The opinion of the court was delivered by: EDELSTEIN
EDELSTEIN, District Judge :
Currently before this Court is a motion for summary judgment brought by defendant Bankers Trust Company ("BTC," "the Bank," or "defendant"). In addition, defendant and Bonnie & Company Fashions, Inc. ("Bonnie & Co." or "the Company") and Bonnie Boerer ("Boerer") ("plaintiffs") each have brought motions related to defendant's summary judgment motion. Plaintiffs have filed: (1) an affidavit, pursuant to Federal Rule of Civil Procedure ("Rule") 56(f), requesting additional time to conduct discovery; (2) a motion for leave to file additional affidavits in response to defendant's motion for summary judgment; and (3) a motion to take a second deposition of a non-party witness. Defendant has moved for a protective order staying discovery until their summary judgment motion is resolved. In addition, defendant disputes plaintiffs' request for a jury trial.
For the following reasons, defendant's summary judgment motion is granted in part and denied in part. Plaintiffs' request for additional discovery under Rule 56(f) is denied, as are their motions to file additional affidavits and to take a second deposition of a non-party witness. Defendant's motion for a protective order is dismissed as moot. This Court also finds that plaintiffs are not entitled to a jury trial.
Because of the complexity of the factual background and the parties' competing claims in this case, this Court will discuss each individually.
The instant case involves a commercial dispute over a factoring agreement (the "Factoring Agreement") between Bonnie & Co., signed by both its President, individual plaintiff Boerer, and BTC. (Notice of Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Notice of Motion") at Exh. B (Apr. 8, 1994).) From 1983 to 1990, Bonnie & Co. was "a corporation dealing in the manufacture and sales of women's fashions." (Complaint and Jury Demand, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Complaint") P 1 (Jan. 2, 1991)); (Affidavit of Bonnie Boerer in Opposition of Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Boerer Aff.") P 10(a) (June 13, 1994)); (Affidavit of John Contrucci in Support of Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Contrucci Aff.") P 16 (Apr. 1, 1994).) Boerer, a New Jersey citizen, founded, owned and operated Bonnie & Co., a New Jersey corporation with offices in New York and Hong Kong. (Boerer Aff. PP 7, 10(a), 39); (Complaint PP 1, 39.) Bonnie & Co.'s goods were produced in Hong Kong and China. (Complaint P 12.) BTC is a New York banking corporation which "operated a division engaged in the factoring of retail accounts." Id. PP 2, 6.
"Factoring" is defined as "the purchase of accounts receivable from a business by a factor who thereby assumes the risk of loss in return for some agreed discount." Black's Law Dictionary 532 (5th ed. 1979). The factor purchases accounts receivable without recourse to its client if the client's customers subsequently prove unable to pay. See Exportos Apparel Group, Ltd. v. Chemical Bank, 593 F. Supp. 1253, 1256 (S.D.N.Y. 1984). The factor undertakes a credit check of its clients' proposed customers to determine whether to accept an absolute risk of their solvency. If the factor approves the proposed customer, the factor's client may consummate the sale to the proposed customer and the factor then purchases the account receivable. In this way, the factor advances funds to its client. If a dispute arises between the factor's client and one of the client's customers over the goods or invoices, however, the factor is entitled to "charge back" to its client the full amount of the disputed accounts receivable. See Tex Styles Group, Inc. v. Republic Factors Corp., 106 A.D.2d 257, 258, 482 N.Y.S.2d 24, 25 (N.Y. App. Div. 1984), aff'd, 64 N.Y.2d 959, 477 N.E.2d 1105, 488 N.Y.S.2d 651 (N.Y. 1985). This is true irrespective of the merits of the dispute between the factor's client and its customer. See Danleigh Fabrics, Inc. v. Gaynor-Stafford Indus., Inc., 95 A.D.2d 719, 720, 463 N.Y.S.2d 828 (N.Y. App. Div. 1983), aff'd, 62 N.Y.2d 677, 464 N.E.2d 985, 476 N.Y.S.2d 287 (N.Y. 1984). In effect, the factor acts as the insurer only of its client's customers' insolvency, Exportos Apparel, 593 F. Supp. at 1256, not of the quality of its clients' goods.
In the case at bar, plaintiffs contend that "in June 1984, [Bonnie & Co.] entered into a Factoring Agreement with BTC with Security Agreement and Letter Agreement." (Complaint P 8.) At that time, Boerer also signed an "Unlimited Guaranty," rendering herself personally liable to BTC for all debts of Bonnie & Co. Id. P 9; (Notice of Motion at Exh. C.) On August 7, 1987, the parties entered into a "letter of credit supplement" to the Factoring Agreement which provided that BTC "may from time to time at [Bonnie & Co.'s] request, but in [BTC's] sole discretion, cause a bank or banks or other financial institutions" to issue letters of credit to Bonnie & Co. (Affidavit of Salvatore Prizzi in Support of Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Prizzi Aff.") P 23 (April 7, 1994).) Boerer maintains that, although she had "extensive experience in the retail, design, importing and manufacturing aspects of the women's apparel business," she possessed "minimal training and experience in the management and financial affairs of a company." (Boerer Aff. PP 10(b)-(c).) Boerer therefore claims to have relied upon BTC "for their advice and guidance with respect to all financial matters involving [her] business." Id. P 10(c). Boerer also asserts that "from the time Bonnie & Co. entered into the Factoring Agreement, BTC was its primary and only bank, factor and lender." Id. P 10(d).
Plaintiffs claim that "pursuant to the Factoring Agreement, the Company agreed that it would sell to defendant, and defendant agreed to purchase and . . . to make advances against all accounts receivable approved by defendant arising out of the Company's sale of merchandise to those customers which defendant approved." Id. P 13. Plaintiffs contend that "pursuant to the terms of the Factoring Agreement, as to each account created by the Company with the credit approval of defendant, which approval had not been withdrawn, defendant assumed the 'Credit Risk' on every such approved account." Id. P 15. Plaintiffs further allege that the Factoring Agreement required defendant to: (1) render a proper accounting of transactions; (2) pay Bonnie & Co. on specified dates; (3) collect receivables in a diligent manner; and (4) act in accordance with factoring industry standards. Id. PP 16-19.
Defendant states that, pursuant to the Factoring Agreement, Bonnie & Co. "sold and assigned to the bank various accounts receivable . . . for goods consisting of ladies' clothing which were sold by [Bonnie & Co.] to others." (Prizzi Aff. P 13.) Defendant maintains that, in consideration of Bonnie & Co.'s sales of accounts to defendant, from 1984-1989, "the Bank made periodic payments, loans, cash advances, and over-advances, and gave other financial accommodations to [Bonnie & Co.]." Id. PP 13-14.
Boerer asserts that, in fiscal year 1987, Bonnie & Co. registered gross sales of over $ 29,000,000 and earned a net profit of $ 2,900,000. (Boerer Aff. P 17.) As a "Subchapter S" corporation under the Internal Revenue Code, those profits were distributed to Bonnie & Co.'s shareholders. Id. Boerer, as ninety-eight percent shareholder, received the lion's share of these profits, in addition to her salary. Id. In fiscal year 1988, Bonnie & Co.'s gross sales were approximately $ 33,890,000, but the Company reported a net loss of $ 208,567. Id. P 18.
In May 1989, John F. Contrucci ("Contrucci"), a BTC Vice President, became concerned that BTC had a "total exposure" on the Bonnie & Co. account of approximately $ 3,982,000, which was above its projected exposure of $ 2,711,000. Id. P 20. At that time, BTC sought an explanation from plaintiffs for the discrepancy. Id. P 21. Boerer contends that, after consulting with plaintiffs' accountants, BTC was satisfied that Bonnie & Co.'s 1989 finances were sound, but perceived a need for an infusion of working capital into Bonnie & Co. Id. P 22. Negotiations between BTC and plaintiffs ensued and the parties allegedly reached an agreement on May 25, 1989 ("the May 1989 agreement"). Id. PP 22-23. Pursuant to this agreement Boerer personally was to pledge a $ 1,000,000 Treasury Bill as "liquid side collateral" to BTC and BTC was to reduce Boerer's then unlimited personal guaranty to $ 2,000,000. Id.
The May 1989 agreement gives rise to two issues in this litigation. First, the parties dispute the agreement's terms concerning the timing of the termination of the Treasury Bill. Boerer claims that the parties agreed that the Treasury Bill would expire on September 15, 1989. Id. PP 28-29. However, Contrucci forwarded to one of Boerer's former attorneys, M. David Baker ("Baker"), a draft of a security agreement and a limited guaranty, neither of which conformed to Boerer's understanding of the May 1989 agreement. Id. P 28. Plaintiffs contend that the draft security agreement failed to include the September 15, 1989, termination date that plaintiffs had sought, and that the $ 2,000,000 limited guaranty failed to state that it was secured by the $ 1,000,000 collateral. Id. On June 29th, 1989, Boerer executed "corrected" versions of both the security agreement and the limited guaranty, amending them to include the provisions plaintiffs claim were omitted. Id. P 29, Exhs. F & G. Baker sent the corrected documents to Contrucci on July 5, 1989. Id. P 29. Boerer asserts that BTC "did not 'accept' the corrected documents" and that the corrected documents "triggered an immediate and adverse reaction" by BTC. Id. P 30. Boerer contends that in late July 1989, BTC informed Baker that, "unless the expiration date for the Treasury Bill was eliminated from the Security Agreement[,]" BTC would discontinue its financial support of Bonnie & Co. Id. P 32.
The second issue created by the May 1989 agreement concerns the significance of Boerer's $ 1,000,000 Treasury Bill pledge. Plaintiffs' claim that Boerer's pledge of a $ 1,000,000 Treasury Bill was in exchange for defendant's agreeing not to terminate its financial support of plaintiffs. Id. P 38. According to defendant, however, "after negotiations with [plaintiffs] and [their] attorney regarding [the $ 1,000,000 Treasury Bill] reached an impasse, the Bank exercised its absolute right to terminate the Factoring Agreement." (Prizzi Aff. P 35.) On August 2, 1989, Contrucci sent by certified mail to Bonnie & Co.'s New York City office a sixty-day notice that the Factoring Agreement would terminate on October 2, 1989. (Boerer Aff. P 37.) Plaintiffs allege that this action breached the parties' May 1989 agreement. Id. P 38. Because BTC believed Boerer to be in Hong Kong during August 1989, (Prizzi Aff. P 37), BTC also sent by "open fax" a copy of its notice of termination to Bonnie & Co.'s Hong Kong office, where it was received by an employee of Bonnie & Co. (Boerer Aff. P 39); (Complaint P 54.) Boerer claims that, as a result of BTC's "open fax," "confidential" and "sensitive" information contained in the fax was disseminated among Bonnie & Co.'s Hong Kong employees. (Boerer Aff. P 44.) She also asserts that "rumors" of Bonnie & Co.'s loss of financial backing circulated in Hong Kong, causing her manufacturers to discontinue their relationship with Bonnie & Co." Id. PP 44-50.
BTC contends that it "did not stop financially supporting [Bonnie & Co.] during the sixty days following the giving of the August 2, 1989 notice." (Contrucci Aff. P 5.) BTC maintains that it advanced nearly $ 1,500,000 to Bonnie & Co. during this period. Id. Nevertheless, on October 6, 1989, the Factoring Agreement was reinstated when Boerer executed a security agreement (the "Security Agreement") which unconditionally pledged a $ 1,000,000 Treasury Bill without a termination date. (Contrucci Aff. P 4); (Notice of Motion at Exh. A.) Also on October 6, 1989, Boerer executed a limited guaranty (the "Limited Guaranty") which rendered her personally liable for Bonnie & Co's debts to BTC up to $ 2,000,000. (Notice of Motion at Exh. H.) By letter dated January 2, 1990, Bonnie & Co. notified BTC that Bonnie & Co. had adopted a plan of liquidation and that it was terminating the Factoring Agreement effective sixty days thereafter. (Contrucci Aff. P 16.)
On January 15, 1991, plaintiffs' commenced the instant litigation. It is notable that the facts of this case have given rise to at least two other court actions. First, in 1990, plaintiffs sued their accountants, Hertz, Herson & Co., in federal court in the District of New Jersey (the "New Jersey Action"). (Notice of Motion at Exh. 8); (Amended Complaint & Jury Demand, Bonnie & Co. Fashions, Inc. v. Hertz, Herson & Co., 90-4397 at 2, 8 (Dec. 3, 1991).) Following a jury trial, a judgment of "no cause of action [was] entered in favor of defendants and against plaintiffs, with costs." (Prizzi Aff. PP 8, 47); (Notice of Motion at Exh. 11.) Second, defendant in the instant case alleges that plaintiffs commenced an action in New York Supreme Court "seeking minimal damages as a 'pre-emptive defensive strike' in anticipation of efforts by the bank to enforce plaintiffs' outstanding obligations." (Prizzi Aff. P 9.) This Court has received no information regarding the status of that litigation.
Count Two asserts that "at all times relevant herein, defendant has acted as a fiduciary on behalf of [Bonnie & Co.] in collecting the accounts assigned to it under the factoring agreement," id. P 25, and claims that defendant violated its fiduciary duties to plaintiff by not adhering to the terms of the Factoring Agreement. Id. P 33. Plaintiffs seek a certified accounting from defendant of "all interest charges made within the last twelve months" as of January 2, 1991, the date the Complaint was filed. Id.
Count Three alleges that defendant negligently processed and collected the accounts that were the subject of the Factoring Agreement. Id. P 39. Plaintiffs seek $ 127,000 in compensatory damages. Id. Count Four alleges that defendant has wrongfully failed to release the $ 1,000,000 Treasury Bill that Boerer pledged as security for Bonnie & Co.'s debts to BTC. Id. PP 42-46. Plaintiffs seek punitive damages of $ 250,000 as a result of BTC's failure to return this security. Id. P 47.
Count Five contains several claims arising from BTC's faxing of the notice of termination of the Factoring Agreement. Id. PP 49-54. Within Count Five, plaintiffs set forth claims of: (1) breach of the Factoring Agreement; (2) breach of fiduciary duty; (3) negligence; (4) fraud; (5) breach of a duty of confidentiality; (6) intentional infliction of emotional distress; and (7) damages of $ 5,000,000 for lost profits, $ 2,400,000 for lost salary, and $ 2,000,000 for "mental anguish and emotional distress for breach of contract." Id. PP 54-63. Count Six seeks reimbursement of $ 250,000 in costs that Bonnie & Co. incurred as a result of BTC's alleged breaches both of the Factoring Agreement and of its fiduciary duties. Id. P 66.
Defendant disputes plaintiffs' claims, arguing that defendant acted properly and within the terms of the Factoring Agreement at all times relevant to the instant dispute. Defendant also has filed seven counterclaims against plaintiffs. First, BTC claims that "there exists a debit balance owing to [BTC] from [Bonnie & Co.] of $ 127,608.35." (Answer With Counterclaims, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Answer") P 33 (Dec. 5, 1991).) Second, pursuant to the terms of the Factoring Agreement, BTC seeks to recover from Bonnie & Co. its attorneys' fees for collecting this debt. Id. P 38. Third, BTC maintains that Boerer is liable for the full amount of this debt because of the Limited Guaranty that Boerer executed on October 6, 1996. Id. PP 39-41. Fourth BTC contends that Boerer is personally liable for BTC's attorneys' fees under the terms of the Limited Guaranty. Id. PP 42-43. Fifth, BTC claims to be a holder in due course of the $ 1,000,000 Treasury Bill and seeks: (1) a declaratory judgment that BTC has a superior interest in this collateral; (2) an order "foreclosing [BTC's] perfected security interest in the Collateral and allowing such Collateral to be seized and liquidated by [BTC] in order to satisfy [Bonnie & Co.'s] Indebtedness and/or the obligations owed by Boerer under the Guaranty;" and (3) an order allowing BTC to recover its attorneys' fees. Id. P 47. Sixth, BTC seeks an injunction ordering Boerer to cooperate with the liquidation of the Treasury Bill. Id. PP 49-52. Finally, BTC contends that Boerer is liable for BTC's attorney's fees pursuant to the Security Agreement under which she pledged the $ 1,000,000 Treasury Bill to BTC. Id. PP 53-55.
Currently pending before this Court are four motions: (1) defendant's motion for summary judgment; (2) plaintiffs' motion to file additional affidavits in response to defendant's motion for summary judgment; (3) plaintiffs' motion to take a second deposition of a witness; and (4) defendant's motion for a protective order staying discovery. In addition, plaintiffs submitted an affidavit pursuant to Rule 56(f) opposing defendant's summary judgment motion on the grounds that, in order to substantiate their allegations, plaintiffs require the opportunity to depose certain individuals. There is also an issue regarding plaintiffs' entitlement to a jury trial. Because the resolution of plaintiffs' Rule 56(f) affidavit and their motion to file additional affidavits necessarily implicates this Court's ability to resolve defendant's motion for summary judgment, this Court will address those matters first. This Court will then address the remaining issues in turn.
As a preliminary matter, this Court notes that Section 10.1 of the Factoring Agreement provides: "This Agreement and all transactions thereunder . . . shall be governed by and interpreted in accordance with the laws of" New York. (Notice of Motion at Exh. B.) "When such a provision exists and the jurisdiction chosen by the parties has a substantial relationship to the parties or their performance, New York law requires courts to honor the parties' choice insofar as matters of substance are concerned." Woodling v. Garrett Corp., 813 F.2d 543, 551 (2d Cir. 1987) (citing A.S. Rampell, Inc. v. Hyster Co., 3 N.Y.2d 369, 381, 165 N.Y.S.2d 475, 486, 144 N.E.2d 371 (N.Y. 1957)); see also Restatement (Second) of Conflict of Laws § 187 (1989). In the instant case, Bonnie & Co. maintained a New York office, (Boerer Aff. PP 7, 39), Boerer operated and owned ninety-eight percent of Bonnie & Co., id. PP 10(a), 17, and BTC is a New York banking corporation, (Complaint P 2). This Court thus finds that each of these parties has a "substantial relationship" to New York. Accordingly, this Court finds that New York law governs the substantive matters of the instant case.
I. PLAINTIFFS' RULE 56(f) REQUEST
Plaintiffs filed an affidavit pursuant to Rule 56(f) in opposition to defendant's motion for summary judgment. (Affidavit of Leonard A. Peduto, Jr., Pursuant to Rule 56(f) in Opposition to Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Rule 56(f) Aff.") PP 1-2 (June 13, 1994).) Plaintiffs contend that, in order to substantiate the allegations in their complaint and to refute BTC's counterclaims, plaintiffs "require an opportunity to depose certain persons who were employed by BTC when plaintiffs' claims and causes of action arose; former employees of Bonnie & Company; persons who were employed by customers of Bonnie & Company; and persons who were involved or would have been involved in the manufacturing of Bonnie & Co.'s Spring and Fall 1990 lines." Id. P 4. In plaintiffs' Rule 56(f) Affidavit, Leonard A. Peduto, Jr. ("Peduto") states that, because his law firm "was recently substituted a [sic] Plaintiffs' counsel, [he is] unable to detail the efforts made by prior counsel to secure the deposition testimony needed to substantiate the claims in the Complaint." (Rule 56(f) Aff. P 10.) "Moreover, [Peduto is] unable to inform the Court why, if former counsel attempted to take the aforementioned depositions, such efforts were unsuccessful." Id. It is noteworthy that Peduto has since been replaced as plaintiffs' counsel. (Stipulation and Order for Substitution of Counsel, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 (Oct. 30, 1996).)
Defendant opposes plaintiffs' Rule 56(f) request for additional discovery. After it appeared that the parties had filed all of their submissions concerning the instant motion for summary judgment, the Second Circuit, in Paddington Partners v. Bouchard, 34 F.3d 1132 (1994), upheld a district court's grant of summary judgment despite the non-movant's claim for a need for additional discovery. Id. at 1137-38. Although Paddington Partners did not alter existing Second Circuit case law concerning Rule 56(f), defendant utilized the occasion of the Second Circuit's decision as an opportunity to submit even more papers to this Court in support of its motion for summary judgment. (Supplemental Memorandum of Law of Defendant Bankers Trust Company in Further Support of Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("BTC Supp. Memo") P 1 (Oct. 28, 1994).) In these supplemental papers, defendant highlights the procedural history of this litigation to support its argument that summary judgment should proceed despite plaintiffs' Rule 56(f) request.
For example, defendant asserts that this Court twice extended plaintiffs' time to file opposition papers and to conduct a deposition relating to defendant's summary judgment motion. Id. at 2-3. Defendant also points out that the May 17, 1994, stipulation which extended plaintiffs' time to file opposition papers also states that discovery will be conducted "if defendant's summary judgment motion is denied," id. at 2 and Exh. B; (Reply Affidavit of Joel David Sharrow, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Sharrow Reply Aff.") at Exh. 18 (Aug. 31, 1994)), and expressly provides that this potential discovery was proposed "without prejudice to the Bank's right to [file] a motion for summary judgment and/or argue that such discovery is or is not necessary to the disposition of such motion." (BTC Supp. Memo at 4); (Sharrow Reply Aff. at Exh. 18.)
Defendant next looks to "a very important admission by Boerer" at her deposition--that, prior to the instant Rule 56(f) request, one of her previous attorneys, Anthony Mahoney ("Mahoney"), "never made any arrangement to depose anybody in regard to the Bankers Trust lawsuit." (BTC Supp. Memo at 2-3.) Defendant also asserts that, even though this action was commenced more than three years prior to the March 5, 1994, conference at which this Court granted defendant permission to move for summary judgement, neither Mahoney nor Peduto--who were both present--raised a Rule 56(f) defense to defendant's motion for summary judgment. Id. at 4; (Sharrow Reply Aff. PP 45, 48.) Finally, defendant claims that plaintiffs' justification for their Rule 56(f) Affidavit--that Peduto's recent substitution as plaintiffs' counsel left him unable to know what discovery efforts his predecessor had undertaken--is legally insufficient. (BTC Supp. Memo at 6-7.)
Plaintiffs counter defendant's assertions on several fronts. First, plaintiffs claim that, because Paddington Partners did not change the Second Circuit's interpretation of Rule 56(f), defendant simply exploited the decision "as a vehicle to re-open the summary judgment record for purposes of rearguing matters it had fully presented in" its prior summary judgment submissions. (Supplemental Memorandum on Behalf of Plaintiffs Bonnie & Co. Fashions, Inc. and Bonnie Boerer in Further Opposition to Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Plaintiffs' Supp. Memo") at 3-4 (Nov. 3, 1994).) Second, plaintiffs argue that they had no obligation to "formally notify the Bank of its intention to utilize a Rule 56(f) defense prior to the filing of their opposition papers." Id. at 4. Third, plaintiffs assert that defendant attempted to "delay, frustrate and impede plaintiffs' legitimate attempts to obtain the testimony of several key witnesses." Id. at 5. Finally, plaintiffs argue that "the Bank has embellished its argument that the Peduto Affidavit falls short of the requirements of Rule 56(f)." Id. at 8.
Should it appear from the affidavits of a party opposing the [summary judgment] motion that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just.
Fed. R. Civ. P. 56(f). Rule 56(f) requires courts to ensure that parties have a reasonable opportunity to make their record before ruling on a motion for summary judgment. Sundsvallsbanken v. Fondmetal, Inc., 624 F. Supp. 811, 814-15 (S.D.N.Y. 1985) (citation omitted). It protects a party opposing a summary judgment motion "who for valid reasons cannot by affidavit--or presumably by any other means authorized under Rule 56(e)--present 'facts essential to justify his opposition' to the motion." 10A Charles A. Wright, et al., Federal Practice and Procedure § 2740, at 529-30 (2d ed. 1983). Rule 56(f) thus "allows a party who has no specific material contradicting his adversary's presentation to survive a summary judgment motion if he presents valid reasons justifying his failure of proof." Id. § 2740, at 530. Because it is a safeguard against premature grants of summary judgment, Rule 56(f) "should be applied with a spirit of liberality." Id. at 532 (footnote omitted).
Commentators note, however, that "the rule will not be liberally applied to aid parties who have been lazy or dilatory." Id. at 535. Moreover, while "Rule 56(f) discovery is specifically designed to enable a plaintiff to fill material evidentiary gaps in its case . . . it does not permit a plaintiff to engage in a 'fishing expedition.'" Capital Imaging Assoc. v. Mohawk Valley Medical Assoc., Inc., 725 F. Supp. 669, 680 (N.D.N.Y. 1989) (citing Waldron v. Cities Service Co., 361 F.2d 671, 673 (2d Cir. 1966)) (citations omitted), aff'd, 996 F.2d 537 (2d Cir.), cert. denied, 385 U.S. 1024, 17 L. Ed. 2d 672, 87 S. Ct. 743 (1993). "Rule 56(f) is not a shield against all summary judgment motions." Sundsvallsbanken 624 F. Supp. at 815. Rather, "litigants seeking relief under the rule must show that the material sought is germane . . . and that it is neither cumulative nor speculative." Id. (citation omitted). A party opposing summary judgment who chooses to utilize Rule 56(f) "directly and forthrightly invokes the trial court's discretion." 6 James W. Moore, Moore's Federal Practice P 56.24, at 56-797 (2d Ed. 1995). Accordingly, a district court's denial of a request for more time under Rule 56(f) "is subject to reversal only if it abused its discretion." Burlington Coat Factory Warehouse v. Esprit de Corp., 769 F.2d 919, 925 (2d Cir. 1985); see also Contemporary Mission v. United States Postal Serv., 648 F.2d 97, 105 (2d Cir. 1981).
The Second Circuit has articulated a four-part analysis to determine whether a party's request under Rule 56(f) is appropriate. Rule 56(f) requires the opponent of a motion for summary judgment who claims to be unable to produce evidence in opposition to the motion to file an affidavit explaining:
1) the nature of the uncompleted discovery, i.e. what facts are sought and how they are to be obtained; and
2) how those facts are reasonably expected to create a genuine issue of material fact; and
3) what efforts the affiant has made to obtain those facts; and
4) why those efforts were unsuccessful.
Burlington, 769 F.2d at 926 (citations omitted) (emphasis added). "The failure to comply with the third and fourth requirements is not automatically fatal to a Rule 56(f) affidavit." Paddington Partners, 34 F.3d at 1139 (internal citation omitted). However, where a party makes no reference to the third and fourth Burlington factors--its efforts to obtain discovery and why those efforts were unsuccessful--a Rule 56(f) request may be denied. Id. Conversely, where a party's Rule 56(f) affidavit fails to set forth details concerning the third and fourth factors of the test, a Rule 56(f) request may be granted if the district court finds that defendant "presumably could if so requested." John Hancock Property & Casualty Ins. Co. v. Universale Insurance Co., Ltd., 147 F.R.D. 40, 47 n. 15 (S.D.N.Y. 1993).
In the case at bar, plaintiffs' Rule 56(f) affidavit did not simply fail to allege facts concerning the efforts that had been made to obtain discovery and why they had been unsuccessful, as required by Burlington. Instead, Peduto affirmatively volunteered that
(Rule 56(f) Aff. P 10.) Thus, plaintiffs' own counsel concedes his failure to comply with the third and fourth requirements of a Rule 56(f) request under Burlington.
Under normal circumstances, this Court might exercise its discretion to grant plaintiffs' Rule 56(f) request despite plaintiffs' concession that they have not met all of the elements of the Burlington standard: plaintiffs substituted counsel rather close to the time that defendant moved for summary judgment, and it is thus understandable that Peduto, plaintiffs' substituted counsel, might not have had complete knowledge of his predecessors' discovery attempts. This Court finds, however, that the instant Rule 56(f) request does not arise under normal circumstances. On the contrary, plaintiffs' Rule 56(f) application arises as a result of plaintiffs' own inaction. For instance, in the three years that this action was pending prior to defendant's summary judgment motion, plaintiffs undertook very little discovery. (BTC Supp. Memo at 4-5.) That was their prerogative. This Court refuses to allow plaintiffs to penalize defendant for plaintiffs' choice to limit their own discovery efforts. If this Court permitted plaintiffs to stymie defendant's summary judgment motion on this ground, this Court would encourage a party that suspected that its opponent would move for summary judgment to make a Rule 56(f) request. Promoting such dilatory tactics is neither the purpose of Rule 56(f) nor the practice of this Court.
In addition, the stipulation between the parties that this Court "So Ordered" on July 5, 1994, provides that "if defendant's pending summary judgment motion is denied, in whole or in part," then each party may undertake several enumerated avenues of discovery. (Sharrow Reply Aff. at Exh. 18.) The stipulation also states that "the proposed conducting of discovery is without prejudice to the Bank's right to have filed a motion for summary judgment and/or argue that such discovery is or is not necessary to the disposition of such motion." Id. Plaintiffs have thus represented to this Court and have agreed with defendant that discovery would proceed only in the event that defendant's summary judgment motion is unsuccessful, and that defendant's summary judgment motion would not be prejudiced by outstanding discovery matters. This Court finds no reason why plaintiffs should not be held to the terms of their bargain, as embodied in the stipulation of July 5, 1994. Id. Accordingly, this Court finds that plaintiffs' Rule 56(f) request should be denied.
II. PLAINTIFFS' MOTION FOR LEAVE TO FILE ADDITIONAL AFFIDAVITS
Plaintiffs seek leave of this Court to file additional affidavits in further opposition to BTC's summary judgment motion. Plaintiffs claim that BTC filed with its summary judgment reply papers "certain arguments and supporting evidence . . . only after plaintiffs' right to respond had expired." (Memorandum in Support of Plaintiffs' Motion for Leave to File Reply Affidavits in Further Opposition to Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Memo for Leave") at 2 (Feb. 24, 1995).) According to plaintiffs, defendant's reply papers contain "new evidence" to which plaintiffs are entitled to respond. Id. at 2-3.
First, plaintiffs' call this Court's attention to the affidavit of Kit Cheong ("Leo") Szeto ("Szeto"), the former General Manager of Bonnie & Co.'s Hong Kong affiliate. Id. at 2 (citing (Affidavit of Kit Cheong ("Leo") Szeto, Bonnie & Company Fashion, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Szeto Aff.") (July 12, 1994).)) Plaintiffs complain that Szeto admits in his affidavit that he received the August 2, 1989, fax from BTC terminating the Factoring Agreement. (Memo for Leave at 2.) Plaintiffs also argue that Szeto's assertion that Bonnie & Co.'s garments failed laboratory tests is intended to refute plaintiffs' claim that it was the "open telefax" from BTC which led Hong Kong manufacturers to cancel their business relationships with Bonnie & Co. Id. at 3.
Defendant opposes plaintiffs' motion for leave to file additional affidavits and raises several counterarguments. First, BTC argues that the submissions offered by plaintiffs do not establish a defense to BTC's summary judgment motion. (Memorandum in Opposition to Plaintiffs' Motion for Leave to File Reply Affidavits, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Opp. Memo") at 2 (Mar. 6, 1995).) Second, BTC claims that its reply affidavits were submitted in response to issues newly raised by plaintiffs' opposition papers, or to previously raised but newly detailed claims by plaintiffs. Id. at 4. Third, BTC argues that plaintiffs' proposed affidavits are intended, in part, to impeach improperly Boerer's deposition testimony. Id. at 5. Finally, BTC asserts that the new evidence plaintiffs seek leave to submit was, or should have been, available to them by the time the summary judgment record closed. Id.
The law regarding the filing of surreply papers is clear. "Where new evidence is presented in a party's reply brief or affidavit in further support of its summary judgment motion, the district court should permit the nonmoving party to respond to the new matters prior to the disposition of the motion." Litton Indus. v. Lehman Bros. Kuhn Loeb, Inc., 767 F. Supp. 1220, 1235 (S.D.N.Y. 1991), rev'd on other grounds, 967 F.2d 742 (2d Cir. 1992). However, this broad language is tempered by the principle that "reply papers may properly address new material issues raised in the opposition papers so as to avoid giving unfair advantage to the answering party." Id. ; see also Travelers Ins. Co. v. Buffalo Reinsurance Co., 735 F. Supp. 492, 495 (S.D.N.Y.), vacated in part on other grounds, 739 F. Supp. 209 (S.D.N.Y. 1990); United States v. International Business Machs. Co., 66 F.R.D. 383, 385 (S.D.N.Y. 1975) (Edelstein, C.J.). Further, the argument favoring a surreply submission is less compelling where the reply brief, in responding to the opposition brief, "does not spring upon [the opposing party] new reasons for the entry of summary judgment." Litton, 767 F. Supp. at 1235.
Having reviewed the documents upon which plaintiffs rely in support of the instant motion, this Court finds that neither document introduces new issues or new evidence into this litigation. Szeto's affidavit, for example, pertains strictly to claims and issues contained in Count Five of plaintiffs' Complaint, and in the affidavit Boerer submitted in opposition to summary judgment. To review, Count Five alleges damages resulting from BTC's termination of the Factoring Agreement by sending a fax to Bonnie & Co.'s Hong Kong Office. In his affidavit, Szeto concedes that he received this fax. (Szeto Aff. P 2.) Szeto's statements reply directly to the allegations contained in Count Five of plaintiffs' Complaint and, therefore, address issues as old as this litigation. Szeto's affidavit similarly responds to claims made by Boerer in the affidavit she submitted in opposition to summary judgment. In her affidavit, Boerer claimed that Szeto was both the recipient of the fax in question and the source of its dissemination. (Boerer Aff. PP 42-45.) Szeto's assertion in his affidavit that he was the recipient of the fax, but not the source of its dissemination, directly addresses Boerer's claims. Boerer also claimed in her affidavit that Aaron Garment Factory, Ltd., a Hong Kong firm which produced garments for Bonnie & Co., manufactured in Spring 1990 a line that "failed to comply with the United States government's care-labelling and quality requirements." Id. at P 48. Coincidentally, Szeto's affidavit contains the exact same information regarding the Spring 1990 line. (Szeto Aff. P 4.) This Court fails to see the alleged "new" evidence or issues introduced through Szeto's affidavit. Accordingly, this Court finds that Szeto's affidavit provides no basis upon which to grant plaintiff leave to file additional affidavits.
The second allegedly new piece of evidence is Sharrow's affidavit. To reiterate, plaintiffs contend that Sharrow's affidavit: (1) makes a procedural objection to plaintiffs' submission of an expert affidavit in opposition to the motion for summary judgment; (2) misstates a conversation between Sharrow and plaintiffs' counsel concerning plaintiffs' intentions regarding expert witnesses; and (3) submits a portion of the deposition of Cifarelli which was taken after plaintiffs filed their opposition papers. (Memo for Leave at 3.)
The Court finds that Sharrow's affidavit does not set forth "new" evidence or issues justifying a surreply. Plaintiffs' first argument does not establish that defendants injected new evidence or issues. In fact, plaintiffs' claim that Sharrow's affidavit states a procedural objection to plaintiffs' submission of an expert affidavit in opposition to summary judgment inherently concedes that Sharrow's affidavit was responding to plaintiffs' opposition papers. Plaintiffs' second claim--that Sharrow's affidavit misstated plaintiffs' counsel's intentions regarding expert witnesses--simply fails to point the Court to new evidence or issues that are material to this litigation. Plaintiffs' claim that Sharrow's affidavit incorporated testimony from a deposition taken after plaintiffs submitted their reply papers is similarly unpersuasive. Sharrow's affidavit incorporates testimony from Cifarelli's deposition pertaining to BTC's alleged failure to issue letters of credit to Bonnie & Co. The extension of credit by BTC to Bonnie & Co., however, was included in Count Five of the Complaint, and therefore is not a new issue. See generally (Complaint PP 48-63.) In addition, plaintiffs assert in their brief opposing summary judgment that BTC's alleged failure to issue letters of credit constitutes a new, separate cause of action. (Plaintiffs' Memo at 25-28.) This Court finds that the Cifarelli deposition therefore responds to issues in the Complaint and plaintiffs' opposition papers and does not introduce new issues into this litigation to which plaintiffs' need now respond. As a result, this Court finds that plaintiffs' motion for leave to file reply affidavits in further opposition to defendant's motion for summary judgment should be denied.
Pursuant to Federal Rule of Civil Procedure 56, summary judgement is appropriate where "the pleadings, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). A party seeking summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 1609, 26 L. Ed. 2d 142 (1970). The movant may discharge this burden by demonstrating to the court that there is an absence of evidence to support the non-moving party's case on an issue which that party would have the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552-53, 91 L. Ed. 2d 265 (1986). As the Second Circuit has noted, "it has long been the rule that on summary judgment the inferences to be drawn from the underlying facts contained in [the moving party's] materials must be viewed in the light most favorable to the party opposing the motion." Lendino v. Trans Union Credit Info. Co., 970 F.2d 1110, 1112 (2d Cir. 1992) (quotation omitted).
To defeat a motion for summary judgment, the non-moving party must do "more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). Instead, the non-moving party must "set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e); Matsushita, 475 U.S. at 587, 106 S. Ct. at 1356. If the adverse party does not respond to the motion for summary judgement, "summary judgement, if appropriate, shall be entered against the adverse party." Fed. R. Civ. P. 56(e).
In considering a motion for summary judgment, a court is not to resolve contested issues of fact, but rather, it is to determine the existence of any disputed issues of material fact. Knight v. United States Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 94 L. Ed. 2d 762, 107 S. Ct. 1570 (1987). The existence of a genuine issue of material fact depends on both the genuineness and the materiality of the issues raised by the motion. See Scottish Air Int'l, Inc v. British Caledonian Group, 867 F. Supp. 262, 266 (S.D.N.Y. 1994), aff'd, 81 F.3d 1224 (2d Cir. 1996). Indeed, "the mere existence of factual issues--where those issues are not material to the claims before the court--will not suffice to defeat a motion for summary judgment." Quarles v. General Motors Corp., 758 F.2d 839, 840 (2d Cir. 1985) (per curiam). To evaluate a fact's materiality, it is the substantive law's identification of which facts are critical and which facts are irrelevant that governs. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). While "disputes over facts that might affect the outcome of a suit under the governing law will properly preclude the entry of summary judgment[,] factual disputes that are irrelevant or unnecessary will not be counted." Id. (citations omitted); see Knight, 804 F.2d at 11-12. According to the Supreme Court, "all that is required is that sufficient evidence supporting the claimed factual dispute be shown to require a judge or jury to resolve the parties' differing versions of the truth at trial." Anderson, 477 U.S. at 249, 106 S. Ct. at 2510 (quotation omitted).
Defendant moves for summary judgment on each Count of plaintiffs' Complaint and on each of defendant's affirmative defenses and counterclaims. This Court will address the parties' competing claims regarding each issue in turn.
A. Defendant's Motion For Summary Judgment On Plaintiffs' Complaint
In their Complaint, plaintiffs enumerate six separate counts. This Court will resolve each individually.
1. Count One: Plaintiffs' Claim for Breach of Contract
Count One of plaintiffs' Complaint alleges that defendant violated the terms of the Factoring Agreement, and seeks $ 251,200 in compensatory damages and $ 500,000 in punitive damages. (Complaint PP 22-23.) Plaintiffs claim that BTC violated the Factoring Agreement by, inter alia, failing to render accurate monthly statements, wrongfully deducting from and charging back to plaintiffs' accounts, and failing to collect in good faith Bonnie & Co.'s open accounts receivable. Id. at PP 20-21.
In its motion for summary judgment, defendant argues at length that all of its allegedly wrongful conduct was authorized by the Factoring Agreement. (Defendant's Memorandum of Law in Support of Its Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("BTC Memo") at 3-16 (April 8, 1994).) In addition, BTC provides this Court with substantial evidence in support of its contentions. See generally (Prizzi Aff.); (Contrucci Aff.) Defendant further contends that plaintiffs are not entitled to punitive damages on their breach of contract claim. (BTC Memo at 15.)
Plaintiffs counter that they have alleged and presented evidence that BTC breached specific provisions of the Factoring Agreement. (Plaintiffs' Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment and Other Relief, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341, ("Plaintiffs' Memo") at 5-6, 10-11 (June 13, 1994).) Plaintiffs cite specific financial transactions between Bonnie & Co. and BTC, and allege that BTC acted improperly and in contravention of the Factoring Agreement in undertaking these transactions. Id. at 8-11. In support of these claims, plaintiffs submitted substantial evidence to this Court. See generally (Boerer Aff.); (Affidavit of Michael Loguercio in Opposition of Defendant's Motion for Summary Judgment, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Loguercio Aff.") (June 9, 1994).)
The essential elements of an action for breach of contract under New York law are: (1) formation of a contract between the parties; (2) performance by plaintiff; (3) non-performance by defendant; and (4) resulting damages to plaintiff. Litton, 767 F. Supp. at 1227 (applying New York law) (citations omitted); see also Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 1996 WL 596794, at *5 (2d Cir. Oct. 18, 1996); Coastal Aviation, Inc. v. Commander Aircraft Co., 937 F. Supp. 1051, , 1996 WL 494563, at *10 (S.D.N.Y. Aug, 28, 1996).
In the case at bar, neither side disputes the existence of the Factoring Agreement. However, the parties dispute the existence of the remaining elements of plaintiffs' contract claim. For example, Section 5.1 of the Factoring Agreement expressly permits BTC to "charge back" to Bonnie & Co. the full amount of any unpaid account receivable sold to BTC, so long as the customer's refusal to pay was not due solely to its financial inability. (Notice of Motion at Exh. B.) Boerer alleges that, "to reduce its liability to Bonnie & Company, BTC took improper chargebacks against the Factor Account for invoices to customers, even though no 'dispute' or 'offset' existed." (Boerer Aff. P 8.) According to Boerer, this practice was especially prevalent with respect to customers like the stores in the Federated/Allied chains which were known to be on the brink of bankruptcy." Id. In other words, Boerer alleges that BTC charged back to Bonnie & Co. accounts receivable that had gone unpaid solely due to the customers' inability to pay, in derogation of the Factoring Agreement. Defendant counters that, without exception, it abided by the terms of the Factoring Agreement and did not improperly charge back to Bonnie & Co. (Prizzi Aff. P 21.) BTC provides facts that allegedly establish the propriety of its conduct, including that directed specifically toward the Federated/Allied transactions. (Contrucci Aff. PP 12-15.) Accordingly, this Court finds a disputed issue of material fact exists concerning whether defendant breached the Factoring Agreement, and that, consequently, summary judgment is not appropriate on plaintiffs' breach of contract claim
This Court cites the allegedly improper chargebacks as evidence of the existence of a disputed issue of material fact that renders summary judgment inappropriate in the instant case. This Court notes, however, that these chargebacks represent only one of several factual issues underlying plaintiffs' breach of contract claim. Because the chargeback issue alone undermines defendant's motion for summary judgment on Count One, this Court finds no need to scrutinize the remainder of the parties' respective assertions to determine whether they contain additional factual disputes. This Court thus cautions the parties against attributing any additional significance to this Court's discussion of the chargeback issue.
Although summary judgment is improper on plaintiffs' breach of contract claim, this Court finds that defendant is entitled to summary judgment on plaintiffs' claims for punitive damages arising from BTC's alleged breach of contract. Even if it is eventually adjudged that a breach of contract occurred, punitive damages are an inappropriate remedy for this case. Punitive damages may be recovered on a contract claim in only limited circumstances. They are available in "those instances where it is 'necessary to vindicate a public right,'" Bibeau v. Ward, N.Y.2d , 645 N.Y.S.2d 107, 110 (N.Y. App. Div. 1996) (quoting New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 315, 662 N.E.2d 763, 639 N.Y.S.2d 283, 287 (N.Y. 1995)), or where a defendant has engaged in conduct that can be characterized as "gross" and "morally reprehensible," or of "such wanton dishonesty as to imply a criminal indifference to civil obligations." New York Univ., 87 N.Y.2d at 315-16, 662 N.E.2d 283, 639 N.Y.S.2d 283 (internal quotations omitted).
2. Count Two: Plaintiffs' Claim for an Accounting
Count Two of plaintiffs' Complaint seeks an accounting from BTC on grounds that "at all times relevant herein, defendant has acted as a fiduciary on behalf of [Bonnie & Co.] in collecting the accounts assigned to it under the Factoring Agreement." (Complaint P 25.) BTC asserts that because the right to an accounting is premised on fiduciary duties, and because BTC had no fiduciary duty to plaintiffs, plaintiffs are not entitled to an accounting as a matter of law. (BTC Memo at 17.) Plaintiffs counter that BTC and plaintiffs had a close relationship that transcended the typical relationship between creditor and debtor, and that this close relationship gave rise to fiduciary duties. (Plaintiffs' Memo at 28.)
The law in New York is well settled that the "usual relationship of bank and customer is that of debtor and creditor," rather than that of fiduciaries. Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310, 318 (2d Cir. 1993) (quoting Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, N.A., 731 F.2d 112, 122 (2d Cir. 1984), motion to vacate denied, 11 F.3d 381 (2d Cir. 1993)); see also Banque Arabe et Internationale D'Investissement v. Maryland Nat'l Bank, 57 F.3d 146, 158 (2d Cir. 1995); Resnick v. Resnick. 722 F. Supp. 27, 39 (S.D.N.Y. 1989). This is particularly true where the relationship of bank to customer is that of a factor. As Judge Haight observed in Exportos Apparel Group, Ltd. v. Chemical Bank, 593 F. Supp. 1253 (S.D.N.Y. 1984):
The factor is [acting] solely for its own benefit; the factor is not undertaking, explicitly or by fair implication, to benefit its client in the conduct of the latter's business affairs; and in the absence of such duty or undertaking, the client . . . can derive no ...