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March 31, 2003


The opinion of the court was delivered by: Gerard E. Lynch, United States District Judge


This suit arises out of an aborted transaction in which defendant Bay Industries, Inc. ("Bay") was to use its acquisition vehicle, SAC, Inc. ("SAC"), to purchase the stock of Soundcoat Company, a foam manufacturer owned by plaintiff Recticel Foam Corporation ("Recticel").*fn1 After Bay and SAC declined to close on the transaction, Recticel filed suit, alleging that both Bay and SAC had breached the Stock Purchase Agreement ("the Agreement"). Both sides now move for partial summary judgment on liability, and defendants move to strike certain portions of the declarations submitted in support of plaintiffs' summary judgment motion. Defendants also seek production of certain documents that plaintiffs have withheld. For the reasons discussed below, all motions will be denied.


Plaintiff Recticel is a Belgian company that manufactures sound insulation products, with over 110 international subsidiaries. (Defs. Mem. at 2.) In early January 2001, Recticel agreed to sell the stock of its wholly owned subsidiary, Soundcoat, to Bay for $11.7 million. (Pls. R. 56.1 Statement ¶ 3.) Soundcoat is a foam manufacturing company with plants located in Deer Park, New York, and Irvine, California. (Pls. Mem. at 1-2.) At the contract negotiations, which began around January 17, Bay was represented by Ronn Kleinschmidt, its financial manager, and Lon Roberts, its attorney. (Pls. R. 56.1 Statement ¶ 4.) At the initial meetings, Bay indicated that it planned to use an acquisition vehicle to purchase the Soundcoat stock when the transaction was completed (id. ¶ 5), and Recticel did not object (Jous Dep. at 69-70). Thus, Bay would create another corporation that would be a party to the contract and would receive Soundcoat's stock, avoiding adverse tax consequences to Bay. (Id.) By January 29, Bay had incorporated SAC under Wisconsin law, notified Recticel, and had SAC's name inserted into the Stock Purchase Agreement in Bay's place. (Roberts Aff. ¶ 4; Frankel Dep. at 51-52.)

Both Bay and SAC are wholly owned by their parent corporation, AWS/gb, a holding company owned by Arnold and Gloria Schmidt. (Defs. R. 56.1 Counter-statement ¶ 8.) The Schmidts are the sole officers and directors of AWS/gb and of every corporation that it owns. (Id.) After SAC was incorporated, it did not hold formal meetings (id. at 7), and it was not capitalized (id. ¶ 15). Instead, it was given a revolving bank account, so that any funds in the account were cleared each night and transferred to AWS/gb. (Marzulla Decl. Ex. 4 at 2.) SAC did not have an office or any employees, or any income or debts independent from Bay. (Id.; Defs. R. 56.1 Counter-statement ¶ 12.) Even after SAC was made a party to the Agreement in place of Bay, Bay's negotiators continued to handle all aspects of the transaction.

The Agreement provided as a condition precedent to SAC's duty to close that Recticel would deliver to SAC a "reasonably satisfactory" Phase I environmental assessment for each Soundcoat facility. (Kleinschmidt Aff. Ex. A § 7.1(f).) The Phase I assessment is "an information gathering device and preliminary investigation of a site to identify potential environmental concerns at a facility" and potential areas of non-compliance with applicable environmental laws. (Pls. R. 56.1 Statement ¶ 18.) When the Phase I investigation identifies concerns that need to be evaluated by "more extensive efforts," a plant typically performs a Phase II site assessment, a detailed examination of all environmental aspects of a site, before undertaking full remediation of the problems. (Id. ¶ 19.) On February 16, the parties received a verbal progress report regarding the Phase I investigation of the Deer Park facility, in which the investigator indicated that he had found seven areas of environmental concern, which would probably require a Phase II investigation. (Killeen Decl. Ex. 1.) The parties dispute whether the issues raised were typical of a plant like Soundcoat, or whether they were more serious environmental problems. (Defs. R. 56.1 Counter-statement ¶ 21.)

About a week before the scheduled closing on March 2, 2001, the parties agreed to a "Minimum Work Plan" that would guide Soundcoat's remediation of some of the environmental issues raised by the Phase I investigation, even before the completion of a Phase II assessment. (Id. ¶ 25.) The parties also negotiated an amendment to the Agreement, which would have provided that Recticel would take responsibility for remedying the environmental problems both before and after the closing.*fn2 (Killeen Decl. Ex. 11.) The amendment was never executed, however, and defendants deny that the parties reached an agreement on the text of the amendment. (Defs. R. 56.1 Counter-statement ¶ 29.) Nonetheless, Recticel contends that the parties definitively agreed, at least orally, that Recticel would take responsibility for correcting the problems, and that based on that agreement, defendants accepted the Phase I Report. (Pls. Mem. at 9-10; Killeen Decl. ¶ 11.) Defendants dispute that the negotiations over the environmental issues had any discernible results. (Defs. R. 56.1 Counter-statement ¶ 26.)

It is undisputed that when the parties realized that Soundcoat's environmental problems could not be fully remedied in time for the March 2 closing, they agreed to suspend the Phase II investigation until after the closing. (Defs. R. 56.1 Counter-statement ¶ 30; Killeen Decl. Ex. 9.) The closing was postponed until April 2 anyway, however, because problems arose with Soundcoat's landlords, and the parties continued to negotiate solutions to both the environmental issues and the landlord problems through March. (Pls. Mem. at 12; Killeen Decl. ¶ 20 & Ex. 13.) Recticel contends that the parties agreed that the environmental remediation would remain deferred until after the April closing (Killeen Decl. ¶ 25), but defendants state that the postponement was unnecessary in light of the new closing date, and that their understanding was that Recticel could have gone ahead with the Phase II investigation before the closing. (Defs. R. 56.1 Counter-statement ¶ 30.)

On March 27, Bay's counsel, Lon Roberts, informed Recticel that SAC would not be attending the closing. In a letter sent the same day. Roberts detailed a number of "unresolved" issues that he felt could not be resolved by the closing, most of which centered around the landlords of both Soundcoat facilities. (Wiseman Decl. Ex. 13.) He also stated that, with respect to the Deer Park facility, "Phase II activities . . . must be completed and environmental compliance achieved," but it is not clear from the letter whether he meant that compliance would have to be achieved by the April 2 closing date. (Id. at 2.) Recticel's counsel responded to the landlord issues by stating that it was Bay's attorneys who had been unresponsive to the landlords in the preceding weeks, and that all of the landlord issues could be resolved by the closing. (Id. Ex. 14.) On March 30, Roberts sent another letter to Recticel. stating that Recticel "will not be able to . . . satisfy the conditions to closing required by the stock purchase agreement" because "the New York facility may have serious environmental issues." (Id. Ex. 15.) The closing did not go forward, and in July 2001, Recticel filed this suit. (Pls. Mem. at 16.)


I. The Parties' Contentions

Recticel now moves for summary judgment on defendants' liability under the Agreement, arguing that defendants anticipatorily breached the Agreement by refusing to close the transaction. (Pls. Mem. at 18.) Recticel asserts that, as a matter of law, it had satisfied all conditions precedent contained within the Agreement, and that SAC backed out of the deal because a recent downturn in the profits of both Bay and Soundcoat had made it less enthusiastic about the acquisition. (Id. at 19-20.) In addition, Recticel contends that Bay may be held liable for any breach that SAC may have committed, even though it was not a party to the Agreement, because of its control of SAC and its intent to be bound under the contract. (Pls. Mem. at 30-42.)

Defendants also move for summary judgment as to liability, contending that they had no duty to close, because two conditions precedent were not met. (Defs. Mem. at 6.) Specifically, defendants allege that the problems uncovered by the Phase I investigation rendered the Phase I Report not "reasonably satisfactory," and that the problems rendered untrue several of the representations and warranties made by Recticel. (Id. at 7, 11.) Thus, SAC did not anticipatorily breach the Agreement when it refused to close because its obligation to close under the Agreement never arose. Defendants also contend that, even if SAC breached the contract, Bay cannot be held liable for that breach because it was not a party to the Agreement, and therefore it must be dismissed from the action. (Defs. Mem. at 13-14.)

In addition, defendants move to strike various portions of the declarations submitted in support of plaintiffs' summary judgment motion, arguing that they are not based on personal knowledge, call for legal conclusions, or violate the sham affidavit rule. Finally, despite the fact that discovery is now closed, defendants assert that they are entitled to the production of the results of the Phase II environmental investigation that was undertaken at Soundcoat's Deer Park facility after the SAC purchase fell through.

II. Defendants' Motion To Strike Portions of Declarations

Defendants move to strike various portions of the declarations of Stephen Wiseman, Phillippe LaCarriere, Phillippe Jous, and Richard Walka, as noncompliant with Fed.R.Civ.P. 56(e) because they "call for legal conclusions," are speculative, or contain inadmissible hearsay. (Defs. Mot. to Strike at 1-3.) In deciding a motion for summary judgment, the Court may consider "supporting and opposing affidavits . . . made on personal knowledge" that set forth evidence that would be admissible at trial. Fed.R.Civ.P. 56(e). To the extent that an affidavit or declaration contains material that does not comply with Rule 56(e). The Court may strike those portions, or may simply disregard them. LaRouche v. Webster, 175 F.R.D. 452, 455 (S.D.N.Y. 1996); Epstein v. Kemper Ins. Cos., 210 F. Supp.2d 308. 313-14 (S.D.N.Y. 2002). Thus, rather than parsing each challenged declaration to determine which portions to strike, the Court will disregard any statements that do not comport with Rule 56(e). Epstein, 210 F. Supp.2d at 314 (disregarding portions of affidavits, rather than striking them).

Defendants also challenge two portions of the declaration of Phillippe Jous under the sham affidavit rule (Defs. Mot. to Strike at 3-4), which prevents a party from submitting an affidavit that contradicts the party's prior deposition testimony in order to raise an issue of fact sufficient to preclude summary judgment. Perma Research & Dev. Co. v. Singer Co., 410 F.2d 572, 578 (2d Cir. 1969). Any issue of fact created by the contradiction is not genuine, and therefore cannot serve as a basis on which to deny summary judgment. Palazzo ex rel Delmage v. Corio, 232 F.3d 38, 43 (2d Cir. 2000).

First, defendants challenge Jous's assertion, in his declaration, that he was "misquoted" n his deposition. (Jous Decl. ¶ 9.) The transcript of Jous's deposition indicates that when asked about the Phase I report, he stated, somewhat confusingly, "I don't see why the buyer [SAC] wouldn't have considered this Phase I report as unsatisfactory." (Jous Dep. at 88.) In his declaration, Jous states that he meant to say, "I don't see why the buyer would have considered this Phase I report unsatisfactory," (Jous Decl. ¶ 9), and defendants seek to strike this assertion from his declaration. The sham affidavit rule does not apply to these statements, however, because Jous's deposition statement, whether or not correctly recorded, is simply his opinion, and his declaration does not seek to assert different facts, but to clarify a potential typo or confusion.*fn3 Corio, 232 F.3d at 43 (noting that the sham affidavit rule does not apply to later statements that seek to clarify or expand on deposition testimony). In addition, while Jous's deposition statement is relevant to the disputed issue of ...

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