Meaning of "Annualized"
The parties also are seeking partial summary judgment on various other "claims." A review of the motions reveals that these "claims" are not actual counts in the complaint or counterclaim. Rather, they are issues relating to certain counts or counterclaims. As such, they are not capable of resolution on summary judgment. Fed. R. Civ. P. 56. Nevertheless, I will treat the parties' motions as motions in limine with respect to any of these issues which can be resolved in that manner.
LabCorp and Upstate each seek a declaration that their interpretation of "annualize," as that term is used in the escrow agreement, is the correct interpretation. The escrow agreement provides that the distribution of the funds will be based on the "Purchaser's [LabCorp] annualized net sales on an accrual basis for the six (6) month period from the Closing Date through June 21, 1994 (the "Contingent Contract Period") generated from the Contingent Contracts [the health centers contracts] . . ." Escrow Agreement, § 3(e). LabCorp argues that the sales amount to be annualized should not include those sums from the accounts which had terminated their service contracts with LabCorp prior to June 21, 1994. The idea behind the creation of the escrow agreement was to provide a rebate in the purchase price if the health centers' business failed to continue. Because two of the health centers, HHH and CCI, would no longer be sending any business to LabCorp,
no reason exists for estimating what the value of their business would be on an annual basis.
Upstate takes a different view of the term. Upstate contends that "annualize" simply means doubling the sales figures obtained during the six month period. It states that this simple calculation was all that the parties contemplated by the term, and they did not provide for any exceptions to that formula. Upstate argues that LabCorp has invented a new definition of "annualize" solely for purposes of litigation.
The resolution of this issue hinges on interpretation of the escrow agreement. In the present case, the term "annualize" is ambiguous, and after consideration of the extrinsic evidence, I conclude that it cannot be decided prior to trial.
The term is not defined in either the purchase or escrow agreements, and the context of the agreements does not provide any further illumination on how the term is to be applied. The term is reasonably susceptible to the interpretations of both parties given the circumstances. LabCorp's interpretation is reasonable in light of the purpose behind the escrow agreement. Simply doubling the sales figures for the terminated contracts could give Upstate an undeserved windfall because the escrow agreement was designed to address the possibility of a loss of the health centers' business. On the other hand, Upstate's interpretation may be reasonable because it provides a simple and straight-forward means of calculating annual sales amounts based on the time period stated in the escrow agreement, which mentions nothing about including only those contracts which had not been terminated.
The extrinsic evidence in this case does not reduce the level of ambiguity in the term. The deposition testimony of various people from LabCorp and Upstate demonstrates that the parties may not have shared the same understanding of "annualized" when they concluded the agreements. Catherine Prvanov, a LabCorp employee, stated that no specific discussions occurred among the parties regarding the meaning of annualize but that she believed the sales figures would be doubled "provided that you thought business would continue." Prvanov Dep. at 157-58. Ms. Prvanov, however, also testified that everybody in the room during the closing of the agreements understood that the term annualize simply meant doubling the sixth month sales figures. Id. at 163. Dr. Levenston, testifying on behalf of Upstate, said that the meaning of the term was not discussed at the closing and that simply doubling the amounts "is implicit in the word." Levenston Dep. 9/3/96 at 101. The testimony does not reveal that anyone involved had a clear and expressed understanding of the term "annualize." See Bluefield Assocs. v. Rarco-Bluefield, 835 F.2d 873, 1987 WL 24393 at *2 (4th Cir. 1987) (holding that question of parties' differing definitions of annualized was an appropriate jury issue).
LabCorp also seeks a ruling that Upstate's recovery be limited to $ 200,000 because, pursuant to the escrow agreement, Upstate could have received no more than this amount from the escrow account. In addition, LabCorp asserts that Upstate is not entitled to punitive damages for a simple breach of contract. LabCorp is correct on both contentions.
The award of damages for a breach of contract seeks "to put the victim where he would have been had the breach . . . not taken place." Chronister Oil Co. v. Unocal Refining & Marketing, 34 F.3d 462, 464 (7th Cir. 1994). Given this specific objective, an award of more than $ 200,000 to Upstate, if it should prevail, would be unjust. If LabCorp had used its best efforts to retain the health centers' business and, in fact, had retained that business, Upstate would have received no more than $ 200,000 from the escrow fund. Escrow Agreement § 3.5(e). Thus, to place Upstate in the position in which it would have been absent LabCorp's breach will require an award of damages no greater than $ 200,000. Without any other causes of action independent of its breach of contract claim,
Upstate's recovery is limited to the amount specified in the escrow agreement.
Furthermore, Upstate is not entitled to punitive damages. In New York
, punitive damages for a breach of contract may be recovered only if
(1) the defendant's conduct is actionable as an independent tort,