The opinion of the court was delivered by: BATTS
DEBORAH A. BATTS, United States District Judge.
This action arises out of a Stock Purchase Agreement (the "Agreement"), dated December 22, 1988, between the Plaintiff, American Transtech Inc. ("Transtech"), and the Defendant, U.S. Trust Corporation ("U.S. Trust"), under which Transtech purchased Advanced Information Management, Inc. ("AIM"). On February 16, 1994, Transtech commenced this action against U.S. Trust seeking indemnification for materially inaccurate statements, and alleging fraud and fraudulent concealment.
U.S. Trust denied Transtech's allegations, and now argues that the Complaint fails to state a claim upon which relief may be granted. U.S. Trust contends that it made no knowing misrepresentation to Transtech in the Stock Purchase Agreement and that, "to the best knowledge" of U.S. Trust, it made no inaccurate statements in the Agreement regarding any material claims against AIM. Indeed, U.S. Trust claims that it was not advised by counsel for AIM, Shea & Gould ("S&G"), of the extent of possible financial exposure at issue when it entered into the Agreement with Trans tech.
Accordingly, by Third-Party Complaint dated February 16, 1994, U.S. Trust commenced a third-party action against S&G, seeking indemnification for any judgment in this action in favor of Transtech and against U.S. Trust, on the grounds that S&G approved the Agreement's text and were the source of the disclosures in the Agreement that are the subject of Transtech's Complaint.
S&G move for summary judgment asserting that U.S. Trust cannot, as a matter of law, recover from them for indemnification; and furthermore, that S&G made no representations upon which U.S. Trust could rely.
A. The Equitable Tower Lawsuit
Prior to U.S. Trust's acquisition of AIM in 1986, AIM had entered into a lease (the "Lease"), dated May 30, 1984, for office space in New York City with a landlord known as Equitable Tower Associates ("Equitable Tower"). (Pl.'s & Def.'s 3(g) Statements P 12; Third-Party Def.'s 3(g) Statement Ex. A.) Paragraphs 18 and 19 of the Lease provide for the remedies available in case of a default.
On August 6, 1985, shortly before the trial of the Equitable Tower Lawsuit, Equitable Tower and AIM entered into a written stipulation ("Stipulation"), to amend Equitable Tower's petition, in which they agreed that Equitable Tower's claim for rent, if it was entitled to it, from July 15, 1984, through May 31, 1985, amounted to $ 188,053.95, and that it could be entitled to the use and occupancy from June 1, 1985, to the date AIM vacated the premises. (Pl.'s 3(g) Statement PP 78-81; Def.'s 3(g) Statement PP 78-81, 123; Adler Ex. 6.) Under the Stipulation, if AIM were found to be liable to Equitable Tower under the Lease, Equitable Tower could obtain a judgment of as much as $ 317,350.20 against AIM. (Pl.'s & Def.'s 3(g) Statements P 82; Adler Ex. 6.) By the time post-trial briefs were submitted, AIM had paid $ 26,808.94, reducing its potential liability under the Stipulation to $ 290,542.20. (Pl.'s & Def.'s 3(g) Statements P 86; Adler Ex. 10.)
The trial commenced on August 8, 1985, and the New York Civil Court dismissed both Equitable Tower's petition and an AIM counterclaim on December 31, 1985. (Pl.'s & Def.'s 3(g) Statements PP 89-90; Portnoy Ex. 2.) Equitable Tower noticed an appeal on March 26, 1986. (Pl.'s & Def.'s 3(g) Statements P 91; Portnoy Ex. 2.) That appeal was still in the process of being perfected when Transtech purchased AIM from U.S. Trust in December 1988. (Pl.'s & Def.'s 3(g) Statements P 92; Adler Dep. at 85; Fahey Dep. at 111; Portnoy Dep. at 46-47.)
On December 22, 1988, Transtech and U.S. Trust entered into the Agreement which provided that Trans tech would acquire from U.S. Trust all its outstanding capital stock of AIM. (P1.'s & Def.'s 3(g) Statements P 7.) On or about December 31, 1988, pursuant to the Agreement, Transtech purchased the AIM stock. (Pl.'s & Def.'s 3(g) Statements P 11; Third-Party Def.'s 3(g) Statement Ex. K.)
On October 12, 1989, the Appellate Term reversed the decision of the Civil Court and remanded the case. (Pl.'s & Def.'s 3(g) Statements P 102; Adler Exs. 31-32.) In November 1989, S&G moved for reargument and leave to appeal the Appellate Term's decision. (Pl.'s & Def.'s 3(g) Statements P 103.) In 1990, that motion was denied. (Pl.'s & Def.'s 3(g) Statements P 104.) On October 2, 1990, Transtech notified U.S. Trust that it had
been contacted by Eric Zimmerman of Shea and Gould to advise  that the summary judgment in our favor was overturned on appeal. Mr. Zimmerman is currently awaiting directions as to whether or not to challenge the decision. Obviously, a choice needs to be made whether or not to expend the funds for a challenge or await notice of retrial. . . . Inasmuch as we may again find ourselves seeking indemnification for any settlements in this matter from U.S. Trust, I would appreciate your advice on how you would like us to proceed. (Pl.'s & Def.'s 3(g) Statements P 105; McLaughlin Ex. 5.)
There is no evidence presented to the Court that U.S. Trust specifically answered this letter; however, U.S. Trust specifically and directly declined to become involved in further defense of the action in subsequent letters. (Pl.'s & Def.'s 3(g) Statements P 109; McLaughlin Exs. 12, 15, 17.)
On September 25, 1991, S&G advised Transtech that Equitable Tower was entitled under New York law to obtain, and now undoubtedly would seek, unpaid rent under the Lease for the entire ten-year term of the Lease. (Pl.'s & Def.'s 3(g) Statements P 106; Adler Ex. 37.) S&G estimated Transtech's exposure under the Lease at approximately $ 1.8 million, depending on certain circumstances, and not including interest and attorneys' fees. (Pl.'s & Def.'s 3(g) Statements P 107; Adler Ex. 37.) On December 23, 1991, Morton Portnoy, counsel for Equitable Tower, wrote to S&G stating that he "finally computed the amount due my client" at approximately $ 1.3 million. (Def.'s 3(g) Statement, Vol. II, Portnoy Exs.) Transtech wrote U.S. Trust an additional letter, dated February 12, 1992, stating, "as reflected in my letter of October 2, 1990, the above referenced case has once again been resurrected by the plaintiff. The plaintiff has now indicated that it is seeking damages in excess of 1.3 million dollars." (McLaughlin Ex. 10; Def.'s 3(g) Statement P 108.) Portnoy then changed that calculation once again on March 31, 1992, the same day the action was restored to the calendar. (Portnoy Ex. 20.)
Transtech entered into a $ 600,000.00 settlement with Equitable Tower to cover the Equitable Tower Lawsuit and all claims under the Lease, including Equitable Tower's claim for damages for the balance of the Lease.
(Pl.'s & Def.'s 3(g) Statements P 116; Adler Dep. at 177-78; Adler Exs. 42-43.) U.S. Trust was advised of the settlement prior to its acceptance and refused to participate. (Pl.'s & Def.'s 3(g) Statements PP 113-14. )
After the settlement, Transtech demanded that U.S. Trust indemnify Transtech for losses arising from undisclosed liabilities relating to the Equitable Tower Lawsuit and the Lease. (Pl.'s & Def.'s 3(g) Statement P 118.) U.S. Trust refused Plaintiff's demand for indemnification and the present action ensued. (Pl.'s & Def.'s 3(g) Statements P 119; Third-Party Def.'s 3(g) Statement P 29.)
Equitable Tower did not assert a claim against AIM for rent for the period November 1985 through the balance of the Lease term, until 1989. (Third-Party Def.'s 3(g) Statement P 5.) However, U.S. Trust alleges that S&G were aware of the possibility of such a claim beginning in June 1985, when S&G were first retained to handle the Equitable Tower Lawsuit and knew of the nature of the lawsuit. (Adler Dep. at 14; Fahey Dep. at 67-68, 89-90, 98-100.)
B. The December 22, 1988 Stock Purchase Agreement
Section 2 of the Agreement between Transtech and U.S. Trust contained several representations and warranties made by U.S. Trust in connection with the AIM acquisition. (Pl.'s & Def.'s 3(g) Statements P 15; Agmt. § 2.) In Section 2, U.S. Trust represented and warranted (i) that the financial statements, in Schedule 2.9, prepared by AIM's outside auditors, were "true, correct and complete in all material respects" (Agmt. § 2.9); (ii) that, apart from two identified leases, neither of which is the Lease, AIM had "no leases or other interests in real property" (Agmt. § 2.14); (iii) that there were no pending actions or proceedings, except as noted in Schedule 2.17, against AIM that did or might "materially adversely affect [AIM) . . . or its assets, properties, or business" (Agmt. § 2.17 (a)); (iv) that except as in Schedule 2.17(b), "to the best of (U.S. Trust's] knowledge, there [was] no reasonable basis for any as yet unasserted claim or action against [U.S. Trust] or [AIM] which might have a material adverse effect on AIM or its assets, properties, or business." (Agmt. § 2.17(b)); Pl.'s & Def.'s 3(g) Statements PP 17, 20-23.)
However, the Agreement specifically disclosed information on the Equitable Tower Lawsuit in Schedule 2.9 which contained the audited financial statements, and again in Schedule 2.17 which listed pending litigation that, if adversely determined, would not materially or adversely affect AIM. (Pl.'s & Def.'s 3(g) Statements PP 19, 23, 25; Agmt. §§ 2.9 & 2.17.) Both sections provide that the ultimate liability, if any, resulting from the Equitable Tower Lawsuit would not have a material effect on AIM's financial position. (Agreement § 2; Agreement Schedule 2.17.)
1. Indemnification Clauses
The 1988 Agreement also contained indemnification clauses which provided that U.S. Trust agreed to indemnify, defend, and hold Transtech harmless against any liabilities, losses, or damages incurred or suffered by AIM or Transtech arising from any breach of U.S. Trust's representations and warranties, and/or from any claim, by or on behalf of a third-party, against AIM, related to AIM prior to the Closing Date, except to the ...