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OLD APEX, INC. v. JP MORGAN CHASE BANK

September 1, 2005.

OLD APEX, INC., Plaintiff,
v.
JP MORGAN CHASE BANK, Defendant.



The opinion of the court was delivered by: WILLIAM PAULEY, District Judge

MEMORANDUM AND ORDER

This breach of contract action stems from a dispute over the proper interpretation of an Asset Purchase Agreement effecting the transfer of plaintiff Old APEX Inc.'s ("Old APEX") business to defendant JP Morgan Chase Bank ("Chase"). Old APEX claims that $17.5 million became due when its former Chief Executive Officer, David Marcus ("Marcus"), resigned. Chase moves for summary judgment contending that the provision at issue is inapplicable because Marcus was not CEO at the time of his resignation. In any event, Chase argues, the conditions that trigger its obligation to pay the $17.5 million did not occur. For the reasons set forth below, Chase's motion for summary judgment is granted.

BACKGROUND

  Old APEX, formerly known as APEX Property Exchange, provided "Qualified Intermediary" services (the "Business") to its clients. (Plaintiff's Statement Pursuant to Local Rule 56.1 ("Pl. 56.1 Stmt.") ¶ 1; Defendant's Statement Pursuant to Local Rule 56.1 ("Def. 56.1 Stmt.") ¶ 1.) As a Qualified Intermediary, Old APEX facilitated like-kind property exchanges which receive favorable tax treatment under Section 1031 of the Internal Revenue Code. (Pl. 56.1 Stmt. ¶ 1; Def. 56.1 Stmt. ¶ 1.) David Marcus was the founder and CEO of Old APEX and his brother, Michael Marcus, served as its President. (Pl. 56.1 Stmt. ¶ 2; Def. 56.1 Stmt. ¶ 6; Deposition of David R. Marcus, dated Aug. 24 — Sept. 30, 2004 ("Marcus Dep.") at 362-63.) On October 9, 2001, Old APEX and Chase entered into an Asset Purchase Agreement (the "APA") through which Chase purchased the Business from Old APEX for $32.5 million. (Affidavit of James J. Coster, dated Oct. 22, 2004 ("Coster Aff.") Ex. C ("APA"); Pl. 56.1 Stmt. ¶¶ 5, 7; Def. 56.1 Stmt. ¶¶ 2, 7.)

  The APA requires Chase to make additional payments aggregating $17.5 million (the "Subsequent Payments") for each of the first three years after the closing date (the "Earn Out Period") that the Business achieves specified revenue goals. (APA § 2.6(c).) Section 2.6(d) of the APA permits Old APEX to accelerate and demand the full $17.5 million upon any of six eventualities. Relevant to this dispute is Chase's obligation to make the Subsequent Payments if "[t]he employment . . . of either Executive is terminated without Cause or either Executive resigns such employment due to a Diminution of Duties" (APA § 2.6(d)(ii)), with "Executive" defined to mean "David Marcus or Michael Marcus, as the case may be" (APA § 1.1(a)). "The parties acknowledge[d] that after the Closing Date and during the Earn Out Period . . . [t]he Executives [would] be primarily responsible for the management and operation of the Business" and expected "that throughout the Earn Out Period David Marcus and Michael Marcus each [would] retain their current titles." (APA § 8.2(a).)

  The transaction closed on April 23, 2002 (the "Closing Date") and Chase began operating the Business as J.P. Morgan Property Exchange Inc. ("JPEX"). (Pl. 56.1 Stmt. ¶ 14; Def. 56.1 Stmt. ¶ 3.) David and Michael Marcus continued to run the Business in their respective positions through September 2002, when Michael Marcus resigned. (Pl. 56.1 Stmt. ¶¶ 18-19; Def. 56.1 Stmt. ¶¶ 13, 17.) Soon thereafter, David Marcus discerned that JPEX would not achieve its revenue targets and by letter dated December 13, 2002, he resigned as CEO, effective January 31, 2003. (Coster Aff. Ex. F; Pl. 56.1 Stmt. ¶ 19; Def. 56.1 Stmt. ¶ 15.) Later that month, at Chase's invitation, David Marcus negotiated a part-time position with Chase whereby he could work from home on an "as needed" basis for $80,000 a year — half the salary he received as CEO. (Pl. 56.1 Stmt. ¶¶ 22-23; Def. 56.1 Stmt. ¶¶ 18-19, 21, 23.) Marcus began in this new position on February 1, 2003, working on JPEX's regulatory, legislative and lobbying issues and maintaining contacts with key clients. (Pl. 56.1 Stmt. ¶¶ 23, 27; Def. 56.1 Stmt. ¶¶ 21, 24.) He did not manage the Business and regarded his position as "an ambassadorial role." (Marcus Dep. at 263, 265, 285, 299, 349.)

  As time progressed, Marcus' contact with Chase decreased and he received fewer assignments. (Pl. 56.1 Stmt. ¶¶ 27-32; Def. 56.1 Stmt. ¶¶ 26, 28, 33.) In mid-October 2003, Edwin Rivera ("Rivera"), the President of JPEX, called Marcus and told him that Chase needed to get him "off the payroll" but that firing him "would be too expensive." (Marcus Dep. at 3232-4; Pl. 56.1 Stmt. ¶ 35; Def. 56.1 Stmt. ¶ 35.) On October 31, 2003, David Marcus sent Chase an email announcing his resignation, effective December 31, 2003. (Coster Aff. Ex. I; Pl. 56.1 Stmt. ¶ 36; Def. 56.1 Stmt. ¶ 36.) He revoked his resignation by email the next day and continued to work part-time. (Coster Aff. Ex. J; Pl. 56.1 Stmt. ¶ 37; Def. 56.1 Stmt. ¶ 37.)

  By letter dated November 14, 2003, Rivera informed David Marcus that the part-time position was no longer available and offered him a full-time sales position performing "a combination of cold calling and prospecting." (Coster Aff. Exs. K, L; Pl. 56.1 Stmt. ¶¶ 40-41; Def. 56.1 Stmt. ¶ 40.) The sales position required Marcus to work in JPEX's Hanover, Massachusetts, office under the supervision of Kathleen Gallivan, whom David Marcus had hired prior to the Chase acquisition. (Coster Aff. Ex. L; Pl. 56.1 Stmt. ¶ 42; Def. 56.1 Stmt. ¶ 44.) Rivera forwarded to David Marcus a job description, which included the following requirements and preferred qualifications: an MBA, "5-7 years sales experience," "[e]xperience with managing a sales team," a "strong understanding" of JPEX's work and "[t]he ability to forge strong relationships with clients at all levels." (Coster Aff. Ex. L.) Marcus spoke twice with JPEX's Human Resources representative, Connie Gallo ("Gallo"), who explained that Marcus would be terminated in thirty days if he did not accept the position and indicated that Rivera would contact Marcus to provide "more specificity about the position." (Deposition of Connie Gallo, dated Sept. 20, 2004 at 13; Marcus Dep. at 354-55.) Marcus and Rivera did not discuss the job offer. (See Pl. 56.1 Stmt. ¶¶ 51-52; Def. 56.1 Stmt. ¶ 55.)

  JPEX salespersons typically received annual salaries of $20,000 and worked in cubicles. (Marcus Dep. at 351; Deposition of Edwin Rivera, dated Aug. 25, 2004 ("Rivera Dep.") at 86.) Rivera testified that Chase was prepared to offer David Marcus his full CEO salary plus bonuses. (Rivera Dep. at 85.) Nonetheless, the job description that Rivera forwarded to Marcus made no mention of salary (Coster Aff. Ex. L), and Marcus assumed that "it would probably be less than the full-time equivalent of what [he] had been earning" (Marcus Dep. at 375). Marcus perceived the sales position as "entry level" and considerably less prestigious than his previous positions. (Marcus Dep. at 349, 352-53, 356.) On December 5, 2003, Marcus resigned from Chase. (Pl. 56.1 Stmt. ¶ 53; Def. 56.1 Stmt. ¶ 63.)

  Old APEX commenced this action that same day. Old APEX seeks $17.5 million in Subsequent Payments under Section 2.6(d)(ii) of the APA, claiming that Marcus' December 2003 resignation (1) resulted from a diminution of his duties and (2) constituted a constructive discharge because Chase offered him only one alternative: "an entry-level sales job it knew he would not accept." (Complaint ("Compl.") ¶ 23.) Chase moves for summary judgment, arguing that Marcus mooted Chase's obligation under Section 2.6(d)(ii) when he resigned as CEO in January 2003. Further, Chase contends that even if Marcus remained an "Executive" beyond that point, the APA's definition of "Diminution of Duties" contemplates only a diminution of managerial duties, and Old APEX's claim of constructive discharge fails as a matter of law.

  DISCUSSION

  I. Summary Judgment Standard

  Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The burden of demonstrating the absence of any genuine dispute as to a material fact rests with the moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Grady v. Affiliated Cent., Inc., 130 F.3d 553, 559 (2d Cir. 1997). In determining whether there is a genuine issue as to any material fact, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor." Liberty Lobby, 477 U.S. at 255.

  Where a motion for summary judgment presents conflicting interpretations of a contractual language, the court must decide as a matter of law whether the language is ambiguous. Mellon Bank, N.A. v. United Bank Corp. of New York, 31 F.3d 113, 115 (2d Cir. 1994). The court must "make? this determination by reference to the contract alone," Burger King Corp. v. Horn & Hardart Co., 893 F.2d 525, 527 (2d Cir. 1990), and interpret it "to effect the general purpose of the contract," Postlewaite v. McGraw-Hill, Inc., 411 F.3d 63, 67 (2d Cir. 2005). See Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1095 (2d Cir. 1993). Where the contractual language in dispute is ambiguous and "there is also relevant extrinsic evidence of the parties' actual intent, the meaning of the provisions becomes an issue of fact barring summary judgment." Williams & Sons Erectors, Inc. v. S.C. Steel Corp., 983 F.2d 1176, 1183 (2d Cir. 1993). However, "[a]mbiguity without the existence of extrinsic evidence of intent presents not an issue of fact, but an issue of law for the court to rule on." Williams & Sons, 983 F.2d at 1184; accord Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 598 (2d Cir. 2005); Revson v. Cinque & Cinque, P.C., 221 F.3d 59, 66 (2d Cir. 2000); Sutton v. East River Sav. Bank, 55 ...


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