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September 22, 1993

WOMETCO ENTERPRISES, INC., ARTHUR H. HERTZ, MICHAEL S. BROWN, Defendants. WOMETCO ENTERPRISES, INC., ARTHUR H. HERTZ, MICHAEL S. BROWN, Third-Party Plaintiffs, v. STEEL, HECTOR & DAVIS, a Florida General Partnership, Third-Party Defendant.


The opinion of the court was delivered by: JOHN E. SPRIZZO


 Plaintiff in the above-captioned action moves for summary judgment pursuant to Fed. R. Civ. P. 56. For the reasons that follow, that motion is granted.


 Defendant Wometco Enterprises, Inc., (hereinafter, together with its Chief Executive Officer, defendant Arthur H. Hertz, and Chief Operating Officer, defendant Michael S. Brown, referred to as "Wometco"), was formed out of a June, 1985 leveraged buyout of all outstanding shares of the capital stock of WEI Corporation and certain assets of WBC Broadcasting Corporation, including a food service business, movie theaters and a marine exhibition facility in Miami (the "Seaquarium"). See Defendants's Statement pursuant to Local Civil Rule 3(g) of the United States District Courts for the Southern and Eastern Districts of New York (Defs.' 3(g) Statement"), PP 1-2; Affidavit of John Sullivan sworn to March 19, 1992 ("Sullivan Aff."), Ex. 1. *fn1" That purchase cost $ 54.4 million and was financed by loans from two sources: a consortium of commercial banks in return for $ 50 million in senior debt instruments (the "senior lenders"), and Teachers Insurance and Annuity Association of America ("plaintiff" or "TIAA"). Defs.' 3(g) Statement, PP 1,3.

 The Loan Agreement further required Wometco periodically to provide TIAA with reasonably detailed financial information as to Wometco's financial condition and granted TIAA a right to fully inspect Wometco's properties and financial records. Defs.' 3(g) Statement, PP 9-11; Sullivan Aff., Ex. 1, PP 8.1, 8.6. With certain exceptions not relevant here, the Loan Agreement also prohibited Wometco or its subsidiaries from consolidating or merging its assets with another corporation, from disposing in any way of its assets or from incurring additional debt. Sullivan Aff., Ex. 1, PP 9.2, 9.10. Finally, the Loan Agreement provided that the parties could amend, modify or waive the observance of any term only with TIAA's written consent. Id., P 19; Defs.' 3(g) Statement, P 12.

 Beginning in 1985 and continuing until March, 1989, Wometco defaulted on its payment obligations pursuant to the aforesaid agreement with TIAA which led the parties to enter into various amendments to that Loan Agreement. *fn2" By March, 1989, Wometco, unable to sell assets to meet its financial obligations and in default, negotiated a refinancing of its food service business instead. Defs.' 3(g) Statement, P 19; Sullivan Aff., Ex. 16. Approaching the March 17, 1989 closing date of that refinancing transaction, TIAA insisted that Wometco agree to new terms in exchange for its consent to that refinancing. Defs.' 3(g) Statement, PP 21-24.

 As a consequence, Wometco and TIAA executed a modification of the Loan Agreement (the "Modification Letter") under which TIAA agreed to waive the restrictions that prohibited the refinancing transaction of the food service business and the proposed refinancing and/or sale of its Seaquarium and further to waive all prior events of default by Wometco. Sullivan Aff., Ex. 21. In return, Wometco agreed to prepay the principal and accrued interest on TIAA's subordinated note plus a $ 2.2 million premium. *fn3" Id. Wometco also agreed to repurchase TIAA's holdings of Wometco common stock at $ 20.50 per share by September 30, 1989 or, if repurchased thereafter, to issue to TIAA a 12% senior note in the principal amount equal to $ 22.30 for each share of unrepurchased stock. Id.

 Wometco proceeded to close the refinancing of the food service business on March 17, and applied the bulk of the proceeds to the senior debt. Defs.' 3(g) Statement, P 25. On August 11, 1989, Wometco closed a refinancing of the Seaquarium and, with the proceeds, retired the senior debt, retired in full TIAA's subordinated note, paid the $ 2.2 million premium, and repurchased TIAA's stock warrant and 3,415 of TIAA's 100,000 shares of Wometco common stock at $ 20.50 per share for $ 1 million. Id., P 26. Wometco was unable, however, to repurchase in full TIAA's common stock holdings by the September 30, 1989, deadline. Id., P 27.

 On April 1, 1990, Wometco and TIAA entered into an agreement (hereinafter "Purchase Agreement") whereby TIAA waived Wometco's failure to issue the aforementioned 12% senior note in the principal amount equal to the unrepurchased shares of stock multiplied by $ 22.30 per share. Sullivan Aff., Ex. 26. In return, Wometco promised to use "best efforts" to generate enough cash through asset sales to purchase TIAA's holdings at $ 22.30 per share by September 30, 1990, at $ 22.30 per share, and to pay 12% annual interest accrued after October 1, 1989. Id.

 By letter dated September 4, 1990, Wometco requested a statement of amounts due to TIAA under the Purchase Agreement as of September 1, 1990. Id., Ex. 27. TIAA responded by documenting the amounts owed at approximately $ 2.4 million. Id., Ex. 28.

 On October 9, 1990, after the September 30 deadline had passed without payment by Wometco, Wometco closed a sale of movie theaters it owned. Defs.' 3(g) Statement, P 28. From those proceeds, Wometco paid $ 1,947,412 to each of its two senior officers, defendants Hertz and Brown, as creditors of the company, paid $ 1 million to TIAA, and placed the remaining $ 1.4 million owed to TIAA in a segregated account. Id., PP 28-29. Wometco notified TIAA of its desire to negotiate the payment of that final portion due under the Purchase Agreement. Sullivan Aff., P 30. On November 30, 1990, TIAA brought this action, later supplemented by an amended complaint, seeking specific performance of Wometco's obligation to make the promised payments, a declaratory judgment that TIAA has no liability to Wometco arising out of the aforesaid facts and that Wometco's anticipated defenses have no merit, as well as damages for fraud and breach of contract.

 TIAA moves for summary judgment on its claim for breach of contract and on Wometco's nine counterclaims. Wometco contends that TIAA forced it to accept unduly harsh new terms in the Modification Letter which amended the Loan Agreement, and that that conduct (1) constituted economic duress, (2) violated an implied contractual duty of good faith, (3) breached TIAA's fiduciary duty, (4) unlawfully interfered with Wometco's corporate governance, (5) unjustly enriched TIAA, and (6) breached the original Loan Agreement. Wometco also sought (7) a declaratory judgment that, under the Modification Letter and the Purchase Agreement, TIAA is obligated to return money wrongfully received and that Wometco is ...

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