MEMORANDUM AND ORDER
PLATT, District Judge.
THE NATURE OF THE CASE
The alleged breach of a contract to direct a television movie precipitated this action which came on for a bench trial on November 12, 1985. The Court's jurisdiction arises under 28 U.S.C. § 1332(a)(2), as plaintiff is a citizen of the United Kingdom, defendants are citizens of the State of New York and the amount in controversy exceeds $10,000.
The parties to this litigation were collaborators in the production of a television film, entitled, "Miracle in a Manger." Defendant Thomas Travers (Travers) wrote the screenplay; defendants Miam Productions, a New York limited partnership and Terence O'Leary
When the project was first conceived in the summer of 1984 Travers selected Leszek Burzynski (Burzynski), a British director with both BBC and American television credits, to direct the picture. Burzynski and Travers signed a letter agreement dated August 22, 1984. (Pl's Ex. 1). The agreement provided that Burzynski's services would be exclusively available from August 22 through September 15, 1984 for a stated fee of $25,000 payable in two installments, plus reimbursement of reasonable pre-production and production period expenses and 5% of the net profits of the film. If defendants were unable to obtain financing prior to September 15, the parties agreed that Burzynski would "be offered first refusal to direct." Pl's Ex. 1.
Travers was ultimately unable to obtain financing by the September 15 deadline. In October 1984 O'Leary, a practicing attorney in Walton, New York, became a general partner in Miam Productions and spearheaded the fund-raising efforts. Apparently by mid-November defendants had obtained sufficient backing to proceed with production and by letter dated November 12, 1984 defendants offered plaintiff the position of director. (Pl's Ex.2).
The terms of the offer were $15,000 payable weekly, purportedly reflecting offers the defendants had received from "other persons." Pl's Ex. 2. Following Travers' signature at the end of the letter was an acceptance clause with a blank signature line.
In a reply dated November 20, 1984, Burzynski wrote that he was "thrilled to hear
Deeming these variations from the terms of the offer to be a counteroffer whose terms were unacceptable, see Pl's Ex. 4, defendants proceeded to secure the services of another director — in this instance, Mr. Travers, himself.
Subsequently, on March 5, 1985 Burzynski sued the defendants for breach of contract. In their answer and at trial, defendants' first affirmative defense was that they had complied with the terms of the original agreement because the $15,000 offer to Burzynski was a bona fide offer to direct, and when Burzynski rejected it he terminated his right of first refusal and extinguished the letter agreement.
A. Contract Interpretation.
In the interpretation of contracts, the paramount aim of the court is to discern and implement the intent of the parties. To that end the court will examine the four corners of the document and consider parol evidence to clarify ambiguous terms and amplify the parties' intent. Our goal is to achieve a "`practical interpretation of the expressions of the parties to the end that there be a realization of [their] reasonable expectations.'" Tantleff v. Truscelli, 110 A.D.2d 240, 244, 493 N.Y.S.2d 979, 983 (2d Dep't 1985) (citation omitted).
Applying these principles to the case at bar, we look first at the document itself. The language of the August 22, 1984 letter agreement between Travers and Burzynski does not set forth with specificity the operating mechanics of the right of first refusal. The pertinent portion reads:
Pl's Ex. 3. No terms spell out the notice provisions; no clause details whether the right was triggered by a bona fide third party offer, and if so there is no mention of the alternatives if an acceptable bona fide third party offer was not forthcoming.
In his post-trial memorandum of law, plaintiff gives the following interpretation of the agreement:
Pl's Memo. at 5.
Defendants' interpretation of the contract, like the wind on Long Island Sound,
Def's Mem. at 2.
In their post-trial reply memorandum, submitted two weeks later, defendants' interpretation of the contract had changed dramatically:
Def's Reply Mem. at 2-3.
The Court is thus confronted with an array of sources upon which to draw in its task of conjuring up the parties' intentions as they are embodied in the August 22 letter agreement. In arriving at its interpretation the Court relies not only on the document and parol evidence, but on common usage and common sense.
A right of first refusal is generally defined as the "right to meet any other offer." BLACK'S LAW DICTIONARY 1191 (5th ed. 1979). Through its frequent appearance in contracts, particularly those pertaining to real estate, this right has been the repeated subject of judicial scrutiny and in the common law has acquired its own arcane meaning. The holder of such a right is usually deemed to be entitled to match any acceptable bona fide third party offer received by the tendering party. See generally, 1A A. CORBIN, CORBIN ON CONTRACTS § 261 (1963). Common usage, the plaintiff, and the defendants in their original post-trial memorandum all present a consistent interpretation, and the Court holds that Burzynski's right of first refusal entitled him to meet any bona fide third party offer to direct that was acceptable to the defendants.
If, therefore, defendants had a bona fide offer to direct at $15,000 whose terms they offered to Burzynski for first refusal, no breach occurred. Plaintiff concedes this and argues in the alternative that if the offer was legitimate, he properly accepted because in his November 20 reply, (Pl's Ex. 3), he agreed to the fee, the "only terms of the alleged offer he knew about." Pl's Mem. at 8. Plaintiff's suggestions as to payment terms and a points participation arrangement were simply inquiries about terms which had been part of the original agreement and were omitted from defendants' cryptic November 12 communication. Id.
Thus, the factual question of whether there was a bona fide offer is the legal pivot point of this case. If there was a bona fide third party offer and defendants'
A review of recent New York case law revealed that in a similar case involving a right of first refusal the Court of Appeals held that where an optionee agreed to the same price and payment terms offered by a third party, but varied the security collateralizing the deferred payments, the acceptance was "not upon the same terms and conditions `necessary to properly invoke the right of first refusal.'" Camden Co. Ltd. v. Princess Properties, Int'l Ltd., 38 N.Y.2d 961, 963, 348 N.E.2d 609, 610, 384 N.Y.S.2d 152, 153 (1976).
In the case at bar the variation was equally critical. Although a change in method of payment may not have been material, plaintiff's request for 3½% of the net profits from the movie which plaintiff estimates would be $1,650,000, see Pre-Trial Order Ex. C, would amount to an additional $57,750 — a substantial difference from the terms of the offer. This Court, deciding the issue as would a New York State Court, see Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), is compelled to conclude that there was no acceptance by the plaintiff, merely a counteroffer which was unacceptable to defendants. A rejection of an offer upon like conditions as those of a bona fide offer made by a third party would satisfy and terminate plaintiff's right of first refusal. See, e.g., Allright New York Parking, Inc. v. Shumway, 94 A.D.2d 962, 963, 463 N.Y.S.2d 968, 970 (4th Dep't 1983).
Conversely, if there was not a bona fide third party offer, then the defendants in effect perpetrated a fraud on the plaintiff,
In summary, if there was a bona fide offer, the case must be decided in favor of the defendants, while an opposite outcome is warranted if there was no bona fide offer.
B. Allocating The Burden of Proof.
The allocation of the burden of proof on this issue is critical to the outcome of the litigation. Based on the pleadings and the opening statements
Defendants acknowledged their burden at the trial and attempted to meet it by introducing into evidence a letter from Mr. William Rebane, an independant producer and owner of a studio facility in Wisconsin called "The Shooting Ranch, Ltd," offering to direct for $15,000. The Court refused to accord the document any weight because proof of a material fact may not be accomplished through hearsay. Fed.R.Evid. 802.
Recognizing that testimonial proof with its attendant right of cross-examination was required in order to satisfactorily establish whether Mr. Rebane was a ready, willing and able director, and to prevent defendants from defrauding the plaintiff and wrongfully extinguishing an enforceable legal right, see, e.g., Loika v. Howard, 103 A.D.2d 874, 875, 477 N.Y.S.2d 919, 921 (3d Dep't 1984), the Court offered defendants the opportunity to subpoena Mr. Rebane for a deposition that could then be used as evidence. Trial Tr. at 12-13, 41-44.
Defendants declined to exercise this option. The attorney for defendants rested his case at the conclusion of the one day trial and has made no application to submit newly discovered evidence on the issue of the bona fide third party offer. Because the defendants shouldered the burden of proof on this issue, the failure to introduce any cognizable evidence of a $15,000 bid to direct from a third party means that their affirmative defense fails and they are liable to the plaintiff for breaching the August 22, 1984 letter agreement.
The defendants having breached the contract are liable to the plaintiff for contract damages. However, notwithstanding the claim in his post-trial reply memorandum to 5% of the net profits of the film, (Pl's Reply Mem. at 4), Burzynski's damages are limited to $25,000. At the outset of the trial plaintiff's attorney waived plaintiff's claim for reimbursement of reasonable pre-production expenses, if any, and 5% of the net profits of the film. See Trial Tr. at 3, 5 ("I would like to say that there are elements of our damage claim which we have decided to withdraw ... We are alleging in our pretrial order to delete our claim for consequential damages. This case really involves $25,000.").
As for the defendants' claim that any damage award should be reduced by the amount of reasonable expenses the plaintiff would have incurred in carrying out the contract, (Pl's Reply Mem. at 9), the Court directs attention to the contract itself which states that in addition to the $25,000 fee, Burzynski would be reimbursed for all "reasonable expenses during the period ... production." Pl's Ex. 1. Hence, no deduction from the $25,000 is appropriate.
Based on the foregoing discussion of the pertinent facts and law, this Court finds that plaintiff is entitled to a judgment in this action and to contract damages of $25,000 with interest to be calculated from the date of entry of the judgment.
SO ORDERED; submit judgment on notice.
Def's Reply Mem. at 4.
Trial Tr. at 8.