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COMI v. DSC FIN. CORP.

February 11, 1998

SARA COMI and RICHARD COMI, Plaintiffs,
v.
DSC FINANCE CORPORATION, Defendant.



The opinion of the court was delivered by: SCULLIN

 Introduction

 This is a diversity action brought by the Plaintiffs, Sarah and Richard Comi, seeking declaratory relief which would terminate their obligation under the terms of their guaranty contract with the Defendant, DSC Finance Corporation ("DSC"). The Defendant has counterclaimed for a declaratory judgment ordering the Plaintiffs liable for the $ 177,686.80 still owed under the aforementioned guaranty agreement. Presently before the Court are the parties' cross-motions for summary judgment brought pursuant to Rule 56 of the Federal Rules of Civil Procedure. The Court held oral argument on these motions on July 1, 1997. For the reasons stated on the record that day, the Court denied the Plaintiff's summary judgment motion and reserved on the Defendant's summary judgment motion. The issues presently before the Court are (1) whether there is a material issue of fact as to the amount due and owing by the Plaintiffs to the Defendants under the terms and conditions of the guaranty agreement, and if not (2) what reasonable attorney's fees is the Defendant entitled to recover.

 Brief Factual Background

 On September 1, 1994, DSC entered into an equipment lease with Glens Falls Communications Corporation ("GFCC") obligating GFCC to pay $ 613,600 plus interest at 18% per annum for the lease of a DEX 600S switching system. The Plaintiffs, Richard and Sarah Comi, personally guaranteed this debt by a guaranty agreement executed on September 29, 1994. Shortly thereafter, GFCC entered bankruptcy. At the time of filing, the Plaintiffs possessed unsecured claims against GFCC totaling $ 137,201.74. However, by operation of the guaranty agreement, those claims were transferred to DSC by the Bankruptcy Court on February 2, 1996, to satisfy the Plaintiffs' existing obligation to DSC under the guaranty agreement.

 GFCC's Chapter 11 plan was confirmed on February 16, 1995. One section of the approved plan authorized transfer of title of the DEX 600S switching system to a third party, NEC Business Communication Systems (East) Inc. ("NECBCS"), in return for a lump sum payment of $ 507,416. Also according to the approved plan, that lump sum payment was paid directly to DSC, fully extinguishing DSC claims against GFCC. However, the plan expressly excluded any claims owing to DSC by the Plaintiffs under the guaranty. (See Bulko Aff. Ex. D. at 5.) The approved plan also provided for a 100% payout for general unsecured creditors.

 The present dispute centers on the $ 137,201.74 worth of general unsecured claims, previously owing to the Plaintiffs by GFCC, but presently possessed by DSC. The Plaintiffs claim that by order of the Bankruptcy Court, the underlying debt of GFCC has been extinguished, and thus they have no existing guaranty liability and ought to be able to recover their unsecured claims against GFCC. DSC claims that it is still owed $ 56,781.94 *fn1" on the original debt of $ 613,600, along with interest and $ 127,889.91 in costs and attorney's fees. DSC claims that the Plaintiffs are still liable for these amounts under the terms of the guaranty agreement, and the unsecured claims transferred to DSC will only partially satisfy this obligation.

 Discussion

 Under Rule 56(c), summary judgment is warranted if, when viewing the evidence in a light most favorable to the non-movant, the court determines that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 457, 119 L. Ed. 2d 265, 112 S. Ct. 2072 (1992); Commander Oil v. Advance Food Serv. Equip., 991 F.2d 49, 51 (2d Cir. 1993). To survive a motion for summary judgment the non-movant must do more than present evidence that is merely colorable, conclusory, or speculative. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The non-movant must offer evidence that demonstrates that there are issues of fact that must be decided by a fact finder because "they may reasonably be decided in favor of either party." Thompson v. Gjivoje, 896 F.2d 716, 720 (2d Cir. 1990).

 The interpretation of the terms and conditions of the guaranty agreement is central to resolving this dispute. The parties disagree as to which state law should govern the contract interpretation. The guaranty itself specifies that:

 
This guaranty is . . . a contract entered into under and pursuant to the laws of the State of Texas and shall be in all respects governed, construed, applied and enforced in accordance with the laws of said state. . . .

 It is well established that, in diversity cases, a federal court must look to the law of the forum state to resolve conflict of law questions. See Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941)). Generally, when parties agree to a choice-of-law provision in a contract, New York law will honor that choice. See Woodling v. Garrett Corp., 813 F.2d 543, 551 (2d Cir. 1987). Where, as here, the parties dispute whether the action is governed by the choice-of-law provision, the court must look to the language of the provision itself to determine whether it is "sufficiently broad" to encompass the controversy at hand. See Turtur v. Rothschild Registry Intern., Inc., 26 F.3d 304, 309-10 (2d Cir. 1994).


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