasco), a Canadian company which was publicly traded on the Toronto Stock Exchange. The market value of the Dofasco holdings of Norris Winnipeg was about (Can.) $7,000,000.
The remaining 33 1/3% of the stock of Upper Lakes was owned by the Canadian corporation Leitch Transport Ltd. (Leitch), so that Norris Winnipeg together with Leitch owned all of Upper Lakes. Leitch (in addition to Upper Lakes' ownership of 28% of Maple Leaf) owned in its own right 230,869 common shares of Maple Leaf, or an additional 14%. Thus, Norris Illinois, Upper Lakes and Leitch together controlled almost 53% of the capital stock of Maple Leaf. Leitch also owned Dofasco shares having a market value of at least (Can.) $13,500,000.
Neonex wanted to buy control of Maple Leaf. In order to do so, it wanted to acquire the Maple Leaf shares which were controlled by the three companies, Norris Illinois, Upper Lakes and Leitch.
The Norris interests wanted a largely tax free transaction. The negotiations between Neonex and Norris Illinois resulted, on December 16, 1969, in two agreements: the so-called Principal Norris Agreement and the Norris Option Agreement. The Principal Norris Agreement provided that Norris Illinois would exchange its 100% stock ownership in Norris Winnipeg for 2,500,000 common shares of Neonex, which represented about 27% of Neonex stock. Neonex, by buying Norris Winnipeg was, in effect, getting 66 2/3% of Upper Lakes (which in turn owned 28% of Maple Leaf), as well as the valuable publicly-traded Dofasco shares owned by Norris Winnipeg. In order to obtain control of Maple Leaf, said to be the objective of Neonex, it also entered into the Norris Option Agreement which gave Neonex the option to buy for cash from Norris Illinois (with a correlative option to the latter to sell to Neonex) the 171,271 common shares of Maple Leaf which Norris Illinois owned. The option price was fixed at (Can.) $4,281,775, and Neonex paid Norris Illinois (Can.) $856,355 for the option.
A closer look at these contracts is necessary. Section 1.1 of the Principal Norris Agreement, in pertinent part, reads as follows:
"Norris Winnipeg is, or prior to the Closing Date, will be, the owner, free and clear of all liens . . . and other encumbrances of 235,728 shares of Preferred Stock and 117,864 shares of Common Stock of Upper Lakes Shipping Ltd. . . . and 331,672 shares of Common Stock of Dominion Foundries and Steel, Ltd."
Section 5 of the Principal Norris Agreement reads as follows:
"Section 5. Closing. Consummation of the transaction contemplated by Section 3.1 shall take place at the office of Norris Winnipeg in Winnipeg, Manitoba at the option of Neonex at any time upon 5 days' written notice to Norris Illinois (the 'Closing Date'); provided that Norris Illinois shall have 60 days to comply with the representation and warranties contained in Section 1 (other than the representation and warranty contained in the first sentence of Section 1.1 relating to the ownership of the capital stock of Norris Winnipeg to be delivered to Neonex upon such 5 days' notice) in which event the Purchase Price to be delivered to Norris Illinois shall be held in escrow until such compliance by Norris Illinois; and provided further that, without the mutual written consent of Neonex and Norris Illinois, such consummation shall not take place later than December 31, 1972 nor earlier than September 30, 1970." (emphasis added)
Notices "shall be sufficiently given" if sent by registered mail or certified mail (§ 10.3). There is no clause stating whether time is or is not of the essence, but as stated in Section 5 "such consummation shall not take place later ...