The opinion of the court was delivered by: DEBORAH BATTS, District Judge
Before the Court are Plaintiff Elizabeth Mackinder's
("Mackinder") and Defendant Schawk, Inc.'s ("Schawk") Motions for
Summary Judgment to dismiss claims and counterclaims arising from
a merger of Plaintiff's company, Mackinder Group ("MGI") with
Schawk, Inc. Plaintiff has also moved for sanctions pursuant to
Federal Rule of Civil Procedure 11.
For the reasons that follow, Plaintiff's Motion for Summary
Judgment is GRANTED in part and DENIED in part and Defendant's
Motion for Summary Judgment is GRANTED in part and DENIED in
part. Plaintiff's Motion for Rule 11 Sanctions is DENIED.
Plaintiff Elizabeth Mackinder, a resident of New York State, is
a specialist in the area of photographic retouching. Based on
this specialty, Plaintiff formed a corporation, Mackinder Group,
in or around 1991, which provided services to cosmetic industry clients, including Revlon. (Pl.'s 56.1 Stmt. ¶ 1; Def.'s Resp. to
Pl.'s 56.1 Stmt. ¶ 1.) Plaintiff was the President of MGI and its
sole shareholder. (Am. Compl. ¶ 9.) Defendant Schawk, Inc. is a
publicly-owned company which provides printing services through
its many divisions in the United States and Canada. (Pl.'s 56.1
Stmt. ¶ 2; Def.'s Resp. to Pl.'s 56.1 Stmt. ¶ 2.) Schawk is a
corporation organized under the laws of Delaware, with its
principal place of business in Illinois, and which also conducts
business in New York State. (Am. Compl. ¶ 4.)
On June 30, 1998, Schawk acquired Chromart ("Chromart"), a
color retouching facility that had worked with MGI since 1995.
(Id. ¶ 12.) In the second half of 1998, MGI and Schawk began
discussions regarding the potential acquisition of MGI by Schawk.
(Pl.'s 56.1 Stmt. ¶ 4; Def.'s Resp. to Pl.'s 56.1 Stmt. ¶ 4.)
Plaintiff's lawyer, Ira Goldstein ("Goldstein"), participated in
the merger negotiations, making offers on Plaintiff's behalf.
(Def.'s 56.1 Stmt. ¶ 9; Pl.'s Resp. to Def.'s 56.1 Stmt. at 4.)
During the negotiations, Schawk reviewed MGI's financial records
and interviewed accountants outside the presence of Mackinder or
any representative of MGI. (Pl.'s 56.1 Stmt. ¶ 6; Def.'s Resp. to
Pl.'s 56.1 Stmt. ¶ 6.) After conducting due diligence and further
conversations with Plaintiff and Goldstein, Schawk's president,
David Schawk, personally made the decision to go ahead with the acquisition. (Pl.'s 56.1 Stmt. ¶ 10; Def.'s Resp. to
Pl.'s 56.1 Stmt. ¶ 10.)
On July 29, 1999, MGI became a division of Schawk pursuant to a
merger. (Am. Compl. ¶ 8.) $1,760,000.00 was given by Schawk to
Mackinder as consideration for the merger, which consisted of
$618,000.00 in cash, 81,703 shares of Schawk common stock with a
value of $792,000.00 on the date of closing, and $350,000.00
which was maintained in an escrow account by Pryor Cashman
Sherman & Flynn LLP "in order to secure the payment to Schawk of
the indemnification obligations" of Mackinder. (Def.'s 56.1 Stmt.
¶ 11; Pl.'s Resp. to Def.'s 56.1 Stmt. at 4.)
The Schawk common stock was unregistered and subject to the
The shares represented by the certificate have not
been registered under the Securities Act of 1933, . . .
and are subject to the conditions specified in a
certain agreement and plan of reorganization dated
July 29, 1999, by and among Schawk, Inc. and the
other parties thereto. The shares represented by this
certificate may not be transferred in violation of
such act and laws, the rules and regulations
thereunder or the provisions of said stock purchase
agreement . . . The holder of this certificate, by
the acceptance of this certificate, agrees to be
bound by the provisions of such stock purchase
(Brickell Aff. at Ex. F.) The $350,000.00 in the escrow account
was governed by an Escrow Agreement, which provided that
$250,000.00 of the $350,000.00 would be earmarked for a potential price reduction contemplated by Section 2.2 of the Merger
Agreement and held in escrow from July 30, 1999 to July 30, 2000.
(Pl.'s 56.1 Stmt. ¶¶ 16-18; Def.'s Resp. to Pl.'s 56.1 Stmt. ¶¶
The Merger Agreement contained the following provision:
In the event that MGI fails to achieve sales . . .
for any twelve month consecutive month . . . of Two
Million Five Hundred Thousand Dollars ($2,500,000) or
more, then the Merger Consideration shall be
reduced. . . . Any such reduction in Merger
Consideration shall be calculated on the basis of
income statements for MGI, prepared by Schawk, on a
basis consistent with the manner in which the Annual
Financial Statements have been prepared (to the
extent such manner is in accordance with [Generally
Accepted Accounting Principles ("GAAP")]) and in
accordance with GAAP . . . Schawk agrees to maintain
until at least December 31, 1999, books and records
for MGI on a stand-alone basis so that such annual
sales amount can be computed. On or prior to
February 15, 2000, Schawk shall deliver to
Stockholders an income statement for MGI division or
subsidiary of Schawk for each of twelve-month periods
commencing on or after October 1, 1998 and ending on
or before December 31, 1999.
(Def.'s Answer and Counterclaims at Ex. A, § 2.2.) Schawk did not
provide any GAAP income statements for MGI or other financial
documents to MGI. (Pl.'s 56.1 Stmt. ¶ 15; Def.'s Resp. to Pl.'s
56.1 Stmt. ¶ 15.)
On or about August 1, 1999, Mackinder and Schawk entered into
an Employment Agreement ("Employment Agreement") which set forth
the terms of Mackinder's employment as President of MGI, division of Schawk. (Am. Compl. ¶ 7.)
The Employment Agreement provided that Mackinder would serve as
President of MGI and provide services consistent with that
position. (Id. ¶ 13.) In addition, the Employment Agreement
specifically provided that Mackinder would report to Schawk's
President or Executive Vice President, that she would be given
administrative and sales assistance as commercially practicable,
and that she would control and direct MGI's quality control,
subject to Schawk's President and Executive Vice President. (Id.
The Employment Agreement set forth terms that tied Mackinder's
compensation to MGI's sales. Mackinder's annual salary was to be
a base amount of $330,000.00 a year. (Am. Compl. at Ex A, ¶ 2.)
Mackinder's compensation, however, was to be reduced if MGI's
annual sales fell below $1,800,00.00. As Paragraph 2(b) of the
Employment Agreement states in pertinent part:
The foregoing notwithstanding in the event that MGI's
annual sales measured quarterly commencing December
31, 1999 on a trailing twelve month basis fall below
$1,800,000 then in lieu of the base salary . . . and
the bonus payable pursuant to paragraph 3 . . .,
Schawk shall pay you a commission equal to fifteen
percent (15%) of MGI's collected sales (net of any
chargebacks and allowances) minus an annualized
amount equal to $20,000 . . . In the event that, on
any succeeding quarterly measuring date, MGI's annual
sales measured on a trailing twelve month basis
exceed $1,800,000, then you shall be reinstated to the
salary and bonus provided in paragraph 2(1) . . . and
paragraph 3 below.
Schawk, through Steven King ("King"), General Manager of
Chromart, provided certain administrative services to MGI,
including the placement of an advertisement in the New York
Times for an assistant to Mackinder. Serge Pepin ("Pepin") of
Horan, another division of Schawk, was to provide accounting
services to Mackinder. (Def.'s 56.1 Stmt. ¶¶ 13-15; Pl.'s Resp.
to Def.'s 56.1 Stmt. at 5.) Chromart continued to provide color
retouching services for MGI's Revlon contracts after the Merger.
(Am. Compl. ¶ 12; Def.'s 56.1 Stmt. ¶ 17; Pl.'s Resp. to Def.'s
56.1 Stmt. at 6.)
Defendant and Plaintiff's accounts of what transpired during
Plaintiff Mackinder's employment at Schawk differ vastly. Parties
do, however, agree that in a letter, dated March 6, 2000, Ronald
Vittorini, Corporate Counsel of Schawk, sent Goldstein a letter
regarding a possible change in Plaintiff's compensation due to
sales in an amount below $1,800,000.00. Vittorini attached a
Preliminary Sales Summary to the letter, outlining MGI's sales
from August 1997 to December 1999. (Brickel Aff. at Ex. E.) A few
months later, on August 16, 2000, Mackinder left Schawk. (Def.'s
56.1 Statement ¶ 23.) On that same day, Mackinder filed this diversity action, pursuant to
28 U.S.C. § 1332, in the Southern District of New York, alleging breaches of
contract, tort claims, and a claim seeking declaratory relief for
an issuance of an unrestricted stock certificate. Parties also
agree that sometime in early August 2000, the Escrow Agent,
Goldstein, released the entire $350,000.00 in escrow funds to
Mackinder. (Def.'s Mem. of Law at 7; Goldstein Dep. at 164-65.)
On November 22, 2000, Defendant filed an answer asserting
affirmative defenses and counterclaims of breach of contract and
misrepresentation. In response to the counterclaims, Plaintiff
filed a motion for sanctions pursuant to Federal Rule of Civil
Procedure 11 against Defendant and defense counsel.
On August 20, 2001, Mackinder requested Schawk to remove the
restrictive legend on her stock certificate. By a letter dated
October 17, 2001, Schawk refused the request unless Mackinder
agreed to hold the proceeds from any sale of the stock in escrow
pending the outcome of the litigation. (Pl.'s 56.1 Stmt. ¶¶
26-27; Def.'s Resp. to Pl.'s 56.1 Stmt. ¶¶ 26-27.)
Plaintiff filed an Amended Complaint ("Amended Complaint") on
February 5, 2002.
Plaintiff moved for summary judgment on Defendant's
counterclaims on August 23, 2002; Defendant moved for summary
judgment on Plaintiff's claims also on that day. II. DISCUSSION
A. Summary Judgment Standard
A district court should grant summary judgment when there is no
"genuine issue as to any material fact," and the moving party is
entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c);
see also Hermes Int'l v. Lederer de Paris Fifth Ave., Inc.,
219 F.3d 104, 107 (2d Cir. 2000). Genuine issues of fact cannot
be created by mere conclusory allegations; summary judgment is
appropriate only when, "after drawing all reasonable inferences
in favor of a non-movant, no reasonable trier of fact could find
in favor of that party." Heublein v. United States,
996 F.2d 1455, 1461 (2d Cir. 1993) (citing Matsushita Elec. Industr. Co.
v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S. Ct. 1348,
89 L.Ed.2d 538 (1986)).
In assessing when summary judgment should be granted, "there
must be more than a `scintilla of evidence' in the non-movant's
favor; there must be evidence upon which a fact-finder could
reasonably find for the non-movant." Id. (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505,
91 L.Ed.2d 202 (1986)). A court must always "resolv[e] ambiguities
and draw ? reasonable inferences against the moving party,"
Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986); however, the non-movant may not rely upon "mere speculation or
conjecture as to the true nature of the facts to overcome a
motion for summary judgment." Id. at 12. Instead, when the
moving party has documented particular facts in the record, "the
opposing party must, `set forth specific facts showing that there
is a genuine issue for trial.'" Williams v. Smith,
781 F.2d 319, 323 (2d Cir. 1986) (quoting Fed.R.Civ.P. 56(e)).
Establishing such facts requires going beyond the allegations of
the pleadings, as the moment has arrived "to put up or shut up."
Weinstock v. Columbia University, 224 F.3d 33, 41 (2d Cir.
2000) (internal quotations and citation omitted). Unsupported
allegations in the pleadings thus cannot create a material issue
of fact. Id.
Finally, for cases in which both sides move for summary
judgment, a district court need not grant judgment as a matter of
law for one side or the other. See Schwabenbauer v. Bd. of
Educ. of Olean, 667 F.2d 305, 313 (2d Cir. 1981). Instead, it
must evaluate "each party's motion on its own merits, taking care
in each instance to draw all reasonable inferences against the
party whose motion is under consideration." Id. at 314.
When the summary judgment motion concerns a question of a
contract's proper construction, "summary judgment may be granted
when its words convey a definite and precise meaning absent any ambiguity." Seiden Assoc.'s, Inc. v. ANC Holdings, Inc.,
959 F.2d 425, 428 (2d Cir. 1992). On the other hand, "[w]here the
language used is susceptible to differing interpretations, each
of which may be said to be as reasonable as another . . . the
meaning of the words become an issue of fact and summary judgment
is inappropriate." Id. (citations omitted).
Even where parties dispute the meaning of specific contract
clauses, a court must determine whether such clauses are
ambiguous when "read in the context of the entire agreement."
Sayers v. Rochester Tel. Corp., 7 F.3d 1091, 1095 (citing
W.W.W. Assocs. Inc. v. Giancontieri, 77 N.Y.2d 157, 163
Plaintiff has moved for summary judgment on the Defendant's
counterclaims charging Plaintiff with breach of the Employment
and Merger Agreements. Defendant Schawk has moved for summary
judgment on Plaintiff's claims that Defendant breached its
obligations pursuant to the Employment Agreement.
The parties have both cited New York law in support of their
arguments. Such "implied consent . . . is sufficient to
constitute choice of law." Motorola Credit Corp. v. Uzan,
388 F.3d 39, 61 (2d Cir. 2004) (citing Krumme v. Westpoint Stevens,
Inc., 238 F.3d 133, 138 (2d Cir. 2000)). Thus, New York law governs the disputes between the Parties.
Defendant has asserted a counterclaim for breach of the Merger
Agreement. Defendant contends that a purchase price adjustment
was required pursuant to Section 2.2 of the Merger Agreement when
MGI failed to achieve the sales amount of $2,500,000.00 during
the prescribed period; hence, the release of the $350,000.00
withheld in the Escrow Account violated the Merger Agreement.
Plaintiff argues that summary judgment should be ...