The opinion of the court was delivered by: MILTON SHADUR, Senior District Judge
MEMORANDUM OPINION AND ORDER
Following this Court's grant of summary judgment in favor of
Lexent, Inc. ("Lexent") as to all claims asserted against it by
Annecca, Inc. and its co-plaintiffs*fn1 (collectively
"Annecca," treated after this sentence as a singular noun for
convenience), Lexent has moved for summary judgment under
Fed.R.Civ. P. ("Rule") 56 as to its Counterclaim.*fn2 Lexent seeks
through the Counterclaim to recover expenses it incurred in
preparing to acquire ownership interests in Annecca, Inc. and its affiliated
companies pursuant to a 29-page Stock Purchase Agreement
("Agreement"). Lexent terminated the Agreement before completing
the acquisition because of Annecca's failure to fulfill
conditions precedent as to (1) Annecca's net worth and (2) the
accuracy of material representations and warranties in the
Counterclaim Counts I and II seek to recover fees that Lexent
incurred in reliance on Annecca's anticipated fulfillment of its
obligations under the Agreement on alternative theories that
Annecca's failure to do so (1) gives rise to a claim under the
Agreement's indemnification provision or (2) constitutes a breach
of contract. Counts III and IV are based on Annecca's refusal to
return certain computer equipment that Lexent provided Annecca in
anticipation of the acquisition. Annecca has cross-moved for
summary judgment as to the latter two counts on the ground that
Lexent is equitably estopped from asserting claims relating to
that equipment. With Lexent's motion now having been fully
briefed,*fn3 this opinion deals with the Counterclaim counts sequentially.
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)). 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)).
Where parties have cross-moved for summary judgment, the same
principles apply (Int'l Bhd. of Elec. Workers, Local 176 v.
Balmoral Racing Club, Inc., 293 F.3d 402, 404 (7th Cir. 2002)).
That is, summary judgment is proper in favor of either movant if
the record, when viewed from the nonmovant's perspective,
demonstrates that there is no genuine issue of material fact and
that the movant would be entitled to a judgment as a matter of
law (id.). Background
This Court's opinion issued in March of this year ("Opinion,"
307 F. Supp.2d 999, 1003-05) sets out the background of the
parties' dispute in some detail. There being no need to repeat
that discussion in its entirety, the facts having relevance to
the current motions are set out below.
On February 14, 2001 Lexent executed 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 as "Annecca") (L. St. ¶ 9; Agreement Art. II).
Before entering into the Agreement Lexent had engaged the
services of the law firm of Schenck, Price, Smith & King, LLP
("Schenck Price") to assist in satisfying its obligations under
the Agreement (L. St. ¶ 21).
To perform the necessary due diligence review and to audit
Annecca's financial statements, books and records, Lexent
retained the services of the PricewaterhouseCoopers LLP
("Pricewaterhouse") accounting firm (L. St. ¶ 23).
Pricewaterhouse began its in-depth review of Annecca's financial
records, and on February 23, 2001 it sent Lexent a memorandum
outlining some "preliminary observations" as to its analysis (A.
Ex. E). That memorandum set out some perceived flaws in Annecca's
records and financial statements, stating in part that "[d]ue to the focus on growth, there has not been a focus on
accounting policies, procedures, controls and general
organization of financial source documents" (id.), and
concluding with a promise to continue the analysis "as more
information becomes available."
While the parties were still in the executory phase of the
Agreement, Lexent requested that Annecca's computer server be
replaced because of its belief that the existing server was
inadequate to perform the operations that Lexent anticipated to
be necessary following the acquisition (A. St. ¶ 11). Lexent
purchased various pieces of computer equipment, at least some of
which were delivered to Annecca (A. St. ¶ 12; L. Ex. D). Annecca
hired an outside consultant to install the new equipment (L. St.
¶ 27). After installing the new equipment, which included two new
network servers and related hardware and software, the consultant
discarded various computer components that had been part of
Annecca's old computer server (L. St. ¶ 28; A. St. ¶¶ 14, 15).
On March 29, 2001 Lexent notified Annecca by letter that it was
exercising its Agreement § 9.1(b) termination option, asserting
two main reasons for its choice (Opinion at 1004-05):
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 current financial
Two weeks later, on April 16, 2001, Lexent demanded that Annecca reimburse it for the cost of the computer equipment Lexent had
provided (L. St. ¶ 29). In response Annecca sent Lexent a letter
stating that it would not return the new computer equipment, as
the equipment was "in operation and critical to [Annecca's]
business" (L. Ex. D). It did state however that if Lexent wanted
the equipment returned it would have to pay Annecca for the cost
of installing the equipment provided by Lexent and for the cost
of obtaining replacement equipment (L. St. ¶ 30; L. Ex. D). To
date Lexent has not received any payment for the equipment, which
is still being used by Annecca (L. St. ¶ 31).
Annecca commenced this lawsuit in July 2002, asserting that
Lexent had wrongfully terminated the Agreement. Lexent in turn
asserted various counterclaims and moved for summary judgment as
to Annecca's claims. Applying New York law as called for by the
Agreement § 11.9 choice of law provision, this Court granted
Lexent's motion for summary judgment as to Annecca's claims,
finding that Lexent was entitled to terminate the Agreement
because Annecca had failed to satisfy certain conditions
precedent (Opinion at 1005-09) and because offering Annecca an
opportunity to cure those failures would have been futile
(Opinion at 1009-12).
Of particular relevance here, Opinion at 1006-07 held that
Annecca had failed to satisfy the conditions precedent (1) that
Annecca have a net worth of $9 million as of the closing date (Agreement § 7.11) and (2) that all of Annecca's representations
and warranties would have to be true, complete and correct as of
the closing date (Agreement § 7.1). Opinion at 1007-08 further
held that the failure of the latter condition occurred because
Annecca had both (1) failed to produce 2000 Financial Statements
(a defined term) that complied with the requirements of Agreement
§ 4.4(a) (i) and (2) "clearly breached its Agreement § ...