United States District Court, S.D. New York
September 1, 2005.
OLD APEX, INC., Plaintiff,
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.
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 §
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. ¶
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.
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 N.Y.2d 550, 554 (1982). Similarly, "if the language of the contract is
`wholly unambiguous,'" the proper interpretation of the contract
becomes a question of law which the Court may decide on summary
judgment. Mellon Bank, 31 F.3d at 115 (quoting Wards Co. v.
Stamford Ridgeway Assocs., 761 F.2d 117, 120 (2d Cir. 1985)).
II. Interpretation of the APA
New York law governs the interpretation of the APA. (APA §
14.5.) See Terwilliger v. Terwilliger, 206 F.3d 240, 245 (2d
Cir. 2000) (applying New York law because "[t]he Agreement in
question contained a choice of law provision, and `as a general
rule, choice of law provisions are valid and enforceable in New
York'" (quoting Marine Midland Bank, N.A. v. United Mo. Bank,
N.A., 223 A.D.2d 119, 122-23, 643 N.Y.S.2d 528, 530 (1st Dep't
1996)) (alterations omitted).).
Under New York law, a contract is unambiguous if it has a
"definite and precise meaning, unattended by danger of
misconception in the purport of the contract itself, and
concerning which there is no basis for a difference of opinion."
Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 139 (2d Cir.
2000) (internal quotation and alteration omitted); accord
Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569-70
(2002); Breed v. Ins. Co. of N. Am., 46 N.Y.2d 351, 355 (1978); Locke v. Aston, 1 A.D.3d 160, 161,
767 N.Y.S.2d 23, 24-25 (1st Dep't 2003). A contact or contractual
term is ambiguous if it is "capable of more than one meaning when
viewed objectively by a reasonably intelligent person who has
examined the context of the entire integrated agreement."
Krumme, 238 F.3d at 139; see Newin Corp. v. Hartford
Accident & Indem. Co., 62 N.Y.2d 916, 919 (1984); Stanpico,
Inc. v. City of New York, 216 A.D.2d 247, 248, 629 N.Y.S.2d 25,
26 (1st Dep't 1995).
As discussed above, Old APEX claims that Chase caused a
diminution in David Marcus' duties and constructively discharged
him without cause in December 2003. Under Section 2.6(d)(ii) of
the APA, Chase must 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." Although both sides regard this language as
unambiguous, they attach contrary interpretations. Chase contends
that "[t]he language and overall context of the Agreement, as
well as common sense, dictate the only reasonable interpretation
of § 2.6(d)(ii) i.e., that it applies to "Executive" David
Marcus in his role as CEO or a manager of the Business." (Chase's
Memorandum in Support of Summary Judgment at 12.) By contrast,
because Section 1.1(a) defines "Executive" to mean "David Marcus
or Michael Marcus, as the case may be," Old APEX asserts that
"[t]here is no reasonable basis for Defendant to argue that the
words `David Marcus' mean something other than `David Marcus,'
and the inquiry should end here." (Old APEX's Memorandum in
Opposition to Motion for Summary Judgment at 14.)
Thus, as a threshold matter, this Court must resolve whether
Section 2.6(d)(ii) is ambiguous and whether this Court may
determine its meaning as a matter of law. A. Section 2.6(d)(ii)
Chase argues that the parties did not intend the term
"Executive" to apply to David Marcus when he was no longer in a
managerial position. In support, Chase notes the parties'
agreement that Marcus would "be primarily responsible for the
management and operation of the Business" and remain CEO. (APA §
8.2(a).) Moreover, as Chase points out, other provisions of the
APA use "Executive" in a manner that presumes a managerial
function. For example, the definitions of "Cause," "Diminution of
Duties" and "Disability" refer explicitly to Marcus' duties and
responsibilities "as Chief Executive Officer." (APA § 1.1(a).)
Similarly, Section 2.6(d)(vi) provides that the Subsequent
Payments become due if Chase interferes "with the Executives'
ability to operate the Business." Old APEX responds that the APA
does not entrust the meaning of "Executive" to the vagaries of
context but plainly recites a definition that is indifferent to
the Marcuses' titles and responsibilities: "David Marcus or
Michael Marcus, as the case may be." (APA § 1.1(a).)
Both interpretations are reasonable. However, the parties'
focus on the term "Executive" disregards the context in which
Section 2.6(d)(ii) places it. Indeed, this Court need not resolve
whether "Executive" is ambiguous to determine the applicability
of Section 2.6(d)(ii) to the undisputed facts in this action.
Under the APA, Chase's obligation to make the Subsequent
Payments materializes when "[t]he employment . . . of either
Executive is terminated without Cause" or when an "Executive
resigns such employment due to a Diminution of Duties." (APA §
2.6(d)(ii).) The provision's use of the word "such" indicates
that both triggering events contemplate the same "employment."
Thus, even if "Executive" is given the broader interpretation Old
APEX urges, the critical question is whether "the employment . . .
of either Executive" refers simply to the Marcuses' employment in any
capacity or whether the employment must be in a managerial
The APA's definition of "Diminution of Duties" is instructive:
[A] substantial diminution in the overall importance
of the role or responsibilities of the Executive in
the operation or management of the business for which
he is responsible following the Closing Date, or the
assignment to the Executive of duties or
responsibilities that are not commensurate with the
Executive's role as Chief Executive Officer . . . in
the case of David Marcus.
(APA § 1.1(a).) That is, under the APA, a Diminution of Duties
must affect David Marcus in his position either (1) "following
the Closing Date" or (2) as the CEO. Indeed, the "Diminution of
Duties" language of Section 2.6(d)(ii) would be rendered
meaningless if interpreted to apply to David Marcus' resignation
from any "employment" other than his position "following the
Closing Date" or CEO. However, "[i]n construing a contract, one
of a court's goals is to avoid an interpretation that would leave
contractual clauses meaningless." Two Guys from Harrison-N.Y.,
Inc. v. S.F.R. Realty Assocs., 63 N.Y.2d 396, 403 (1984); see
also Manley v. Ambase Corp., 337 F.3d 237
, 250 (2d Cir. 2003)
("New York law . . . disfavors interpretations that render
contract provisions meaningless or superfluous."); United States
Naval Inst. v. Charter Communications, Inc., 875 F.2d 1044
(2d Cir. 1989) ("The Court should interpret a contract in a way
that ascribes meaning, if possible, to all of its terms."). In
the context of the entire agreement, the only reasonable
interpretation of Section 2.6(d)(ii) is one consistent with the
APA "Diminution of Duties" definition, and the section is
therefore unambiguous. See Krumme, 238 F.3d at 139;
Greenfield, 98 N.Y.2d at 569-70 ("[I]f the agreement on its
face is reasonably susceptible of only one meaning, a court is
not free to alter the contract to reflect its personal notions of
fairness and equity.").
As discussed, Section 2.6(d)(ii) is structured such that
"employment" bears the same meaning in both the "Diminution of
Duties" and termination prongs. Accordingly, with respect to David Marcus, this Court reads both prongs of Section
2.6(d)(ii) as referring unambiguously only to his employment (1)
following the Closing Date or (2) as CEO.
The parties understood when they drafted the APA "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." (APA § 8.2(a).) Indeed, David Marcus was
managing and operating JPEX as CEO after the April 2002 Closing
Date. (Pl. 56.1 Stmt. ¶¶ 14, 20; Def. 56.1 Stmt. ¶ 13.) Thus,
with respect to Marcus, the two positions to which Section
2.6(d)(ii) refers became one and the same.
Chase claims that Section 2.6(d)(ii) was triggered in December
2003 when David Marcus resigned from his part-time sales position
and turned down Chase's offer of a full-time sales position.
However, it is undisputed that in January 2003 Marcus voluntarily
stepped down as CEO and accepted the part-time position.*fn1
(Pl. 56.1 Stmt. ¶¶ 19, 23; Def. 56.1 Stmt. ¶¶ 15, 19.) At that
point, he was no longer managing or operating the Business. (Pl.
56.1 Stmt. ¶¶ 23, 27; Def. 56.1 Stmt. ¶ 22; Marcus Dep. at 263,
265, 299.) Even if David Marcus continued to be an "Executive"
within the meaning of the APA at this point, he surrendered the
"employment" contemplated by Section 2.6(d)(ii) and placed
himself beyond the scope of that provision.
Because Section 2.6(d)(ii) did not apply to Marcus at the time
of his resignation in December 2003, Chase is entitled to summary
judgment on Old APEX's claim for breach of the APA. CONCLUSION
For the foregoing reasons, Chase's motion for summary judgment
is granted. The Clerk of the Court is directed to mark this case
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