consideration. There are serious questions concerning whether such a promise is valid consideration, given NFLIL's pre-existing obligations. There is also some question as to whether such consideration, even if entirely new, had any value to the members. Finally, there is a potential question, unaddressed by either party, concerning whether a company can contract away its right to declare bankruptcy.
B. Third Party Beneficiary
Plaintiff next contends that the fourteen past and present member teams contracted among themselves, and that NFLIL was an intended third party beneficiary to that contract. This Court, for the reasons stated above, finds that no contract was entered into by the various member teams. Consequently, the Court need not determine whether NFLIL was an intended third-party beneficiary. The Court does note, however, that the existence, and nonfulfillment, of a condition precedent is even more compelling in the third party beneficiary context.
II. Fiduciary Claims
A. Enforcement of Contract
Plaintiff's third cause of action is one for breach of fiduciary duty arising from defendant directors' alleged failure to enforce the contract formed on March 1, 1989. This Court, having found that no contract was created during or after the Meeting, finds that defendants necessarily cannot be held liable for failing to enforce a non-existent contract.
B. Operating while Insolvent
Lastly, plaintiff contends that it is a disputed issue of fact whether the directors acted reasonably and in good faith in performing the duty that they owed to NFLIL while it was insolvent. NFLIL alleges that the defendant directors owed a fiduciary duty to the company when the company's insolvency existed in fact. It further contends that the directors were aware of NFLIL's mounting losses and that they nevertheless kept the company in operation, in violation of their fiduciary duty.
Defendants maintain that plaintiff must establish that "the directors (1) knew that the company was insolvent or on the brink of insolvency, (2) allowed the company to incur further debt or greater financial obligations after learning of the problem, and (3) failed to take reasonable steps in response to the financial difficulties." Reply Memorandum of Law in Support of Defendants' Motion for Summary Judgment ("Defendant Reply") at 25. Defendants argue that the defendant directors did not know of the financial distress of NFLIL until late 1987. They contend that the 1988-89 renewal was the only debt or financial obligation to which NFLIL became bound after November 1987, and that such obligation was only entered into after extensive inquiry, reasonable improvements, and a good faith determination that NFLIL was a viable proposition. Id. at 27.
This Court finds that the issues of (1) when defendant directors knew of NFLIL's insolvency, and (2) whether they acted in good faith at all times they allowed NFLIL to conduct business, are issues of fact that cannot be decided on the instant motion for summary judgment. Plaintiff has sufficiently raised questions concerning the state of the various directors' knowledge and their consequent responsibilities towards the company. As this Court stated in the Opinion, "it is possible that the directors failed to take . . . actions to alleviate the company's financial problems that a reasonably prudent person would have deemed appropriate under the circumstances." Opinion at 20.
This Court has found that no contract was created at the Meeting, and that even if a binding agreement had been reached, it would not have obligated defendants to perform because of the nonfulfillment of a condition precedent. This Court, however, has not found, as a matter of law, that an escrow account was established for the monies that were in fact contributed by some of the teams. This Court, instead, finds that issues of fact exist concerning the status of those funds. While strong evidence seems to indicate that, due to the failure of many of the member teams to participate in funding the deficit of NFLIL, the funds should be returned to the teams which contributed them, there is at least some evidence that the contributions were made unconditionally.
There is evidence that no formal escrow arrangement was ever established, and as defendants have succeeded in demonstrating, there was no contract entered into as a result of the Meeting. It necessarily follows, therefore, that the members did not contract to have contributions returned if all members did not participate. It is possible that the contributions were unconditional, and as such, were the property of NFLIL when it became insolvent. If this is in fact the case, however unlikely it appears, then there is a question as to who is entitled to the funds. In any event, there are sufficient factual issues to necessitate denial of defendants' motion for summary judgment on its counterclaims.
For the reasons stated above, the Court hereby dismisses the first, second, and third causes of action in plaintiff's amended complaint. The motion for summary judgment on plaintiff's fourth cause of action and for summary judgment on defendants' counterclaims is denied.
Dated: January 26, 1995
New York, New York
Peter K. Leisure