Opinion
99 Civ. 11692 (GEL).
December 12, 2000.
Eugene Licker, New York, NY., (Jeffrey T. Kucera, Kirkpatrick Lockhart, LLP, New York, NY, of counsel) for Plaintiff, Technology Express, Inc.
Stephen F. Harmon, Parker Chapin LLP, New York, NY., for Defendant FTF Business Systems Corp.
OPINION AND ORDER
Plaintiff Technology Express Incorporated ("TE") brings this action against defendant FTF Business Systems Corporation ("FTF"), seeking $875,000 in damages arising out of an alleged breach of contract for the purchase and delivery of computer parts. Before the Court are two motions: (1) TE moves pursuant to Rule 56 of the Federal Rules of Civil Procedure for entry of final summary judgment on grounds that FTF is in breach of contract and liable for $875,000 in damages, including lost profits; and (2) defense counsel moves pursuant to Local Rule 1.4 for an order to withdraw from representation of FTF on grounds that FTF (a) has not communicated with defense counsel and cannot be contacted; and (b) has failed to pay attorney's fees for services rendered on this and other matters.
For the reasons stated below, TE's motion for summary judgment is granted in part, to the extent that the court grants summary judgment in favor of TE on grounds that there are no triable issues of fact regarding FTF's liability in restitution for the $525,000 purchase price. Defense counsel's motion to withdraw from representation of FTF is granted.
Facts
The relevant facts are few, and essentially undisputed. TE is a corporation incorporated and having its principal place of business in Tennessee. (Shields Aff ¶ 2.) FTF is a corporation incorporated and having its principal place of business in New York. (Id.) Both are engaged in the business of buying and reselling computer equipment and software. (Shields Aff ¶ 3.) In August 1999, TE agreed to purchase from FTF 500 Compaq CPQ 3200 Smart Array Controllers ("Controllers"), at $1,050.00 per unit, for a total purchase price of $525,000. (Shields Aff ¶ 5.) TE prepared and faxed to FTF a completed purchase order setting forth those terms. (Id. Ex. B.) Upon receipt of the purchase order, FTF requested that TE wire transfer the full $525,000 purchase price in advance of delivery of the Controllers. (Id. ¶ 6.) TE complied. (Id. Ex. B.) FTF in turn wired $525,000 to a vendor, Pinacor, Inc., who FTF claims had promised to ship the Controllers to FTF immediately upon receipt of payment. (Burke Aff ¶ 5.) Pinacor never delivered any Controllers to FTF, nor returned any of the transferred funds, and has since filed for bankruptcy. (Id. ¶¶ 5-6.) FTF in turn failed to deliver any Controllers to TE. TE has repeatedly requested that FTF refund the purchase price, or immediately tender delivery of the Controllers. (Shields Aff ¶ 12.) To date, TE has received nothing in return for its $525,000, nor has any of its payment been refunded. (Id.)
Prior Proceedings
TE filed this action against FTF on November 30, 1999, alleging breach of contract (including lost profits), and conversion. On December 9, 1999, FTF commenced a third-party action against Pinacor, which was dismissed for lack of venue. See FTF Business Systems, Corp. v. Pinacor, Inc., No. 99 Civ. 11692 (LAK), 2000 WL 222628 (S.D.N.Y. February 25, 2000). FTF then filed a separate action against Pinacor, which is still pending, in the United States District Court for the District of Arizona.
On August 2, 1999, TE moved for summary judgment for breach of contract. FTF filed papers in opposition. Shortly before oral argument on this motion, counsel for FTF moved by order to show cause, duly served on FTF, for permission to withdraw. FTF neither appeared nor submitted any opposition to this motion. Oral argument on both motions was held on November 29, 2000.
Summary Judgment
Summary judgment may not be granted unless "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). In determining whether summary judgment is appropriate, the court must resolve all ambiguities in the light most favorable to the nonmoving party and draw all reasonable inferences in the nonmoving party's favor. See Wernick v. Federal Reserve Bank of New York, 91 F.3d 379, 382 (2d Cir. 1996) (internal citations omitted). The litigant opposing summary judgment "may not rest upon mere conclusory allegations or denials, but must bring forward some affirmative indication that his version of relevant events is not fanciful." Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 101 (2d Cir. 1997) (internal quotation marks and citations omitted). "Summary judgment is improper when the court merely believes that the opposing party is unlikely to prevail on the merits after trial."American International Group, Inc. v. London American International Corp. Ltd., 664 F.2d 348, 351 (2d Cir. 1981).
A. Breach of Contract
FTF admits that it agreed to supply TE with 500 Controllers (Burke Aff ¶ 4), but argues that it cannot be held liable for non-delivery because "the agreement was conditioned upon FTF's ability to obtain such product from its vendor, Pinacor." (Id.) Under New York law, which the parties agree applies to this case, the burden is on FTF to establish the existence of a condition precedent to the agreement. See Alicanto, S.A. Woolverton, 142 A.D.2d 703, 704 (2d Dep't 1988). "Bald conclusory allegations by the party who seeks to establish a condition precedent are insufficient to defeat a motion for summary judgment." Id.
FTF relies principally on the testimony of Martin Burke ("Burke"), the Chief Executive Officer of FTF, and Harry Shields ("Shields"), the President of TE. Burke claims that in the course of negotiating terms of the agreement at issue, he explicitly told Shields that the agreement was to be conditioned upon FTF's receipt of the Controllers from Pinacor. (Burke Aff ¶ 10.) Burke further claims that on the basis of conversations he had with TE representatives "there can be no doubt that Technology Express knew that FTF's liability to obtain the Compaq Controllers was conditioned on its ability to obtain the merchandise from Pinacor." (Id. ¶ 3.) Moreover, Burke alleges that, based on what both parties admit to be sharply discounted prices, TE had to know that FTF would be unable to obtain the Controllers at a suitable price from any vendor other than Pinacor. (Id. ¶ 7.)
Shields' deposition testimony appears to confirm this understanding. He admits, for example, that TE routinely dealt with dealers known to have special pricing arrangements with Pinacor, that he was aware of similar arrangements between Pinacor and FTF, and that he was introduced to FTF by Pinacor representatives. (Shields Dept 21, 28, 35, 40.) Finally, Shields testified that he understood that TE's receipt of the Controllers from FTF depended on Pinacor's cooperation:
Q: And did Mr. Burke say to you in any of these conversations that your purchase of these products at these discounted prices was conditioned on his ability to obtain this product from Pinacor?
A: I don't recall. I recall that — I mean that's understood. If he can't get the product, there won't be a transaction.
(Id. at 55-56.) TE contends that this testimony refers only to the obvious — that if FTF could not obtain the Controllers, it could not deliver them to TE — but says nothing about FTF's liability for non-delivery. (Reply Mem. at 6.) A properly-instructed jury might well find that while both parties expected that FTP would order the Controllers from Pinacor, FTF nevertheless entered an unconditional contract to deliver Controllers to TE, and simply took the risk that if it could not get them from Pinacor, it would have to obtain them for a higher price elsewhere. But at this stage of the litigation all inferences are drawn in favor of FTF, and the testimonial disparity between Shields and Burke itself creates a credibility issue that is not readily amenable to resolution on summary judgment. See, e.g., American Intern'l Group v. London American Int'l Corp., 664 F.2d 348, 351 (2d Cir. 1981) ("[T]he responsibility of the district judge on a motion for summary judgment is merely to determine whether there are issues to be tried, rather than to try the issues himself via affidavits") (internal quotation marks omitted).
TE argues further that the purchase order represents the complete agreement between the parties and that evidence of prior conversations are therefore irrelevant. (Pl's Mem. Supp. Sum. J. at 6-7). TE is correct that under New York law parties to a complete agreement are bound by its express terms and generally may not introduce extrinsic evidence of a condition precedent.See Flacke v. Salem Sewage Corp., 457 N.Y.S.2d 992, 994 (3d Dep't 1982) ("[W]here the agreement is complete and the record shows no other proof of a condition precedent, defendant's allegation is no defense to summary judgment unless the condition was expressed or at least implicit, in the agreement itself") (internal citations and quotation marks omitted). But a purchase order standing alone is not a complete agreement. See Albrecht Chemical v. Anderson Trading Corp., 289 N.Y. 437, 439 (1949) (noting generally that a purchase order is "at best merely an offer or a counteroffer, and its retention by the seller without objection may not be deemed ratification of, or acquiescence to, the terms which it contained"). And under New York law, with no evidence that FTF responded to the purchase order by shipping the goods, or by a prompt promise to ship, it is a question of fact whether FTF accepted the terms of the purchase order in lieu of whatever prior understanding may have existed. See McKinney's New York Uniform Commercial Code ("NYUCC") § 2-206(1)(b) ("an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods"). The only evidence of discussions between the parties after the purchase order reflects that FTF demanded and received immediate payment of the purchase price. (Shields Aff. ¶ 7 and Ex. B.) Such evidence is insufficient to render the purchase order binding as a matter or law.
For these reasons, triable issues of fact preclude summary judgment as to FTF's contractual liability for its non-delivery of the Controllers. Moreover, even if liability were clear, whether the parties contemplated damages for lost profits, the market price of the Controllers at the time of breach, and the ability of TE to mitigate damages all present classic issues of fact concerning damages.
B. Restitution of the Purchase Price
There are no material issues, however, as to whether TE is entitled to an immediate refund of the $525,000 purchase price. Though TE did not clearly plead a cause of action for restitution as an alternative to contractual liability, and on the present motion for summary judgment appears to seek recovery of its payment solely as a component of contract damages, this record warrants entry of judgment sua sponte for the immediate restitution of the purchase price. See SHL Imaging, Inc. v. Artisan House, Inc., 117 F. Supp.2d 301, 304 (2000) ("It is well established that courts may grant summary judgment sua sponte when no material issue of fact is in dispute and the losing party was on notice that it had to come forward with all of its evidence") (internal citations omitted). While it is the "preferable practice" in this Circuit to provide parties with ten days notice prior to sua sponte grant of summary judgment,Bridgeway Corp. v. Citibank, 201 F.3d 134, 139 (2d Cir. 2000);Moretti Cereali S.P.A. v. Continental Grain Co., 563 F.2d 563, 565 (2d Cir. 1977) (noting that district court's power to grant summary judgment sua sponte "must be exercised with great caution and with care taken to give the parties an opportunity to present materials in opposition"), the threat of procedural prejudice that typically pertains to sua sponte action is not present in this case. See Bridgeway Corp., 201 F.3d at 139 (where "losing party had no additional evidence to bring, it cannot plausibly argue that it was prejudiced by the lack of notice"). As the Second Circuit has stated:
Where it appears clearly upon the record that all of the evidentiary materials that a party might submit in response to a motion for summary judgment are before the court a sua sponte grant of summary judgment against that party may be appropriate if those materials show that no material dispute of fact exists and that the other party is entitled to judgment as a matter of law . . . The record must, therefore, reflect the losing party's inability to enhance the evidence supporting its position and the winning party's entitlement to judgment.Ramsey v. Coughlin, 94 F.3d 71, 74 (2d Cir. 1996).
The absence of a formal motion by plaintiffs — or formal notice by the court prior to oral argument — is inconsequential in this case. It is undisputed that regardless of whether a condition precedent ultimately precludes FTF's liability for contract damages, under no theory could FTF keep or refuse to refund TE's $525,000. At oral argument, the Court inquired as to whether there were any conceivable set of facts or legal theories that might raise triable issues as to FTF's liability for the purchase price. The answer through TE's counsel — and the only conceivable answer on this record — was "no":
Q: You agree that there is no question that your client is liable on some theory, whether conversion or unjust enrichment or something, even if you are right about the way the contract is to be interpreted[,] for the half million dollars or so that was received?
A: Without conceding liability, I do recognize that on some theory, Technology Express gave my client $525,000 and that money was for product or for the return of the money and it hasn't gotten it back, yes. On some theory my client would be liable for that.
(Tr. 7). If there is a theory (or set of facts) which precludes FTF's liability for the purchase price, the Court is unaware of one. FTF has apparently relocated to an unknown location (Harmon Aff. ¶ 6), and has severed all contact with its counsel in this case (Id. ¶ 7). Thus, there appears no possibility that further discovery would be of any benefit or enhance the evidence (or lack thereof) supporting FTF's defense — a fact tilting heavily in favor of sua sponte grant of the motion. See First Financial Ins. Co. v. Allstate Interior Demolition Corp., 193 F.3d 109, 115 (2d Cir. 1999) ("Before granting summary judgment sua sponte . . . [d]iscovery must either have been completed, or it must be clear that further discovery would be of no benefit").
Moreover, under the circumstances of this case, there is no measurable likelihood that FTF was surprised by the Court's raising at oral argument alternative grounds upon which the purchase price must immediately be refunded. The parties in this case are sophisticated players who have engaged in arms length negotiations over substantial sums of money. It would be incredible for the defendant not to expect that it would be held liable (on some theory) for refusing to refund half a million dollars that it received as payment for products that it freely concedes were never delivered.
Finally, the facts, discussed further below in connection with defense counsel's motion to withdraw, that FTP has abandoned its offices without leaving a forwarding address, cut off contact with its own lawyers, bounced checks to its lawyers and failed to pay counsel fees, argue strongly for immediate entry of judgment for money that is indisputably owed to TE.
Turning to the merits of the restitution issue, the following facts are uncontested:
1. FTF agreed to supply — or at least attempt to supply — TE with 500 Compaq Controllers (Shields Aff ¶ 5; Def R. 56.1 Statement ¶ 6);
2. TE paid $525,000 to FTF with the expectation that Controllers would be delivered (Shields Aff ¶ 7; Def R. 56.1 Statement ¶ 9); and
3. FTF did not deliver any Controllers, or refund TE's payment (Id.).
On those facts, no genuine issues preclude FTF's liability to make restitution of the purchase price. "It is well settled that if the plaintiff has made money payments to the defendant, and there is a failure of consideration . . . the plaintiff can maintain an action for restitution of the money so paid to the defendant." Men's Sportswear, Inc. v. Sasson Jeans, Inc., 834 F.2d 1134, 1141 (2d Cir. 1987) (citing Mais v. Futuristic Foods, Inc., 394 N.Y.S.2d 359, 362 (Kings Co. 1977) ("The defendant had taken plaintiffs money for the service to be rendered. The consideration has failed, and it should pay the money back").
The record may also support a claim in conversion, which plaintiff has pled. But since TE appears not to have moved for summary judgment on this cause of action, summary judgment on that ground would also be sua sponte. Moreover, the conversion claim presents several legal difficulties. Generally speaking, New York law discourages converting a mere breach of contract into a tort. See, e.g., Kahn v. Emerson Elec. Co., No. CV 92-3063 (ADS), 1995 WL 57333, at *5 (E.D.N.Y. January 6, 1995) (under New York law, "an action for conversion cannot be validly maintained where damages are merely sought for breach of contract") (internal quotation marks and citations omitted). It may be argued that on the facts here, where FTF took TE's half million dollars, refused to return it upon demand, and then disappeared, the duties owed by FTF are amplified well beyond those arising out of a mere contractual relationship. See New York University v. Continental Ins. Co., 87 N, Y.2d 308, 316 (1995) ("defendant may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations"). But the issue is hardly free of doubt. Moreover, money generally is not subject to recovery in conversion, Sager v. Blain, 44 N.Y. 445 (1871), unless it can be "specifically identified . . . for example, where particular bills are sought to be recovered." Equitable Life Ins. Co. v. Branch, 302 N.Y.S.2d 958, 960 (2d Dep't 1969);See also KIC Chemicals v. ADCO Chemical Co., No. 95 CIV. 6321 (MBM), 1996 WL 122420, at *7 (S.D.N.Y. March 20, 1996) ("the traditional rule is that money cannot be converted unless there is an obligation to return, specific, segregated monies") (applying New York law) (internal citations and quotation marks omitted). Here, TE simply wire transferred funds to FTF, and FTF in turn wired an equivalent amount to Pinacor, as the parties apparently contemplated it would do. On these facts, it is not clear that conversion lies. See Proctor and Gamble Co. v. Big Apple Indus. Build., Inc., No. 93 Civ. 3474 (PNL), 1993 WL 228846, at *12 (S.D.N.Y. June 18, 1993) (conversion requires that plaintiff "show that the money was contained in a specific, identifiable fund and was designated for a particular purpose for [plaintiffs'] benefit") (alteration in original) (internal quotation marks omitted).
To recover in restitution, a plaintiff need only show (1) that the defendant received a benefit, (2) that the benefit was received at plaintiffs expense, and (3) that the circumstances were such that equity and good conscience require defendant to make restitution. See Hutton v. Klabal, 725 F. Supp. 67, 72 (S.D.N.Y. 1989) (plaintiff who has paid for artwork that is never delivered states a prima facie case for restitution of payment). Where (as here) payment is received pursuant to an agreement, liability to make restitution may attach regardless of whether or not the agreement is ultimately found to be an enforceable contract. See United States v. Consolidated Edison Co., 580 F.2d 1122, 1127 n. 9 (2d Cir. 1978) (restitution is "the closer analytical basis for the imposition of liability . . . where a benefit was conferred upon request, but without a bargain being struck"); S.E.C. v. Credit Bancorp. Ltd., No. 99 Civ. 11395 (RWS), 2000 WL 1752979, at *15 fn.23 (S.D.N.Y. November 29, 2000) ("[r]estitution is a classic equitable remedy" distinct from damages for breach of contract); Dunnigan v. Metropolitan Life Ins. Co., 99 F. Supp.2d 307, 320 (S.D.N.Y. 2000) (same);Henness v. Hunt, 708 N.Y.S.2d 180, 182 (3d Dep't 2000) (where plaintiff cannot prove contractual liability "his only recourse would be the equitable remedy of restitution"); see, e.g., Mitchell v. Demario Jewelry, 361 U.S. 288, 291 (1960) ("Unless otherwise provided by statute, all the inherent equitable powers of the District Court are available for the proper and complete exercise of [equitable] jurisdiction"); Libutti v. United States, 178 F.3d 114, 121 (2d Cir. 1999) ("[W]hether a party is entitled to the equitable remedy of restitution is a discretionary matter for a trial court").
Accordingly, FTF's affirmative defense to contractual liability — that delivery by Pinacor was a condition precedent to its agreement with TE — will not shield FTF' s liability for restitution. The Court knows of no authority that precludes FTF's obligation to make restitution of the purchase price on grounds that Pinacor — admittedly not a party to FTF's agreement with TE (Burke Aff ¶ 4) — accepted payment from FTF but is now bankrupt. FTF's claims against Pinacor will be resolved in Arizona; they have no bearing on TE's right to restitution under New York law. Therefore, there is nothing in this record from which a reasonable jury could find FTF precluded from liability in restitution for the full $525,000 purchase price.
New York courts appear to have used restitution interchangeably with a cause of action for money had and received. See Aaron Ferrer Sons, Ltd. v. Chase Manhattan Bank, 731 F.2d 112, 125 (2d Cir. 1984) ("[O]n a claim under New York law for moneys had and received, a plaintiff must prove (1) that defendant received money belonging to plaintiff (2) defendant benefitted from the receipt of money; and (3) under principles of equity and good conscience, defendant should not be permitted to keep the money") (citing Miller v. Schloss, 218 N.Y. 400, 407, (1916)); see also, A.I.A. Holdings, S.A. v. Lehman Bros., Inc., No. 97 Civ. 4978 (LMM), 1999 WL 47223, *4..5 (S.D.N.Y. Feb 03, 1999) (same) (citing cases). The equitable action for moneys had and received is a venerable one that appears to apply to the facts of this case. See Wille v. Intra Bank, 308 N.Y.S.2d 520 (N.Y. Co. 1968) ("`This kind of equitable action, to recover back money, which ought not in justice to be kept, is very beneficial, and therefore much encouraged . . . . In one word, the gist of this kind of action is, that the defendant, under the circumstances of this case, is obliged by the ties of natural justice and equity to refund the money'") (quoting Lord Mansfield, Moses v. Macferlan, 2 Burr. 1005, 1 Win. Bl. 219, 97 Eng. Rep. 676, All Eng. Law Rep. Reprint, 1598-1774 (1760));Friar v. Vanguard Holding Corp., 434 N.Y.S.2d 698, 701 (2d Dept. 1980) ("The broad flexibility of Lord Mansfield's formulation has long been recognized and followed in this State"). It is not clear whether the two causes of action are indeed one and the same. See United States v. Bedford Assocs., 548 F. Supp. 732, 736 (S.D.N.Y. 1982) ("[a] cause of action for restitution is a type of the broader cause of action for money had and received") (internal quotation marks omitted). Either theory equally supports a recovery by TE from FTF on the facts of this case.
Withdrawal of Counsel
Local Civil Rule 1.4 provides that once an attorney has entered an appearance, he or she may not withdraw without leave of court:
An attorney who has appeared as attorney of record for a party may be relieved or displaced only by order of the court and may not withdraw from a case without leave of the court granted by order. Such an order may be granted only upon a showing by affidavit or otherwise of satisfactory reasons for withdrawal or displacement and the posture of the case, including its position, if any, on the calendar.
Counsel for FTF has submitted an affidavit setting forth a litany of difficulties that have arisen in his representation of FTF. Counsel's law firm, which represents FTF in both corporate and litigation matters, has lost all contact with FTF. (Id. ¶ 6.) As noted above, FTF has apparently relocated its business to an unknown location, with an unknown telephone number, leaving the law firm with no possible way to communicate with its client. (Id.) Moreover, FTF has outstanding unpaid bills from the firm for fees in the amount of $99,205.81, for this and other matters. (Id. ¶ 8.) The only fee payments made by FTF over the past several months have been by checks that were returned for insufficient funds, and there is no reason to believe FTF intends to make good on those payments. (Id. ¶ 9.) The Court notes that counsel has nevertheless zealously and adequately represented FTF's interests in this case. Representing a sophisticated client who has yet to return half a million dollars received in the course of a business deal gone bad is a difficult assignment, and counsel has done all that can be expected on the facts presented. (Indeed, counsel has succeeded in defeating TE's motion for summary judgment for the full contract measure of damages.) But there has obviously been a fundamental breakdown of the trust required to further maintain a working attorney-client relationship. Consequently, the Court grants counsel's application to withdraw from representing FTF in this matter See e.g., Casper v. Lew Lieberbaum Co. Inc., No. 97 Civ. 3016 (JGK), 1999 WL 335334, at *5 (S.D.N.Y. May 26, 1999) ("An attorney may withdraw as counsel when his client fails to pay legal fees or to communicate with him"); Generale Bank, New York Branch v. Wassel, No. 91 Civ. 1768 (PKL), 1992 WL 42168, at *1 (S.D.N.Y. 1992) ("The existence of an irreconcilable conflict between attorney and client is a proper basis for the attorney to cease representing his client").
CONCLUSION
For the foregoing reasons, TE's motion for summary judgment as to FTF's liability for breach of contract and for lost profits is denied. Summary judgment is granted in favor of TE on grounds of FTF's liability to make restitution in the amount of $525,000. Defense counsel's motion to withdraw from further representation of FTF in this action is granted. A pretrial conference to set a schedule for resolving the remaining issues in the case shall be held January 5, 2001 at 2:00 p.m. Should FTP fail to appear at that conference, default judgment may be entered on the remainder of plaintiffs claims. Plaintiff is directed to serve a copy of this order on FTF at its last known address, and former counsel for FTF is directed to make all reasonable efforts to advise FTF of the outcome of these motions and of the conference date.
SO ORDERED: