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Eastman Kodak Co. v. Wachovia Bank National Association

August 21, 2007

EASTMAN KODAK COMPANY, PLAINTIFF,
v.
WACHOVIA BANK NATIONAL ASSOCIATION, AS SUCCESSOR IN INTEREST BY MERGER TO FIRST UNION NATIONAL BANK, DEFENDANT.



The opinion of the court was delivered by: Michael A. Telesca United States District Judge

DECISION and ORDER

INTRODUCTION

Plaintiff Eastman Kodak Company, ("Kodak") brought this action in New York State Supreme Court, Monroe County, seeking damages against defendant Wachovia Bank National Association, ("Wachovia") for Wachovia's alleged breach of contract, fraud, and tortious interference with contractual relations. By Notice dated August 21, 2002, Wachovia removed this action to federal court on grounds of diversity jurisdiction. Kodak subsequently moved to remand this action to State Court on grounds that both parties are New York citizens, and therefore, there is no diversity between the parties, which motion was denied on November 4, 2002. Thereafter, the parties agreed to stay the action pending completion of a separate bankruptcy action proceeding in the United States Bankruptcy Court for the Northern District Of Georgia, which action became final on December 11, 2006. Less than one month later, on January 8, 2007, Wachovia filed a motion to dismiss plaintiff's Complaint which is now pending for determination by this court.

BACKGROUND

The following allegations are set forth in the plaintiff's Complaint. The instant dispute between Kodak and Wachovia arises from dealings that the parties had with each other, and with a third party, Wolf Camera, Inc. ("Wolf"). Wolf was a retailer of photographic equipment and film. Wolf sold and distributed significant amounts of Kodak film, and in 1992, Kodak entered into a supply and financing agreement with Wolf. Under the terms of the agreement, Kodak agreed to supply film to Wolf at a specified price for sale through Wolf's retail outlets, and Kodak agreed to lend money to Wolf to facilitate Wolf's expansion and penetration into both new and existing retail markets.

Wachovia, through its predecessor in interest First Union National Bank, was also a creditor of Wolf. As part of its relationship with Wolf, Kodak agreed to guarantee up to $3,000,000.00 of Wolf's debt to Wachovia, and further agreed to subordinate its own interest to Wachovia's.

In 1996, Wolf and Kodak amended their agreement, and Kodak agreed to loan Wolf an additional $8,000,000.00 and guaranty Wolf's debt to Wachovia up to $20,000,000.00, at Wolf's option. According to Kodak, the purpose of the additional loan money was to finance Wolf's expansion, which Kodak believed would enhance sales of its film and other products.

In 1998, Wachovia increased Wolf's revolving line of credit to $60,000,000.00, and Wolf, contemporaneously, exercised its option to have Kodak guaranty $20,000,000.00 of Wolf's debt to Wachovia. In September, 1998, Kodak financed Wolf's acquisition of Fox Photo, a chain of approximately 450 retail photographic stores. Concurrently, Wachovia, acting as a lender and as an agent for other lenders, committed to lend Wolf $100,000,000.00 on a revolving line of credit. Kodak, which also entered into an amended and restated loan agreement with Wolf, agreed to subordinate its right to receive payment on the debt owed by Wolf to Kodak to Wachovia's right to receive payment from Wolf on the debt Wolf owed to Wachovia. At the same time, Kodak, Wachovia and Wolf entered into an Intercreditor Agreement pursuant to which Kodak and Wachovia agreed to use their best efforts to provide each other with notice of actions that could "significantly affect the other Secured Creditor with regard to the ability of [Wolf] to meet its obligations to the Secured Creditor."

In July, 1999, Wolf's financial projections indicated that it would suffer a shortfall in earnings, and that as a result, it would need additional capital to remain in compliance with certain covenants made to Wachovia in its borrowing agreements with Wachovia. Wolf and Wachovia, with notice to and the consent of Kodak, agreed to temporarily allow Wolf to increase its borrowing ratios.

Thereafter, Kodak and Wolf entered into additional negotiations for the purpose of continuing Wolf's expansion. In February 2000, while still negotiating with Kodak, Wolf allegedly informed Wachovia (without also informing Kodak) that its earnings to debt ratio would violate its covenants to Wachovia, and that it would be suffering cash shortages. According to Kodak, on March 2, 2000, Wachovia, knowing that Wolf was negotiating a $30,000,000.00 loan from Kodak, amended its credit agreement with Wolf to allow Wolf to increase its borrowing ratios. Kodak contends that Wachovia failed to notify Kodak of its decision, and failed to obtain Kodak's consent to the increase in Wachovia's borrowing limits, in violation of the Intercreditor Agreement. According to Kodak, Wolf and Wachovia did not inform Kodak of Wolf's deteriorating financial position because it did not want that information to hinder Wolf's ability to get the loan.

In late March, 2000, Kodak and Wolf entered into a Second Amended and Restated Loan and Purchase Agreement pursuant to which Kodak agreed to loan Wolf $30,000,000.00 on an interest-free basis. According to the terms of the agreement, the loan was to be used exclusively for new store development and upgrading of newly-acquired stores. Wachovia was aware of the loan negotiations between Kodak and Wolf, and draft loan documents were sent to Wachovia for comment and approval.

According to Kodak, at the same time it was negotiating the terms of the Second Amended and Restated Loan and Purchase Agreement with Wolf, Wachovia (without Kodak's knowledge) was demanding that Wolf sign an agreement under which it would pay to Wachovia all of the proceeds of the loan. Indeed, Wolf signed such an agreement on or about March 28, 2000. Kodak contends that Wachovia forced Wolf to sign the agreement despite knowing that its demand that Wolf pay the loan proceeds to Wachovia was in direct conflict with, and indeed would cause a breach of Wolf's obligation to use the loan proceeds to develop new retail locations. Upon Kodak's delivery of the $30,000,000.00 to Wolf, Wolf paid the money directly to Wachovia.

DISCUSSION

I. Defendant's Motion to ...


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