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CARMEUSE v. M.J. STAVOLA INDUS.

May 10, 1993

S.A. CARMEUSE and CALCITHERM HOLDING N.V., Plaintiffs,
v.
M.J. STAVOLA INDUSTRIES, INC. and CITIBANK, N.A., as Escrow Agent, Defendants.


Carter


The opinion of the court was delivered by: ROBERT L. CARTER

ROBERT L. CARTER, District Judge

 On December 24, 1986, the plaintiffs, S.A. Carmeuse and Calcitherm Holding N.V., sold the defendant, M.J. Stavola Industries, Inc. ("MJS"), all of the outstanding common stock of Amcar, Inc. ("Amcar"), a Florida-based holding company with three subsidiaries, Dixie Lime and Stone Company ("Dixie"), Tonk Products, Inc. ("Tonk"), and Southern Materials Corporations ("SMC"). Pursuant to the Stock Purchase Agreement executed in connection with that transaction (the "Agreement"), $ 1 million of the $ 13.9 million purchase price was placed into an interest-bearing escrow account at Citibank (the "Escrow Fund") in order to secure certain obligations of plaintiffs to indemnify MJS. MJS subsequently submitted 33 claims for indemnification, totalling $ 1,578,394, however plaintiffs disputed the validity of virtually every claim. *fn1"

 According to the terms of the Escrow Agreement, executed in conjunction with the Stock Purchase Agreement, if claims for indemnification were timely asserted by MJS, then Citibank was to retain that portion of the Escrow Fund claimed and distribute the remainder to Carmeuse and Calcitherm. The retained portion would be released by Citibank in accordance with either (i) written instructions signed by Carmeuse, Calcitherm and MJS or (ii) a court order. Since the parties have been unable to agree to a distribution of the Escrow Fund, the plaintiffs commenced this lawsuit, in part, to obtain a declaration, pursuant to 28 U.S.C. § 2201, resolving the parties' dispute with respect to the 33 items. *fn2" MJS counterclaimed for: (i) declaratory judgment regarding its rights to the Escrow Fund; (ii) breach of contract due to numerous alleged misrepresentations concerning the same list of items; and (iii) conversion of certain insurance proceeds. This case is presently before the court on plaintiffs' partial summary judgment motion, pursuant to Rule 56, F.R.Civ.P., as to 10 of MJS' breach of contract claims and 23 of the items for which MJS seeks indemnification.

 I

 Plaintiffs contend that they are entitled to partial summary judgment on MJS's second counterclaim for breach of contract because the defendant cannot demonstrate with respect to items numbered 2, 7, 9-12, 14, 20, 22, and 25 that plaintiffs breached any representation or warranty or that defendant sustained any damages.

 According to MJS, the "Hot Rock Elevator Chain" (Item 7), "Silo #7" (Item 11), and the "Ball Mill" (Item 25) were not in "good operating condition and repair" in contravention of section 3(p) of the Agreement. *fn3" Specifically, MJS alleges: that the elevator chain was defective, resulting in three breakdowns, and was ultimately replaced; that the design and construction of the silo were seriously flawed, requiring extensive reinforcement, rewelding and additional steel supports; that the silo had shifted laterally approximately sixteen inches, and the concrete lining of the silo was flaking off and falling into the product; and that the ball mill was "not merely inefficient . . . it was useless and worthless." Def. Mem. p.22.

 Plaintiffs contention that MJS has not presented any evidence in support of these claims is simply wishful thinking. MJS has produced servicing bills for the elevator chain; *fn4" various internal SMC memoranda, predating the Agreement, which discuss replacement of the ball mill; *fn5" and several engineering reports concerning the dilapidated condition of the silo. *fn6" Although the plaintiffs strenuously dispute the meaning and significance of these documents, the role of the court in deciding a motion for summary judgment is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue" of fact which must be reserved for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Since a genuine factual dispute exists regarding the operating condition of the mill, elevator chain and silo, plaintiffs motion must be denied as to these items. *fn7"

  MJS also asserts a claim based on three Mack trucks (Item 10) which were leased by Carmeuse in 1985. The defendant maintains that the condition of these trucks also violated the warranty in section 3(p) of the Agreement because they were completely unsuited for their intended purpose of carrying heavy loads on ungraded surfaces. After experiencing difficulties with the trucks, MJS allegedly had to replace the vehicles at great expense while remaining liable on the original lease. DiSarro Aff. Exh. 18. As the plaintiffs properly point out, however, the plain language of section 3(p) pertains to the condition and repair of the purchased equipment, not its suitability for a particular purpose. Since defendant merely contends that other trucks were better suited to Amcar's hauling needs, and has not maintained that the trucks were in other than good condition or repair, MJS has not alleged a breach of the warranty. Thus, based on the plain language of section 3(p), summary judgment is granted as to item 10. See Bethlehem Steel Co. v. Turner Construction Co., 2 N.Y.2d 456, 460, 161 N.Y.S.2d 90, 93, 141 N.E.2d 590 (1957) ("where the intention of the parties may be gathered from the four corners of the instrument, interpretation of the contract is a question of law and no trial is necessary"); W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162, 565 N.Y.S.2d 440, 443, 566 N.E.2d 639 (1990) ("When parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.")

 Item 9 concerns a spill of liquid waste from SMC's property onto six acres of an adjoining property, a condition about which MJS was allegedly not informed prior to its purchase of scar. DiSarro Aff. Exh. 14. MJS contends that this condition constituted a breach of the representations and warranties in section 3(p), which provides, in relevant part, that Amcar's mining operations "do not and would not conflict with any statute, regulation, order, ordinance or law of the United States of America or any state, local or foreign jurisdiction," and section 3(v), which represents that Amcar and its subsidiaries are in compliance with all applicable statutes, regulations, ordinances, orders and other laws.

 Plaintiffs disingenuously contend that these provisions were not breached because MJS has not been subject to any fines or penalties nor have any claims been filed against it as a result of the spillage. The fact that no action has been taken against MJS in connection with the spillage, however, does not disprove defendant's allegation that an unlawful condition existed. *fn8" Thus, plaintiffs' motion is denied as to item 9.

 MJS also claims that, after the acquisition, it discovered that certain payments due to former employees of Tonk (Item 12) had not been disclosed in the schedules of notes payable annexed to the Stock Purchase Agreement or in the financial statements provided to MJS. *fn9" Although plaintiffs do not contest that the nondisclosure violated several warranties in the Agreement, they claim that MJS has presented no evidence that it actually had to pay the notes. Indeed, the only evidence offered by MJS is a letter dated October 16, 1990, in which it advised plaintiffs that it was compelled to pay the notes in order to consummate its resale of Tonk. DiSarro Aff. Exh. 29 at 7. Since the assertion in that letter was unsubstantiated and would clearly be inadmissible at trial, it cannot constitute evidence sufficient to defeat a motion for summary judgment. See, e.g., Wade v. New York Tel., 500 F. Supp. 1170, 1176-7 (S.D.N.Y. 1980) (Carter, J.) (Under Rule 56, unsupported allegations of counsel may be disregarded in determining whether genuine issues of fact exist.) Thus, plaintiffs' motion is granted as to item 12.

 Item 14 concerns plaintiffs' alleged misrepresentation to MJS, set forth in a May, 1985 memorandum, that each ten acre-block of the "Dixie Acreage" would yield 1.8 million tons of minerals. DiSarro Aff. Exh. 19. Since MJS's own geological survey allegedly concluded that the yield would be only 1.67 million tons, *fn10" MJS claims that plaintiffs breached section 3(cc) of the Agreement. That section provides: "No representation or warranty made by either Seller in this Agreement or as provided herein contains any untrue statement of any material fact . . . ."

 Plaintiffs argue that the May, 1985 memorandum is irrelevant since the warranty in section 3(cc) only applies to representations made in the Stock Purchase Agreement. Indeed, there is no basis upon which to conclude that the parties intended to incorporate into the Agreement an internal memorandum written well over a year earlier. Section 3 of the Agreement contains an exhaustive list of 29 representations and warranties by the sellers, none of which relate to the yield of the Dixie ...


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