The opinion of the court was delivered by: Leisure, District Judge.
In this diversity action plaintiff Andrew I. Cramer
("Cramer") seeks monetary damages, asserting fraud, breach of
contract and breach of fiduciary duty by defendant Devon Group,
Inc. ("Devon"). This is the second time this matter has come
before the Court: an earlier Opinion and Order, dated December
12, 1990, denied plaintiff's motion for a preliminary
injunction and temporary restraining order based on these same
claims. The matter is now before the Court on defendant's
motion for summary judgment.
This case was initially filed in the New York Supreme Court
on December 3, 1990. Plaintiff sought a temporary restraining
order and preliminary injunction enjoining defendant Devon from
calling and holding a special meeting of the Board of Directors
of Aztech Document Systems, Inc. ("Aztech"), of which Devon is
the majority shareholder; from merging Aztech with Chas P.
Young Company ("Young"), another Devon division; from acting
outside the normal course of business to change the nature of
Aztech's operations; and from making any unilateral decisions
on behalf of Aztech. Justice Phyllis Gangel-Jacobs struck the
provision enjoining the meeting, but issued a temporary
restraining order against the defendant on the other points.
Following removal to this Court on December 4, oral argument
was heard on December 10. This Court denied the injunctive
relief sought by plaintiff and dissolved Justice Gangel-Jacob's
temporary restraining order based, inter alia, upon plaintiff's
failure to demonstrate both irreparable harm and likelihood of
success on the merits.
At all times relevant to this action, plaintiff Andrew Cramer
was the President and Chairman of the Board of Aztech, a
financial printing company, of which he was a founder. In
February 1987, pursuant to a Stock Purchase Agreement between
the defendant and Cramer (the "1987 Agreement"), Devon, a
graphic arts company, became the majority shareholder of
Aztech. Subsequent to the 1987 acquisition of Aztech shares
from Cramer, Devon loaned considerable sums to Aztech. In March
1989, the parties underwent a restructuring: Devon's Aztech
debt was converted into equity, Devon provided additional cash
to Aztech, and Cramer was left with only 20 percent ownership
of Aztech. As part of the 1989 restructuring, the 1987
Agreement was renegotiated in a Shareholders' Agreement dated
March 31, 1989 (the "1989 Agreement"). Under both Agreements
Devon had the right to purchase Cramer's shares, and if it did
not exercise that right, Cramer had an opportunity to buy out
Devon's interest. Although the parties dispute the effect of
the 1989 amendments, Cramer concedes that Devon had no
obligation to purchase his interest in Aztech. Affidavit of
Andrew I. Cramer, sworn to on December 2, 1990, at 5
("Plaintiff's Dec. 2 Affidavit").
Early in 1990 Devon began to explore the acquisition of some
of the assets of Young, another financial printing company then
in bankruptcy reorganization. Although Devon completed the
acquisition of the Young assets in April 1990, the parties
dispute the events leading to the acquisition. The parties
agree that, concurrent with the negotiations concerning Devon's
purchase of Young, they discussed Devon's buying out Cramer's
remaining interest in Aztech. The parties also agree that the
purchase of Cramer's shares was never consummated. However,
they dispute whether an agreement was ever reached concerning
the purchase. In his first cause of action, Cramer alleges that
Devon fraudulently induced him to acquiesce in the purchase of
Young, based on a false promise to purchase his remaining 20%,
interest in Aztech. Cramer claims that Devon only intended to
buy his Aztech shares if the Young acquisition proved
successful; that if the acquisition were unsuccessful, Devon
intended not to buy Cramer's shares, but rather to merge the
assets of Aztech and Young, rendering Aztech, and Cramer's
investment therein, worthless. The second cause of action
asserts that Cramer and Devon entered into a
contract in which Devon agreed to purchase Cramer's shares for
$1,570,000, and that defendant breached this contract.
Defendant responds that it never agreed to purchase Cramer's
shares, that Cramer can point to no writing evidencing any
agreement that satisfies the statute of frauds, and that there
is no evidence to show that it made any promise to Cramer with
a then present intent not to honor that promise.
After the 1990 acquisition of Young by Devon, the Young
assets, including accounts receivable, work in progress and
fixed assets, were transferred to Aztech. The transfer was
recorded by adjusting Aztech's books to reflect added assets of
$4.63 million, the purchase price of the Young assets. A
corresponding liability was added on Aztech's books as an
intercompany payable to Devon. Cramer claims that these
bookkeeping changes served to commingle Young's liabilities
with Aztech's assets; he asserts as his third cause of action
that these changes breached covenants included in his 1987
Agreement with Devon. For example, the 1987 agreement barred
"any action which would cause Aztech to be operated other than
in its normal ordinary course consistent with past practices,"
and also required maintaining Aztech's accounting procedures.
See 1987 Agreement ¶ 3.1(a)(xvi) & (xvii). Devon responds that
these covenants were superseded by amendments in the 1989
Agreement, and that Cramer consented to any changes that were
Plaintiff's fourth cause of action alleges that Devon, as a
majority shareholder in Aztech, breached the fiduciary duties
it owed to Cramer, a minority shareholder. Cramer claims that
by intermingling Aztech's and Young's assets and liabilities,
Devon used Young as a vehicle to deplete Aztech's assets and
thereby reduce the value of Cramer's investment in Aztech.
Devon responds, and plaintiff concedes, that Cramer was
enthusiastic about and actively promoted Devon's purchase of
Young. In fact, defendant contends that Cramer admits that
there was no breach of fiduciary duty. Cramer categorically
denies admitting that the transaction was not a breach of
fiduciary duty and claims that his optimism was procured by the
fraudulent promise of Devon's President, Marne Obernauer
("Obernauer"), to buy Cramer's shares.
Plaintiff's fifth and final cause of action alleges that
Devon breached Cramer's employment agreement. Defendant moves
for summary judgment on this claim based on an arbitration
clause in the employment contract. Although decrying
defendant's refusal to adjudicate all of the claims in one
forum, plaintiff concedes that the arbitration clause is
binding. Therefore, he does not oppose the grant of summary
judgment on his fifth cause of action. See Memorandum of Law in
Opposition to Defendant's Motion for Summary Judgment
("Plaintiff's Response"), at 7 n. *.
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 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." 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, 493 U.S. 815, 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)). "[T]he mere existence of some alleged
factual dispute between the parties will not defeat an
otherwise properly supported motion for summary judgment; the
requirement is that there be no genuine issue of material
fact." Anderson, supra, 477 U.S. at 247-48, 106 S.Ct. at 2510.
"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 252, 106
S.Ct. at 2512, and Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538
(1986)), cert. denied, ___ U.S. ___, 111 S.Ct. 2041, 114
L.Ed.2d 125 (1991). "The non-movant cannot `escape summary
judgment merely by vaguely asserting the existence of some
unspecified disputed material facts,' or defeat the motion
through `mere speculation or ...