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WOODWARD & DICKERSON v. KAHN

June 24, 1991

WOODWARD & DICKERSON, A DIVISION OF CONAGRA, INC., A DELAWARE CORPORATION, PLAINTIFF,
v.
GERHARD KAHN, REGINA KAHN, KAHN LUMBER AND MILL WORK CO., POLARIS PROPERTIES AND GNK ENTERPRISES, DEFENDANTS.



The opinion of the court was delivered by: Leisure, District Judge.

OPINION AND ORDER

This is an action to recover under a guaranty executed by defendants in favor of plaintiffs and others. The principal obligor on the underlying loan having defaulted on its obligation, plaintiff now moves the Court for summary judgment compelling the performance of the guarantor's obligations under the guaranty.

BACKGROUND

The principal facts in this matter are not disputed. This action arises out of events surrounding a project to construct a gypsum wallboard plant in Port Newark, New Jersey. The owner and operator of the plant was to be Atlantic Gypsum Company ("AGC"), a corporation of which defendant Gerhard Kahn ("Kahn") was the promoter and principal shareholder. Kahn is also the primary owner of defendants Kahn Lumber and Mill Work, Inc., Polaris Properties and GNK Enterprises, and is the husband of defendant Regina Kahn.

A consortium of banks provided the main financing for the project, and plaintiff Woodward & Dickerson ("Woodward"),*fn1 along with two other entities,*fn2 provided additional financing pursuant to subordinated loan agreements. By a loan agreement executed on or about December 30, 1986 (the "Loan Agreement"), Woodward agreed to loan AGC up to $650,000 to refinance construction costs and to finance capitalized interest costs. On or about December 31, 1986, AGC executed a subordinated promissory note in favor of Woodward. As security for payment of the Loan Agreement and promissory note, defendants executed a subordinated guaranty agreement (the "Guaranty") in favor of Woodward and the other entities providing subordinated loans.

Under paragraph 3(c) of the Loan Agreement, Woodward was required to, and did, furnish a letter of credit in the aggregate amount of $650,000 for the benefit of parties providing interim financing to AGC. On September 2, 1988, $588,673.70 was drawn down against the letter of credit by United Jersey Bank, AGC's designated beneficiary.

On January 2, 1990, AGC's bank financers filed a petition in the United States Bankruptcy Court in Newark, New Jersey, which sought to place AGC in involuntary bankruptcy under Chapter 7 of the Bankruptcy Code. On March 6, 1990, Judge Tuohey of the Bankruptcy Court entered an order for relief against AGC under Chapter 7.

Notwithstanding AGC's default under the Loan Agreement and promissory note, defendants have refused payment under the Guaranty. Plaintiff commenced this action to compel performance of defendants' obligations under the Guaranty, and now move this Court for summary judgment, and for the costs of bringing this action.

DISCUSSION

I. Standard for Summary Judgment

Federal Rule of Civil Procedure 56(c) provides that 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 judgment as a matter of law." "Summary judgment is appropriate if, `after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the non-moving party.'" United States v. All Right, Title & Interest in Real Property, etc., 901 F.2d 288, 290 (2d Cir. 1990) (quoting Murray v. National Broadcasting Co., 844 F.2d 988, 992 (2d Cir.), cert. denied, 488 U.S. 955, 109 S.Ct. 391, 102 L.Ed.2d 380 (1988)). Summary judgment may be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

The substantive law governing the case*fn3 will identify the facts that are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. . . . While the materiality determination rests on the substantive law, it is the substantive law's identification of which facts are crucial and which facts are irrelevant that governs." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). "[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there does indeed exist a genuine issue for trial." Id. at 249, 106 S.Ct. at 2511; see also R.C. Bigelow, Inc. v. Unilever N.V., 867 F.2d 102, 107 (2d Cir.), cert. denied, ___ U.S. ___, 110 S.Ct. 64, 107 L.Ed.2d 31 (1989). The party seeking summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion" and identifying which materials it believes "demonstrate the absence of a genuine issue of material fact." Celotex, supra, 477 U.S. at 323, 106 S.Ct. at 2553; see also Trebor Sportswear Co. v. Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir. 1989). "[T]he burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex, supra, 477 U.S. at 325, 106 S.Ct. at 2554.

Once a motion for summary judgment is properly made, the burden then shifts to the nonmoving party, which "`must set forth facts showing that there is a genuine issue for trial.'" Anderson, supra, 477 U.S. at 250, 106 S.Ct. at 2511 (quoting Fed.R.Civ.P. 56(e)). "Conclusory allegations will not suffice to create a genuine issue. There must be more than a `scintilla of evidence,' and more than `some metaphysical doubt as to the material facts.'" Delaware & H. Ry. v. Consolidated Rail Co., 902 F.2d 174, 178 (2d Cir. 1990) (quoting Anderson, supra, 477 U.S. at ...


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