Opinion
01 Civ. 1340 (JGK)
March 26, 2002
OPINION AND ORDER
Gem Advisors, Inc. ("Gem") brings this action claiming that defendant Invu, Inc. ("Invu") breached the terms of a promissory note (the "Note") held by the plaintiff, and that therefore Gem is entitled to recover the monies due under the Note. The plaintiff also claims unjust enrichment and money had and received, and seeks to recover attorney's fees. The plaintiff moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The defendant cross moves for summary judgment under Rule 56.
I.
The standard for granting summary judgment is well established. 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); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Gallo v. Prudential Residential Servs. Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). "The trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue finding; it does not extend to issue-resolution."Gallo, 22 F.3d at 1224. The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrates the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. The substantive law governing the case will identify those facts which are material and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Gallo, 22 F.3d at 1223. If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). With respect to the issues on which summary judgment is sought, if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994)
II.
The following facts are not in dispute, except where specifically noted. On or about May 1, 2000, defendant Invu executed a promissory note (the "Note") in the principal amount of $100,000 to the order of plaintiff Gem. (Declaration of David Morgan, dated August 24, 2001 ("Morgan Decl.") ¶ 12, Ex. B.) The parties agree that the promissory note evidenced the $100,000 that Gem loaned to Invu. Under the terms of the Note, "[I]f payment is not made upon demand in accordance with this Note, the holder of this Note may covert any or all of the unpaid principal amount of the note and accrued but unpaid interest . . . for shares of common stock" of Invu. (Morgan Decl. Ex. B.) Around the same time, the plaintiff and the defendant also entered into a Convertible Debenture Purchase Agreement (the "Debenture Agreement"). (Morgan Decl. Ex. A.) The Note explicitly provides that the terms of conversion as set forth in Section 4 of the Form of Debenture "shall also apply to the conversion of this Note." Section 4 of the Form of Debenture provides in relevant part:
The defendant provides a detailed description of the negotiations leading up to the May 1, 2000 execution of the Note. (Morgan Decl. ¶ 7-11.) The plaintiff disputes the characterization of plaintiff's actions during the course of the negotiations, and contends the alleged facts are barred by the parol evidence rule and irrelevant to the resolution of these motions. It is not necessary to determine whether such facts are barred by the parol evidence rule because these motions can be resolved with reference to the written agreement alone.
(a) The unpaid principal amount of this Debenture and interest due thereon, shall be convertible into shares of Common Stock. . . . Each Holder Notice of Conversion shall specify the principal amount of Debentures and related interest to be converted, and the date on which such conversion is to be effected (the "Holder Conversion Date"). Subject to Section 4, each Holder Notice of Conversion, once given, shall be irrevocable. . . .
(b) Not later than two (2) Business Days after the Conversion Date, the Escrow Agent will deliver to the Holder (i) a certificate or certificates . . .representing the number of shares of Common Stock being acquired upon the conversion of Debentures and (ii) once received from the Company, Debentures in principal amount equal to the principal amount of Debentures not converted. . . . In the case of a conversion pursuant to a Holder Notice of Conversion, if such certificate or certificates are not delivered by the date required under this Section 4 b the Holder shall be entitled by providing written notice to the Company at any time on or before its receipt of such certificate or certificates thereafter to rescind such conversion, in which event the Company shall immediately return the Debentures tendered for conversion.
(Morgan Decl. Ex. A.) (emphasis added). In other words, the Holder Notice of Conversion is irrevocable unless (a) the stock is not delivered within two business days of the Conversion Date; and (b) the Holder (Gem) provides "written notice" of rescission of the conversion to Invu "at any time on or before its receipt of such certificate. . . ."
On or about September 21, 2000, Gem's counsel sent a letter demanding payment of the principal and interest due under the Note from the defendant. (Morgan Decl. Ex. D.) Gem then determined to convert the Note into common stock, and the parties negotiated the terms of a registration rights agreement. (Morgan Decl. ¶ 18.) On or about December 18, 2000, pursuant to the terms of the Note, Gem's counsel sent Invu a notice of conversion and demanded the issuance of 179,643 shares of Invu, Inc. common stock. (Morgan Decl. Ex. F.) The receipt of this conversion notice was acknowledged in a letter sent by Invu's counsel to Gem on approximately December 20, 2000. (Morgan Decl. ¶ 21.) On December 18, 2000, the Invu stock was valued at U.S. $.9844. (Declaration of Christopher F. Brown, dated August 8, 2001 ("Brown Decl.") ¶ 9.)
On or about January 30, 2001, forty-three days after the initial demand was made, Invu transmitted to Gem a stock certificate representing the requested 179,643 shares of Invu. (Brown Decl. ¶ 11.) On January 31, 2000, Invu's common stock closing price was $.7500 per share, a decrease of almost 24% since the initial request. (Brown Decl. ¶ 12, Ex. 0.)
On February 14, 2001, Gem returned the stock certificate to Invu accompanied by a letter alleging a breach in the terms of the Note. (Brown Decl. ¶ 14, Ex. H.) On February 23, 2001, Gem filed this action seeking the amounts allegedly owed under the Note and other relief. To date, the defendant has not paid the plaintiff any amount of the principal or accrued interest on the Note. (Brown Decl. ¶ 15.) The defendant claims that it has held the stock certificate and offered to forward it to Gem upon request, and its books and records and public filings clearly reflect Gem's ownership rights in the shares. (Morgan Decl. ¶ 26.)
III.
The plaintiff moves for summary judgment on the ground that the defendant materially breached the terms of the Note, which required the requested stock to be delivered within two days after the "Conversion Date," by delivering the stock forty-three days after the requested conversion. The plaintiff contends that as a consequence of this breach it was entitled to revoke the conversion and that it is entitled to the amount owed under the Note. Furthermore, the plaintiff suggests the February 14, 2000 letter rejecting and returning the stock certificate provided sufficient notice, pursuant to the terms of the Debenture Agreement, that it was rescinding conversion. (Brown Decl. ¶¶ 13-14.) The defendant cross-moves for summary judgment dismissing the Complaint. Invu argues that Gem failed timely to rescind the election to covert prior to the delivery of the stock certificate, as required under the terms of the Note. Therefore, since Invu delivered the stock before any timely notice of recission, Gem has received payment under the Note because Gem has the right to the stock pursuant to its conversion notice. Similarly, Invu argues that Gem's other causes of action should be dismissed because they are quasi-contractual claims arising out of the same subject matter governed by the written contract.
Under New York law, "the initial interpretation of a contract "is a matter of law for the court to decide.'" K. Bell Assocs., Inc. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir. 1996) (quoting Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 299 (2d Cir. 1996)). "Included in this initial interpretation is the threshold question of whether the terms of the contract are ambiguous." Alexander Alexander Servs. v. These Certain Underwriters at Lloyd's. London, 136 F.3d 82, 86 (2d Cir. 1998); see also Curry Road Ltd. v. K Mart Corp., 893 F.2d 509, 511 (2d Cir. 1990). A court should construe a contract as a matter of law only if the contract is unambiguous on its face. See Metropolitan Life Ins. Co. v. RJR Nabisco Inc., 906 F.2d 884, 889 (2d Cir. 1990). 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 reasonable basis for a difference of opinion.'" Sayers v. Rochester Tel. Corp. Supplemental Management Plan, 7 F.3d 1091, 1095 (2d Cir. 1993) (quoting Breed v. Insurance Co. of N. Am., 385 N.E.2d 1280 (N.Y. 1978)); see also Alexander Alexander, 136 F.3d at 86.
If a contract in unambiguous, a court is "required to give effect to the contract as written and may not consider extrinsic evidence to alter or interpret its meaning." Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 573 (2d Cir. 1993); see also Alexander Alexander, 136 F.3d at 86; K.Bell Assocs., 97 F.3d at 637. Contractual language "whose meaning is otherwise plain is not ambiguous merely because the parties urge different interpretations in the litigation." Metropolitan Life, Ins. Co., 906 F.2d at 889; see also United States Trust Co. of New York v. Jenner, 168 F.3d 630, 632 (2d Cir. 1999); Wards Co. v. Stamford Ridgeway Assocs., 761 F.2d 117, 120 (2d Cir. 1985). Where the contractual language is subject to more than one reasonable meaning and where extrinsic evidence of the parties' intent exists, "an issue of fact is presented for a jury to resolve, thereby precluding summary judgment."Scholastic, Inc. v. Scholastic Prods. Inc., 259 F.3d 73, 83 (2d Cir. 2001); see also E.R. Squibb Sons, Inc. v. Lloyd's Cos., 241 F.3d 154, 179 (2d Cir. 2001); Alexander Alexander, 136 F.3d at 86; Consarc Corp., 996 F.2d at 573; Compania Financiera Ecuatoriana de Desarollo, S.A. v. Chase Manhattan Bank, No. 97 Civ. 5724, 1998 WL 74299, * 3 (S.D.N.Y. Feb. 19, 1998), aff'd, 165 F.3d 13 (2d Cir. 1998)
In this case, the terms of the documents make clear that, having exercised its right to conversion, the plaintiff was entitled to the Invu stock that was subject to the irrevocable notice of conversion. That is precisely what Invu offered. The Form of Debenture unequivocally provides that conversion is irrevocable unless (a) the stock is not delivered within two business days of the "Conversion Date"; and (b) the Holder provides "written notice" to Invu "at any time on or before its receipt of such certificate. . . ." The notice of conversion was irrevocable because it was not rescinded before Gem received the Invu stock. There remains, however, an issue of fact as to whether the delivery of the stock to Gem was timely and whether Gem is entitled to damages for the late delivery of the stock.
A.
The first issue is whether the delivery of the stock forty-three days after the initial conversion notice violated the requirement that the stock must be delivered within two business days of the "Conversion Date." There is some ambiguity in the documents concerning the proper definition of "Conversion Date" as used in Section 4 of the Form of Debenture. Section 1 of the Form of Debenture attached to the Debenture Agreement defines "Conversion Date" to mean "the date on which a Notice of Conversion is dated." It is clear that the letter which the parties construed as the Notice of Conversion was dated December 18, 2000, and therefore the stock was delivered 43 days after that date and would appear to have been delivered more than two days after the "Conversion Date" in breach of the Conversion provision of the Debenture Agreement. At argument, the parties agreed that December 18, 2000 was the "Conversion Date."
However, in its papers, the defendant argued that there was no breach of the Debenture Agreement because Gem never specified the date on which the shares were to be converted and therefore there was no date from which the two days for delivery could be measured. Invu argues essentially that the term "Conversion Date" in section 4(b) of the Form of Debenture refers to the "Holder Conversion Date" defined in Section 4(a), namely the "date on which such conversion is to be effected." There is indeed much to support this construction. Section 4(a) of the Form of Debenture provides, "Each Holder Notice of Conversion shall specify the principal amount of Debentures and related interest to be converted, and the date on which such conversion is to be effected (the "Holder Conversion Date')." In the present case, for reasons that are not entirely clear, Gem did not use the form document, referred to as a "Holder Notice of Conversion, and instead Gem exercised its right by sending a letter giving notice of conversion. (Morgan Decl. Ex. F.) The letter, however, failed to specify a "Holder Conversion Date" as would have been provided in the form "Holder Notice of Conversion," and as required by section 4(a) of the Form of Debenture.
The "Holder Notice of Conversion" is attached as Exhibit A to the Form of Debenture. (Morgan Decl. Ex. A.) The Form provides, "Except as provided in Section 4(b) of the Debenture, the undersigned hereby irrevocably elects to convert the above Debenture No. into shares of Common stock . . . ."
The reason for this omission is disputed. The defendant argues, "the parties knew that there were no stock certificates in escrow as contemplated under the Form of Debenture, and Invu would have to make a written request to its transfer agent to issue a stock certificate to Gem." (Morgan Decl. ¶ 20.) Therefore, no Conversion Date was specified because "[t]he parties and their counsel all understood that it would take more than two days to deliver the stock certificate but no one knew exactly how long it would take." (Morgan Decl. ¶ 20.) The plaintiff objects that these statements are barred by the parol evidence rule, but advances no alternative justification for the omission.
In any event, in view of the ambiguities in the definition of "Conversion Date," it cannot be determined whether the Invu stock was in fact delivered more than two days after the "Conversion Date," and whether there was any late delivery. While Invu argues that there was no late delivery of the stock and therefore no breach of the delivery obligation based on its interpretation of the "Conversion Date, 11 it offers no argument as to why Gem is not entitled to damages for late delivery of the stock if Gem's interpretation of the "Conversion Date" is correct.
B.
If the delivery of the certificate was in fact late and in breach of the terms of the Debenture Agreement incorporated in the Note, the plaintiff is entitled at most to damages for the late delivery of the stock. This is true because Gem failed to provide the required written notice of rescission of conversion before it received the Invu stock. The notice of conversion was irrevocable and the notice of recission was not effective because the notice of recission was not provided on or before Gem received the stock. On this point, the Debenture Agreement is unambiguous: ". . . if such certificate or certificates are not delivered by the date required under this Section 4(b), the Holder shall be entitled by providing written notice to the Company at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion. . . ." It is undisputed that Gem received the stock certificate on January 30, 2001, and only provided written notice and returned the certificate on February 14, 2001. Thus, not only did Gem fail to provide written notice before receipt of the certificate, but it held the stock for 15 days before eventually returning it to Invu. The plain terms of the agreement prohibited Gem from taking this "wait and see" approach — the agreement required notice on or before receipt, and did not permit Gem to wait to see how the stock performed.
In sum, there is a genuine issue of material fact as to whether the Invu stock was delivered late and whether Gem is entitled to damages for that late delivery. However, Gem is not entitled to rescind its notice of conversion and is only entitled to claim the Invu stock which Invu is holding for it. The plaintiff's motion for summary judgment is therefore denied. The defendant's motion for summary judgment is granted to the extent that it seeks to dismiss the plaintiff's claim to rescind the notice of conversion and denied to the extent that it seeks to dismiss any claim for damages for breach of the Note.
IV.
The plaintiff's quasi-contractual claims for money had and received (second cause of action), money lent (third cause of action), and unjust enrichment (fifth cause of action) are also without merit. Under New York law, claims for unjust enrichment, see MacDraw, Inc. v. CIT Group Equip. Fin., Inc., 157 F.3d 956, 964 (2d Cir. 1997) (per curiam), and "money had and received," see Barroso v. Polymer Research Corp. of Am., 80 F. Supp.2d 39, 42 (E.D.N.Y. 1999), are recognized as actions in implied or "quasi-contract. "[T]he existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract (i.e., unjutt enrichment) for events rising out of the same subject matter." MacDraw, 157 F.3d at 964 (citations omitted); see also Indep. Order of Foresters v. Donald, Lufkin, Jenrette, Inc., 157 F.3d 933, 940 (2d Cir. 1998) (affirming district court dismissal of claim for money had and received because there is a valid contract between the parties covering the matter); Radio Today, Inc. v. Westwood One, Inc., 684 F. Supp. 68, 72 (S.D.N.Y. 1988) (quasi-contract claim barred by the existence of the parties' express agreement covering the same subject matter); Surge Licensing, Inc. v. Copyright Promotions Ltd., 685 N.Y.S.2d 175 (App.Div. 1999) (affirming dismissal of claim for unjust enrichment because of the existence of a valid contract governing the subject matter of the parties' dispute). Rather, quasi-contractual remedies "only apply "in the absence of an express agreement;" for the remedy is not "really a contract at all, but rather a legal obligation imposed in order to prevent a party's unjust enrichment.'" Telecom Int'l Am. Ltd. v. AT T Corp., 67 F. Supp.2d 189, 206 (S.D.N.Y 1999) (quoting Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 516 N.E.2d 190 (N.Y. 1987).).
In this case, a written enforceable agreement — the Note incorporating the Debenture Agreement — governs the terms of conversion into common stock and recission of such conversion. Given the existence of an express agreement between the parties resolving the subject matter of the dispute, the plaintiff is precluded from recovering in quasi-contract.
V.
In its fourth cause of action, the plaintiff seeks attorney's fees. Under the terms of the Note, Invu agreed to "pay reasonable fees of legal counsel, and disbursements thereof, incurred by Lender in any collection or enforcement proceeding relating hereto." (Morgan Decl. Ex. B) Summary judgment on this claim would be unwarranted at this time. It is unclear if Gem is entitled to any recovery. If Invu fully complied with its obligations under the Note and breached no provision of the Note, then it would be an unreasonable interpretation of the provision that the parties intended to provide for attorneys' fees for an unjustified collection action.
CONCLUSION
For the reasons explained above, the plaintiff's motion for summary judgment is denied. The defendant's motion for summary judgment on the first cause of action is granted to the extent that it seeks to dismiss the plaintiff's claim to rescind the notice of conversion and denied to the extent that it seeks to dismiss any claim for damages for breach of the Note. The defendant's motion for summary judgment dismissing the second, third and fifth causes of action is granted. The defendant's motion for summary judgment dismissing the fourth cause of action for attorney's fees is denied.
SO ORDERED