Opinion
00 Civ. 6529 (JSM).
March 6, 2002.
OPINION AND ORDER
Plaintiffs UBS Capital Americas II, LLC and Canven V (Barbados) Limited brought this diversity action alleging breach of contract by Defendants Highpoint Telecommunications Inc. and Global Light Telecommunications Inc. Plaintiffs now move for summary judgment and Defendant Global Light Telecommunications Inc. cross-moves for summary judgment. Plaintiffs' motion is granted and Defendant's cross-motion is denied.
Facts
Plaintiff UBS Capital Americas II, LLC ("UBS Capital")) is a Delaware limited liability company with offices in New York, and Plaintiff Canven V (Barbados) Limited ("Canven") is a limited liability company organized under the laws of Barbados. UBS Capital is the assignee of UBS Capital XVI SRL, the named party to the agreements in question, and thus all references will be made to UBS Capital. Defendants Highpoint Telecommunications Inc. ("Highpoint") and Global Light Telecommunications Inc. ("Global Light") are both Yukon corporations engaged in the telecommunications industry. Global Light owns beneficially approximately 45% of Highpoint and has corresponded with Plaintiffs on Highpoint's behalf. On February 10, 2000, the parties entered into a series of agreements pursuant to a joint venture.
Under the "Securities Purchase Agreement," Canven and UBS Capital (collectively "Plaintiffs") agreed to purchase $7.5 million worth of convertible debentures from Highpoint. The agreement obligated Highpoint to make monthly interest payments beginning in February 2001, until the debentures reached maturity in August 2001. Under the agreement, if Highpoint failed to pay interest, Plaintiffs had the right, by written notice, to accelerate the debentures, declaring the principal and interest to be immediately due and payable. The agreement also entitled Plaintiffs to attorneys' fees and costs incurred in connection with Plaintiffs' enforcement of their rights under the agreement. Global Light also guaranteed Highpoint's obligations under the debentures in the event of default.
Highpoint failed to make the monthly interest payments. On July 16, 2001, Plaintiffs sent a written notice of acceleration stating that if payment of all interest due and owing was not received by July 20, 2001, the principal balance and accrued interest would be immediately due. To date, Plaintiffs have received no such payment. On July 30, 2001, Global Light's CEO wrote to UBS Capital, noting Highpoint's delay in paying on the debentures and discussing a sixty day extension of the debenture maturity date. UBS Capital responded on August 1, 2001, restating that Highpoint was in default and that all obligations under the debentures had been accelerated. However, reserving all rights and remedies, UBS Capital's letter stated that it was willing to extend the maturity date to September 30, 2001, if certain conditions were met. Global Light did not reply to this particular suggestion.
At oral argument, counsel for Highpoint stated that while the total amount due has not been paid, nominal payments have been made. However, Highpoint's own documents admit that no payments have been made and Highpoint has not furnished any evidence proving that any payments have been made. (Answer of Def. Highpoint ¶ 21; 2d Blankstein Aff. ¶ 9.)
In February 2000, Global Light and Plaintiffs also entered into a "Debenture Purchase Agreement," which obligated Global Light to purchase some or all of the debentures from Plaintiffs upon the occurrence of certain "Purchase Events." Plaintiffs' obligation to purchase the debentures under the Securities Purchase Agreement was conditioned on Global Light's entering into the Debenture Purchase Agreement. The Debenture Purchase Agreement required Global Light to notify Plaintiffs of any "Purchase Event;" upon such notification, Plaintiffs could exercise a "repurchase right" and require Global Light to purchase some or all of the debentures from Plaintiffs. As with the other agreement, this agreement also entitled Plaintiffs to attorneys' fees and costs incurred in connection with Plaintiffs' enforcement of their rights under the agreement.
Plaintiffs independently learned that between March 2000 and March 2001, Global Light engaged in numerous transactions which Plaintiffs argue were "Purchase Events." The combined monetary value of these transactions well exceeds $7.5 million. On July 16, 2001, UBS Capital wrote to Global Light and stated that Global Light had, inter alia, violated the Debenture Purchase Agreement and deprived UBS Capital of its right to sell the debentures by not providing immediate notice of Global Light's Purchase Events. UBS Capital demanded that Global Light either pay all amounts currently due by June 20, 2001, or send a letter by that date evidencing potential sources of repayment of the debentures. This letter expressly stated that it did not waive UBS Capital's rights or remedies. On July 18, Global Light and UBS Capital signed a confidentiality agreement, and on July 19, Global Light sent a letter that outlined potential repayment sources but did not include specific details requested by UBS Capital.
While Global Light's answer denies that any Purchase Events took place, Global Light later admitted in its memoranda and at oral argument that Purchase Events did in fact occur.
Based on these events, Plaintiffs filed this breach of contract action seeking $7.5 million in damages plus interest from Highpoint, based on its failure to make payments on the Debentures. Plaintiffs are also seeking $7.5 million in damages plus interest from Global Light, based on its failure to provide Plaintiffs with written notice of the "Purchase Events." Additionally, Plaintiffs are seeking to recover expenses, costs, and attorneys' fees from both Defendants. Plaintiffs now move for summary judgment. In its response papers, Global Light made a cross-motion for summary judgment, asserting that Plaintiffs have waived their repurchase rights.
Discussion
A party is entitled to summary judgment as a matter of law when the evidence demonstrates that there is no genuine issue as to any material fact. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). "`Only when no reasonable trier of fact could find in favor of the nonmoving party should summary judgment be granted.'" White v. ABCO Eng'g Corp., 221 F.3d 293, 300 (2d Cir. 2000) (quoting Taggart v. Time Inc., 924 F.2d 43, 46 (2d Cir. 1991); Howley v. Town of Stratford, 217 F.3d 141, 150-51 (2d Cir. 2000) ("[T]he court is required to resolve all ambiguities, and to credit all factual inferences that could rationally be drawn, in favor of the party against whom summary judgment is sought."). Under New York law, "the initial interpretation of a contract is a matter of law for the court to decide." K. Bell Assoc., 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)).
I. Highpoint
As a result of Highpoint's admitted failure to make payments on the debentures, Highpoint is presumptively in default of the Securities Purchase Agreement and Plaintiffs are entitled to summary judgment. Highpoint contends, however, that an issue of fact exists as to whether Plaintiffs made an oral forbearance agreement which modified the Securities Purchase Agreement. Specifically, Plaintiffs allegedly represented to Highpoint that they "would not take action on the default by Highpoint under the Debentures but would await repayment from the proceeds of the Asset Sales in exchange for the complete and continuous disclosure by Global Light [of] relevant information pertaining to [asset sales], including confidential, non-public information." (2d Blankstein Aff. ¶ 15.) This oral modification to the Securities Purchase Agreement was allegedly made during a phone call subsequent to Plaintiffs' July 2001 acceleration of the payments.
Even if there was an oral statement of forbearance, as a matter of law it could not modify the terms of the Securities Purchase Agreement. According to its terms, the Securities Purchase Agreement may be amended or waived only if "such amendment or waiver is in writing and is signed by the Issuer [Highpoint] and Purchasers [Plaintiffs]. . . ." (Moore Aff. Ex. A § 7.03(b).) Generally, Under New York law, a written agreement that expressly states that it can be modified only in writing cannot be modified orally. See N.Y.Gen. Oblig. Law § 15-301 (McKinney 2001); Towers Charter Marine Corp. v. Cadillac Ins. Co., 894 F.2d 516, 522 (2d Cir. 1990).
An oral modification can change a written agreement, notwithstanding a `written modifications only' clause, if (1) there has been partial performance of the agreement to modify, or (2) one party is equitably estopped from disclaiming the oral modification because it has induced the other party to rely on the oral modification. See Merrill Lynch Interfunding Inc. v. Argenti, 155 F.3d 113, 122 (2d Cir. 1998). For partial performance to overcome § 15-301, it must be "unequivocally referable" to the oral modification alleged. Anostario v. Vicinanzo, 59 N.Y.2d 662, 664 (1983). In other words, the partial performance must be "`unintelligible or at least extraordinary', explainable only with reference to the oral agreement." Id. (quoting Burns v. McCormick, 233 N.Y. 230, 232 (1922)). If the partial performance can be reasonably explained by other justifications, the alleged oral modification remains unenforceable. Id. Similarly, on the question of equitable estoppel, "the conduct claimed to have been performed in reliance of the oral modification must be unequivocally referable to the modification. . . ." Towers, 894 F.2d at 522. See Club Haven Inv. Co., LLC v. Capital Co. of America, LLC, 160 F. Supp.2d 590, 593 (S.D.N.Y. 2001) (finding equitable estoppel because the party's "conduct, if proved, is wholly inconsistent with the [written agreement] and can be explained only by reference to the alleged oral [modification].").
Here, Highpoint has alleged that in return for Plaintiffs' forbearance, Global Light furnished Plaintiffs with highly confidential and sensitive information relevant to asset sales by Global Light. Even if this is true, it is not conduct that is "unequivocally referable" to the alleged oral modification, and explainable only with reference to the oral modification. Rather, Global Light's provision of such information can be explained by simple reference to UBS Capital's July 16, 2001 letter to Global Light, which referred to Global Light's failure to provide notice to Plaintiffs of Global Light's Purchase Events and demanded that Global Light either pay the amounts currently due or provide information concerning possible sources of repayment of the debentures. (Moore Aff. Ex. G.) Global Light's CEO has certified that the confidential and sensitive information related to such potential sources of repayment. (2d Blankstein Aff. ¶ 14.) Accordingly, Global Light's provision of such information to Plaintiffs was not "unequivocally referable" to the alleged oral modification of Highpoint's Securities Purchase Agreement, but instead was clearly referable to UBS Capital's July 16th letter which expressly reserved all of UBS Capital's legal rights. Thus, there is no legal basis for Highpoint's claim that there was an oral modification of Highpoint's obligation to pay amounts due on the debentures.
II. Global Light
Plaintiff claims that Global Light breached the Debenture Purchase Agreement by failing to provide Plaintiffs with written notice of certain transactions that allegedly constituted "Purchase Events", and thus deprived Plaintiffs of their ability to exercise the repurchase right. Plaintiffs seek damages and costs for what they claim are now "worthless" debentures. Global Light claims that Plaintiffs had actual notice of the events, or, alternatively, that issues of fact exist as to whether notice was provided. Furthermore, because the Debenture Purchase Agreement requires Plaintiffs to exercise the repurchase right "within ten business days of receipt of [Global Light's] notice," Global Light claims that Plaintiffs have waived their right to exercise the repurchase right because they did not adhere to the ten day rule after receiving actual notice of the Purchase Events. Accordingly, Global Light requests that Plaintiffa' motion for summary judgment be denied and that Global Light's motion for summary judgment be granted.
Because Global Light did not file a notice of motion, as required by Local Rule 6.1, Plaintiffs assert that Global Light's cross motion is procedurally inappropriate and effectively a surreply brief. Notwithstanding the technical violation, the Court is satisfied that the purposes of the rule have been satisfied as Global Light did file a statement pursuant to Local Rule 56.1 and has otherwise complied with the rules on this motion. See Holtz v. Rockefeller Co., Inc., 258 F.3d 62, 73 (2d Cir. 2001) ("A district court has broad discretion to determine whether to overlook a party's failure to comply with local court rules."). However, the Court does note that in moving for summary judgment, Global Light does not request any specific relief.
A threshold matter is whether the transactions in question were "Purchase Events" at all. Plaintiffs point to at least nine transactions involving Global Light, claiming that these were "Purchase Events" warranting written notice. While Global Light contends that at least two of the nine transactions were not "Purchase Events," it admits that Purchase Events did occur.
While Plaintiffss original position was that there were eleven transactions constituting Purchase Events, Plaintiffs concede that two of these transactions, numbers 3 and 8, which were debt settlements, were not Purchase Events if they did not involve the receipt of cash. (Pl.'s Reply Mem. at 19, n. 12.)
Under the Debenture Purchase Agreement, a "Purchase Event" is, inter alia, "any event, payment or other action giving rise to Excess Cash." (Moore Aff. Ex. D § 1.01(b)(i).) "Excess Cash" means "receipt by [Global Light] of cash or Marketable Securities from any source after the date hereof, including from dividends, sale of assets or securities." (Moore Aff. Ex. D § 1.01(b)(ii).) Citing the subjective intent of Global Light's Chief Executive Officer, Global Light insists that "Excess Cash"is limited to capital transactions and not cash required for Global Light's operations. (1st Blankstein Aff. ¶ 12.) This argument is without merit since "Excess Cash" is not ambiguous and cannot be changed by the subjective view of one of the parties. See Curry Road Ltd v. K Mart Corp., 893 F.2d 509, 511 (2d Cir. 1990).
Under the Debenture Purchase Agreement, "immediately upon the occurrence of a Purchase Event . . ., [Global Light] shall give written notice to [Plaintiffs] describing the Purchase Event and . . . the amount of Excess Cash." (Moore Aff. Ex. A § 1.01(a)) (emphasis added). The "Miscellaneous" section of the Debenture Purchase Agreement clearly provides that "[a]ll notices . . . to any party hereunder shall be in writing" and outlines specific instructions for mailing. (Moore Aff. Ex. A § 4.01.)
Global Light concedes that it did not comply with the strict letter of the written notice requirement, but argues that it emailed press releases to Plaintiffs, which announced these transactions and included relevant details. Furthermore, Global Light contends that funds received from loans were reflected in Global Light's financial statements, which were delivered to Plaintiffs pursuant to the Debenture Purchase Agreements. Global Light asserts that in providing this information, it effectively complied with the notice provisions.
Even if Plaintiffs received and read the emailed press releases, the information supplied by Global Light does not satisfy the written notice requirement in either letter or in spirit. Neither the press releases nor the financial statements specifically informed Plaintiff that a Purchase Event occurred or stated the amount of Excess Cash received, as required by the Debenture Purchase Agreement. Thus, the information provided by Global Light did not substantially comply with the written notice requirement. See Maxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373, 377-78, 509 N.Y.S.2d 507, 509 (N.Y. 1986) (finding a party in breach where it did not provide notice within the contractual time period, despite party's claim that the notice was reasonable and that the defect was not fatal).
Finally, Global Light argues that, notwithstanding its failure to provide written notice, Plaintiffs waived their right to compel a purchase. Global Light argues that irrespective of its own obligations to provide notice, Plaintiffs were required to exercise their repurchase right within ten days of receiving actual notice of the Purchase Events.
Global Light draws this creative yet frivolous argument from the language of the Debenture Purchase Agreement. The agreement states that:
From time to time immediately upon the occurrence of a Purchase Event . . ., [Global Light] shall give written notice to [Plaintiffs] describing the Purchase Event. . . . Each [Plaintiff] shall have the right to require, by written notice to [Global Light] within ten Business Days of receipt of [Global Light's] notice, [Global Light] to purchase the Applicable Amount . . . of Debentures. . . .
(Moore Aff. Ex. A § 1.01(a)) (emphasis added)
Noting that the final mention of "notice" is not modified by the term "written," Global Light contends that "actual" notice, as opposed to "written" notice, triggers Plaintiff's ability to exercise repurchase rights.
Global Light's reading of the agreement is incorrect. "Receipt of [Global Light's] notice" refers to the "written notice" that Global Light is obligated to give on the occurrence of a Purchase Event. If Plaintiffs had to exercise the repurchase rights on actual notice, Global Light's duty to inform Plaintiffs by written notice would be rendered meaningless. Furthermore, as noted above, the "Miscellaneous" section of the Debenture Purchase Agreement clearly states that "[a]ll notices . . . to any party hereunder shall be in writing" and provides specific instructions for mailing. (Moore Aff. Ex. A § 4.01) (emphasis added). Accordingly, the definition of "notice" must be governed by the contract and not by Global Light's assertion that "notice," standing alone, means "actual notice." Because Global Light did not provide written notice as defined by the strict terms of the contract, Global Light's waiver argument fails.
Conclusion
For the foregoing reasons, Plaintiffs' motion is granted and Defendant Global Light's motion is denied. Defendant Highpoint is liable for breach of the Securities Purchase Agreement and the Court awards Plaintiffs damages in the amount of $7.5 million plus the sum of all accrued and unpaid interest pursuant to the terms of the agreement. Defendant Global Light is liable for breach of the Debenture Purchase agreement and is liable to Plaintiffs in the amount of $7.5 million plus the sum of all accrued and unpaid interest pursuant to the terms of the agreement. Defendants are also liable for Plaintiffs' attorneys' fees and costs, the amount of which will be determined by further proceedings.
SO ORDERED.