assert that plaintiff is attempting to exceed the limitations of the
first summary judgment decision in Wechsler I. See Defs' Opp. at 11.
Specifically, they argue, the "only issue regarding the conversion claim
upon which the Court requested supplemental guidance was whether Hunt
Health was justified in keeping the proceeds it would ultimately recoup
anyway, if Towers was found to have materially breached the HCP
Agreement. See id.(citing Wechsler I, 1999 `ML 397751, at *16).
As stated in Wechsler I, beginning on February 26, 1993, Hunt Health
stopped sending Towers proceeds Hunt Health received on accounts
receivable Towers owned, and Hunt Health subsequently converted those
funds to its own use. See 1999 WL 397751, at *16. Plaintiff continues to
contend that this conduct violated provisions of the HCP Agreement and
its related agreements. Towers, and its successor, the Administrative
Trustee, plaintiff argues, owned and had the right to possess the
proceeds of accounts which Towers purchased and could apply these proceeds
against the advance or could use the proceeds to set off against any
outstanding indebtedness. See Pl's Mem. at 18-19. Defendants continue to
argue that Hunt Health retained these funds in order to mitigate its
damages after Towers allegedly breached the HCP Agreement by
discontinuing its practice of collecting. See Defs' 56.1
Counter-Statement ¶ 114.
The Court denies summary judgment on this claim. As discussed below,
there remains a genuine issue of material fact with regard to defendants'
post-termination failure to collect claim against Towers, which may have
obviated Hunt Health's obligation to forward proceeds to Towers on
accounts. Notwithstanding the Court's express remark in Wechsler I that
the "parties have failed to sufficiently develop their positions in this
regard," neither plaintiff nor defendants have taken the opportunity to
inform sufficiently the Court with regard to whether a material breach by
Towers would in fact obviate Hunt Health's duty to remit payment to
Towers. For these reasons, the Court declines to grant summary judgment
on this claim.
4. Collection Duty
It should be noted at the outset that plaintiff is judicially estopped
from arguing in this renewed motion for summary judgment that Towers had
no collection obligation under the HCP Agreement. This issue was fully
addressed by this Court in Wechsler I. See 1999 `ML 397751, at *10. It
was held that because in the New Medico case "plaintiff had asserted that
the form contract used regarding Towers's purchase of accounts receivable
from Hunt Health `require[s] Towers to collect the accounts' . . .
plaintiff is judicially estopped from now asserting Towers had no
collection obligation" under the HCP Agreement. Id.This holding is the
law of the case and plaintiff failed to file a motion for reconsideration
pursuant to Local Civil 6.3 and Fed.R.Civ.P. 59(e) within the appropriate
time frames. Plaintiffs renewed attempt to reargue this issue,
therefore, wastes the Court's time and needlessly muddles what is already
an incredibly complex case.
This does not mean, of course, that the Court took the collection issue
completely out of play for argument in this renewed motion for summary
judgment. On the contrary, the Court opined in Wechsler I that the
parties had failed to brief adequately the Court with regard to whether
the collection duty would survive a material breach by Hunt Health, and
for that reason, the Court chose not to "on the submitted briefs,
undertake definitively to interpret the contract in this respect, for
the parties have provided woefully inadequate guidance on the issue." 1999
WL 397751, at *10.
Hunt Health alleges two different breaches of Towers' obligation to
collect. The first breach allegedly occurred prior to Hunt Health's
notice of termination on February 26, 1993, and the second alleged breach
of the duty to collect occurred after its notice of termination. With
regard to the pre-termination breach, plaintiff asserts that defendants
have always been vague with respect to when this breach occurred and
plaintiff argues, based upon defendants' sworn statements, "there was no
problem with Towers up through February 25, 1993." See Pl's Mem. at 21
(citing Pl. Ex. 4, Nos. 1, 2; Pl. Ex. 13 ¶ 56). With respect to the
post-termination failure to collect claim, plaintiff asserts that Hunt
Health's unilateral termination of the HCP Agreement and its failure to
forward proceeds to Towers on accounts Towers had purchased, constitute
material breaches that relieved Towers of its duty to collect. See Pl's
Mem. at 22.
The Court finds there remains a genuine issue of material fact with
respect to these alleged breaches, and therefore any new attempt by
plaintiff to move for summary judgment that Towers did not breach in this
regard, is denied. Hunt Health's previous alleged material breaches,
and/or its voluntary early termination of the HCP Agreement may have
excused Towers from performing that obligation, but based on the
submitted briefs and for the aforementioned reasons, there remains a
genuine issue of material fact with respect to those alleged breaches and
5. The $60,000 Request for Funds
The parties continue to disagree as to whether Hunt Health did indeed
make a request for Towers to wire Hunt Health $60,000 pursuant to a
written request faxed by Hunt Health on February 25, 1993. See Pl's Mem.
at 23; Defs' Opp. at 9. Although the Court recognizes that plaintiffs
theory regarding the $60,000 request was not an issue for which the Court
explicitly sought further guidance in Wechsler I, because plaintiff has
further instructed the Court on the indebtedness theory, the Court can
rule on this issue as a matter of law. It is clear to the Court that even
if the request was made and Towers failed to remit the payment pursuant
to the Letter Agreement, it was not a breach of the HCP Agreement, and
even if it was a breach, it was not a material breach by Towers.
As previously discussed, the express terms of the HCP Agreement detail
an indebtedness that arises when an account sold to Towers is a Rejected
Account, that is, in breach of the Paragraph 8 representations and
warranties. See Pl. Ex. 8, 65. To the extent that the alleged February
25, 1993 request for $60,000 by Hunt Health represented advances on new
accounts or remittances on proceeds received from other accounts, Towers
had a right, pursuant to Paragraph 5, to offset against the then current
indebtedness of Hunt Health. Therefore, the power of offset may have
obviated the need for Towers to pay the $60,000 request. Bven if the
non-payment were deemed to be a breach of the HCP Agreement, clearly this
was not a material breach as Hunt Health's own termination letter of
February 26, 1993 stated that Hunt Health was prepared to pay off the
outstanding balance of advances on the next business day, March 1, 1993.
See Pl. Ex. 31.
Defendants' arguments in response are largely procedural and even when
drawing all reasonable inferences in favor of the defendants, their
submissions fail to present a genuine issue of material
fact. The determination of the materiality of a breach is an issue of law
for the Court to rule on. See Frank Felix Assocs., Ltd. v. Austin
Drugs, Inc., 111 F.3d 284, 289 (2d Cir. 1997). Under
New York law, the question is whether the breaches went "to the root
of the agreement between the parties." Id.Towers' failure
to remit the alleged $60,000 request by Hunt Health was not a material
breach of the HCP Agreement that would excuse Hunt Health's obligations to
6. Liquidated Damages
Plaintiff seeks summary judgment on its claim for $230,000 in
liquidated damages allegedly due pursuant to the September 25, 1992
Amendment to the HCP Agreement (the "Amendment").*fn19 The Amendment is
to be added to the end of Paragraph 10 of the HCP Agreement and provides
[Hunt Health] may elect to terminate this Agreement
prior to the expiration of its term by providing to
[Towers] written notice of [Hunt Health's] election to
do so, and by paying to [Towers], as liquidated
damages only and not as a penalty, the sum of Ten
Thousand ($10,000) Dollars for each month, or part
thereof, remaining on this Agreement from the date of
Pl. Ex. 14, ¶ 2. Plaintiff asserts that because Hunt Health's
notice of termination was dated and received by Towers on February 26,
1993, the remaining part of February and the additional 22 months left on
the contract whose term ended on December 31, 1994, entitle plaintiff to
$230,000 under the terms of the Amendment. See Pl's Mem. at 19.
It should be noted that a review of correspondences between Towers and
Hunt Health in the weeks following Hunt Health's notice of termination
reveal that payment of the liquidated damages provision seemed to be the
sticking point for negotiations between the parties. In a letter dated
March 24, 1993, Mr. Woodley (representing Hunt Health) indicates his
client's willingness to "pay off Towers" but that (1) it did not believe
it was obligated to pay the termination fee at all because Towers had
"stopped performance of the contract"; and (2) even if termination fees
were warranted Hunt Health would only have to pay $40,000 in total. See
Pl. Ex. 30.
As the foregoing discussion makes clear, there remain genuine issues of
material fact as to whether Towers previously had committed a material
breach which would justify termination of the HCP Agreement without
payment of the liquidated damages. Therefore, the Court declines to grant
summary judgment for the plaintiffs on this liquidated damages claim.
V. PLAINTIFF'S AND DEFENDANTS' CROSS-MOTIONS TO STRIKE
Both parties have moved to strike the affidavits submitted in
connection with plaintiffs renewed motion for partial summary judgment.
Specifically, defendants move pursuant to Rules 26 and 37 of the Federal
Rules of Civil Procedure to preclude the affidavit of Andrew P. Prague,
C.P.A.; and plaintiff moves to strike the affidavit of Gary Davidson,
C.P.A. For the following reasons, both motions are each granted in part
and denied in part.
A. Defendants' Motion to Strike
It is well established that a court may "strike portions of an
affidavit that are not
based upon the affiant's personal knowledge,
contain inadmissible hearsay or make generalized and conclusory
statements." Hollander v. American Cyanamid Co., 172 F.3d 192, 198 (2d
Cir), cert. denied, 528 U.S. 965 (1999); see Fed.R.Civ.P. 56(e)
("Supporting and opposing affidavits shall be made on personal
knowledge, shall set forth such facts as would be admissible in
evidence, and shall show affirmatively that the affiant is competent to
testify to the matters stated therein."). Further, a district court's
grant of a motion to strike will not be disturbed on appeal unless
manifestly erroneous. See Hollander, 172 F.3d at 198.
Defendants move to strike Mr. Prague's affidavit pursuant to Rules 26
and 37 because, they assert: (1) the Prague affidavit constitutes
impermissible expert testimony in violation of Fed.R.Civ.P. 26(a)(2); and
(2) in the alternative, if the Prague affidavit is summary testimony it
goes beyond the scope of Fed.R.Civ.P. 1006. See Memorandum of Law in
Support of Defendants' Motion to Strike ("Defs' Mem. Strike"), at 2, 10.
Further, defendants also move to strike Paragraphs 9-10 of the affidavit
of Towers' officer John Alario ("Alario Aff"), dated January 27, 2000.
See Defs' Mem. Strike at 10. For the following reasons, the Court grants
in part and denies in part defendants' motion to strike.
First, in light of some of defendants' concerns regarding the Prague
Affidavit, this Court indicated at a pre-trial conference on February
24, 2000, that some portions of the Prague Affidavit seemed to be in the
form of opinions, and did not constitute summary evidence under
Fed.R.Civ.P. 1006. Indeed before this conference, plaintiff indicated in
a February 9, 2000 letter to defendants' counsel his willingness to make
Mr. Prague available for deposition and to postpone the date on which
defendants' opposition to the renewed motion for summary judgment was due
in order to allow sufficient time for such a deposition. See Plaintiffs
Opposition to Defendants' Motion to Strike ("Pl's Opp. Strike"), at 3.
Defendants argue that they were "ambush[ed]" by the use of the Prague
Affidavit. See Defs' Mem. Strike at 9. Further, they assert that
plaintiff "steadfastly refuse[d] to provide defendants with any materials
relating to Mr. Prague or his proffered testimony." See id.at 5 n. 15
(emphasis in original). In response, plaintiff asserts that it was not a
refusal, but merely a preliminary request for defendants to first
indicate if they were going to depose Mr. Prague before plaintiff went
through the time and expense of locating the background materials. See
Pl's Opp. Strike at 4. Defendants' ultimately chose not to depose Mr.
Prague before bringing this motion. See Colao Aff., Ex. 3, Letter from
Brooks Banker, Jr., Bsq. to Judge Leisure, dated February 29, 2000.
Rule 37(c)(l) of the Federal Rules of Civil Procedure provides that:
A party that without substantial justification fails
to disclose information required by Rule 26(a) or
26(e)(1) shall not, unless such failure is harmless,
be permitted to use as evidence, at a trial, at a
hearing, or on a motion any witness or information not
Fed.R.Civ.P. 37(c)(1) (emphasis added). Clearly, there is no harm here.
Defendants were given ample time to find their own expert to summarize
and analyze the prolix accounting documents at issue in this case, and
the Court attempted to obviate the need for motion practice through
extending by three months defendants' time to oppose plaintiffs motion,
which was based in part on the Prague