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May 28, 2004.

CMS CONARES METAL SUPPLY (AMERICA), INC., formerly known as United Metal Supply (America), Inc., Plaintiff, -against- LEXINGTON STEEL CORPORATION, Defendant

The opinion of the court was delivered by: THOMAS GRIESA, Senior District Judge


This is an action for declaratory relief in connection with a contract dispute between plaintiff CMS Conares Metal Supply, Inc. ("CMS") and defendant Lexington Steel Corporation ("Lexington"). CMS asks that the Court declare that it is not indebted to Lexington for sums in connection with a sale of goods by CMS to Lexington. Lexington brings counter-claims against CMS in connection with the same transaction, alleging breach of contract, money had and received, and conversion. CMS, in turn, asserts a counter-claim against Lexington for recovery of money alleged to be owed to CMS in connection with past transactions between the parties. Lexington now moves for summary judgment on its money had and received and conversion counter-claims. CMS cross-moves for summary judgment on its claim for declaratory relief. For the reasons set forth, Lexington's motion is granted in part and denied in part, and CMS's motion is denied. FACTS

The following facts, taken from the pleadings and the affidavits on the motions, are undisputed unless otherwise noted.

  CMS is an international trading company engaged in, among other activities, steel importation. CMS is the successor in interest to United Metal Supply (America), Inc. Throughout this opinion the two entities will be referred to interchangeably as CMS.

  Lexington is a steel supplier, and conducts its business by purchasing steel from international traders and domestic producers, and reselling that steel to third parties. Beginning in 1998 Lexington and CMS had an ongoing business relationship whereby CMS sold imported steel to Lexington, for resale to Lexington's customers. In a typical transaction between Lexington and CMS, Lexington would submit purchase orders to CMS to fill an order placed by one of Lexington's customers. CMS would, in turn, place an order with an overseas steel mill. When the steel arrived in the United States, CMS would send Lexington invoices corresponding to the purchase orders. The invoices itemized the amount of steel that had arrived, its weight, and the amount due on the order. The steel would be warehoused until Lexington's client was prepared to accept delivery, at which point Lexington would instruct the warehouse to release a specified amount of steel to be transported to a destination specified by Lexington's client.

  A major point of factual disagreement between the parties is whether the course of their dealings in the above-described transactions constituted discrete, separately accounted orders, or rather a running, or open, account. As will be discussed in more detail below, CMS contends that there was a running account between the parties, that authorized it to apply payments received from Lexington to any transaction on which Lexington had an outstanding debit. This is because, according to CMS, Lexington regularly paid less than the full purchase amount on transactions, either because of alleged defects in the delivered product, or because of Lexington's errors in bookkeeping. CMS states that while some of the deductions were agreed to by CMS, many transactions with Lexington could not be closed out because of unresolved deductions. Lexington asserts a different characterization of the parties' course of business. According to Lexington, terms of particular transactions were periodically adjusted, for example in order to account for discrepancies in the quality or weight of delivered goods. These adjustments, according to Lexington, would result in credits or debits to the price of a future order. Lexington states that the adjustments were solely for the purpose of closing out individual transactions.

  The specific transaction underlying the instant action was an April 2001 sale to Lexington by CMS of 1000 metric tons of steel coils, sometimes referred to hereafter as "the April 2001 transaction." The coils were ultimately to be received by a Lexington customer, Mountain Metals. The order was placed via two purchase orders from Lexington to CMS-one for 450 metric tons and the other for 550 metric tons, both to be delivered by June 15, 2001, and payment to be due forty-five days from delivery. CMS sent Lexington two separate invoices for the order, reflecting the fact that the order was delivered in two separate shipments to a New Orleans warehouse. Invoice 166 was issued on August 13, 2001 and billed Lexington $716,258.04 for approximately 890 metric tons of coils. Payment was due on September 4, 2001. Invoice 172, covering the remaining coils, was issued on September 14, 2001 for $89,543. Payment was due on October 5.

  Prior to the issuance of the purchase orders, Lexington and CMS engaged in negotiations regarding the fact that CMS's bank, HVB Bank, was unwilling to issue a sufficient line of credit to finance the above-described transaction. Therefore, Lexington placed $125,000 in escrow at HVB Bank to augment the amount of the letter of credit that HVB ultimately issued to CMS. The $125,000 was to be treated by the parties as an advance payment on the shipment. Thus, Lexington owed CMS, on the entire transaction, $805,801.04, less the $125,000 advance payment, for a total owed of $680,801.04.

  At some point subsequent to the issuance of the invoices, Lexington and CMS agreed that Lexington would make payments on the invoices in three installments. Two installments of $225,000 were to be paid November 10 and December 25, 2001, and a final installment of $230,801.04 was to be paid on January 25, 2002. An October 29, 2001 e-mail from a Augie Lonardi, a Lexington representative, to Ratomir Zivkovic, president of CMS, confirmed this arrangement. That letter also addressed interest payments to be made by Lexington. Lonardi wrote, "Yes, have HVB [Bank] calculate the finance costs based on the above payment schedule taking into account the advance payment of $125,000.

  Lexington made payments of $225,000 to CMS on November 10 and December 25, 2001. However, on January 25, 2002, Lexington paid CMS only $100,000, instead of the $230,801.04 owed on that date.

  A series of e-mail exchanges in January and February 2002 between Lonardi, on behalf of Lexington, and Zivkovic and Katarina Jevtic, on behalf of CMS, document the parties' subsequent payment negotiations. On January 29, 2002 Jevtic contacted Lonardi, and stated that CMS had received the $100,000 payment, that the payment was not in accordance with the parties' agreements, and that Lonardi should "advise when the final payment will be made." Lonardi responded on January 30 and stated that he did not know when final payment would be made, due to the fact that Mountain Metals had taken only half of the coils shipped, and that therefore Lexington's "cash flow has been very tight for this transaction." Lonardi stated that another check would be issued as soon as funds became available.

  Jevtic replied the same day, stating that CMS was "unable to work on this type of open payment policy" and that CMS is "not aware of the details of [Lexington' s] sales to [its] customers." Jevtic again requested a final date for payment, and stated that in a telephone conversation of the prior week between Lonardi and Zivkovic, Lonardi had offered final payment by February 8. Jevtic stated that payment "should really be effected on this date. That way we can calculate the accrued interest for the late payment and advise you of the final balance." The e-mail closed, "We await your confirmation." Lonardi responded later that same day, stating, "Unfortunately I cannot commit to a specific date at this time."

  On February 5, 2002 Jevtic sent an e-mail to Lonardi stating that Lexington owed CMS a balance of $130,801.04, plus $13,527.17 in interest, for a total of $144,328.21. Jevtic stated that in light of Lexington's cash flow problems CMS would give Lexington an extra week to make payment, and that CMS "must have final payment by February 15, 2002." Later that day, Lonardi responded that Lexington would pay the balance owed on the invoices "as soon as funds become available," and that "[i]n the meantime it would be appropriate for you to charge us interest, at the prime rate, on the remaining balance of $130,000 beginning January 25, 2002."

  On February 6 Zivkovic responded that CMS must "close this deal since it is open for more than six months and we can not carry it any longer on our books. We need your payment on invoices and debit memo at the set date." Lonardi replied later that day with the following message: "Sorry but something else will have to be worked out on the final payment of $130,000. Also, there is no way will pay your debit memos for interest." Zivkovic replied to Lonardi on February 7, stating: "We require ...

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