Appeal from a judgment of the United States District Court for the Southern District of New York, Robert J. Ward, Judge, granting plaintiff's motion for partial summary judgment and dismissing sua sponte defendant's counterclaim. Reversed and remanded.
Kaufman, Chief Judge, Smith and Anderson, Circuit Judges.
This is an appeal from the judgment granting plaintiff FLLI Moretti Cereali's ("Moretti") motion for partial summary judgment on two claims arising out of contracts for the sale of wheat and dismissing sua sponte defendant Continental Grain Company's ("Continental") counterclaim based on Moretti's repudiation of a soybean meal contract between itself and Continental's wholly-owned subsidiary, Continental Grain Export Corporation ("Export").
In November, 1974, Moretti entered into two contracts to sell quantities of wheat to Continental. By agreement, in January, 1976, Continental issued credits to Moretti's account totaling $449,386.96 in satisfaction of these contracts. That this sum is owing to Moretti is not in dispute.
Also in November, 1974, Export contracted to sell a quantity of soybean meal to Moretti. Moretti repudiated this contract in February, 1976; and, on March 2, Export purportedly assigned its claim against Moretti to Continental. Thereafter, by virtue of a compulsory arbitration provision in the contract, Continental submitted the soybean claim to arbitration in London. The claim was pursued in Export's name, as provided in the assignment. In September, 1976, the arbitrators decided against Moretti and awarded Export $1,493,520 damages. This decision is now on appeal in London.
Meanwhile, in February, 1976, Moretti brought suit against Continental in the Southern District of New York to recover the sums owed under the wheat contracts. Continental answered the complaint and filed a counterclaim for damages under the soybean contract assigned to it by Export. Moretti then moved for partial summary judgment on the wheat contract claims and for certification of the judgment as final under Rule 54(b), F.R.Civ.P.*fn1
In its opposing papers and affidavits, Continental did not dispute that the sums under the wheat contracts were owing to Moretti. Instead, it attempted to show that, in accordance with custom and usage in the grain trade, these transactions were part of a "running account" between the companies and that, therefore, Moretti's wheat claim and Continental's soybean counterclaim should be dealt with and disposed of together. It is clear from the Local Rule 9(g) statements, affidavits, and other papers submitted by the parties that the evidence in support of and in opposition to Moretti's motion had focused on the issue of whether or not the companies had a running account. Other questions, such as the validity of Export's assignment of the soybean claim to Continental, were raised in the briefs but were not put in issue by the 9(g) statements or affidavits.
Nonetheless, looking beyond the principal contentions of the parties, the district court found, as a matter of New York law,*fn2 that the assignment of the soybean claim was invalid because its primary purpose was to enable Continental to file its counterclaim. The court dismissed the counterclaim sua sponte and granted Moretti's motion for summary judgment. In its ruling, the court never reached the issue of the running account. It reasoned that whether or not such an account existed, because Export's assignment was invalid, all of the credits were on Moretti's side of the ledger and, therefore, resolution of that issue was unnecessary.
On appeal, Continental contends that the district court erred in finding that Export's assignment was invalid and that Continental's counterclaim should, therefore, be summarily dismissed.
The standards to be applied by the district court in deciding motions for summary judgment have been clearly articulated in this Circuit and need little repetition here. Summary judgment is a harsh remedy to be granted only where there are no material issues of fact to be tried. See Judge v. City of Buffalo, 524 F.2d 1321 (2d Cir. 1975). In making that determination a court must "resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought, [citation omitted], with the burden on the moving party to demonstrate the absence of any material fact genuinely in dispute." Heyman v. Commerce and Industry Insurance Co., 524 F.2d 1317 (2d Cir. 1975). While it is not inappropriate for a district court to grant summary judgment sua sponte where it is clear that a case does not present an issue of material fact; Healy v. James, 319 F. Supp. 113 (D. Conn. 1970), aff'd, 445 F.2d 1122 (2d Cir. 1971), rev'd on other grounds, 408 U.S. 169, 33 L. Ed. 2d 266, 92 S. Ct. 2338 (1972); cf. 6 Moore's Federal Practice para. 56.12; such power must be exercised with great caution and with care taken to give the parties an opportunity to present materials in opposition to the motion. See Rhoads v. McFerran, 517 F.2d 66 (2d Cir. 1975); cf. Bowdidge v. Lehman, 252 F.2d 366 (6th Cir. 1958).
In this case, the court ran afoul of these principles by failing to view the evidence submitted in the light most favorable to Continental. It also prematurely resolved the issue of the validity of Export's assignment, which had not been raised by Moretti's statement of alleged undisputed material facts, and thereby deprived Continental of the opportunity to present evidence of the business purpose of the transaction.
The court based its finding of invalidity principally on three grounds which are pressed by Moretti on appeal:*fn3 (1) the failure of Continental to deny Moretti's assertion that the assignment was solely for purposes of litigation; (2) the conduct of Continental and Export subsequent to the assignment; and (3) the language of the assignment itself. In each of these instances, the evidence was at best ambiguous and, under the rule of the Heyman case, these ambiguities should have been resolved in Continental's favor.
Continental's failure to dispute Moretti's assertion that the assignment was invalid can reasonably be explained by Moretti's own failure to set forth this issue in its statement of undisputed material facts. This statement frames the issues on a motion for summary judgment and gives the party against whom judgment is sought notice of the facts he must show to be in dispute in order to defeat the motion. In fact, Continental did make a brief reference in its affidavits to a ...