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Pepco Energy Services, Inc. v. Geiringer

October 30, 2009

PEPCO ENERGY SERVICES, INC., PLAINTIFF(S),
v.
STEFAN F. GEIRINGER AND SLG, INC., DEFENDANT(S).



The opinion of the court was delivered by: Wall, Magistrate Judge

ORDER

Before the court, on consent of the parties, are cross motions for summary judgment. For the reasons set forth herein, the plaintiff's motion for summary judgment (DE[40]) is GRANTED, and the defendants' motion for summary judgment (DE[43]) is DENIED. The court will defer an award of damages and entry of judgment until after a conference to take place on November 18, 2009 at 11:30 a.m.

BACKGROUND

This lawsuit is the second one in which Pepco Energy Services, Inc. ("PES") and Stefan Geiringer have appeared before me, but the first in which SLG, Inc. is a named party. See Geiringer v. Pepco, CV 05-4172 (WDW)(E.D.N.Y.). The parties have a long commercial history together. I start with a review of the Rule 56.1 Statement and Counterstatement (together, the "56.1 Stmts.") submitted by the parties on the plaintiff's motion for summary judgment. DE[40-1] and DE[36-6].*fn1 To the extent that the 56.1 Statement and Counterstatement submitted in relation to the defendants' motion for summary judgment set forth additional material facts relevant to the analysis, they will be cited infra. The court has considered all submissions on both motions in reaching a decision.

The Parties' Business Relationship Prior to the First Lawsuit:

Defendant SLG was formerly known as North Atlantic Utilities (NAU). Defendant Stefan Geiringer was the president and sole shareholder of NAU and is the president of SLG. NAU sold natural gas, and, prior to 2003, entered into energy-related transactions with PES. Pursuant to those business transactions, NAU became indebted to PES for a "substantial sum of money." NAU's obligations to PES included a Promissory Note dated November 1, 2001, accounts payable to PES and accrued but unbilled supply costs. On November 9, 2001, Geiringer signed an Unconditional Guaranty of Payment in favor of PES, providing his personal guaranty of the payment of NAU's obligations to PES, including but not limited to NAU's obligations under the Promissory Note, both the sums then owing and any sums that would become due in the future. See Pl's 56.1 Stmt., DE[40-1] & Defs' 56.1 Stmt., DE[36-6], ¶¶ 4-11. PES states that, as of that date, NAU's indebtedness to PES, including interest, totaled $8,597,197.47. DE[40-1], ¶12. The Defendants do not agree, stating that "the discharged debt as of November 10, 2003, according to PES, was $4,697,978.21." DE[36-6], ¶12. They also state that, as of November 10, 2003, Geiringer and NAU were not obligated to repay PES. Id., ¶13.

In 2003, NAU agreed to sell some of its assets to PES pursuant to a Bill of Sale, Assignment and Assumption Agreement between NAU and PES. P Ex. 1. In connection with the Bill of Sale, Geiringer entered into an Employment Agreement with PES. 56.1 Stmts., ¶14, P Ex.2. PES asserts that the majority of the assets that NAU sold to PES were gas supply contracts that NAU had with specified customers, listed on Schedule 1.8 of the Bill of Sale. DE[40-1], ¶15, P Ex. 1. The defendants disagree, stating that "the majority of the assets sold to PES were... NAU's accounts receivable, which reduced the indebtedness by about half,... and the Pipeline Agreements." DE[36-6], ¶15. PES states that the defendants did not sell the pipeline agreements, but that PES acquired the right to use SLG's gas transportation rights under those agreements. NAU also transferred the "use of the North Atlantic Utilities name and logo" and its "good will" to PES and agreed to change its name to SLG, Inc. 56.1 Stmts., ¶¶16-18.

PES asserts that SLG consults on energy issues under the Pipeline Contracts, paying the pipeline owner for the right to use pipeline capacity, "meaning SLG has a contract under which it pays in order to be allowed to use a pipeline's capacity for the delivery of gas." DE[40-1], ¶19. The defendants object to part of this, stating that "SLG does not consult under the pipeline contracts. The pipeline contracts are long term agreements that have been in place since 1992 with the Pipeline companies." DE[36-6], ¶19. SLG had, at the times relevant to this lawsuit, contractual rights to use pipeline transportation capacity under three pipeline contracts, which are associated with three interstate gas pipelines: the Texas Gas pipeline, the Dominion pipeline, and the Transco, a/k/a Williams, pipeline. SLG allows other entities to use its capacity on the pipelines for consideration.

PES states that, pursuant to the Bill of Sale, SLG was required to make available to PES "the full transportation quantity that SLG was contractually entitled to under the Pipeline Contracts," and that PES became SLG's agent under the Pipeline Contracts. DE[40-1], ¶22. The defendants note that this statement "is controverted as stated." They say that the Bill of Sale provides that SLG was only to make SLG's capacity available to PES on "and after the Closing Date [of the Bill of Sale] and for the remaining term of the Pipeline Contracts," which contracts were to end on October 31, 2007. DE[36-6], ¶22. Pursuant to various agency documents, SLG appointed PES as its agent under the Pipeline Contracts, and the agency documents enabled PES to use the capacity to which SLG was entitled under the Pipeline Contracts through October 31, 2007. 56.1 Stmts., ¶¶23 & 24. According to PES, the parties agree that the outstanding debt of NAU to PES was $8,597,197.47 as of November 10, 2003, citing to Schedule 9. According to the defendants, Schedule 9 was calculated and drafted by PES post-closing, without any agreement from Geiringer, and NAU's accounts receivable reduced the debt by about half. 56.1 Stmts, ¶25. PES agrees that the debt was reduced by the value of the NAU Accounts Receivable, leaving an outstanding debt (the "Discharged Debt") of approximately $4.7 million as of the time period shortly after the closing of PES's acquisition of NAU assets. 56.1 Stmts., ¶ 26. Pursuant to the Employment Agreement, Geiringer was to be compensated for his employment with PES and the remaining Discharged Debt was to be reduced by a formula based upon Geiringer's sales performance. Id., ¶27.

PES states that the Bill of Sale provided that if the Discharged Debt was not completely satisfied, SLG was required to monetize the Pipeline Contracts and use the proceeds first to pay off a debt owed by SLG to Williams, and then to satisfy the remaining Discharged Debt. Id., ¶28. PES further states that if monetization of the Pipeline Contracts did not satisfy the Discharged Debt, the Bill of Sale gave PES the right to either take title to all stock in SLG at its discretion at any time between January 1, 2008 and November 1, 2010, or to receive payment of the remaining Discharged Debt in equal installments on November 1, 2009 and November 1, 2010. The defendants do not disagree, but say that PES omitted relevant portions from the cited section of the Bill of Sale, which states that the "Discharged Debt" shall be further reduced as of December 31, 2007, by the value of Seller's Pipeline Contract..." 56.1 Stmts., ¶29. The Employment Agreement was to be effective for seven years, but PES had the option to terminate the agreement at the end of the second, fourth and sixth years. Id., ¶30. PES calculated the remaining Discharged Debt as of October 31, 2005 at approximately $2,246.732, an amount contested by the defendants, who state that in the earlier action, Geiringer claimed that PES owed him money - approximately $1,400,000 in termination benefits and unpaid commissions of approximately $158,160. Id., ¶31. I turn next to the facts regarding the earlier lawsuit.

The 2005 Action Between the Parties and the Stipulation of Settlement:

On August 4, 2005, Geiringer filed a complaint against PES in state court, alleging that PES had breached the Employment Agreement. On September 1, 2005, that action was removed to this court as Geiringer v. Pepco Energy Services, CV 05-4172 ("the Prior Action"). On April 4, 2006, PES filed an Amended Answer and Counterclaims, alleging breach of contract, tortious inducement of breach of contract, and tortious interference with business relationships. The parties consented to my jurisdiction and a jury trial commenced on October 1, 2007. During that trial, on October 2, 2007, the parties stipulated to a settlement on the record ("the Stipulation").

P Ex. 4. PES states that the parties "knowingly" settled their claims, and the defendants state that "knowingly" "can be read as implying that Mr. Geiringer knew what PES had in mind at the time of the settlement." Id., ¶¶32-35. The Stipulation was negotiated between Geiringer and Peter Meier, Vice-President and General Counsel of PES, and was handwritten by Geiringer's counsel. The parties, all represented by counsel, "knowingly signed the Stipulation" and it was read into the record in court. The defendants do not disagree, but again note that "knowingly" "can be read as implying that Mr. Geiringer knew what PES had in mind at the time of the settlement." Geiringer executed the Stipulation both as an individual and, on a separate signature line, as President and duly authorized agent of SLG, Inc., and Mark S. Kumm signed the Stipulation as President of Retail Energy Supply and duly authorized agent of PES. Id., ¶¶36-39.

The Stipulation provided, in part:

On or before Oct 25, 2007, [plaintiff] shall provide PES with a document executed by a party with a credit rating of Triple "B" or above, which will state that the party with the credit rating of Triple "B" or above shall assume all of PES' liabilities under the three pipeline agreements noted in Schedule 1.15 of the Bill of Sale, Assignment and Assumption Agreement ("Bill of Sale") and Amendment Number 1 thereto, to wit " Texas Gas Transmission Corporation;

" Dominion (CNG); and " Transco (hereinafter, "the pipelines") or [plaintiff] shall provide to [defendant] written releases from the pipelines no later than Oct 25, 2007 releasing PES from all obligations arising from use of the pipelines after Oct 31, 2007.

Id., ¶40, P Ex. 4.

PES interprets this to mean that "the first part of ¶ 1 referred to PES' liabilities for the use of SLG's pipeline capacity." The defendants accuse PES of an attempt to "illogically and ungrammatically slice up this sentence-paragraph," which, they state, is a single sentence and must be read in its entirety. They do not disagree that the first clause of the sentence "relates to a credit-worth party assuming all of PES' liabilities under the three pipeline agreements," and "admit" that "a credit-worth party, South Jersey Industries, Inc., has assumed PES' liabilities under the pipeline agreements."*fn2 Id., ¶41.

The plaintiff next asserts that at the deposition of PES' Vice-President and General Counsel, Peter Meier, Meier was asked to explain "PES's thought process behind seeking guarantee(s) in the nature of those specified in Paragraph 1 of the Stipulation." According to PES, Meier explained that PES's "lengthy course of dealings with Geiringer and SLG had resulted in a number of past incidents in which PES incurred unexpected and unpredictable liabilities, which made PES seek additional assurances and protection when dealing with Geiringer and SLG." PES further states that "PES's contractual relationship with Geiringer and SLG had resulted in" a number of liabilities that PES had to assume, citing to the Meier deposition. The defendants state, first, that the inquiry referred to did not elicit the paraphrased response and that in the cited portions of the deposition transcript Meier does not say that "PES had incurred unexpected and unpredictable liabilities," nor do they "explain a lengthy course of dealings with Geiringer and SLG." They also dispute the factual validity of alleged incidents.*fn3 Id., ¶¶42-44.

The Stipulation further provides that the "parties and SLG, Inc. shall release one another from any and all obligations in the Bill of Sale and Amendment Number 1 thereto and the Employment Agreement, except in the event of [plaintiff]'s failure to perform his obligations under ¶ 1, as set forth in 4, below." The Stipulation also provides that in the event that Geiringer failed to perform his obligations, he stipulated and agreed that the remaining Discharged Debt was $2,200,000; PES would have all its rights under the Bill of Sale and the Employment Agreement, and PES could exercise all rights it might have for Geiringer's breach of the settlement agreement. Id., ¶¶45-46. According to PES, Mark Kumm, who signed the Stipulation for PES, testified at a deposition that the $2,200,00 was derived from PES's calculation of the Discharged Debt that remained after October 31, 2005. The defendants say that Kumm "went on to explain that the amount of $2,200,000 was a number that was stipulated to... as did PES's Rule 30(b)(6) witness, Mr. Meier..." Id., ¶47.

First Method of Compliance with Stipulation - Party with Triple B Rating:

The first method of compliance set forth in the Stipulation required Geiringer*fn4 to provide PES with a document executed by a party with a credit rating of Triple "B" or above, on or before October 25, 2007, stating that such party would assume all of PES's liabilities under the three pipeline agreements noted in Schedule 1.15 of the Bill of Sale, Assignment and Assumption Agreement and Amendment Number 1 thereto. Id., ¶66. The defendants maintain that South Jersey Industries is such a party, that it has a Triple "B" rating and that it assumed the relevant liabilities. South Jersey Industries is a holding company that owns certain non-regulated entities including South Jersey Energy Services, Marina Energy, South Jersey Energy, South Jersey Appliance and South Jersey Resources Group. It also owns several regulated entities, including South Jersey Gas. South Jersey Resources Group engages in wholesale natural gas marketing and is a limited liability entity, wholly owned by South Jersey Industries.

Kenneth DePriest is a Vice President of South Jersey Resources Group. The defendants state that he is also an employee of South Jersey Industries. In 2006, Geiringer contacted DePriest because the pipeline capacity that PES had been using was going to be relinquished as of October 31, 2007 and Geiringer wanted to find a "new home for that capacity." In the summer of 2007, SLG and South Jersey Resources Group entered into an agreement regarding South Jersey Resources Group's ability to use SLG's pipeline. Prior to October 2, 2007, Geiringer did not disclose the contract with South Jersey Resources Group to PES. Sometime between October 2 and October 25, 2007, Geiringer contacted DePriest and asked him to provide a letter to PES that would guarantee future payments beyond November 1, 2007 and that PES would have no obligations regarding the pipelines after November 1, 2007. Geiringer did not represent to DePriest that the request was the result of the settlement of a lawsuit with PES. Id., ¶¶67-76.

Geiringer testified that when he contacted DePriest, he did not inquire about the credit rating of South Jersey Resources Group, although he understood the Stipulation's requirement that the document had to be signed by an entity with a credit rating of Triple B or above. The defendants "admit" that the credit rating of South Jersey Resources Group "is of no moment, since this entity is not the entity that assumed PES' liabilities under the three pipeline agreements and that, therefore there would be no reason to make such an inquiry." Id., ¶77. PES maintains that South Jersey Resources Group did not have a credit rating in October 2007. The defendants dispute that, and state that PES agrees that the credit rating of South Jersey Resources Group is of no moment. Id., ¶78.

Geiringer testified that he asked DePriest whether South Jersey Industries had a credit rating of Triple B or above, and DePriest replied that he did not know. On October 12, 2007, DePriest sent an email with an attached letter to Meier. P Ex.s 16 & 17. DePriest described the letter as "stating South Jersey's financial commitment to take over the SLG guaranty on each of the pipelines associated with the SLG transportation." PES describes the attached letter as undated, on South Jersey Industries stationery, and purported to be from DePriest, who was identified as the Vice President of South Jersey Resources Group. The letter stated that as of November 1, 2007, South Jersey Industries would be the responsible party, and its wholly owned subsidiary, South Jersey Resources Group, LLC, would be the agent of SLG, Inc. The defendants object to any implication that the letter was not sent by DePriest or that it was deficient in some way because only his email bore a date and not the letter. DePriest later testified that by "South Jersey" he meant both South Jersey Industries and South Jersey Resources Group. Id., ¶¶79-82.

At some point after sending the email and letter, DePriest learned of the litigation between SLG and PES. On October 18, 2007, Geiringer emailed DePriest and asked him to revise the letter, writing it "on South Jersey Gas stationery, since it is South Jersey Gas that has the Moody's rating." P Ex.18. After receiving the email, DePriest consulted with in-house counsel and with Ira Megdal, Esq. of Cozen O'Connor, and DePriest was told by in-house counsel to ascertain why the company was being asked to furnish the guarantee. DePriest was "unable to comply with the request." Id., ¶¶83-87.

Also on October 18, counsel for PES emailed counsel for the defendants, attaching a revised draft letter, which PES asserted would comport with the terms of the Stipulation. P Ex.19. The draft letter stated that "South Jersey Industries, South Jersey Resources Group, LLC and South Jersey Gas Company shall assume any and all of Pepco Energy Services, Inc.'s liabilities under the (3) pipeline contracts.... The undersigned warrants that he is duly authorized to sign this commitment on behalf of South Jersey Industries, South Jersey Resources Group, LLC and South Jersey Gas Company." The defendants acknowledge that PES sent this draft letter, but take the position that PES knew that South Jersey Gas Company, a regulated entity, could not legally sign such a document along with its unregulated sister company. And, they add, the letter stated that the companies would assume PES's liabilities "after October 31, 2007." Geiringer sent a copy of the proposed letter to DePriest on October 24, 2007. P Ex. 20. DePriest testified that the letter could not ultimately be sent because South Jersey Gas either would not or could not involve itself in the proposed transaction. Id., ¶¶88-90.

On October 19, 2007, DePriest emailed Meier another undated letter, stating that DePriest's "superiors" had asked him to advise "as to the PES liabilities PES believes may extend beyond the October 31, 2007 termination of its Agency Agreement with SLG, Inc." P Ex. 21. The "superiors" to whom DePriest referred were counsel. On October 22, 2007, counsel for PES sent defense counsel a letter stating that the draft letter proposed by defendants did not satisfy the Stipulation because none of the parties identified therein had a credit rating of Triple "B" or above. P Ex. 22. The letter further stated that, in fact, "the only company associated with South Jersey Industries with that level of credit rating was South Jersey Gas Company and... your letter did not state that South Jersey Gas Company was assuming the liabilities." The defendants do not dispute the content of the letter, but "strongly controvert the substance of PES' claim that South Jersey Industries did not have a credit rating contemplated by the Stipulation." Id., ¶¶91-93. The credit rating controversy is discussed infra.

On October 24, 2007, DePriest emailed Meier and attached another letter. P Exs. 23 & 24. In the email text, DePriest wrote that South Jersey Resources Group was trying to determine what was being asked of it so that it could understand "exactly what exposure we are being asked to commit to." PES states that the attached letter was a draft, and the defendants state that it was not. The letter attached to the October 24 email is from DePriest to Meier, and asks PES, on behalf of DePriest's "superiors, "to advise why South Jersey Resources Group had any responsibility to PES to provide credit assurances, assume certain liabilities, and release PES from any obligations. DePriest testified that his outside counsel prepared this letter. Id., ¶¶94-96.

On October 25, 2007, DePriest emailed to Meier a document described by the plaintiff as a "final undated draft letter." P Ex. 25. The letter was addressed to Meier, from DePriest, on the stationery of South Jersey Industries, and DePriest again identified himself as the Vice President of South Jersey Resources Group. The letter stated in part that:

As of November 1, 2007, South Jersey Industries (SJI) will be the responsible party and its wholly-owned subsidiary South Jersey Resources Group, LLC will be the agent of SLG Inc. As you know, SJI is also the parent and 100% owner of South Jersey Gas, which has a credit rating above "BBB." Obviously, as of November 1, 2007, South Jersey will assume all of the liabilities as agent for SLG, Inc. In discussions with our credit department, I was informed that SJI has provided in excess of $10 million in parental guarantees to various Pepco controlled entities including $1.5 million to Pepco Energy Services that have fully satisfied all Pepco credit requirements to date.

Id., ¶97.

The next day, on October 26, 2007, DePriest sent Meier a letter on South Jersey Resources Group stationery, advising that an attached letter ( a copy of the draft letter sent on October 25) was "hereby revoked, a nullity, and of no effect. It has not been signed by me, and PEPCO Energy Services, Inc. may not rely upon this letter. In addition please be advised that to the extent that the draft letter made reference to South Jersey Gas Company, the letter was simply stating a matter of fact. South Jersey Gas Company is in no respect involved in any transaction by and between South Jersey Resources Group, LLC; South Jersey Industries; and SLG, Inc."

P Exs.25 & 26. DePriest testified that the author of the October 26 letter was either his in-house or outside counsel, who had advised him to revoke the October 25 letter and that the purpose of the October 26 letter was to make clear that South Jersey Gas would not execute an agreement to assume any of PES's liabilities. DePriest testified that the letter was revoked because it referred to South Jersey Gas, which would not guarantee anything, and counsel had told him that he should not have mentioned South Jersey Gas in the letter. Id., ¶¶98-101.

PES maintains that DePriest testified that "none of the South Jersey companies with the credit rating required in the Stipulation ever agreed to provide the guarantee stated in the Stipulation." The defendants object, noting that the Stipulation does not call for any person or entity to provide PES with a guarantee and that DePriest testified that he did not know the credit rating for South Jersey Resources Group or for South Jersey Industries. And, they maintain that South Jersey Industries did have the required credit rating. Id., ΒΆ102. Geiringer testified that DePriest sent the ...


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