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MACKINDER v. SCHAWK INC.

August 2, 2005.

ELIZABETH MacKINDER, Plaintiff,
v.
SCHAWK, INC., Defendant.



The opinion of the court was delivered by: DEBORAH BATTS, District Judge

OPINION

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.

  I. BACKGROUND

  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 following restrictions:
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 agreement.
(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. ¶¶ 16-18.)
  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. ¶¶ 14-15.)

  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.
(Id.)

  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 (1990)).

  B. Contract Claims

  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.

  1. Merger Agreement

  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 ...


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