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SHARON STEEL CORP. v. CHASE MANHATTAN BANK

May 29, 1981

SHARON STEEL CORPORATION, Plaintiff,
v.
The CHASE MANHATTAN BANK, N. A., Manufacturers Hanover Trust Company and United States Trust Company of New York, Defendants. MANUFACTURERS HANOVER TRUST COMPANY, Third-Party Plaintiff, v. UV INDUSTRIES, INC., Third-Party Defendant. CONNECTICUT MUTUAL LIFE INSURANCE COMPANY, et al., Intervenors, v. SHARON STEEL CORPORATION, Plaintiff, and UV Industries, Inc., Third-Party Defendant. UNION PLANTERS NATIONAL BANK OF MEMPHIS, as Trustee, Plaintiff, v. UV INDUSTRIES, INC. and David Finkelstein, Arthur R. Gralla, Martin Horwitz, Edwin Jacobson, Theodore W. Kheel, and Paul Kolton, as Trustees of the UV Industries, Inc. Liquidating Trust, Defendants, and Sharon Steel Corporation, Defendant



The opinion of the court was delivered by: WERKER

Plaintiff, Sharon Steel Corporation ("Sharon"), commenced this action against defendants, The Chase Manhattan Bank, N.A. ("Chase"), Manufacturers Hanover Trust Company ("Manufacturers"), and United States Trust Company of New York ("U.S. Trust"). *fn1" Manufacturers impleaded UV Industries, Inc. (UV) as a third-party defendant, and the holders of certain UV debentures (the "Intervenors") intervened, asserting claims against both Sharon and UV. Union Planters National Bank of Memphis ("Union Planters") subsequently commenced a separate action against UV, the Trustees of the UV Industries Inc. Liquidating Trust, (the UV Trustees) and Sharon Steel Corporation. The Union Planters suit has been consolidated with the main action for all purposes.

This action was tried before a jury but, at the conclusion of plaintiff's case, the Court, in an opinion dated May 11, 1981, directed a verdict dismissing each of Sharon's causes of action against Chase, Manufacturers, the Intervenors and Union Planters. On May 12, 1981, the banks and the Intervenors moved for summary judgment on their claims against Sharon, UV, and the UV Trustees. The findings made in the May 11, 1981 opinion will not be repeated here. Suffice it to say that they are incorporated herein by reference and knowledge of them is assumed.

Manufacturers has asserted four claims against UV. Its first claim is that UV has breached the April Agreement by failing to pay the 8 7/8% debentures, failing to satisfy and discharge the Indenture, and failing to come forward with a proposal for satisfaction and discharge of the debt that complied with the terms of the Indenture. Its second claim is that UV is in default under the Indenture. Manufacturers' third claim is that UV has violated Maine law. Its fourth claim is for reimbursement and indemnification of expenses incurred by it in connection with its administration of the trust, including costs and expenses incurred in this litigation, pursuant to § 7.06 of the Manufacturers Indenture. Each of the above claims also has been asserted against Sharon, apparently on the basis that Sharon assumed UV's liabilities relating to or arising from the Indenture, the 8 7/8% debentures and the April Agreement. In addition, Manufacturers has asserted one claim against Sharon alone. It claims that Sharon holds assets received from UV in trust for Manufacturers as indenture trustee for the 8 7/8% debentures.

 Chase has asserted claims against UV, the UV trustees and Sharon. Its first claim is that UV has breached the April Agreement by failing to redeem the 5 3/8% debentures and the City of Port Huron bonds, failing to satisfy the 1965 and 1968 Indentures, and failing to come forward with a proposal to do so. Its second claim is that UV is in default under the 1965 Indenture and the Port Huron Lease Guaranty. Chase's third claim is that UV has violated Maine law. Chase has asserted each of the above claims against the UV Trustees and Sharon on the ground that they have assumed UV's liabilities and obligations with respect to the Indentures and April Agreement. In addition, Chase claims that the UV Trustees and Sharon hold assets received from UV in trust for Chase as indenture trustee for the 5 3/8% debentures and Port Huron Bonds. Finally, Chase requests reimbursement of its costs and expenses including reasonable attorneys' fees incurred in this litigation.

 Union Planters has asserted claims against UV, the UV Trustees and Sharon. Its first claim is that UV, the UV trustees and Sharon have breached the April Agreement by failing to pay or agreeing to redeem the County of Itawamba bonds, failing to satisfy and discharge the County of Itawamba Indenture, and failing to come forward with a proposal to do so. Union Planters' second claim is that UV and the UV Trustees are in default under the County of Itawamba Indenture and the Lease Guaranty. Its third claim is that UV and the UV Trustees have violated Maine law. Its fourth claim is that Sharon holds assets received from UV that should have been tendered to Union Planters as Indenture trustee for the County of Itawamba bonds. Its final claim is that UV, the UV Trustees and Sharon must pay or reimburse Union Planters for its services and expenses including counsel fees pursuant to § 1102 of the County of Itawamba Indenture.

 The Intervenors have asserted claims against UV and Sharon. Their first claim is that UV is in default under the Manufacturers Indenture and the 8 7/8% debentures. Their second claim is that UV and Sharon have violated Maine law. Their third claim is that UV's purported assignment and Sharon's purported assumption of UV's liabilities and obligations under the Indenture and debentures are invalid. The Intervenors fourth claim is that Sharon holds all assets received from UV in trust for the Intervenors and other members of the class of 8 7/8% debentureholders. The Intervenors also seek recovery of their costs and expenses, including attorneys fees incurred in this litigation although the basis for this claim and the party or parties against whom it is asserted have not been specified.

 The foregoing claims present six issues. The first is whether there has been a breach of the April Agreement; second, whether there has been a default under the respective Indentures; third, whether a violation of Maine law has occurred; fourth, whether the trustee banks and the Intervenors are entitled to attorneys' fees; fifth, whether the UV Trustees or Sharon must be deemed to hold assets received from UV in trust for the trustee banks and their debentureholders and bondholders; sixth, whether UV's purported assignment and Sharon's purported assumption of UV's liabilities and obligations under the Indentures and debentures is invalid.

 SUMMARY JUDGMENT

 On a motion for summary judgment, a Court's function is not to adjudicate issues of fact, but to " "determine whether there are issues to be tried.' " SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir. 1978), (quoting American Manufacturers Mutual Insurance Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272, 279 (2d Cir. 1967), cert. denied, 404 U.S. 1063, 92 S. Ct. 737, 30 L. Ed. 2d 752 (1972). In determining whether genuine issues of material fact exist, the Court must "resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought." Flli Moretti Cereali v. Continental Grain Co., 563 F.2d 563, 565 (2d Cir. 1977). The burden is on the moving party to show the absence of dispute as to any material fact. Id. at 565. Viewing the facts in the light most favorable to Sharon and UV, it nevertheless appears that no genuine issue exists as to the material facts, and disposition of this action by summary judgment is warranted.

 DEFAULT UNDER THE INDENTURES

 On December 24, 1979, Chase gave notice to UV that an event of default had occurred under the 5 3/8% Indenture and the City of Port Huron Indentures. The event of default identified by Chase in each of the notices was UV's failure to observe the successor corporation provisions of the Indentures and Lease Guaranty in connection with UV's sale of assets to Sharon on November 26, 1979. The notices further stated that if the condition continued for thirty days after receipt of the notices of default, an Event of Default would occur under each Indenture.

 Manufacturers, by letter dated December 24, 1979 also gave notice to UV that it considered UV's sale of assets to Sharon violative of the successor corporation provisions of the Manufacturers Indenture. The notice further stated that if the condition giving rise to the default continued for 90 days from the date of the letter, it would become an Event of Default under the Indenture.

 By letter dated July 24, 1980, Union Planters gave notice to UV that a default had occurred under the Indenture by reason of UV's failure to comply with the provisions of the County of Itawamba Lease Guaranty in connection with its disposition of assets to Sharon on November 26, 1979. The notice further stated that if the condition continued for 30 days after receipt of the notice, it would become an Event of Default under the Indenture.

 In an opinion dated May 11, 1981, this Court found that Sharon did not purchase "all or substantially all" of the assets of UV and therefore did not qualify as a successor corporation within the meaning of the Indentures. Based upon this finding and an examination of the Indentures in question, I now conclude that UV was in default under each of the Indentures and Lease Guaranties when it failed to cure the defaults after notice of default was given by the trustees. Thus, UV was in default under the 5 3/8%, the City of Port Huron and the County of Itawamba Indentures thirty days after it received notice of default from the trustees and UV was in default under the 8 7/8% debentures 90 days after notice of default was given by Manufacturers. In addition, since Sharon did not qualify as a successor obligor, UV's purported assignment of its liabilities and obligations under the Indentures and debentures, and Sharon's purported assumption of those liabilities and obligations were invalid.

 APRIL AGREEMENT CLAIM

 The trustees claim that the April Agreement has been breached as a result of UV's failure to pay the debentures and bonds, its failure to satisfy and discharge the Indentures under which they were issued, and its failure to come forward with a proposal for satisfaction and discharge of the debt.

 UV contends that its only obligation under the provision of the April Agreement requiring it to present a proposal for satisfaction and discharge of the Indentures, was to present in good faith a proposal for the payment of its debt. It claims that it fulfilled this obligation when it presented plans for the net defeasance of the indebtedness to the trustees on July 26, 1979. According to UV, it was under no obligation to proffer a proposal that complied with the redemption ...


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