The opinion of the court was delivered by: ROBERT W. SWEET
Plaintiff Sylvia Chase ("Chase") has moved for partial summary judgment pursuant to Rule 56(b), Fed. R. Civ. P., dismissing the First through Sixth counterclaims of Defendant Columbia National Corporation ("Columbia"), now known as Columbia National Group, Inc., on the ground they are barred by a contractual provision agreed upon by the parties. For the reasons set forth below, the motion is denied.
The Plaintiff is a resident of the State of New York and the widow and executrix of the estate of Myron Chase (the "Chase Estate"). The Witte Chase Corporation ("Witte Chase") was a corporation organized under the laws of New York with its principal place of business in New York City, but which maintained its scrap metal yard in New Jersey at Port Newark (the "Port Newark facility"). Witte Chase was run by Myron L. Chase ("Myron Chase") until his death on May 1, 1987. John A. Witte ("Witte"), a resident of New Jersey, is the President of Witte Chase and of Donjon Marine Co., Inc. ("Donjon"), a New Jersey corporation which owned a half or quarter interest in Witte Chase from 1981 until 1989.
Columbia is a corporation organized under the laws of Ohio with its principal place of business in Cleveland, Ohio. Defendant David Miller ("Miller") is the President of Columbia and Defendant James D. Larr ("Larr") is Vice-President and Chief Financial Officer of Columbia. Jurisdiction over this action is based upon diversity of citizenship between the parties.
The Plaintiff originally filed her complaint in New York State Court seeking a declaratory judgment of her rights, allegedly in response to letters from counsel for Columbia threatening a lawsuit. Copies of her summons and complaint were received by Columbia, Miller and Larr on April 17, 1991. Columbia removed the action to federal court and filed an amended answer and six counterclaims on August 28, 1991.
Chase filed her motion to dismiss all but the last two counterclaims on April 29, 1993. The motion was argued on June 2, 1993, and was considered fully submitted as of that date.
Witte Chase engaged primarily in the purchase and export sale of scrap metal, purchasing and selling approximately 600,000 tons of steel scrap per year in the mid-1980's, with annual sales of approximately $ 50 million dollars. Witte Chase was wholly owned by Myron Chase until Donjon, a company which owns and manages barges and other marine equipment used in the transport of steel scrap, purchased a 50% interest in it in 1981. Chase alleges that Donjon had been transporting scrap for the Newark Port facility since approximately 1977.
In March, 1987, Columbia, also a scrap-metal company, began to exchange drafts of a final purchase agreement for a stake in Witte Chase. On April 10, 1987, Columbia, Myron Chase, and Donjon entered into a written Stock Purchase Agreement (the "Stock Purchase Agreement" or "Agreement") in which Columbia (the "Purchaser") acquired 50% of Witte Chase Corporation's stock, half from the shares held by Donjon and half from those held by Myron Chase (collectively, the "Sellers") for $ 2,500,000.00. Because Witte Chase's fiscal year ended in February, Columbia agreed to purchase its interest based on the value of the Company as of February 28, 1987, and once the transaction closed on April 10, 1987, Columbia owned its fifty percent interest as of February 28, 1987.
Section 10 of the Agreement provided for both Witte Chase's accountants and Columbia's accountants to review the financial statements provided by Witte Chase and to prepare and certify the company's financial statements in June, 1987,
"in order to satisfy themselves that the financial statements of [Witte Chase] for the year ended February 28, 1987 . . . do not contain misrepresentations or omissions." Section 10 further provided that if there were "untrue matters" or "omissions" which would have a material "adverse impact on the company's financial position", then Columbia as Purchaser had "the right to take such action or seek such remedies as may be available to it under the law, subject to the provisions set forth in Section 11 hereof."
In Section 11(b), the Sellers guaranteed to the Purchaser that the net worth of the Company (Witte Chase) as sold to Columbia would be at least $ 2,350,00 as of February 28, 1987, or else Columbia would be permitted a credit on its purchase price. Sections 11(b)(iv) and (v) provide:
(v) In addition to the foregoing, if any representation or warranty contained herein should prove to be untrue, or if Sellers should breach any covenant herein . . . and such breach (aa) does not reduce the Shareholder Equity . . but would, under generally accepted accounting principles, require footnote disclosure and (bb) would reduce the fair market value of the Company, then Sellers shall indemnify the Purchaser for any loss occasioned thereby. . . .
Section 11(b) also provides that "[any claim brought pursuant to this Section 11(b)(iv) and (v) must be made prior to the second anniversary of closing," which took place on April 9, 1989.
One of the main assets of Witte Chase was its inventory, and the principal record of the amount of scrap metal in the year was the perpetual inventory record maintained by Witte Chase. In the course of negotiations, Columbia was provided with a Witte Chase inventory record as of February 28, 1987, including a perpetual inventory statement dated March 2 (the "March 2 Inventory Statement") which indicated that Witte Chase had 126,659 tons of scrap as of the close of its 1987 fiscal year at its Port Newark facility. In May 1987, after the execution of the Agreement, Larr visited the Port Newark facility and was informed that the provisional sale of approximately 80% of the final cargo of a vessel referred to as the Ocean Wind (the "Ocean Wind Cargo Sale") had been made ...