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United States District Court, S.D. New York

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 payments by Feb. 15th. We cannot be your bank anymore. For the payment of interest rate read your e-mail of Oct. 29th. . . ."

  Lexington did not make payment on February 15, 2002. On February 21, 2002 Jevtic sent Lonardi an e-mail stating that CMS had expected payment on February 15, and that if Lexington "cannot give us a specific time by which you will effect payment, we will be forced to hand this matter over to our attorneys."

  Negotiations apparently continued between Lexington and CMS over the course of February and March. On March 13, 2002 Zivkovic sent an email to Tim McFarland, another representative of Lexington, stating that in a telephone conversation between Zivkovic and Lonardi, Lonardi had told Zivkovic to "keep your freaking material." Zivkovic stated in the email, "This really puts a question on your intentions of fulfilling your earlier commitments and obligations. I would appreciate your comments prior to taking next step." In an affirmation submitted on the instant motion, Lonardi states that he does not recall the above-described conversation between with Zivkovic.

  On March 15, 2002 Lonardi sent CMS a calculation of what Lexington contended was owed to CMS. In the calculations Londardi deducted $6,060.31 from the amount owed on the invoices, based on certain defects in the shipped coils. Regarding interest, Lonardi stated that it should be calculated only from January 25, 2002, and that therefore only $885.15 was owed. However, Lonardi stated that Lexington was "prepared to pay" $3,036.68 in interest. The letter does not disclose how this figure was arrived at. Thus, Lexington calculated the total due to CMS as $127, 777.41. Lexington stated that it would issue a check immediately for this amount, if CMS would "agree that this clears our open balance with [CMS] and all material is released" from the warehouse to Mountain Metals.

  On March 18, 2002 Zivkovic replied with CMS's own statement of the amount owed by Lexington. On the subject of interest, Zivkovic stated that interest would be calculated on a daily rate from the dates that the invoices were due, September 4 and October 5, 2001. The total interest calculation was, according to Zivkovic, $13,527.17. Additionally, Zivkovic credited Lexington $6,465.99 for "agreed upon" defects in the coils; The record does not reflect why this credit exceeds the credit calculated by Lexington by $400.

  Zivkovic's March 18 letter also stated that no coils would be released from the warehouse until Lexington paid CMS for its entire account balance, including $51,974.25 allegedly owed by Lexington for prior transactions. Zivkovic stated that the $51,974.25 amount was not included in the interest calculation of $13,527.17 on the April 2001 transaction. Thus, CMS's position was that Lexington owed $189,836.47, which must be paid in full before additional coils would be released from the warehouse to Mountain Metals.

  On March 19 Lonardi replied to Zivkovic's March 18 letter, and stated that Lexington's offer of $127,777.41 was firm. Lonardi disputed CMS's interest calculation on the ground that, according to Lonardi, CMS and Lexington had agreed that payment would be due on the April 2001 transaction sixty days after the steel coils were delivered. On the matter of the $51,974.25 CMS claimed to be due on prior transactions, Lonardi stated that the disputed amounts itemized by CMS already had been resolved between CMS and Lexington in July 2001. Lexington has submitted on the current motions correspondence from June and July 2001 reflecting negotiations between the parties regarding amounts owed on past transactions. Among these documents is a copy of check number 54270, dated July 24, 2001, for $54,816.94 paid from Lexington to CMS.

  Jevtic, on behalf of CMS, responded to Lonardi's letter on the same day. Jevtic disputed Lonardi's assertions regarding interest payments, stating that payment for the April 2001 transaction had been due forty-five, not sixty, days from delivery. Additionally, Jevtic stated that prior debts owed to, CMS by Lexington were never resolved in 2001, and reasserted that $51,974.25 remained due. CMS has submitted on the current motions a July 23, 2001 letter from Zivkovic to Lonardi, stating, "This will confirm our two recent telephone conversations, that your check No. 54270 is not the final payment" for several debts. The letter also stated, "We are cashing this check and expecting the balance of the payment within 10 days."

  On April 10, 2002 Lonardi sent Zivkovic an offer to pay $130,355.93 on the April 2001 transaction, which reflected Lexington's recalculation of interest owed based on a forty-five day, rather than a sixty-day, payment due date. Lonardi also repeated his objection to the prior balance claimed by CMS. Lonardi stated that Mountain Metals had requested that additional coils be shipped to it from the warehouse. He concluded, "The above check amount of $130,355.93 can be overnight[ed] immediately. Please inform us on how you wish to proceed." By this time, Mountain Metals had accepted deliveries of approximately $570,000 worth of steel coils from the warehouse. Therefore, $230,801.04 worth of coils remained in the warehouse awaiting delivery.

  CMS did not respond to the April 10 letter, nor did it ship any coils to Mountain Metals. Instead, CMS sold the coils remaining in the warehouse to another company. A balance sheet titled "Customer Balance Detail," submitted by CMS on the current motions, shows that on August 1, 2002 Lexington's account with CMS was credited $235,024.74 for this resale.*fn1

  At a June 18, 2002 meeting between Zivkovic and Robert Douglass, CEO of Lexington, Zivkovic disclosed the resale of the coils. On June 21, 2002 Douglass wrote Zivkovic and demanded return or replacement of the resold coils. In the alternative, Douglass demanded that CMS reimburse Lexington for the amount of money that was recovered by CMS on the resale in excess of the amount owed by Lexington on the transaction. Lexington claims that amount to be approximately $105,000, or, $235,000 less the $130,000 Lexington concedes that it owed to CMS.


  On September 5, 2002 CMS filed the instant action, requesting a declaratory judgment that CMS was not indebted to Lexington for $105,000. The $105,000 refers to what Lexington claims is the excess of the amount recovered by CMS in its resale of the steel coils, over the amount still owed by Lexington on the April 2001 transaction. Of course, the exact amount of this excess is not actually $105,000. For ease of reference, the amount will hereafter be referred to as "the excess amount."

  Lexington filed three counter-claims in response: for breach of contract, money had and received, and conversion. Lexington's breach of contract counter-claim alleges that Lexington and CMS had an enforceable contract that Lexington fully performed, and that CMS breached that contract. Lexington's money had and received counter-claim alleges that CMS received and benefitted from money belonging to Lexington, and that CMS refused to return such money. Lexington's conversion counter-claim alleges that CMS possessed approximately 130 metric tons of steel coils that Lexington owned, and that CMS refused to return the coils and then improperly sold them.

  The prayer for relief seeks $105,000-the excess amount — for Lexington's money had and received claim, and unquantified damages on the other claims.

  In its answer to Lexington's counter-claims, CMS brought its own counter-claim for $59,412.13. This amount represents what CMS claims is still owed by Lexington on all past transactions between 1999 and 2002.

  The current motions pertain to Lexington's counter-claims for money had and received and conversion, and to CMS's claim for declaratory relief. The briefing on the motions makes clear that the money had and received and conversion counter-claims are essentially alternative theories of recovery for the excess amount. CMS, for its part, argues that it has established beyond any triable issue of fact that it is not indebted to Lexington — for the excess amount or any other amount. Neither Lexington's counter-claim for breach of contract, nor CMS's counter-claim regarding Lexington's alleged debts on past transactions, are the subject of the current motions.


  The Court must initially address CMS's arguments regarding an alleged "open account" maintained by CMS and Lexington. CMS raises this argument in support of its claim for declaratory relief and in opposition to Lexington's counter-claim. CMS argues that throughout its three years of business dealings with Lexington the parties maintained an "open account," whereby amounts owing between the parties on one transaction were understood to be accounted for on a future transaction. CMS argues that because its account with Lexington was "open," it was entitled in March 2002 to demand that Lexington pay all debts owed on past transactions as a condition for CMS's performance on the April 2001 transaction. CMS argues that Lexington's failure to pay those past debts, after CMS demanded such payment, entitled CMS to resell all the remaining steel coils to recover the amount still owed on the April 2001 transaction as well as all amounts owed on past transactions. Therefore, CMS argues, CMS owes Lexington none of the proceeds of the resale, all of which were applied to alleged past debts owed by Lexington.

  The Court finds no genuine issue of material fact to establish that the contract of sale on the April 2001 transaction pertained to anything other than that transaction. It is clear that neither the purchase orders, nor the original invoices from CMS, reference anything other than Lexington's purchase of, and obligation to pay for, the 1000 metric tons of steel coils that were ordered in April 2001. Nor is there any evidence that the negotiations in the fall of 2001 that led to the establishment of an installment payment schedule ever included a discussion of Lexington's obligation to settle past accounts. It was not until the March 18 letter from Zivkovic that CMS demanded payments allegedly still owed on prior transactions between the parties. Indeed, Jevtic's February 6 letter stated that CMS needed to "close this deal since it is open for more than six months and we can not carry it any longer on our books." The six-month time frame could only be in reference to the April 2001 transaction alone. The correspondence concerning the April 2001 transaction, as well as correspondence from past transactions between the parties, does reveal that CMS and Lexington regularly engaged in negotiations regarding whether the amount owed by Lexington on any given transaction needed to be adjusted up or down based on a variety of factors. However, this manner of dealing does not establish that CMS and Lexington's transactions were conducted on an "open" basis. In fact, it should be noted that in his March 18 letter Zivkovic's calculation of Lexington's debt did not include the $51,974.25 allegedly owed on past transactions in the interest calculation for the April 2001 transaction. Thus, the evidence is that the $51,974.25 allegedly owed by Lexington constituted a debt on a separate transaction or transactions. CMS was not entitled to unilaterally offset such debt with any amounts that it owed to Lexington on the resale of steel coils from the April 2001 transaction.*fn2 See New Haven Properties v. Grinberg, 741 N.Y.S.2d 206, 206 (N.Y. App. Div. 2002); Spodek v. Park Property Development Associates, 693 N.Y.S.2d 199, 199 (N.Y. App. Div. 1999).

  Turning, then, to the April 2001 transaction, it must be noted that the Court is not asked to decide on the current motions whether Lexington was in breach of the sales contract with CMS, thus entitling CMS to resell the steel coils. That question would appear to pertain to Lexington's breach of contract counter-claim, on which neither party has moved for summary judgment. The Court will not prejudge that counter-claim by examining the issue of breach at this stage.*fn3 The only question before the Court on the current motions is whether, assuming that CMS was entitled to resell, Lexington is nonetheless entitled to the amount that CMS recovered from its — resale in excess of the amount still owed by Lexington on the April 2001 transaction.

  In dealing with Lexington's claim to recover what has been referred to as "the excess amount," Lexington relies on theories of money had and received and conversion. There are technical problems with both of these theories. However, these legal matters were not raised by CMS, and in any case need not be discussed. Under the contractual relationship between Lexington and CMS pursuant to the April 2001 transaction, CMS was entitled to be paid only what it was owed. If CMS recovered on the resale of the steel coils an amount in excess of what it was owed by Lexington on the transaction, Lexington is entitled to recover that difference. It is clear beyond any triable issue of fact that this did occur, and that Lexington is entitled to recovery. The only question is as to the amount.

  It is undisputed that, after January 25, 2002, Lexington owed CMS $130,801.04 on the transaction, not including interest. The March 18, 2002 Zivkovic letter indicates that CMS credited Lexington $6,465.99 on this amount, based on defects in the order. Therefore, Lexington owed CMS $124,335.05. CMS's accounting shows that CMS recovered $235,024.74 on the resale, which it credited against Lexington's account. Therefore, Lexington is entitled to receive $235,024.74, from which must be deducted $124,335.05 and interest due on that amount. The Court will not calculate the interest owed, except to conclude that the interest calculation runs from January 25, 2002, the date on which Lexington owed its final payment to CMS.

  Of course, CMS's cross-claim for debts owed by Lexington on past transactions may entitle it to a set-off on the above amount. However, that issue is not before the Court on the present motions.


  For the reasons set forth, Lexington's motion for summary judgment is granted. CMS's cross-motion for summary judgment on its claim for declaratory relief is denied. The parties should settle an appropriate order. SO ORDERED.

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