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GORODENSKY v. MITSUBISHI PULP SALES

March 31, 2000

HYMAN GORODENSKY, H & H WAREHOUSING CO., AND THE ESTATE OF HAROLD MURAWNIK, PLAINTIFFS,
V.
MITSUBISHI PULP SALES (MC) INC., DEFENDANT.



The opinion of the court was delivered by: Miriam Goldman Cedarbaum, United States District Judge.

  OPINION
This is a breach of contract suit arising out of an alleged failure to satisfy the obligations of a letter of intent. Plaintiffs Hyman Gorodensky, H&H Warehousing Co. ("H&H"), and the estate of Harold Murawnik attempted, unsuccessfully, to establish a venture to build a manufacturing plant, operate the plant, and sell its output. Plaintiffs claim that defendant Mitsubishi Pulp Sales (MC) Inc. ("MPS") entered into a binding contract with them by signing a letter of intent to purchase all of the output of the proposed plant. The complaint alleges that MPS breached this contract by repudiation shortly after it was signed, and that the breach caused the venture to fail. Plaintiffs seek putative lost profits and other consequential damages, as well as damages for wasted time and effort invested in the project.
MPS moves for summary judgment on three grounds: first, that the letter of intent was not a binding contract; second, that even if a contract existed, it does not provide for lost profits as a remedy; and third, that even if MPS breached a binding contract, the breach did not cause plaintiffs' injuries. Plaintiffs also move for summary judgment on three grounds: first, that the letter of intent was a binding contract; second, that MPS breached the contract; and third, that there is no dispute as to the extent of plaintiffs' damages. At oral argument of these motions, I denied plaintiffs' motion as to the issues of breach and damages. I reserved decision on the issue of the existence of a contract and as to the entirety of MPS' motion. Because I find that there was no binding agreement between plaintiffs and MPS, MPS' motion is granted and the balance of plaintiffs' motion is denied.*fn1

THE UNDISPUTED FACTS

Hyman Gorodensky is a citizen and resident of Montreal, Canada. Prior to the transactions at issue in this case, Gorodensky's business consisted mainly of the purchase and sale of recycled materials, primarily textiles. Gorodensky was a partner, along with Harold Murawnik, of H&H, a family partnership. MPS is a New York corporation that is currently based in Chicago, Illinois. MPS sells pulp manufactured by others to paper mills.
In early 1992, plaintiffs began to investigate the technical and environmental feasibility of setting up a venture to manufacture and sell deinked pulp. Plaintiffs owned two commercial rental buildings in an industrial section of Montreal, Canada. They proposed to convert these buildings into a facility to manufacture deinked pulp. This interest stemmed from the fact that, in 1991 and 1992, demand for pulp made from recycled materials was growing because regulations in the United States and Canada were increasingly requiring the use of recycled materials in the manufacture of paper.
After making a preliminary determination that the project was feasible, plaintiffs began to decline to renew tenants' leases in the two Montreal buildings, or to renew leases only for limited time periods. They also did not seek new tenants for those buildings. Their purpose was to make the buildings available for conversion to a pulp mill in the near future. In mid-1992, plaintiffs retained Dick Engineering to prepare a feasibility study of the proposed mill. The study, completed by September 1992, contains preliminary engineering design specifications, proposed technology to be used, specifications of the pulp to be produced, and estimated costs of the proposed facility.
After completion of the feasibility study, plaintiffs started to contact potential sources of raw materials and various Quebec governmental agencies. In March and April 1993, they obtained written expressions of interest in supplying waste paper from Perry S. Koplik & Sons, Inc. and D. Benedetto, Inc. Although plaintiffs' business plan described these letters as "letters of intent," Gorodensky testified that this was an error and that he never considered these letters as binding. Plaintiffs never entered into a contract with a supplier of waste paper.
Plaintiffs also received a letter in March 1993 from the Societe de Development Industriel Du Quebec ("SDI"), the economic development agency of the government of Quebec. The letter suggested that SDI might guarantee 50% of the possible loss a lender could incur in the project, dependent upon further review of plaintiffs' business plan and discussions with other government officials. Plaintiffs never forwarded a copy of their business plan to SDI or formally applied for a loan guarantee.
After completion of the feasibility study, plaintiffs met with Ted Homa, a marketing manager of Mitsubishi Canada Ltd. ("MCL") to discuss whether MCL would be interested in participating in the deinked pulp mill project. By March 15, 1993, MCL informed plaintiffs that it was interested in being a "turnkey contractor" for the project, meaning that it would build the pulp mill to agreed-upon specifications for a fixed price. However, MCL stated that it was not interested in operating or otherwise having a continuing investment or involvement in the pulp mill project. MCL's interest in the project was contingent on the securing of suitable financing by plaintiffs. In response to a request by plaintiffs, MCL provided a letter in July 1993 stating that MCL was interested in being the turnkey contractor for the project if plaintiff were able to secure term or project financing.

In early 1993, MCL contacted MPS to determine whether MPS would be interested in selling the output of the proposed pulp plant. MPS was enthusiastic about the project because MPS did not handle deinked pulp and wished to add a recycled product to its product line.

The Letter of Intent states that MPS "inten[ds] to enter into a contract" for the "exclusive right and obligation" to purchase and sell the entire output of plaintiffs' plant for five years, "conditional on the output of the facility" meeting certain specifications outlined in the letter. The letter states that pulp would be "competitively priced, on a calendar monthly and quarterly basis, at levels mutually agreed upon." The letter does not state whether MPS would receive a commission for its sales or how the price paid by MPS for the plant's pulp would be determined. The letter concludes by stating that MPS is "looking forward to entering into detailed ...

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