The opinion of the court was delivered by: MILTON SHADUR, Senior District Judge
MEMORANDUM OPINION AND ORDER
Annecca, Inc. and its co-plaintiffs*fn1 (collectively "Annecca,"
treated after this sentence as a singular noun for convenience) have sued
Lexent, Inc. ("Lexent"), asserting that Lexent breached a 29-page
single-spaced printed Stock Purchase Agreement ("Agreement"), which
called for Lexent's acquisition of the ownership interests in Annecca,
Inc. and its affiliated companies, when Lexent terminated the Agreement
and refused to fulfill the remainder of its obligations. Lexent has since
moved for summary judgment under Fed.R.Civ.P. ("Rule") 56 on the
premise that it was entitled to terminate the Agreement and to cease
performance pursuant to its terms because Annecca had not satisfied
several of the conditions precedent specified there,
Analysis shows that Annecca has not raised a genuine issue of material
fact as to whether it had already fulfilled all of the conditions
precedent in dispute, or as to whether it could reasonably have done so if Lexent had provided it with a cure
opportunity under the Agreement. Accordingly Lexent's motion is granted,
and this action is dismissed.
Every Rule 56 movant bears the burden of establishing the absence of
any genuine issue of material fact (Celotex Corp. v. Catrett,
(477 U.S. 317, 322-23 (1986)).*fn2
For that purpose courts consider the
evidentiary record in the light most favorable to nonmovants and draw all
reasonable inferences in their favor (Lesch v. Crown Cork & Seal
Co., 282 F.3d 467
, 471 (7th Cir. 2002)). But to avoid summary
judgment a nonmovant "must produce more than a scintilla of evidence to
support his position" that a genuine issue of material fact exists
(Pugh v. City of Attica, 259 F.3d 619
, 625 (7th Cir. 2001)) and
"must set forth specific facts that demonstrate a genuine issue of
triable fact" (id.). Ultimately summary judgment is appropriate only if a
reasonable jury could not return a verdict for the nonmovant
(Anderson v. Liberty Lobby. Inc., 477 U.S. 242
, 248 (1986)).
What follows is a summary of the facts viewed of course in the light most
favorable to nonmovant Annecca,
Annecca, Inc. and its affiliated companies are in the business of
outsourcing local telecommunications services (L. St. ¶ 2). Lexent is
a corporation that provides outsourced local telecommunications network
services (L. St. ¶ 1). Federal jurisdiction is based on the requisite
total diversity of citizenship between all plaintiffs on the one hand and
Lexent on the other.
On February 14, 2001 Lexent entered into the Agreement with all of the
owners of the stock of Annecca, Inc. and its related companies, pursuant
to which Lexent was to acquire all of the ownership interests in those
entities (again for convenience collectivized here as "Annecca")(L. St.
¶ 8; Agreement Art. II).*fn3 Annecca and Lexent planned the Closing
(a defined term) of the deal on April 1, 2001, although that date could
have been delayed based on several delineated contingencies (Agreement
Agreement Arts. VII and VIII expressly stated that each side's
performance at Closing was subject to the satisfaction of several
conditions precedent by the other side* Many of the conditions precedent
created identical responsibilities for both parties. Thus Agreement §§ 7.1 and 8.1 were captioned "Truth
of Representations and Warranties" and read:
The representations and warranties of [Sellers in
Agreement § 7.1, Buyer in Agreement § 8.1]
contained in this Agreement, and all
representations and warranties set forth in any
Exhibit or Schedule attached hereto, shall be
true, complete and correct as of the Closing Date
except as otherwise set forth herein, without the
necessity of any amendment or modification . . .
And Agreement §§ 7.2 and 8.2 were captioned "Performance" and
set out another condition precedent applicable to both parties:
Each of the agreements, obligations, conditions
and covenants to be performed or complied with by
[Sellers or any of them in Agreement § 7.2,
Buyer in Agreement § 8.2] on or before the
Closing Date pursuant to the terms hereof shall
have been duly performed or complied with on or
before the Closing Date. . . . Other
conditions precedent were party-specific.
Importantly, Agreement § 7.11 required Annecca to have a Net
Worth (as defined by the Agreement) of at least $9 million as of the
Closing Date. And to return to a now-critical two-way provision,
Agreement § 9.1 provided that either party could terminate the
Agreement before the Closing Date if the other party had not met its
particular conditions precedent:
Notwithstanding any other provision contained
herein to the contrary, this Agreement may
terminate at any time prior to the Closing
Date . . . (b) by Buyer, if any of the conditions
provided in Article VII hereof have not been met by
the Closing Date; or (c) by Sellers, if any of the
conditions set forth in Article VIII shall not have
been met by the Closing Date.
As part of its acquisition process, Lexent enlisted the services of two
separate teams from Pricewaterhousecoopers LLP ("Pricewaterhouse") to assist with due diligence and to audit
Annecca (L. St. ¶¶ 22-23). Pricewaterhouse carried out its
assignments and reported to Lexent before the scheduled Closing Date.
On March 29, 2001 Lexent notified Annecca by letter (L. Ex. J,
confirming an earlier telephonic advice) that it was exercising its
Agreement § 9.1(b) termination option (A. St. ¶ (49; L. St. ¶
55). Lexent asserted two main reasons for its choice, though it said that
they did not represent "a complete list of Lexent's reasons for
1. Annecca's net worth was "very substantially
and materially less than the $9 million threshold
at the end of 2000," as required by the Agreement.
2. Annecca's records and financial statements
were so incomplete, and in some instances
inaccurate, that they could not provide Lexent with
a sufficient understanding of Annecca's critical
Michael Annecca spoke with a Lexent representative that same day,
stating that Annecca still wished to proceed with the acquisition and
inquiring about what he could do to change Lexent's decision (A. St.
¶ 50). On April 4, 2001 Annecca also sent a letter to Lexent (L. Ex.
K) stating that Annecca was sincerely disappointed with Lexent's decision
to terminate the Agreement and expressing concern that Lexent had made
that decision "based on flawed information" (A. St, ¶ 51). Lexent
did not respond to the April 4 letter, its representative having
previously told Michael Annecca that its termination decision was final
(A, St. ¶¶ 50, 52).
Application of Rule 56 Standards
Agreement § 11.9 states (and neither party disputes) that New York
law controls the present dispute (L. St. ¶ 18). And under New York
law a party bringing a breach of contract claim must prove the existence
of a contract, its own performance, breach by the other party and damages
(First Inv. Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 168
(2d Cir. 1998)).
As already stated, Agreement Art. VII and VIII explicitly designate
several of each party's obligations as "conditions precedent" to the
other party's performance. In New York (as in all other jurisdictions) an
express condition precedent is an act or event agreed upon by the parties
that, unless excused, must occur before a duty to perform a subsequent
promise arises (Oppenheimer & Co. v. Oppenheim, Appel, Dixon
& Co., 660 N.E.2d 415, 418 (N.Y. 1995)). Express conditions
precedent must be literally performed substantial compliance is
not enough to compel the other party's performance of its resultant
obligation (id. at 418-19). And although such a result may sometimes seem
harsh, courts should be wary of reorganizing or excusing express
conditions precedent and thereby upsetting the will of the parties, because the operation of conditions precedent is generally
integral to a contract (id. at 418).
Agreement § 9.1(b) also specifically granted Lexent the right to
terminate the Agreement if Annecca failed to fulfill any one.
of the conditions precedent listed there (Marcantonio v.
Rousso, 684 N.Y.S.2d 567
, 568 (App. Div. 1999). Hence Lexent cannot
be liable to Annecca for assertedly breaching the Agreement if Annecca
cannot raise a genuine issue of material fact as to its having performed
all of the conditions precedent to Lexent's obligations
(Rachmani Corp. v. 9 E. 96th St. Apartment Corp., 629 N.Y.S.2d 262,
269 (App. Div. 1995); Morse v. Ted Cadillac, Inc.,
537 N.Y.S.2d 239, 240 (App. Div. 1989)). And this opinion's ensuing account
of the relevant facts reveals that even when the record is viewed in
Annecca's favor, Annecca unquestionably failed to meet more than one of
the conditions precedent to Lexent's obligations,
Annecca's Failure To Satisfy Conditions Precedent
First and of vital importance, Agreement § 7.11 required Annecca to
have a Net Worth of "at least Nine Million Dollars" as of the Closing
Date. "Net Worth" was defined as "the stockholders' equity or members'
capital . . . as shown on the Closing Balance Sheets" (Agreement §
In its March 9 due diligence report Pricewaterhouse preliminarily
estimated Annecca's Net Worth at about $8.75 million (L. St. ¶ 29; L. Ex. E at L00012). Pricewaterhouse's
more precise March 28 work product its audit report-placed
Annecca's Net Worth at December 31, 2000 at only a bit over $7.2 million
(L. St. ¶ (32; L. Ex. G at L09535). Even Annecca's own accountants
ultimately estimated its Net Worth for ...