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 not obligated to make any further payments, as well as (8) specific performance seeking return of the Wometco stock certificates from TIAA, and (9) damages for breach of contract.
At Oral Argument, a subsidiary question was raised with respect to the economic duress argument, i.e., whether a legal action existed for unreasonable withholding of consent where a contract is silent on that issue. The Court asked for and received supplemental briefing on that issue.
Summary judgment is appropriate only where, resolving all ambiguities and drawing all reasonable inferences in favor of the non-moving party, the evidence demonstrates 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." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); see also Celotex Corp. v. Catrett, 477 U.S. 317, 327, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Tested by that standard, plaintiff is entitled to summary judgment since none of the defenses asserted constitute a sufficient legal defense to TIAA's claims.
Defendants argue that plaintiff's threat to withhold consent to their refinancing of its food service business, which caused defendants to agree to the new terms contained in the Modification Letter amendment, constituted economic duress. New York law
has established the following elements of economic duress
"(1) a threat, (2) which was unlawfully made, [which] (3) caused involuntary acceptance of contract terms, (4) because the circumstances permitted no other alternative." Kamerman v. Steinberg, 891 F.2d 424, 431 (2d Cir. 1989).
In the instant case, the parties do not dispute that their original Loan Agreement required that Wometco obtain written consent from TIAA for the refinancing transaction. Plaintiff therefore argues that any refusal on its part to consent to Wometco's desire to incur additional debt cannot, as a matter of law, be unlawful, but rather constitutes no more than an assertion of its bargained-for right. The Court agrees. Threats by a party to act in accordance with its legal rights do not and cannot constitute duress. See Kamerman, 891 F.2d at 432; DiRose v. PK Management Corp., 691 F.2d 628, 633 (2d Cir. 1982), cert. denied, 461 U.S. 915, 77 L. Ed. 2d 285, 103 S. Ct. 1896 (1983); Hammelburger v. Foursome Inn Corp., 54 N.Y.2d 580, 593 n.4, 446 N.Y.S.2d 917, 431 N.E.2d 278 (1981); Stewart M. Muller Constr. Co. v. New York Tel. Co., 40 N.Y.2d 955, 956, 390 N.Y.S.2d 817, 359 N.E.2d 328 (1976) (mem.). See also Houston North Hosp. Properties v. Telco Leasing, Inc., 680 F.2d 19, aff'd on reh'g, 688 F.2d 408 (5th Cir. 1982) (summary judgment affirmed rejecting debtor's claim of economic duress on the basis that there was no unlawful threat where creditor, within its contractual rights, refused to release a lien necessary for debtor's refinancing unless debtor repaid creditor's loan at a premium).
Moreover, even assuming, arguendo, that the Modification Letter was entered into under duress, defendants performed according to its terms for over eighteen months. Under New York law, a contract entered into under duress is voidable, not void, and a party who fails promptly to disaffirm a contract entered into under duress is deemed to have waived its right to disaffirm or to have elected to affirm it. See DiRose v. PK Management Corp., supra, 691 F.2d at 633-34; International Halliwell Mines, Ltd. v. Continental Copper & Steel Indus., Inc., 544 F.2d 105, 108 (2d Cir. 1976); Scientific Holding Co. v. Plessey Inc., 510 F.2d 15, 23 (2d Cir. 1974); Joseph F. Egan, Inc. v. City of New York, 17 N.Y.2d 90, 98, 268 N.Y.S.2d 301, 215 N.E.2d 490 (1966). In sum, the undisputed facts of this case establish that Wometco made a business decision to accept plaintiff's new terms since compliance with the original terms in the Loan Agreement presented a much less desirable financial alternative. After having operated under that agreement for more than eighteen months, Wometco cannot now be permitted to escape the consequences of that choice.
Defendants further argue that plaintiff breached its duty of good faith when it withheld its consent. However, the New York Court of Appeals has held that, in the absence of explicit contractual language stating that a party may not unreasonably withhold consent, parties may withhold consent for any reason or no reason, and that no implied obligation to act in good faith exists to limit that choice. See Collard v. Incorporated Village of Flower Hill, 52 N.Y.2d 594, 603-04, 439 N.Y.S.2d 326, 421 N.E.2d 818 (1981); Dress Shirt Sales, Inc. v. Hotel Martinique Assocs., 12 N.Y.2d 339, 342, 239 N.Y.S.2d 660, 190 N.E.2d 10 (1963). See also Sharma v. Skaarup Ship Management Corp., 916 F.2d 820, 827-28 (2d Cir. 1990), cert. denied, 499 U.S. 907, 113 L. Ed. 2d 218, 111 S. Ct. 1109 (1991). Moreover, an implied obligation of good faith cannot negate the express terms of a contract. See Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 304, 461 N.Y.S.2d 232, 448 N.E.2d 86 (1983); Sharma, supra, 916 F.2d at 828; National Westminster Bank, U.S.A. v. Ross, 130 Bankr. 656, 679 (S.D.N.Y. 1991), aff'd, 962 F.2d 1 (2d Cir 1992). Cf. Penthouse Int'l, Ltd. v. Dominion Fed. Sav. & Loan Ass'n, 855 F.2d 963, 975 (2d Cir. 1988), cert. denied, 490 U.S. 1005
, 104 L. Ed. 2d 154, 109 S. Ct. 1639 (1989). It follows that where, as here, a contract negotiated at arm's length lacks specific language preventing plaintiff from unreasonably withholding consent, the Court can not and should not rewrite the contract to include such language which neither of the parties saw fit to insert in the contract.
Defendants also counterclaim for breach of fiduciary duty. They argue that plaintiff was a controlling shareholder by virtue of plaintiff's dual capacity as lender and as minority shareholder
with absolute veto power over any proposed refinancings. In what is usually a fact sensitive question, see Hunt v. Bankers Trust Co., 689 F. Supp. 666, 675 (N.D. Tex. 1987) (applying New York law), New York law inquires whether one person has reposed trust or confidence in the integrity and fidelity of another who thereby gains a resulting superiority or influence over the first. See Penato v. George, 52 A.D.2d 939, 383 N.Y.S.2d 900, 904 (2d Dep't 1976), appeal dismissed, 42 N.Y.2d 908, 397 N.Y.S.2d 1004, 366 N.E.2d 1358 (1977); Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb Inc., 767 F. Supp. 1220, 1231 (S.D.N.Y. 1991), rev'd on other grounds, 967 F.2d 742 (2d Cir. 1992). A fiduciary duty also exists where one assumes control and responsibility over another. See Gordon v. Bialystoker Center & Bikur Cholim, Inc., 45 N.Y.2d 692, 698, 412 N.Y.S.2d 593, 385 N.E.2d 285 (1978). Finally, the Restatement of Agency defines a fiduciary as one "having a duty, created by his undertaking, to act primarily for the benefit of another in matters connected with his undertaking." Restatement (Second) of Agency § 13 cmt. a (1957).
On the undisputed facts of this case, however, it is clear that no proper finding of a fiduciary responsibility by TIAA to Wometco can be made. Defendants have not disputed and cannot dispute that the parties have had no relationship prior to or since this transaction, that they negotiated these contracts at arm's length, and that plaintiff did not have dominant control over Wometco since Wometco at all times had the power to effectuate viable alternatives to agreeing to plaintiff's requests. See supra p. 9, n.6. Moreover, the facts show, without evidence to the contrary, that the parties did not have a confidential relationship,
and that no relationship of agency or trust ever existed between plaintiff and defendants. Indeed, the undisputed evidence clearly indicates quite the opposite, i.e., that the parties had an ordinary arms-length business relationship. See, e.g., Grumman Allied, supra, 748 F.2d at 738-39; Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, N.A., 731 F.2d 112, 122 (2d Cir. 1984); Beneficial Commercial Corp. v. Murray Glick Datsun, Inc., 601 F. Supp. 770, 772 (S.D.N.Y. 1985). Moreover, since the contracts never required TIAA to act on behalf of Wometco, there can be no basis for any claim of breach of any fiduciary duty. See, e.g., Flintridge Station Assocs. v. American Fletcher Mortgage Co., 761 F.2d 434, 442 (7th Cir. 1985); B.C. Recreational Indus. v. First Nat'l Bank of Boston, 639 F.2d 828, 833 (1st Cir. 1981).
For the reasons given above, plaintiff's motion for summary judgment is hereby granted. Defendants and third-party defendants shall appear before the Court on October 15, 1993 for a Pre-Trial Conference.
It is SO ORDERED.
Dated: New York, New York
September 22, 1993
John E. Sprizzo
United States District Judge