Opinion
01 Civ. 11765 (CSH).
September 18, 2006
MEMORANDUM OPINION AND ORDER
Following a bench trial in this diversity action for breach of contract, the Court entered Findings of Fact and Conclusions of Law and directed judgment in favor of the Plaintiff and against both the corporate and individual Defendants. Defendants now move pursuant to Fed.R.Civ.P. 52(b) for an order setting aside the Court's findings and conclusions and granting them a new trial under Rule 59(a), or in the alternative an order vacating the judgment in Plaintiff's favor and entering judgment in favor of Defendants. Plaintiff opposes the motion.
I. BACKGROUND
On the joint application of the parties and with the Court's approval, the Court conducted a bench trial on the basis of a written record comprised of depositions, affidavits, stipulated facts and testimony, and exhibits. The Court's Findings of Fact, Conclusions of Law, and direction for the settlement of judgment are set forth in an opinion dated April 20, 2006 ("the April 20 Opinion") reported at 427 F.Supp.2d 463 (S.D.N.Y. 2006), familiarity with which is assumed. For present purposes it is sufficient to state that the corporate Plaintiff Network Enterprises, Inc. ("Network") alleged that the corporate Defendant APBA Offshore Productions, Inc. ("Productions") breached a contract to purchase time from and exhibit programs on Plaintiff's network; and that Production's corporate form should be disregarded so as to impose personal liability upon the individual Defendant, Michael D. Allweiss, who was Production's president at the pertinent times.
Having made findings of fact based on the evidence, 427 F. Supp. 466-479, I concluded that "the parties entered into a binding Type II preliminary agreement which obligated them to negotiate in good faith the number, dates and times of the 2001 season telecasts," Conclusion of Law 15, id. at 485; that "[t]he corporate defendant's breach of its contractual obligation to negotiate in good faith the open terms within the framework of the programming is manifest," Conclusion of Law 17, id. at 486-87); and that "[b]y his domination of the corporation, Allweiss procured the breach of that obligation," so that "[e]quity requires that Allweiss be held personally liable for Network's resulting loss," Conclusion of Law 26, id. at 490. I also held that Plaintiff had proved damages in the amount of $400,000. The entry of judgment was deferred, on the unopposed application of the Defendants, to allow them additional time to submit their papers on the present motion.
Defendants' motion constitutes a broad attack upon the Court's Findings and Conclusions which, if well founded, would abrogate the judgment contemplated by the prior opinion.
II. DISCUSSION
A. Standard of Review
Defendants' motion is based upon Fed.R.Civ.P. 52(b) and 59(a). Rule 52(b) provides that a motion under the Rule asking a district court to amend its findings, make additional findings, or amend the judgment "may accompany a motion for a new trial under Rule 59." The Defendants at bar couple their Rule 52 motion with a Rule 59 motion for a new trial; and it is the criteria applicable to a Rule 59 motion that govern.
The granting of a motion for a new trial under Rule 59 rests within the discretion of the trial court and is reviewable only for abuse. See LiButti v. United States, 178 F.3d 114, 118 (2d Cir. 1999) ("We reverse a trial court's denial of a motion for a new trial only for an abuse of discretion.") (citation omitted). Since this was a bench trial, it is governed by Rule 59(a)(2), which provides:
A new trial may be granted . . . (2) in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States. On a motion for a new trial in an action tried without a jury, the court may open the judgment if one has been entered, take additional findings, amend findings of fact and conclusions of law or make new findings and conclusions, and direct the entry of a new judgment.
The Second Circuit has said that "Rule 61 sets out a workable test for when to grant a new trial, counseling that no error is ground for granting a new trial `unless refusal to take such action appears to the court inconsistent with substantial justice.'" LiButti, 178 F.3d at 118 (quoting Rule 61). Under the law of this Circuit, reading these two Rules together, "a trial court should be most reluctant to set aside that which it has previously decided unless convinced that it was based on a mistake of fact or clear error of law, or that refusal to revisit the earlier decision would work a manifest injustice." Id. (citing Arizona v. California, 460 U.S. 605, 618 n. 8 (1983)). "Certainly, a trial court should not grant a new trial simply because, like the proverbial second bite at the apple, the losing party believes it can present a better case if afforded another chance." Id. at 118-119. See also Ball v. Interoceanica Corp., 71 F.3d 73, 76 (2d Cir. 1995) ("A motion for a new trial in a nonjury case should be based upon manifest error of law or mistake of fact, and a judgment should not be set aside except for substantial reasons.") (citation and internal quotation marks omitted). In the footnote in Arizona v. California cited by the Second Circuit in LiButti, the Supreme Court said: "Under law of the case doctrine, as now most commonly understood, it is not improper for a court to depart from a prior holding if convinced that it is clearly erroneous and would work a manifest injustice." 460 U.S. at 618 n. 18 (citation omitted). In the subsequent case of Anderson v. City of Bessemer City, North Carolina, 470 U.S. 564, 573-74 (1985), construing Rule 52(a), the Court explained that "a finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that an error has been committed. . . . Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous. . . . That is so even when the district court's findings do not rest on credibility determinations, but are based instead on physical or documentary evidence or inferences from other facts."
Fed.R.Civ.P. 52(a) provides: "Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses."
The Second Circuit's decisions in LiButti and Ball, which interpret Rule 59 by reading it together with Rule 61 and in the light of Supreme Court cases such as Anderson, make it plain that under the law of this circuit, following a nonjury trial a trial judge may grant a motion for a new trial or otherwise depart from prior holdings only if the moving party demonstrates a manifest error of law or a clearly erroneous mistake of fact on the part of the judge which, singly or in combination, works a manifest injustice. The question that arises is whether the Defendants at bar have made that demonstration.
B. The Merits of Defendants' Motion for a New Trial
A trial judge who has decided a nonjury trial applies to the losing party's motion for a new trial the standard of review set forth in Part I.A., supra. The judge must make that application objectively. He shirks his duty if he approaches the task defensively, or distracted by a sense of wounded amour propre.
Defendants' main and reply briefs discuss the evidence contained in the trial record at length, and argue principally that the Court's findings of fact and conclusions of law in the April 20 Opinion are wrong. Plaintiff's opposing brief contains an equally detailed review of the evidence and argues that those findings and conclusions contain no error, let alone that manifest error required to justify a new trial.
I have carefully considered the trial record, the detailed findings of fact made and conclusions of law reached in the April 20 Opinion, and the submissions of counsel on the present motion. The Defendants' contentions, purportedly based on the trial evidence, were rejected by the Court in its April 20 Opinion, either directly or by necessary implication. That is what prompts Defendants to make this motion for a new trial or a judgment in their favor. But I conclude that Defendants have failed to demonstrate that any of the Court's findings of fact were clearly erroneous or that any of its conclusions of law constituted manifest error. Accordingly, the Court adheres to those findings and conclusions. The reasons for their promulgation are stated at length in the April 20 Opinion.
Defendants wish to call witnesses to testify at the requested new trial, stating in their Main Brief at 7 that "[a]t the very least the Court should grant a new trial for the sole purpose of allowing Hughes and Allweiss to testify live." I decline that request. Where, as here, the parties agreed to a trial on a written record, courts do not favor applications by the losing party to present live testimony at a new trial. The Second Circuit's opinion in Ball, 71 F.3d 73, is instructive on that point. Ball involved the construction of a New York statute governing compulsory pilotage on vessels traversing Long Island Sound. Circuit Judge Leval, sitting in the district court by designation, tried the case on a written record, a procedure to which the parties had agreed. Judge Leval gave judgment in favor of the plaintiff pilots, observing inter alia that Interoceanica, the defendant steamship company, "had not produced sufficient evidence that offering pilot services in the middle of the Sound was required by industry practice." Id. at 75. Defendant moved for a new trial, "at which Interoceanica could have filled the gaps in the record. It argues that this is especially necessary since the trial was based on submitted affidavits and transcripts of depositions," id. at 76, precisely the same procedure used in the case at bar. Judge Leval denied defendant's motion. The Second Circuit affirmed, stating that "[b]ehind Interoceanica's motion for a new trial, there seems to lie a belated objection to the form of trial used. But, in fact, both parties consented to the form of trial, and such a procedure falls within the district court's ample authority to manage the proceedings before it." Id. at 77. In the instant case, I reject Defendants' belated objection to the form of trial to which they had agreed.
Defendants make four additional arguments on the present motion which require brief comment.
First, Defendants say that the Court "should not have applied a preliminary agreement analysis to the Renewal Option because the Amended Complaint did not allege such a claim." Main Brief at 2. Plaintiff responded to that argument in its brief at 4-5. Defendants do not address the issue in their reply brief and may have abandoned the argument. In any event, there is no substance to it. Plaintiff's first claim for relief alleged a breach of contract by Productions. Amended Complaint, ¶¶ 36-40. The obligation to negotiate open terms in good faith imposed by a Type II preliminary agreement is contractual in nature, as the cases cited in the April 20 Opinion hold and as that Opinion reiterated. See, e.g., Conclusion of Law 3, 427 F.Supp.2d at 479 ("Network asserts two claims sounding in contract. . . . Network's second claim alleges that Productions breached its implied duty of good faith and fair dealing in respect of the air times and dates for its 2001 programming under the Renewal Option.") (emphasis added); Conclusion of Law 16, id. at 486 ("Allweiss was either unaware of the contractual obligation to negotiate open terms in good faith generated by a TypeII preliminary agreement, as articulated by the Second Circuit in cases construing the governing New York law, or he chose to disregard that obligation.") (emphasis added). Accordingly the theory upon which Defendants' liability rests falls within the Plaintiff's claim for breach of contract.
This conclusion makes it unnecessary to consider Plaintiff's alternative response, that assuming a breach of a Type II preliminary agreement was not alleged by the complaint, Fed.R.Civ.P. 15(b) would allow an amendment of the pleading after trial to conform to the evidence where, as here, the issue was tried by the express or implied consent of the parties. Were it necessary to do so, and given the manner in which the trial record was submitted to Court by the joint consent of counsel for the parties, I would not hesitate to make a Rule 15(b) order in Plaintiff's favor.
That conclusion also disposes of Defendants' closely related second argument, which is that in a prior opinion deciding cross-motions for summary judgment reported at 2004 WL 1837349 (S.D.N.Y. Aug. 16, 2004) ("the Summary Judgment Opinion"), the Court "dismissed the only claim in the Amended Complaint which did allege that Defendants failed to negotiate the 2001 agreement in good faith." Main Brief at 2. The complaint alleged a breach of Productions' duty to act in good faith as a separate, second claim for relief. The Summary Judgment Opinion held that because all the Plaintiff's allegations of wrongdoing in the claim "bear directly on and are equally applicable to plaintiff's breach of contract claim," the breach of the good faith duty would be dismissed as "duplicative of the contract claim." 2004 WL 1837349, at *4. Because Plaintiff's contract claim survives this motion for the reasons just stated, Defendants' second argument comes to nothing.
Third, Defendants say that in the Summary Judgment Opinion "the Court also found that the Renewal Option was merely an unenforceable agreement to attempt to agree," so that it "could not constitute an enforceable agreement of any type, preliminary or otherwise." Main Brief at 2. While this contention has a surface appeal, it fails to persuade that the Court's judgment reached after trial must be vacated. The detailed findings of fact and conclusions of law in the April 20 Opinion were based upon a more thorough review of the trial record than that preceding the Summary Judgment Opinion, which denied the parties' cross-motions for summary judgment on Plaintiff's contract claim and set the claim down for trial. But Defendants' argument fails in any event. Although they do not use the term, Defendants are in effect invoking the law of the case doctrine. Accepting arguendo that the Court's reasoning on the point in the Summary Judgment Opinion cannot be fully reconciled with the findings and conclusions in the April 20 Opinion, I quoted supra the Supreme Court's observation in Arizona v. California, 460 U.S. 605 at 618 n. 8, that "[u]nder law of the case doctrine, as now understood, it is not improper for a court to depart from a prior holding if it is clearly erroneous and would work a manifest injustice." Given the facts and circumstances revealed by the trial record in this case, it would work a manifest injustice to read the prior Summary Judgment Opinion in such a way as to deprive Plaintiff of a remedy for Defendants' proven breach of a Type II preliminary agreement.
Fourth, Defendant Allweiss contends that the corporate form of Productions cannot be disregarded in order to impose personal liability upon him because (1) Florida, not New York, law governs the piercing of the corporate veil, and (2) under Florida law he is not liable for Productions' breach. Allweiss is wrong on both counts.
All the cases Allweiss cites stand for the proposition that under generally accepted conflicts of laws principles, whether a corporation's veil should be pierced depends upon the law of the state of incorporation (here, Productions is a Florida corporation). None of these cases involves, as does the case at bar, a particular contractual provision that the law of a particular state governs (here, New York law). Fletcher v. Atex, Inc., 68 F.3d 1451 (2d Cir. 1995), cited by Defendants in their Reply Brief at 12, is typical. That was an action to recover for repetitive carpal tunnel stress injury suffered by plaintiffs using allegedly defective computer keyboards. The plaintiffs sought to visit liability upon the Delaware corporate parent of the subsidiary manufacturer of the keyboards. The Second Circuit held that Delaware law governed that attempt at veil piercing. Not surprisingly, the Delaware corporation had not agreed in advance with users of the keyboards that New York law would govern any subsequent injury the users might suffer. In contrast, the contract between Plaintiff and Defendant Productions provided that "This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and performed wholly therein." Finding of Fact 10, 427 F.Supp.2d at 468. The parties do not cite, and my research has not discovered, a case dealing expressly with whether such a contractual choice-of-law provision governs the issue of disregarding a party's corporate form in the event of a breach. But the designation of New York law as the governing law is broadly phrased, and I conclude that it extends to that question. Accordingly, this Court did not err in looking to New York law in imposing personal liability upon Allweiss; and I remain of the view that under New York law, as construed by the Second Circuit, that liability was properly imposed. See Conclusions of Law 20-26, 427 F.Supp.2d at 487-491, and cases there cited.
There is no substance to Allweiss's contention that New York law does not apply because he "never agreed to be bound by New York law." Reply Brief at 12. It is true that Allweiss did not express that agreement in his personal capacity, but Productions, the corporation Allweiss dominated and controlled, did so, and the corporation's choice of law logically extends to Allweiss.
(2). Even if that conclusion is wrong, and Florida law governs, the result is the same. The April 20 Opinion imposed liability upon Allweiss because, "[b]y his domination of the corporation, Allweiss procured the breach" of the corporation's contractual obligation. Conclusion of Law 26, 427 F.Supp.2d at 490. Florida law imposes personal liability in such circumstances. See Shearson Hayden Stone, Inc. v. Lumber Merchants, Inc., 500 F.Supp. 491, 501-502 (S.D.Fla. 1980), where the district court, citing Florida cases to hold the individual defendant liable for a corporate debt, said:
To find that a corporation's separate legal entity should not be recognized it is necessary that the corporation merely be an instrumentality of that person. Where the nature of the relationship and activity between the individual and his alter ego, his corporation, is completely personalized, the individual may be held liable for a contractual obligation made in the name of a corporation. . . . It was demonstrated that Malina completely dominated the operation of LMI, utilizing the corporation to conduct his personal trading strategies.
In the case at bar, Allweiss completely dominated Productions in order to indulge his enthusiasm for offshore speedboat racing. That personal enthusiasm is entirely legitimate, but the evidence shows that Productions was merely an instrumentality by which Allweiss gratified it, with the result that Allweiss is personally liable under Florida law for Productions' contractual obligation.
I reject Defendants' in terrorem contention that if Allweiss is held personally liable in this case for what they characterize as "a simple breach of a Type II preliminary agreement," then "in every case in which a sole shareholder a [ sic] corporation is found to have breached a contract, regardless of type, the sole shareholder/director/officer/employee automatically shall be held personally liable." Main Brief at 24, 25. The April 20 Opinion did not paint with so broad a brush; nor, given the discrete issues before the Court, could it have done so. The Opinion holds only that an individual whose total domination of a corporation procures the corporation's breach of a contractual obligation to bargain in good faith is liable for the consequences. That holding does not cause the skies of contract law to fall.
III. CONCLUSION
For the foregoing reasons, the Defendants' motion for an order amending the Court's findings and conclusions and giving judgment for Defendants, or in the alternative for a new trial, is denied in its entirety.The settlement of a judgment was deferred pending decision on this motion. Counsel for Plaintiff are directed to settle a Judgment consistent with the Court's April 20, 2006 Opinion on or before October 2, 2006 and on ten (10) calendar days' notice.
It is SO ORDERED.