PERRY DRUG STORES, INC. v. CSKG, INC. No. 98-71782.
83 F.Supp.2d 873 (2000)
PERRY DRUG STORES, INC., a Michigan corporation, Plaintiff, v. CSKG, INC., a Delaware corporation, and NP Holding Corp., a Delaware corporation, Defendants.
United States District Court, E.D. Michigan, Southern Division.
February 4, 2000.
Craig L. John, Andrew W. Mayoras, Dykema Gossett, Bloomfield Hills, MI, for Plaintiff.
Todd R. Mendel, Barris, Sott, Denn & Driker, Detroit, MI, for Defendants.
FEIKENS, District Judge.
This suit arises from the alleged breach of a contract of indemnification between defendant CSKG, Inc., (CSKG) and plaintiff Perry Drug Stores, Inc. (Perry). In an earlier opinion, I dismissed former defendant CSKG Auto, Inc., a parent corporation of CSKG, for lack of personal jurisdiction. See Opinion and Order of May 6, 1999. Because the two remaining defendants in this case are both dissolved Delaware
Much of the background in this case is contained in my May 6, 1999 order and need not be repeated here. For the present purpose, it is sufficient to note the following:
Perry was a Michigan corporation in the retail pharmaceutical business. Prior to 1988, Perry owned a series of subsidiaries (referred to as the "Auto Works Division") that operated auto supply retail stores in the Midwest. On January 22, 1988, Perry entered into a purchase agreement with defendant CSKG, then known as Northern Retail Corporation, for the sale of its Auto Works Division. Relevant to Perry's claim for indemnification, the purchase agreement contained two clauses. First, the agreement stated:
Purchase Agreement dated January 22, 1988, p. 3 ¶ 2(b) (hereinafter "Purchase Agreement"). Second, the agreement stated:
Purchase Agreement, p. 35 ¶ 10(b).
Two other aspects of the purchase agreement must also be noted. The agreement contained an assignment provision that read:
Purchase Agreement, p. 42-3 ¶ 17(d) (emphasis added). The agreement also contained a guarantee clause signed by defendant NP Holdings Corporation, then known as Northern Pacific Corporation, CSKG's parent corporation.
Prior to the closing of the purchase of the Auto Works Division, CSKG created a wholly owned subsidiary, Auto Works Holdings, Inc. (Auto Works) and assigned to Auto Works "all of the right title and interest" CSKG possessed in the purchase agreement with Perry. See Assignment and Assumption Agreement dated February 26, 1988, p. 1 ¶ 1. In return, Auto
On February 29, 1988, Perry closed the sale of the Auto Works Division. Significantly, however, Perry did not close the sale with CSKG — it closed the sale with Auto Works. See General Assignment and Assumption of Liabilities dated February 29, 1988. The third paragraph of the closing document stated:
See General Assignment and Assumption of Liabilities dated February 29, 1988, p. 1 (emphasis added). Pursuant to this formulation of the requirements of the purchase agreement, Auto Works signed the closing document, containing provisions in which Auto Works agreed to assume and pay or discharge the liabilities and obligations of Perry relating to the operations of the Auto Works Division and in which Auto Works agreed to indemnify Perry for its failure to perform its obligations.
On that same day, NP Holdings, in a signed letter, affirmed its guarantee of the "full and complete performance by [CSKG] and [Auto Works], as the case may be...." See Letter of Northern Pacific Corporation, now known as NP Holdings, dated February 29, 1988, attached as Exhibit D to the Affidavit of Barry Brett.
After the closing, the parties continued to undertake the requirements of the purchase agreement including preparation of a closing balance sheet. In late 1989, in an effort to "narrow the scope of the differences" concerning the closing balance sheet and to "provide for additional time for the parties to resolve such differences," see First Amendment to Purchase Agreement dated December 14, 1989, Auto Works and Perry, but not CSKG, signed an amendment to the purchase agreement altering their responsibilities under the purchase agreement. The amendment recited that Auto Works "did assume all of the obligations of [CSKG] under the Purchase Agreement." Id. It should also be noted that NP Holdings, but not CSKG, signed a separate consent to the amendment of the purchase agreement. Id.
The amendment to the purchase agreement did not resolve the parties' dispute, and in 1991, Perry filed an action for declaratory judgment, requesting that this court determine the propriety of Perry's proposed closing balance sheet and rule that objections raised by Auto Works and CSKG were contrary to the purchase agreement. Both CSKG and Auto Works were named as defendants in the declaratory action. CSKG and Auto Works filed an answer to the declaratory judgment and a counterclaim. The case was eventually settled in a document signed by Perry, Auto Works and CSKG. See Release and Settlement Agreement dated January 21, 1992.
Sometime thereafter, the parties completed all of the requirements of the purchase agreement. Several years later, however, and after several further transfers of the Auto Works Division,
Relevant to this opinion, defendant CSKG filed a motion for summary judgment, contending first that the indemnity obligation set forth in paragraph 10(b) of the purchase agreement did not attach until closing — at which time the obligation was in fact undertaken by Auto Works rather than CSKG — and second, that the assignment of its rights and obligations under the purchase agreement to Auto
III. SUMMARY JUDGMENT STANDARD
Courts properly grant summary judgment when the moving party establishes through pleadings, depositions, answers to interrogatories, admissions, and affidavits that "there is no genuine issue as to any material fact, and that the moving party is entitled to a judgment as a matter of law." Mauro v. Borgess Medical Center, 137 F.3d 398, 401 (6th Cir.1998), quoting Federal Rule of Civil Procedure 56(c). Under Rule 56(c), a defendant bears an initial burden of demonstrating that an essential element of the non-moving party's case is lacking. Kalamazoo River Study Group v. Rockwell Int'l Corp., 171 F.3d 1065, 1068 (6th Cir.1999) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). The nonmoving party must then show that there is in fact a genuine issue for trial, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), and must identify specific facts, supported by evidence. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992); Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505. In deciding a motion for summary judgment, the court must view the factual evidence in a light most favorable to the nonmoving party. Mount Elliott Cemetery Ass'n. v. City of Troy, 171 F.3d 398, 402-3 (6th Cir.1999) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)).
A. The Executory Nature of the 1988 Purchase Agreement
CSKG's first argument in favor of summary judgment is that the indemnity provisions of the purchase agreement did not attach until closing. Because Perry closed with Auto Works rather than CSKG, defendant reasons, CSKG's indemnity obligation never attached, and is not now enforceable against CSKG. I agree.
Purchase agreements are by nature executory. See, e.g., In re Becknell & Crace Coal Co., Inc., 761 F.2d 319, 321-22 (6th Cir.1985) (noting the executory nature of purchase agreements in the context of an inquiry under 11 U.S.C. § 110). Notwithstanding the language of the purchase agreement, stated in the present tense, that "Purchaser hereby indemnifies and agrees to hold Perry harmless from and against any and all liabilities...", Purchase Agreement, p. 35 ¶ 10(b), Perry cannot reasonably contend that this obligation was enforceable against CSKG until such time as the Auto Works Division was actually transferred into CSKG's possession. Indeed, ¶ 2(b) of the purchase agreement expressly contemplated that CSKG's assumption of liabilities and obligations would be accomplished through the execution of an instrument at closing. Further, until closing, Perry was expressly required to continue to operate the Auto Works Division in conformity with its ordinary course of business, see Purchase Agreement, p. 21-22 ¶ 7(a), and arguably would have been required to indemnify CSKG for any failure to do so. See Purchase Agreement, p. 34-35 ¶ 10(a).
Clearly, then, CSKG's indemnity obligations would not have attached until closing. When, just prior to closing, Perry agreed to close the deal and complete the sale with Auto Works rather than CSKG, Auto Works became liable for the indemnity provision; the closing document between Perry and Auto Works contains such an indemnity provision. No comparable closing document between Perry and CSKG exists.
In response, Perry notes that the purchase agreement was a binding, enforceable
In the alternative, assuming that CSKG's obligation to indemnify would have attached at the signing of the purchase agreement rather than at the closing on February 29, 1988, summary judgment is also warranted on the theory of novation.
The following four elements are necessary to establish novation under Michigan law:
Leila Hosp. and Health Center v. Xonics Medical Systems, Inc., 948 F.2d 271, 274 (6th Cir.1991) (citing Harrington-Wiard Co. v. Blomstrom Manufacturing Co., 166 Mich. 276, 131 N.W. 559 (1911)); Devitt v. Quirk, 105 Mich.App. 94, 306 N.W.2d 405 (1981). Neither party disputes elements (1) or (2). Perry contends, however, that it did not consent to the substitution of Auto Works for CSKG (element (3)) and that it did not intend that the closing with Auto Works rather than CSKG would extinguish CSKG's obligations under the purchase agreement (element (4)).
The question whether a novation exists "rests in the intention of the parties as it may be gathered from the surrounding and subsequent circumstances and conduct." Gorman v. Butzel, 272 Mich. 525, 529, 262 N.W. 302 (1935). Consent of the parties to effect a novation need not be expressly stated in writing. Keppen v. Rice, 257 Mich. 299, 241 N.W. 156 (1932).
In this case, notwithstanding the fact that Perry entered into a purchase agreement with CSKG, Perry closed the sale of the Auto Works Division with Auto Works. Both NP Holdings and Auto Works executed closing documents stating their respective obligations to guarantee performance of the contract and indemnify Perry in the event of non-performance. CSKG did not execute such a document. In the First Amendment to Purchase Agreement, Perry and Auto Works signed the amendment to the purchase agreement. CSKG did not. This is "quite persuasive" evidence that CSKG's rights and obligations under the purchase agreement had been released. Gorman, 272 Mich. at 529, 262 N.W. 302 (finding that "intention to cause a novation is quite persuasively
In response, Perry raises several points. First, Perry submits the affidavit of Barry Brett, counsel for Perry at the time of the signing of the purchase agreement. That affidavit states that "It was never intended by Perry that [CSKG] would be released from any of its obligations under the Purchase Agreement." See Plaintiff's Supplemental Brief on Preclusion and Related Issues, Ex. A, ¶ 27. Given the unequivocal nature of Perry's actions in and around 1988 and 1989, however, Brett's self-serving affidavit filed approximately 10 years after the events in question cannot create a triable issue of fact as to Perry's intent.
Second, Perry contends that correspondence between CSKG and Perry regarding the purchase agreement suggests that CSKG understood that CSKG remained obligated under the purchase agreement. For instance, the letter of February 29, 1988 from NP Holdings (then Northern Pacific Corp.) to Perry affirming its guarantee obligation stated:
(Emphasis added). Particular attention to the highlighted phrases, however, reveals that this letter does not state whether CSKG in fact remained obligated by the purchase agreement.
Similarly, Perry contends that an opinion letter from an attorney for NP Holdings dated February 29, 1988, see Plaintiff's Supplemental Brief on Novation, Ex. G, and the language of the consent executed by HP Holdings in connection with the First Amendment to Purchase Agreement, evinces the intent of the parties for CSKG to remain liable under the indemnity obligation of the purchase agreement. The letter states, in relevant part:
Id. (emphasis added). The language of the consent executed by HP Holdings states:
Third, Perry appears to contend that in its closing document with Auto Works, Perry did not in fact assign to Auto Works all of the rights contemplated in the purchase agreement or acquire from Auto Works all of the assumptions required in the purchase agreement. In so arguing, however, Perry ignores the fact that the General Assignment and Assumption of Liabilities between Auto Works and Perry is the only document in the record that transfers the tangible and intangible assets of the Auto Works Division pursuant to the purchase agreement; it is also the only document in the record in which Perry acquires the assumptions of obligations set forth in the purchase agreement. Furthermore, Perry's position is clearly untenable given the text of the First Amendment to Purchase Agreement, signed by Perry, stating that Auto Works "did assume all of the obligations of [CSKG] under the Purchase Agreement." Perry cannot now be heard to suggest otherwise.
Finally, Perry contends that certain actions of CSKG, namely its objections to the closing balance sheet prepared by Perry, its defense of Perry's 1991 lawsuit
In short, Perry's counter arguments fail to create a genuine issue of material fact as to the parties' intent to substitute Auto Works' indemnity obligation for that of CSKG. The import of the contractual documents is clear.
For the foregoing reasons, CSKG is entitled to summary judgment as to the contractual indemnification claim. Summary judgment is also granted as to Perry's state tort claims for unjust enrichment, common law indemnity, breach of an implied contract to indemnify, as the duty of CSKG alleged in each of these counts is derivative of Perry's contractual claim. CSKG is dismissed from this case with prejudice.
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