Petition for Writ of Certiorari — Sharma v. Skaarup Ship Management Corp.
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FILED.
6990-11446
No.
4
JAN '@ 199]
Se
IN THE
Supreme Court of the United States
Ocroser TERM, 1990
BIRENDRA MOHAN SHARMA, ASTRAL HOLDING
CORPORATION, FREESIA SHIPPING CORPORATION,
SUN LILY MARITIME INC., DOMAN TANKERS INC.,
and ZODIAC FINANCE CORPORATION,
Petitioners,
VS.
SKAARUP SHIP MANAGEMENT CORPORATION,
OLE SKAARUP, and CHEMICAL BANK,
Respondents.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
Pau F. DoyLe
Counsel of Récord for Petitioners
101 Park Avenue
New York, New York 10178
(212) 808-7800
Of Counsel:
PROFESSOR MARTIN B. Louis
KELLEY DryE & WARREN
ey ae
a ee ae oe) eo
QUESTIONS PRESENTED:
1. Whether, under F.R. Civ. P. 56,
a District Court can grant summary
judgment dismissing all of petitioners’
claims three days before trial without
giving them any opportunity to respond
to a motion for such relief where the
denial of that opportunity precluded
them from raising factual issues which
would have precluded a dismissal?
2. After this Court’s decisions in
Celotex v. Catrett, 477 U.S. 3171
(1986), Matsushita Electric Industrial
Co. v. Zenith Radio Corp., 475 U.S. 574
(1986) and Anderson v. Liberty Lobby,
Inc., 477 U.S. 242 (1986), which now
require a party to marshall all of its
material evidence in order to defeat a
summary judgment motion, can a District
(i)
Court’s failure to even hear parties
before dismissing all of their claims on
the eve of trial be treated as harmless
error?
(ii)
Petitioner Astral Holding
Corporation owns all of the shares of
petitioners Freesia Shipping
Corporation, Sun Lily Maritime Inc.,
Doman Tankers Inc., and Zodiac Finance
Corporation. The petitioner
corporations have no subsidiaries.
Petitioner Astral Holding Corporation’s
parent corporation is Astro Navegador
Armadora, S.A.
(iii)
AB [ee] NTS
QUESTIONS PRESENTED..........
CERTIFICATION PURSUANT TO
RULE 29.1 OF THE RULES OF
THE SUPREME COURT OF THE
UNITED STATES.........22-2ee-
TABLE OF AUTHORITIES.........
OPINIONS BELOW.........22ce0.
JURISDICTION... .. cece ee eeees
STATEMENT OF THE CASE........
REASONS FOR GRANTING
0 errr TT eee Pe ee
POINT I:
AFTER THIS COURT’S
DECISIONS IN THE CELOTEX
TRILOGY, A DISTRICT
COURT’S TOTAL FAILURE
EITHER TO ALLOW
PETITIONERS TO BE HEARD
OR TO FOLLOW RULE 56
PROCEDURES BEFORE
DISMISSING THEIR CLAIMS
CANNOT BE HARMLESS ERROR
ON APPEAL... 2c eecceces
(iv)
21
21
POINT II:
THIS COURT SHOULD GRANT
CERTIORARI TO CLARIFY TO
THE DISTRICT COURTS THAT
THEIR EXPANDED POWERS
UNDER F.R. CIV. P. 56
CANNOT BE USED TO
ABRIDGE BASIC PROCEDURAL
AND CONSTITUTIONAL
CONCLUSION.......... eecccceces 64
APPENDIX. ......c00. Se Al
(v)
CASES CITED: PAGE
Adams _v. Campbell] County School
District, 483 F.2d 1351 (10th Cir.
LDTS) cccvecnvcccccccccccccceccece 44
, 508 F.2d 526
(8th Cir. 1974) ccccccccces e*eeeee#es. 44
and World Report, Inc., 75
N.Y¥.2d 38, 549 N.E.2d 1161,
550 N.Y.S.2d 590 (1989).......... 23,33
Vv i ne
477 U.S. 242 (A9BG6) wcccccces e*eee#es 34,
passim
Anderson v. Sheppard, 856 F.2d
741 (6th cir. 1988) eeereoeeeeeset$fee#ee#eeksee#«# 60-61
Armstrong v. Manzo, 380 U.S. 545
CBOSS) ccccccccscscesececs eoeetee#ee#ese#ese?#* 43
Beck v. Borden, Inc., 724 F.2d
44 (6th cir. 19BE) wccccccccccccce 43-44
Brobst v. Columbus Services Int’l,
761 F.2d 148 (3d Cir. 1985)...... 37
Celotex v. Catrett, 477 U.S.
_ 2 eye Rare 35,
passim
Enochs v. Sisson, 301 F.2d 125
. 8 = eres 44
S ’
SED Be Ghia. BUGR CANCO i cccicccass. 82
Towers, Inc., 75 N.Y.2d 792,
551 N.E.2d 585, 552 N.Y.S.2d 92
Cl1D9O) ccccccccecceveccesecccecers 23,33
739 F.2d 93 (2d Cir. 1984)....... 36
Herzog v. Strauss v. GRT Corp.
553 F.2d 789 (2d Cir. 1977)...... 22
Indi Port ¢ ——
702 F.2d 107 (7th Cir. 1983)..... 38
Kenford Co. v. County of Erie,
73 N.Y.2d 312, 537 N.E.2d 176, 540
Pe Se CUR eee 23,33
Kenford Co. v. County of Erie,
67 N.Y.2d 257, 493 N.E.2d 234,
502 N.Y¥.S.2d 131 (1986).......... 23,33
Larsen v. A.C. Carpenter, Inc.,
620 F. Supp. 1084 (E.D.N.Y. 1985),
aff’d without opinion, 800 F.2d
SE Ce We edkececcaicrsors 25
| Vv ouse Furin
Inc., 110 S. Ct. 1331 (1990)..... 52
Management Investors v. United
"F wor) . 2 lon,
610 F.2d 384 (6th Cir. 1979)..... 40-41
(vii)
U.S.
, 446
, 475 U.S.
Pt Si cckdbdebiowberees
Matsushita Electric Industrial Co.
v. Zenith Radio Corp.
yy PSS eae
, 481 U.S.
412 CRS TF) wecccccnsccesececececes
Inc., 632 F.2d 219 (2d Cir.
(8th Cir.
RULES:
F.R.
F.R.
F.R.
Civ. P.
Civ. P.
Civ. P.
, 570 F.2d 761
APTS) weeccvecsececccseces
1980)
BAe ee esos sessessesess
BBe eet es ess sesseeseesr
Bee aesesesseaetsseeese
OTHER AUTHORITIES:
Burbank, The Transformation Of
American Civil Procedure: The
Example of Rule 11, 137 U. Pa.
rere
L.
Rev.
(viii)
58-59
Carrington, Making Rules To
Dispose of Manifestly Unfounded
ss ions: j e
= - iv
ivi ; wer
U. Pa. L. Rev. 2067 (1989)....... 54-55
Collins, Summar ent And
Circumstantial Evidence, 40 Stan.
Le Ms SEE CAND cchsbecocccccee 52
Issacharoff, Second Thoughts About
Summary Judgment, 100 Yale L.J. 73
CAGE 65s 60s CViawb eh dwn tp iiaia a 6x 42,
passim
Louis, Intercepting And
iscouragin ° itigation:
iv View
Pleading, Summary Judgment, And
Rule 11 Sanctions Under The
Federal Rules of Civil Procedure,
67 N.C.L. Rev. 1023 (1989)....... 48,
passim
Marcus, Completing Equity’s
Con st? e
a
rs .
Rules Of Civil Procedure, 50
U. Pitt. L. Rev. 725 (1989)...... 51
Nelken, Has The Chancellor Shot
Himself In the Foot? Looking For
A Middle Ground For Rule 11
Sanctions, 41 Hastings L.J. 383
(BOE Se ciscocvece soe eieneee#e#e#r+fe#e#e#e#ee#e#*#@* 58
(ix)
Note, Summary Judgment: The
Reversal In The 1986 Supreme Court,
37 Emory L.J. 171 (1988)..... 48
Pierce, Summary Judgment: A
Favored Means of Summarily
Resolving Disputes, 53 Brooklyn
L. REV. 279 (1987) .ccceeesreveeee 48
Risinger, Another Step In The
ou -Revoluti : ar
Judgment On The Supreme Court’s
New Approach To Summary Judgment,
54 Brooklyn L. Rev. 35 (1988).... 50,
passim
Stempel, A Distorted Mirror: The
Supreme Court’s Shimmering View Of
Summary Judgment, Directed
Verdict, And The Adjudication
Process, 49 Ohio St. L.J.
95 (1988) ..cccccccccccesseesesees 50-51,
52
Tobias, Rule 11 and Civil Rights
Litigation, 37 Buffalo L. Rev.
Se CR cic rdvecnsessesvadiesns» 69
Weinstein, After Fifty Years Of
The Federal Rules of Civil
° ure: iers To
Justice Being Raised?, 137
U. Pa. L. Rev. 1901 (1989)....... 49,
passim
(x)
In The
SUPREME COURT OF THE UNITED STATES
October Term, 1990
BIRENDRA MOHAN SHARMA, ASTRAL HOLDING
CORPORATION, FREESIA SHIPPING
CORPORATION, SUN LILY MARITIME INC.,
DOMAN TANKERS INC., and ZODIAC FINANCE
CORPORATION
Petitioners,
vs.
SKAARUP SHIP MANAGEMENT CORPORATION,
OLE SKAARUP, and CHEMICAL BANK,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
SECOND CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
Petitioners respectfully pray
that a writ of certiorari issue to
review the judgment and opinion of the
United States Court of Appeals for the
Second Circuit entered in the
above-entitled proceedings on October
17, i990.
NIO W
The opinion of the Court of
Appeals for the Second Circuit is
reported at 916 F.2d 820, and is
reprinted in the appendix hereto, p. Al,
infra.
The transcript of the oral
rulings of the United States District
Court for the Southern District of New
York (Stanton, D.J.) made on October 11,
1989 is reprinted in the appendix
hereto, p. Dl, infra.
JURISDICTION
On April 23, 1986 (JA15-64*)
petitioners brought this action in the
Southern District of New York pursuant
to 28 U.S.C. section 1332. On October
11, 1989, in response to a letter motion
by respondent Chemical Bank
("Chemical"), the District Court made
oral rulings which effectively dismissed
petitioners’ complaint (JA1631-43). On
October 20, 1989, the District Court
entered a final judgment dismissing all
of petitioners’ claims, pursuant to Fed.
R. Civ. P. 54(b), so that an immediate
appeal could be taken (JA1693-94).
On October 17, 1990, the Second
Circuit Court of Appeals entered a
* References hereinafter to "JA_"
are to pages in the Joint Appendix
which was filed in the Second
Circuit Court of Appeals.
- 3 «
judgment and an opinion affirming the
District Court’s order. A petition for
rehearing was denied by order entered
November 30, 1990. On December 17,
1990, the Court of Appeals granted
petitioners’ motion for a stay of the
mandate for thirty days pending the
filing of a petition for writ of
certiorari in this Court.
STATEMENT O HE CASE
This is a breach of contract
action. All of the petitioners and
Chemical were parties to an agreement
which gave petitioners the opportunity
to arrange outside refinancing of three
vessels owned by three of the
petitioners and mortgaged to Chemical
(JA188-99). Petitioners allege, inter
alia, that Chemical breached the
agreemei:t. by preventing them from
completing the refinancing. *
The agreement, as amended three
* Between 1977 and 1981, Chemical
had made mortgage loans to
petitioners and their affiliates to
finance the purchase of vessels
(JA21-23) and by 1984, petitioners
had repaid the bank over $43
million in principal and interest
on these ship loans. However,
because of a worldwide downturn in
the shipping industry, revenues
from the three shipping business
were insutficient to service the
debt to the bank (JA19). In
February, 1984, an understanding
was reached between the bank and
petitioners whereby $2 million of
outside funds were to be injected
into the shipping operations in
1984 and those payments were being
made well ahead of schedule
(JA1794-95).
\
By August, 1984, however, the
bank had concluded that the
shipping market was about to
recover and it wanted the vessels
in its nominee’s (Skaarup Ship
Management Corporation) ("Skaarup")
possession so that they could be
operated for profit for the bank
and sold at the appropriate time
(JA1753). It demanded that Mr.
Sharma deliver the bills of sale to
{footnote continued)
times, gave petitioners seven and a half
months to arrange the refinancing of the
three vessels in the amount of
$16,000,000 (JA1373). Over that period,
petitioners paid the bank $1.2 million
for the opportunity to refinance
(JA1264, JA1806).
The refinancier named in the
agreement required that two of the
vessels be placed on three-year charters
(the third was already under charter) as
a condition to the refinancing.
* (footnote continued)
it (JA1399-400, JA1780-81). He
declined, and in discussions on
September 3, 1984, the bank orally
agreed to allow an outside
refinancing (JA1372). After the
bank violated the agreement by
attempting to arrest the vessels
(JA37), petitioners obtained an
injunction from the High Court in
England (JA1371). The parties then
entered into the agreement at
issue.
Charters are simply contracts by which
an owner of a vessel agrees to its
employment by a charterer, such as an
oil company. On October 31, 1984, the
agreement was amended to permit two of
the vessels to be chartered for up to 38
months, subject to certain conditions.
After these conditions were
completely fulfilled, petitioners
presented Chemical with two three-year
charters to Thakur Shipping Company
("Thakur") which fully complied with the
October amendment (JA1416-17).
Chemical, in breach of the October
amendment, refused to allow the
confirmation of these two charters
(JA1417). As a result, the refinancing
was lost and, after interlocutory
proceedings in England, the vessels were
transferred to Skaarup.*
On April 23, 1986, petitioners
commenced this action. Discovery did
not commence until three years later in
April, 1989. During the first three
years of the action, without permitting
any discovery, the District Court
allowed the respondents to make seven
dispositive motions with respect to some
or all of the allegations of
petitioners’ original and first three
* It is important to note that the
Second Circuit’s discussion of the
bank’s right to refuse charters san pig
(A17-19) relates to Paragraph XIV
of the original refinancing
agreement, not to refusals of
charters under the October
amendment. Both the District Court
and the Second Circuit would have
allowed proof at trial that the
refusal to allow confirmation of
the Thakur charters was a breach of
the October amendment, but
paradoxically would not allow
recovery of the lost income on the
two charters.
- 8 -
amended complaints. The motions were as
follows:
Re On May 28, 1986, Chemical
moved to dismiss under F.R. Civ. P.
12(b).
2. On August 4, 1986, it
moved to amend its first motion to
dismiss to add further grounds under
F.R. Civ. P. 12(b), 12(f) and 56.
3. Skaarup joined in the
motion on August 11, 1986. Almost a
year later, by order dated June 5, 1987,
the Court granted substantial portions
of the motion without prejudice to its
renewal after service of an amended
complaint.
a 4. After plaintiffs filed an
amended complaint, Chemical moved again
on August 17, 1987 to dismiss or strike
pursuant to F.R. Civ. P. 12(b), 12(f)
and 56.
5. Skaarup also filed a
dismissal motion with respect to the
amended complaint on September 8, 1987.
Thirteen months later, by order entered
October 14, 1988, the Court dismissed
Skaarup from the case and granted
Chemical’s motion in substantial part.
The grounds the Court relied on had been
briefed in the original round of
briefing in 1986.
6. After petitioners filed
their second amended complaint, Chemical
moved to dismiss it by letter motion
dated December 19, 1988, pursuant to
F.R. Civ. P. 12(b) and 12(f). The Court
granted the motion.
7. After petitioners filed
their third amended complaint, the bank
moved to dismiss it by letter motion
dated February 10, 1989, under F.R. Civ.
- 10 =-
P. 12(b) and 12(f). The Court granted
that motion.
Finally, on March 31, 1989
(JA555-56), the Court allowed the case
to proceed based on a narrow fourth
amended compiaint and set a firm trial
date ef October 16, 1989. From April,
1989 through October 10, 1989, the
parties conducted intensive discovery.
Over 110,000 documents were produced, 41
days of depositions were conducted in
New York, London, Maine and Pennsylvania
and three sets of lengthy
interrogatories were answered.
Discovery proved to be very
productive from petitioners’ point of
view. On September 5, 1989, petitioners
moved, inter alia, for leave to serve a
proposed fifth amended complaint,
incorporating the results of discovery
(JA442-46). The District Court denied
-il1-
it on the grounds, inter alia, that it
was made too close to trial (JA1012-17,
JA1606-13).
On October 3, 1989, pursuant to
the District Court’s pre-trial rules,
the parties submitted the joint
pre-trial order (JA1338-1528),
affidavits setting forth their experts’
opinions, voir dire questions, requests
to charge and their trial briefs.
On the evening of October 5,
1989, the day before the final pre-trial
conference, Chemical’s counsel wrote the
Court (JA1837-48) and asked it to treat
the letter as: (a) yet another motion
for summary judgment dismissing
petitioners’ claims; (b) a motion for a
directed verdict as to all of
petitioners’ claims; or (c) a motion in
limine striking all of petitioners’
evidence. The letter stated that these
- 12 -
three motions were based upon the
85-page trial brief (JA1018-1107), which
contained some twelve separate points
(JA1019-22), the 161-page joint
pre-trial order (JA1368-1528), the
deposition testimony of some seventeen
witnesses and some 35,000 documents.
In letters of October 5
(JA1546-49) and 6 (JA1562-66) and orally
at the October 6 pre-trial conference
(JA1580-1605), petitioners repeatedly
argued that it was far too close to
trial for Chemical to be making yet
another dispositive motion, particularly
after having made numerous such motions
for the first three years of the
action. Petitioners also argued that,
if the District Court considered the
motion, they were “entitled to a proper
motion which complies with all of the
requirements of F.R. Civ. P. Rule 56 and
- 13-
Local Rule 3 and that we be allowed to
respond to it within the time allowed by
Rule 56(c), ten business days before the
date fixed for a hearing (JA1563-64)."
At the October 6, 1989
pre-trial conference (JA1580-1605),
Chemical’s counsel handed the Court
three more memoranda of law. The Court
said it would consider the matter over
the upcoming long weekend (JA1585-86)
and hold another conference the
following Wednesday, October 11, 1989
(JA1599-1600). The Court specifically
directed petitioners’ counsel not to
brief the massive new motion and said,
"(ijf you want to put in further briefs,
we will talk about it on Wednesday
(JA1599)."
No opportunity to respond or
brief Chemical’s motion was ever given
to petitioners. The District Court,
- 14 -
without allowing argument, announced at
the beginning of October 11, 1989
conference (JA1631-43) that it had opted
to treat Chemical’s October 5th letter
as a motion in limine (JA1635-37). It
then immediately read a short decision
which struck all of petitioners’
proposed findings on damages and a
substantial part of their proposed
findings on liability (JA1635-37).
The Court held -- in a three
sentence ruling -- that petitioners
could not recover lost profits and that
their recovery was limited to the market
value of the vessels at the time of
their transfer to Skaarup (JA1636-37).
The market value of the vessels
at that time (approximately $15 million)
(JA1647) was less than the $16 million
petitioners were required to pay
Chemical under the final amendment to
the agreement. The damage ruling
therefore totally precluded any recovery
by petitioners at trial.* Accordingly,
the following day, petitioners requested
(JA1648), and the Court thereafter
entered, a judgment pursuant to F.R.
Civ. P. 54(b) (JA1693-94) so that
petitioners could promptly take an
appeal.
Petitioners then sought to make
offers of proof (JA1657). Chemical’s
counsel opposed any offers of proof
(JA1658), but conceded that "the
references in the pretrial order to the
evidence to be adduced under it" should
be part of the record on appeal
* Chemical had known for over two
years that plaintiffs were seeking
lost profits, since a memorandum of
law plaintiffs had filed on October
9, 1987 (JA414-17) set forth the
damage claim in detail.
- 16 -
(JA1659). Petitioners accordingly
submitted the exhibits referred to in
the stricken findings of the joint
pre-trial order to the District Court
and requested leave to file them
(JA1683-85). Despite his
representation, Chemical’s counsel
opposed the request (JA1686-88) and the
Court entered an order denying
petitioners’ request (JA1692).
Petitioners then moved to alter
the judgment to the extent of seeking
leave to file written offers of proof
(JA1906-13). The District Court denied
this motion by Memo Endorsement dated
December 5, 1989 (JA1828). The Court
had originally said that its rulings
were on a motion in limine -- not on the
summary judgment motion. However, its
orders denying petitioners leave to file
the exhibits and offers of proof stated
- 17 -
that there was no need for the filing of
evidence since its rulings "did not rest
upon the evidence to be adduced in
support of those paragraphs .. ."
(JA1692) (emphasis supplied) and that it
had stricken the damage theory "as a
matter of law (JA1828)."
Petitioners appealed the
District Court’s October 11, 1989
rulings, as well as other rulings. They
contended, inter alia: (a) that
dismissing petitioners’ action without
first allowing them any opportunity to
respond violated the mandatory
provisions of F.R. Civ. P. 56(c) as well
as their right to due process of law,
and (b) that the Court’s damage ruling
was insupportable under New York law.
On the latter issue,
petitioners argued that applying a
market value standard -- after assuming
- 18 -
a breach by the bank -- resulted in
denying petitioners exactly what they
had bargained for, i.e., the right to
keep the vessels and operate them, and
absurdly assumed that petitioners had
paid $1.2 million over the course of
seven and a half months in order to
obtain nothing.
The Court of Appeals affirmed
the damage ruling and never addressed
the fact that the District Court had
dismissed petitioners’ entire case
without even hearing them. In one
sentence at the end of its opinion, the
Court concluded: "Because of our
disposition of the legal issues raised
on this appeal, the various procedural
errors claimed by appellants are moot
(A20)."
The Court of Appeals affirmed
the damage ruling by enunciating, for
- 19 -
the first time, a new principle of New
York law, i.e., that regardless of the
factual circumstances, where a breach of
contract destroys or totally deprives a
plaintiff of a business or
income=-producing asset which has a
market value, lost profits are never
recoverable, because market value
encompasses lost profits.
Throughout the course of the
litigation, the District Court
repeatedly referred to the fact that the
bank had reduced the debt by almost 50%,
implying that, because of that
reduction, petitioners should not be
pursuing a claim under the agreement
(JA838-39, JA1607-08). The Second
Circuit’s opinion reflected a similar
inability to differentiate petitioners’
status as debtors from the legal
validity of their contractual claim (A8,
- 20 -
A16). At the conclusion of its
recitation of the facts, ‘he Court of
Appeals referred to the reduction of the
debt and summarized the bank’s view of
the litigation as "a case of no good
deed going unpunished (A8)."
REASONS FOR GRANTING THE WRIT
POINT I
AFTER THIS COURT’S DECISIONS
IN THE CELOTEX TRILOGY, A
DISTRICT COURT’S TOTAL FAILURE
EITHER TO ALLOW PETITIONERS TO
BE HEARD OR TO FOLLOW RULE 56
PROCEDURES BEFORE DISMISSING
THEIR CLAIMS CANNOT BE HARMLESS
ERROR _ ON APPEAL
This case graphically
illustrates the dangers of allowing
District Courts to totally evade the
mandatory requirements of Rule 56 under
the rubric of "harmless error." Because
the District Court repeatedly prevented
a proper record from being made below,
the Court of Appeals completely
- 21 -
misunderstood the evidentiary basis for
the case when it fashioned an
unprecedented "market value" limitation
on recovery of lost profits. Indeed,
the inaccuracies in the Second Circuit’s
cpinion illustrate exactly why it is
critical that a factual record be made
-- either through Rule 56 or through a
trial -- before a case is considered on
appeal or a broad rule established.
See, €.g., Herzog v. Strauss v. GRT
Corp., 553 F.2d 789, 792 (2d Cir. 1977)
(Compliance with the ten-day notice
requirement of Rule 56 "is vital if the
court is to make an informed decision
e « 0).
Although numerous New York
cases instruct that the issue of lost
profits is an extremely fact-specific
- 22 -
one,* the Second Circuit did not conduct
any inquiry under Rule 56 to determine
whether issues of material fact existed
and did not consider any of the
substantial evidence which had been
adduced on the issue of lost profits.
This was largely because the District
Court had issued its damage rulings
without allowing responsive affidavits
and briefs pursuant to Rule 56, and had
refused to allow either the exhibits to
the pre-trial order or offers of proof
to be filed with the Clerk.
Greasy Spoon, Inc. v. Jefferson
Towers, Inc., 75 N.Y.2d 792, 551
N.E.2d 585, 552 N.¥.S.2d 92 (1990);
American List Corp. v. U.S. News
and World Report, Inc., 75 N.Y.2d
38, 549 N.E.2d 1161, 550 N.Y.S.2d
590 (1989); Kenford Co. v. County
of Erie, 73 N.Y¥.2d 312, 537 N.E.2da
176, 540 N.Y.S.2d 1 (1989); Kenford
Co. v. County of Erie, 67 N.Y.2d
257, 493 N.E.2d 234, 502 N.Y.S.2d
131 (1986).
- 23 -
Because no evidentiary record
existed on the motion below, the Court
of Appeals completely misunderstood at
least the following:
1. Thre Court held that the
measure of recovery was limited to the
vessels’ market value because market
value "takes expected lost future
profits into account (Al14)." In so
ruling, the Court misunderstood the fact
that the market value the District Court
had utilized was on a "“charter-free"
basis which did not take into account
future profits from charters.
Specifically, that value did not take
into account profits from two three-year
charters which the bank’s breach
prevented. The logic of the market
value limitation established by the
Court of Appeals’ decision obviously
requires that the market value utilized
- 24 -
not be one reduced by the impact of a
defendant’s breach. The “charter-free"
nature of the $15 million valuation was
known to both parties and would have
been part of the record on a proper Rule
56 motion.
2. The Second Circuit’s
opinion also specifically assumed that
petitioners had the ability to repiace
the vessels in the market (Al7). Under
applicable law, if no such ability
exists, a plaintiff is entitled to
consequential damages, including lost
profits.* On a proper record,
petitioners’ evidence, including
testimony on cross-examination of one of
the bank’s officers, Harold McCleery,
e Larsen v. A.C. Carpenter, Inc., 620
F. Supp. 1084, 1131 (E.D.N.Y.
1985), aff’d without opinion, 800
F.2d 1128 (2d Cir. 1986).
- 25 -
would have readily shown that
petitioners had no ability to replace
the vessels in the market at the time of
the bank’s breach.
3. The Court stated that it
would be "far-fetched" to infer that the
bank would have contemplated liability
for lost profits (A16). In reality, the
evidence, including numerous internal
bank memoranda gathered during
discovery, reflected exactly that, which
would have been clear had Rule 56(c)
been observed.
4. The Court characterized
petitioners’ damage theory as a "wait
and see" (A15) one which would calculate
damages based on how ‘the shipping market
fared long after the breach. In fact,
the evidence was that petitioners’ lost
profits projections were based on facts
known as of the date of the breach
- 26 -
(including income from the Thakur
charters), and conservative projections
thereafter -- not on subsequent market
conditions.
5. The Court also justified
the rule it established by saying that
"either party has an opportunity to
hedge according to his or her judgment
about the future stream of income
(A14)." In fact, the evidence would
have reflected that no such ability to
"hedge" existed on the facts of this
case.
6. The Court justified its
ruling on a provision of the agreement
by stating that "Appellants were, of
course, free to arrange refinancing, if
available, simultaneously with long-term
charters (A19)." In fact, both
Chemical’s and petitioners’ witnesses
- 27 -
would have testified that no such
ability existed, to Chemical’s knowledge.
7° The Court’s opinion
discusses the case as if it was a
creditor’s action to foreclose upon
collateral after a default by a debtor,
rather than a contract action by parties
to a refinancing agreement against
another party to that agreement, ina
context in which the agreement
completely restructured the parties’
rights.
Because it had been prevented
from seeing the evidence, the Court of
reponse opinion repeatedly confuses
petitioners’ prior status as debtors
with the issue of their rights under the
negotiated agreement (A4-6; A15-16). A
reading of the Second Circuit’s opinion
strongly suggests that -- like the
District Court (JA838-39; JA1607) -- the
- 28 -
Court of Appeals took a dim view of
petitioners’ claims because they had
previously owed the bank a substantial
sum of money (A16-17).
The Court’s opinion assumes (a)
that the bank was somehow generous in a
non-business sense in reducing the debt
from over $30 million to about $16
million, and in releézsing Mr. Sharma
from his guarantees; (b) that these
concessions are somehow related to the
opportunity to refinance; and (c) that
petitioners were seeking to take
advantage of the bank’s loss and its
generosity in the face of that loss ("a
case of no good deed going unpunished
(A8)"). In reality, even before the
refinancing agreement was executed, the
bank had offered to release petitioners
if they would surrender the ships, which
were then worth about $16 million. This
- 29 -
was hardly an act of generosity by the
bank (which had that same year
blackmailed Mr. Sharma’s family in an
effort to collect the
debt) (JA1788-94)). Rather, the bank’s
actions were a simple reflection of the
commercial reality of the vessels’
value. In fact, at any time after the
agreement was executed, petitioners
could have simply walked away and
achieved the same result -- the release
of their obligations in return for the
surrender of the ships. Given these
facts, it is clear that the reduction in
the debt was wholly unrelated to the
refinancing aspects of the agreement,
pursuant to which petitioners paid
handsomely ($6,000 a day) for the
opportunity to refinance and save their
businesses.
- 30 -
Once these facts are
understood, it becomes clear that the
Court’s limitation of damages to the
market value of the ships effectively
means petitioners bargained for and paid
out over $1.2 million for nothing, since
the Court’s limitation leaves
petitioners in the exact position they
were in before they entered into the
refinancing agreement. At the minimun,
petitioners were entitled, as a matter
of unjust enrichment, to the return of
their $1.2 million dollars. They were
also entitled to damages, measured by
their loss of profits, for the loss of
the bargain the bank’s breaches denied
them. Any other result leaves
petitioners uncompensated and Chemical’s
breach unsanctioned. Thus, the Court’s
assumption that the bank has lost
enough, that it had generously let
- 31-
petitioners off the hook, and that
petitioners are somehow seeking to
punish the bank for its generosity, all
are patent:y false and obscure the
reality here, i.e., that Chemical
reluctantly but of necessity made a
bargain for which it received $1.2
million, that the bank in bad faith
breached the bargain, has retained the
$1.2 million, and even persuaded the
Court that its "punishment" is the
return of the parties to the situation,
which was favorable to the bank, that
existed before the bargain was made. In
short, the Court’s remedy for the bank’s
breach is to act as if the agreement and
breach had never occurred.
This misperception of
petitioners and their claims, which was
the direct result of characterizing the
absence of an evidentiary record as
- 32 -
harmless error, caused the Court of
Appeals: (a) to affirm a result which
is illogical, and (b) to establish a
simplistic, across-the-board rule on
lost profits which is not fact-sensitive
and is directly contrary to the holdings
of four recent decisions of the New York
Court of Appeals*, as well as the
contract law of virtually every other
state.** The case therefore aptly
* Greasy Spoon, Inc. v. Jefferson
Towers, Inc., 75 N.Y.2d 792, 551
N.E.2d 585, 552 N.Y.S.2d 92 (1990);
American List Corp. v. U.S. News
and World Report, Inc., 75 N.Y.2d
38, 549 N.E.2d 1161, 550 N.Y.S.2d
590 (1989); Kenford Co. v. County
of Erie, 73 N.Y.2d 312, 537 N.E.2d
176, 540 N.Y.S.2d 1 (1989); Kenford
Co. v. County of Erie, 67 N.Y.2d
257, 493 N.E.2d 234, 502 N.Y.S.2d
131 (1986).
% Both the District Court and the
Second Circuit relied heavily on
tort law in reaching this result,
ignoring the fact that petitioners,
{fegtnate continued)
demonstrates the appropriateness and
importance of creating a sufficient
factual record under Rule 56(c) prior to
resolving a dispositive motion.
The Second Circuit’s holding
that the failure to allow petitioners to
be heard before dismissal was harmless
error is also wrong as a matter of law
and directly conflicts with the
decisions of other Circuits holding that
Rule 56(c) is mandatory. Those
decisions were all rendered prior to
this Court’s holdings in a trilogy of
cases, Matsushita Electric Industrial
Co. v. Zenith Radio Corp., 475 U.S. 574
(1986), Anderson v. Liberty Lobby, Inc.,
** (footnote continued)
unlike tort plaintiffs, had paid
$1.2 million for the contractual
right to refinance their
businesses.
- 34 -
477 U.S. 242 (1986) and Celotex v.
Catrett, 477 U.S. 317 (1986). ote
held that a movant’s burden on a summary
judgment motion would depend on his
burden of proof at trial, while Anderson
and Matsushita substantially expanded
the discretionary authority given to
District Courts by allowing broad
oveetas evidentiary review on a Rule
56 motion. If there were important
reasons to require strict compliance
with Rule 56 prior to 1986, a fortiori,
after the trilogy’s substantial
expansion of the risk to a non-moving
party of entry of summary judgment
against it, there is no justification
for permitting any deviation from the
rule now.
Prior to the 1986 Celotex
trilogy, numerous Circuits had passed
upon the issue of whether or not various
- 35 -
types of non-compliance with Rule 56,
such as shortened notice, can be
harmless error and had reached varying
conclusions. Many, including the Second
Circuit, had adopted a strict view. See
e.g., Gutwein v. Roche Laboratories,
Inc., 739 F.2d 93 (2d Cir. 1984), where
the Court held:
While we may have left the door
open for application of a
harmless error rule, ... we
believe that use of such a rule
must be limited to
extraordinary cases in which
the ten day notice is
impractical, and it is
absolutely clear that the
non-moving party suffered no
prejudice from a shortening of
the period. This follows, we
believe, from the non-moving
party’s burden of production
and the need for time to
marshall and prepare documents
indicating the presence of a
disputed factual issue. Since
preparation of papers to oppose
a motion for summary judgment
may differ materially from
preparation for trial, the
better practice is to establish
discovery schedules which allow
such motions to be made and
- 36 -
Id.
considered prior to the trial
date and simply to deny motions
which do not afford the
necessary notice.*
at 95. Petitioners are aware of no
case prior to this one in which a
District Court’s dismissal of a
complaint without even allowing a
plaintiff to be heard has been treated
as harmless error.** Indeed, the Second
x
Here, although the District Court
had denied petitioners’ motion for
leave to amend on grounds of
proximity to trial three and a half
weeks before trial, it granted the
bank’s summary judgment motion on
the eve of trial without allowing
any response.
Where, as here, a District Court
styled its rulings as rulings "in
limine", and then dismissed the
case, the Third Circuit held that
"a Court may not dispose of the
case on the merits without giving
the opposing party a reasonable
opportunity to present to the court
material relevant to the
dispositive issues," however the
motion is denominated. Brobst v.
Columbus Services Int’l, 761 F.2d
148, 154 (3d Cir. 1985).
- 37 -
Circuit itself in Winbourne v. Eastern
Air Lines, Inc., 632 F.2d 219 (2d Cir.
1980), explicitly rejected such a
contention. There, the Court stated
that “[a]lthough a harmless error
analysis may be appropriate in some
cases, it would appear that, at a
minimum, the party against whom judgment
is to be entered should be given an
adequate opportunity to oppose the
motion." Id. at 223-24 n. 6.
The holding in this case, which
sanctions a total failure to follow Rule
56 as harmless error, directly conflicts
with rulings of other Circuits. In
di issi Vv thlehem
Steel Corporation, 702 F.2d 107 (7th
Cir. 1983), the Court held that "a
district court which does not comply
with the advance notice and response
provisions of Rule 56(c) has no power to
- 38 -
enter summary judgment." Id. at 111.
The Court specifically dealt with the
contention that a failure to allow a
party to respond could be harmless error:
While we note that the
"harmless error" doctrine has
eccasionally been employed in
cases where the procedural
requirements of Rule 56(c) have
not been strictly complied
with, see Ikard v. Lapworth,
435 F.2d 197 (7th Cir. 1970),
we find that, at a minimun,
some opportunity should be
given to oppose a summary
judgment motion, and, in this
case, clear harm to Bethlehem
resulted from the total lack of
such an opportunity. 702 F.2d
at 111, n.2.
The Eighth Circuit has also
held that a judgment dismissing
substantive claims cannot properly be
sustained where the proceeding which led
to the dismissal is fraught with
procedural irregularities. Winfrey v.
Brewer, 570 F.2d 761, 764 (8th Cir.
1978). The Sixth Circuit has held to
- 39 -
the same effect in Management Investors
v. United Mine Workers of America, 610
F.2d 384, 389-90 (6th Cir. 1979):
In choosing to act as it
did on this two-day-old motion
for sufimary judgment, the
district court disposed of a
complex case without even
permitting plaintiffs the
benefits of applicable
procedural rules. Local Rule
12(b) allows a party five days
after a motion is served to
respond. And where the motion
is determinative of the case on
the merits, Local Rule 12(c)
provides for an oral hearing
upon request by either party.
Under rule 56(c), F.R.Civ.Pro.,
a litigant has a minimum of ten
days within which to respond to
a motion for summary judgment.
In this case, however, the
Union’s motion was not
served... until... the
same day the district court
rendered its decision granting
the motion. We are of the view
that these precipitous acts by
the trial court denied
plaintiff his due process right
to be heard.
- 40 -
Id. at 389-90 (footnotes omitted).*
The decisions requiring strict
compliance with Rule 56 were rendered
prior to this Court’s decisions in the
Celotex trilogy, at a time when it was
extremely difficult to obtain summary
judgment in Federal Court. See
* In Management Investors, the Sixth
Circuit also rejected the argument
that the pretrial briefs and the
proposed Findings of Fact and
Conclusions of Law satisfied the
rights afforded by the Federal
Rules of Civil Procedure and due
process of law:
However, the fact that the
issue had been addressed
elsewhere cannot serve as the
basis for denying plaintiff an
opportunity to address the
issue as specifically raised in
the motion. Considerations of
justice and fair play required
that plaintiff be granted an
opportunity to respond to the
motion prior to the court’s
decision... .
Id. at 390 n. 16.
- 41-
Issacharoff, Second Thoughts About
Summary Judgment, 100 Yale L.J. 73,
76-78 (1990). As discussed in Point II,
infra, the trilogy is widely regarded
as: (a) having expanded the use of Rule
56, and (b) greatly enhanced the ability
of a party moving for summary judgment
to quickly shift the burden to the
non-moving party to come forward with
evidence of the full range of facts in
dispute. See generally id. at 80-84.
Given that fact, and the evidence that
up to 87% of summary judgment motions
are now being granted, id. at 92, it is
obviously critical that a non-moving
party be given the full benefit of
strict compliance with Rule 56.
Combining the expanded dispositive
powers given to District Courts by the
Celotex trilogy with a harmless error
doctrine which allows for little -- or,
- 422 -
in this case, no -- notice prior to
granting the motion, creates an
extremely pernicious result because it
requires a non-moving party to make a
far greater factual showing in less
time. After the Celotex trilogy, there
is simply no justification for a
harmless error rule under Rule 56.
Moreover, this Court has held
that due process requires that every
litigant be given the "opportunity to be
heard . . . at a meaningful time and in
a meaningful manner." E.g., Armstrong
v. Manzo, 380 U.S. 545, 552 (1965). To
preserve that opportunity, it has
repeatedly been held by Circuit Courts
that the procedural requirements of Fed.
R. Civ. P. Rule 56 “are to be strictly
adhered to." Winfrey v. Brewer, 570
F.2d 761, 764 (8th Cir. 1978); Beck v.
Borden, Inc., 724 F.2d 44, 45 (6th Cir.
- 43 -
1984); Ailshire v. Darnell, 508 F.2d
526, 528 (8th Cir. 1974). See, e.g.,
Adams _v. Campbell County School
District, 483 F.2d 1351, 1353 (10th Cir.
1973); Enochs v. Sisson, 301 F.2d 125
(5th Cir. 1962).
Accordingly, to the extent that
the Second Circuit’s decision permits
the harmless error doctrine to be
utilized to justify a total departure
from mandatory Rule 56 procedures, it
directly conflicts with numerous
pre-Celotex holdings in other Circuits,
and, after the trilogy, there are even
more compelling reasons for a strict
adherence rule.
- 44 -
POINT If
THIS COURT SHOULD GRANT
CERTIORARI TO CLARIFY TO
THE DISTRICT COURTS THAT
THEIR EXPANDED POWERS UNDER
F.R. CIV. P. 56 CANNOT BE
USED TO ABRIDGE BASIC
PROCEDURAL AND
CONSTITUTIONAL RIGHTS
It has become increasingly
evident in the past several years that
some District Courts are abusing their
recently expanded powers under the
Federal Rules of Civil Procedure to
dispose of legitimate claims with which
they are unsympathetic. Many
commentators have noted that a
substantial number of District Courts
have taken the Celotex trilogy as a
license to summarily dispose of valid
claims which they dislike. Because the
procedures used in this case were so
patently improper and the result so
inherently illogical, the case presents
- 45 -
an appropriate one in which to clarify
to the District Courts that their new
powers under the trilogy are not to be
used to deny unsympathetic plaintiffs
their basic due process rights, their
right to trial by jury or their right to
equal justice under law.
This case presents an
extraordinary departure from the
accepted and usual course of judicial
proceedings. For three and a half
years, the District Court placed every
conceivable obstacle in the way of
petitioners’ prosecuting their case tc
trial. When petitioners persevered and
it became apparent that, notwithstanding
these obstacles, the matter would still
go to a jury, the Court dismissed
petitioners’ entire claim without even
allowing them to be heard. On appeal,
the Second Circuit treated these
- 46 -
-
a
undisputed departures from mandatory
procedures as harmless error and
affirmed a result which is inherently
illogical, i.e., that petitioners had
struggled for 7 1/2 months and paid
Chemical $1.2 million for the
opportunity to refinance vessels at $16
million in order to sell them
immediately for $15 million in the
middle of a market downturn. The case
dramatically illustrates how, after the
Celotex trilogy, the broad powers given
the District Court under F.R. Civ. P. 56
can be abused when courts are hostile to
the claims of a particular plaintiff.
Many commentators have
expressed serious concern that the broad
discretion the Celotex trilogy granted
District Courts could be subject to
- 47 -
abuse.* Professor Louis has written:
"This discretionary process could become
arbitrary and unjust or lead to a
backlash if trial courts, anxious to
respond to the problems of today, begin
to grant summary judgment too eagerly
and regularly", Louis, Intercepting And
* Although the District Courts
were already granting summary
judgment with increasing frequency
prior to the Celotex trilogy,
Pierce, Summa Ju ent: A Favored
Means of Summarily Resolving
Disputes, 53 Brooklyn L. Rev. 279,
280-81 (1987), it is clear that the
trilogy accelerated that trend,
Note, Summary Judgment: The
Majority View Undergoes A Complete
Reversal In The 1986 Supreme Court,
37 Emory L.J. 171, 209-10 (1988).
By 1988, the use of Rule 56 to
dispose of cases had increased
measurably. Ina study of all
published district court opinions
for the first quarter of 1988,
Professors Issacharoff and
Loewenstein found that of the 140
motions for summary judgment made,
114 were granted in whole or part.
Issacharoff, supra, at 92-93.
- 48 -
—
Discouraging Doubtful Litigation: A
ivers lew in
Summary Judgment, And Rule 11 Sanctions
nde ede es Civi
Procedure, 67 N.C.L. Rev. 1023, 1042
(1989), and predicted "[(iJjf form holds,
today’s procedural reform efforts will
soon be engulfed by a resurgent
anticlaimant bias fueled by a desire to
make the judicial system efficient and
claimants accountable," id. at 1034
(footnote omitted).
Others have noted that the
trilogy "will add to the difficulties
plaintiffs face in getting to trial,"
Weinstein, After Fifty Years Of The
Federal Rules of Civil Procedure: Are
The Barriers To Justice Being Raised?,
137 U. Pa. L. Rev. 1901, 1914 (1989),
and have characterized Celotex as
“asymmetrical, grossly favoring
- 49 -
defendants over plaintiffs no matter
which party is the movant." Risinger,
Another Step In The Counter-Revolution:
A_ Summary Judgment On The Supreme
Court ’s New Approach To Summary
Judgment, 54 Brooklyn L. Rev. 35, 39
(1988).
The potential use of summary
judgment against unsympathetic
plaintiffs, after the trilogy, has also
been noted:
By deciding, before full
development of the record at
trial, that the nonmovant’s
side of a disputed factual
story is not sufficiently
probative to support a verdict
by a reasonable jury, the judge
can more easily eliminate not
only claims that she finds
unpersuasive in the instant
case but also legal rights with
which she is unsympathetic.
Although delineating the
unreasonable claim from that
which is merely unpersuasive
can become something of a
philosophical exercise, there
is a difference.
- 50 =
* * +.
A resourceful judge who wants
tc trim a difficult,
time-consuming, distracting, or
perceptibly weak case from her
docket now has ali the tools to
do it.
Stempel, A Distorted Mirror: The Supreme
Court’s Shimmering View Of Summary
Jud t. Di ted Verdict, And 7
Adjudication Process, 49 Ohio St. L.J.
95, 166, 168 (1988).
Other writers have commented
that the trilogy "in a very explicit way
endorse[s]} summary judgment as a
substitute for trial," Marcus,
m j j ’ st?
Reflections On The Future Of Trial Under
The u Civil Procedure, 50
U. Pitt. L. Rev. 725, 740
(1989) (footnote onitted). It has been
argued that an expansive reading of
Matsushita "could seriously alter the
- 51 -
balance of power between judge and
jury," Collins, Summary Judgment And
Circumstantial Evidence, 40 Stan. L.
Rev. 491, 492 (1988), and that Liberty
Lobby effected a "shift of power from
juries to judges in derogation of the
seventh amendment." Stempel, supra, at
162.*
* It is unquestioned that an improper
grant of summary judgment deprives
a party of his constitutionally
guaranteed right to a jury trial.
Risinger, supra, at 42. This Court
has always been careful to preserve
that right. See, e.g., Tull v.
United States, 481 U.S. 412 (1987)
(right to jury trial under Clean
Water Act); Lytle v. Household
Manufacturing, Inc., 110 S. Ct.
1331 (1990) (collateral estoppel
not applied and right to jury trial
upheld where court erroneously
dismissed legal claims under
section 1981), Granfinanciera, S.A.
v. Nordberg, 109 S. Ct. 2782 (1989)
(right to jury trial under
Bankruptcy Act).
- 52 -+- —
A number of commentators have
viewed the expanded use of Rule 56, Rule
11, and various other Rules as part of
an overall trend which has the serious
potential to become anti-plaintiff and
to deny or chill access to the Federal
Courts. The trend has been called a
"movement to restore to defendants,
particularly powerful, establishment
‘repeat player’ defendants, traditional
procedural advantages they lost by
virtue of the Federal Rules’ emphasis on
full disclosure and decision on the
merits." Risinger, supra, at 35
(footnotes omitted).
As Professor Louis has
observed, "Nevertheless, in today’s
strident calls to correct the abuses of
the Federal Rules .. . one sees the
seeds of backlash in the federal courts’
current, occasional reemployment of fact
= 53 -
pleading, seemingly unaware of its
historical difficulties. . . and in
their haste to employ the motion for
summary judgment; even in state of mind
cases, with no recognition of why they
formerly moved cautiously. . ." Louis,
Supra, at 1034-35 n. 87.* Professor
Carrington, Chairman of the Advisory
Committee on the Civil Rules, has
written: "Given the very heavy docket
burdens that district judges now face,
it is a reasonable concern that some may
* Indeed, the District Court’s
actions in whittling down
plaintiffs’ case over a three-year
period by granting successive
motions made, in part, under F.R.
Civ. P. 12(f), to strike so-called
immaterial and impertinent
allegations is exactly the kind of
conduct uniformly criticized by the
commentators as a revival of the
old-fashioned code-pleading evil
the Federal Rules were designed to
abolish.
- 54 -
be tempted to overuse the devices of
sanctions, summary judgment, and
managerial judging to clear their civil
dockets of large numbers of cases,
including many, perhaps, that are
meritorious, or at least sufficiently
meritorious to deserve plenary
attention." Carrington, Making Rules To
is ifes unde
A ions: An fe) of
Non-Trans-Substantive Rules of Civil
Procedure, 137 U. Pa. L. Rev. 2067,
2093-94 (1989).
In evaluating the history and
effectiveness of the Federal Rules of
Civil Procedures, Judge Weinstein noted,
"Few disagree that the Federal Rules
were intended by their drafters to open
wide the courthouse doors... . The
controversy that surrounds us today
seems to me to be about the desirability
- 55 -
of free entry to our courts, but
politically sensitive fundaments rarely
are labelled forthrightly by their
detractors." Weinstein, supra, at
1906-07 (footnote omitted). Judge
Weinstein then discussed four areas
where he believed access was being
narrowed: Rule 11, Rule 23, pleading
rules and Rule 56 after the Celotex
trilogy. Id. at 1914.
A great deal of evidence has
now emerged which indicates that, in
practice, Rule 56 is being utilized ina
manner which discourages access to the
Federal Courts generally, and in
particular to plaintiffs whose cases are
not viewed sympathetically. "There is
evidence in the post-trilogy case law
that summary judgment has moved beyond
its originally intended role as a
guarantor of the existence of material
- 56 -
issues to be resolved at trial and has
been transformed into a mechanism to
assess plaintiff’s likelihood of
prevailing at trial." Issacharoff,
Supra, at 89. A recent study of
post-trilogy cases indicated that 87% of
the reported summary judgment motion
were made by defendants, that courts
were encouraging the filing of such
motions, and that "[a]t the doctrinal
level, courts are not reviewing the
sufficiency of the defendant/movant’s
production." Id. at 92.*
* Concern that the District Court’s
expanded powers under Rule 56 are
being abused by some courts to deny
access to unpopular plaintiffs is
paralleled by criticism which
contends that Rule 11 is being
similarly abused in many cases. In
its call for comments on Rule 11
dated July 24, 1990, the Advisory
Committee on the Federal Rules of
Civil Procedure asked whether "the
| aptamer continued)
Because this case illustrates
-- in an extreme way -- all of the
*
(footnote continued)
sanctions rules have been
administered unfairly to any
particular group of lawyers or
parties?" and noted that
"(p)Jarticular concern has been
expressed about the effect on civil
rights plaintiffs." :
Much commentary has noted the
"Chilling effect of the rule" on
novel and disfavored claims.
Nelken, Has The Chancellor Shot
Himself In the Foot? Looking For A
Middle Ground For Rule 11
Sanctions, 41 Hastings L.J. 383,
386 (1990). A Third Circuit
Committee estimates that Rule 11
has been decidedly "anti-plaintiff
in practice", Weinstein, supra, at
1913. The Committee found that
plaintiffs or their counsel were
the targets of two-thirds of the
Rule 11 motions made during the
one-year period studied and were
sanctioned at a higher rate than
defendants. Id. During the same
period, the same study found that
Civil rights plaintiffs, their
lawyers, or both, were sanctioned
at a rate far higher than for
plaintiffs as a whole. Burbank,
jsectaete continued)
concerns expressed by the commentators
quoted above, it presents a particularly
appropriate one for the grant of
certiorari. An objective observer of
the proceedings in the District Court
could not help but conclude: (a) that
the District Court was very
unsympathetic to petitioners, presumably
because of their perceived prior status
as substantial debtors of the bank; (b)
that because of its dislike of
petitioners, the Court required them to
* (footnote continued)
The Transformation Of American
Civil Procedure: The Example of
Rule 11, 137 U. Pa. L. Rev. 1925,
1938-39 (1989). See generally,
Tobias, Rule 11 and Civil Rights
Litigation, 37 Buffalo L. Rev. 485
(1989) (arguing that Rule 11 has
been applied disproportionately to
civil rights claims and that this
has a chilling effect contrary to
the purpose of the Civil Rights
Acts).
- 59 -
overcome obstacles other commercial
plaintiffs in a contract action would
never normally have to confront; (c)
that the Court dismissed petitioners’
case without first hearing them because
it was clear that the case was a strong
one which could have resulted in a
substantial verdict against the bank,
which the Court felt had already paid
enough; and (d) that the District Court
had little interest in the actual
evidence supporting petitioners’ claims
because it would not even allow that
evidence to be filed and reviewed by the
Court of Appeals.
As the Sixth Circuit held ina
related context in Anderson v. Sheppard,
856 F.2d 741, 746 (6th Cir. 1988):
Moreover, it is our view
that the dissenting opinion
improperly focuses solely upon
the fair trial aspect of the
neutrality requirement. As
- 60 -
illustrated above, the
neutrality requirement serves
dual purposes. It not only
serves to preserve a fair
trial, it also exists to
engender public faith in the
fairness and integrity of our
tribunals. Not only must
litigants actually receive a
fair trial, they must also
believe that they have been
given a fair trial. See
Connelly v. United States Dist.
Court, 191 F.2d 692, 697 (9th
Cir. 1951)("It is not enough
that the judge, despite his
predetermination of essential
facts, may put them aside and
conduct a fair trial but that
there also shall be such an
atmosphere about the proceeding
that the public will have the
‘assurance’ of fairness and
impartiality."). It is then,
and only then, that people will
tender their disputes to our
courts for resolution.
(emphasis in original)
Id. at 746. See also Marshall v.
Jerrico, Inc., 446 U.S. 238, 252 (1980).
By any applicable standard,
allowing respondents to make an
aggregate of seven dispositive motions
in three years without allowing
- 61-
petitioners to take discovery,
dismissing all petitioners’ claims on
the eve of trial without allowing
responsive argument and then refusing to
allow a factual record or offers of
proof to be filed, constitutes a gross
abuse of the Rule 56 procedure.
Precisely because its procedural history
is so extreme, the case presents an
excellent vehicle for this Court to use
to curtail the abuses of the Federal
Rules which the above commentary
reflects. When this Court unleashed the
District Courts with expanded powers
under Rule 56, its intent was to promote
the efficient resolution of civil
litigation. The new powers were never
intended to sanction the kind of
repeated harassment of a plaintiff which
occurred in this case or to deprive a
plaintiff of its constitutional right to
- 62 <-
a jury trial. Equal justice under law
requires that even plaintiffs with whom
a judge is unsympathetic are entitled to
their day in court if the nature of
their claims -- as opposed to their
status -- merits it. Because it is
objectively indisputable that what
occurred here was procedurally improper,
and the legal result so obviously
illogical, this case would allow the
Court to reiterate that important
principle without undercutting
legitimate efforts at expediting
litigation -- which might occur if the
same message were delivered in a case
with less extreme facts.
- 63 -
CONCLUSION
For the above reasons, the
petition for a writ of certiorari should
be granted, the decision of the Second
Circuit Court of Appeals dated October
17, 1990, the oral rulings of the
District Court dated October 11, 1989,
and its judgment of October 20, 1989
should be vacated, and the case should
be remanded to the District Court.
Dated: New York, New York
January 16, 1991
Respectfully submitted,
PAUL F. DOYLE
Counsel of Record for
Petitioners
101 Park Avenue
New York, New York 10178
(212) 808-7800
OF COUNSEL:
Professor Martin B. Louis
Kelley Drye & Warren
- 64 =
Appendix A
A-1
NTERED ON
\ CTOEBER
UNITED STATES CO
FOR THE SECON
(Argued: March 26, 1990 Decided: October 17, 1990)
Docket Nos. 89-9191, 90-7015
>
BIRENDRA MOHAN SHARMA, ASTRAL HOLDING COoR-
PORATION, FREESIA SHIPPING CORPORATION, SUN
LILY MARITIME INC., DOMAN TANKERS INC., and
ZODIAC FINANCE CORPORATION,
Plaintiffs-Appellants,
—Vi—
SKAARUP SHIP MANAGEMENT CORPORATION, OLE
SKAARUP, BENT LARSON and CHEMICAL BANK,
Defendants-Appellees.
Before:
OAKES, MINER and WINTER,
Circuit Judges.
>
Plaintiffs appeal following a Rule 54(b) judgment dis-
missing their compiaint in the United States District
Court for the Southern District of New York (Louis L.
Stanton, Judge). Our principal holding is that damages
17,
1990
A-2
for the loss of three vessels resulting from alleged
breaches of a refinancing agreement are limited to the
market value of the vessels at the time of the breaches.
Affirmed.
—
PAUL F. DOYLE, New York, New York
(Sarah L. Reid, Kelley Drye & Warren,
New York, New York, of counsel), for
Plaintiffs-A ppellants.
DAVID H. BRAFF, New York, New York
(William M. Dallas, Jr., Sullivan &
Cromwell, New York, New York, of
counsel), for Defendants-Appellees
Skaarup Ship Management Corporation
and Ole Skaarup.
HENRY LEWIS GOODMAN, New York, New
York (Harold N. Schwinger, Menachem
O. Zelmanovitz, Margot B. Schonholtz,
Jay Teitelbaum, Zalkin, Rodin & Good-
man, New York, New York, of coun-
sel), for Defendant-Appellee Chemical
Bank.
WINTER, Circuit Judge:
This appeal arises out of an action for the alleged
breach of a financing agreement concerning three ves-
sels. This agreement was between defendant-appellee
Chemical Bank and plaintiffs-appellants Birendra
Mohan Sharma (‘‘Mr. Sharma’’), Astral Holding Corp.
A-3
(‘‘Astral’’), Freesia Shipping Corp. (‘‘Freesia’’), Sun
Lily Maritime Inc. (‘‘Sun Lily’’), Doman Tankers Inc.
(‘‘Doman’’), and Zodiac Finance Corp. (‘‘Zoa‘ac’’).
Appellants claim that Chemical Bank breached the
agreement by preventing the refinancing of the vessels,
thereby causing their foreclosure. They also claim that
defendants-appellees Cle Skaarup and the Skaarup Ship
Management Corp. (collectively ‘‘Skaarup’’) tortiously
interfered with the contractual relations between appel-
lants and Chemical Bank.
Appellants’ claims were dismissed by the district court
under circumstances described infra. We affirm.
BACKGROUND
Mr. Sharma was the president of Freesia, Sun Lily
and Doman. Chemical Bank entered into secured financ-
ing agreements with Freesia, Sun Lily, and Doman that
enabled the corporations to purchase the tankers WAY-
USUT, WINGED DOLPHIN, and VALIANT POR-
POISE, respectively, between 1977 and 1981. Mr.
Sharma personally guaranteed the obligations of the cor-
porations to Chemical Bank.
After 1981 and during a general decline in the ship-
ping industry, the three corporations defaulted on pay-
ments of the principal of the loans. By September 1983,
they were also in default on interest payments. In late
1983, apparently seeking to increase its oversight of the
vessels as the collateral for the debt, Chemical bank
retained Ole Skaarup and the Skaarup Ship Manage-
ment Corporation to inspect the ships and their records.
Although appellants objected to the inspections because
A-4
Skaarup was a competitor in the shipping industry, they
eventually acquiesced.
In August 1984, when over $30 million was due on
the three mortgages, Chemical Bank advised appellants
that it intended to terminate the financing agreements
and take possession of the tankers. Chemical Bank
arrested the tanker WINGED DOLPHIN on September
7, 1984, and took steps toward foreclosure on the other
vessels. Appellants obtained an injunction ex parte from
the High Court in London to halt the arrest proceed-
ings. Chemical Bank sought to have the injunction
vacated. Four days later, on September 12, 1984 and
before an appellate ruling on the validity of the injunc-
tion, the parties settled the litigation through a new
financing agreement (‘‘Settlement Agreement’’).
The Settlement Agreement provided that appellants’
debt to Chemical Bank would be fully discharged by
surrender of the vessels or by a lump sum payment of
$16.5 million to Chemical Bank with a commitment to
refinance. Mr. Sharma was released from his personal
guarantee of the debt.
The agreement afforded appellants twenty-eight days
in which to arrange a refinancing of the vessels and
fifty-six days to make the payment of the reduced debt.
Under the agreement, appellants had to pay $2000 per
day per vessel for the opportunity to refinance. Appel-
lants released Chemical Bank from any claims arising
prior to the Settlement Agreement, including the then-
pending litigation in England. In addition, Paragraph
XIV of the agreement provided that appellants would
not ‘‘without the prior consent of [Chemical Bank] enter
into any time charterparty of a longer duration of three
months or any voyage charterparty which in the ordi-
A-5
nary course of events would last for more than three
months or any demise charterparty.’’ Pursuant to the
agreement, appellants delivered bills of sale for the three
tankers to an escrow agent, to be delivered to the new
owners designated by Chemical Bank should appellants
not pay the $16.4 million within the time stipulated.
Appellants failed to obtain refinancing within the time
designated. They allege that this failure was caused by
Chemical Bank’s bad faith refusal to approve charter
parties of more than three months under Paragraph
XIV. On October 31, 1984, appellants and Chemical
Bank reached a new agreement (‘‘October Modifica-
tion’’) that modified and extended the Settlement Agree-
ment.
The modification provided:
2. On or before, 2nd November 1984, all financial
institutions (the ‘‘Participants’’) participating in
the refinancing of the Vessels (which shall be in
the aggregate amount of US$16 million) shall
have approved their respective participations
subject only to:
(a) satisfactory inspection of the Vessels,
(b) the fixing of ‘‘Wayusut’’ and the ‘‘Winged
Dolphin’’ under charter parties acceptable to the
Participants and,
(c) satisfactory documentation cf the re-
financing.
and the Bank shall have received written confir-
mation of the foregoing from the Institution in
form and substance satisfactory to the Bank.
A-6
3. On or before 7th November 1984, the Bank shall
have received from the Institution written confir-
mation that item 2(a) above is no longer a condi-
tion to the closing of the re-financing.
4. Upon receipt by the Bank of the confirmation
referred to in Item 3 above, the Companies shall
be and hereby are authorized by the Bank to
enter into charter parties covering the ‘‘Way-
usut’’ and the ‘‘Winged Dolphin’’ provided how-
ever, that no such charter party shall (a) commit
such Vessels, or either of them for a period
(including options) of longer than 38 months, or
(b) specify am average gross charter rate to the
owner thereof of less than US$7.00 per ton, per
month and (c) be in any form other than the
standard major oil company form.
Further extensions were agreed to by Chemical Bank
in January and March 1985, but appellants failed to
procure refinancing before the final extension period
expired on April 1, 1985. They attribute that failure to
Chemical Bank’s breach of the October Modification by
refusing to allow them to enter into two three-year char-
ter parties with Thakur Shipping Company that are
alleged to have been within the thirty-eight month limit
specified in the Modification. On April 26, 1985, title to
the three tankers was transferred to Skaarup as Chemi-
cal Bank’s designee. Skaarup managed the tankers’
operations on behalf of Chemical Bank until Chemical
Bank sold the three tankers in 1986 for approximately
$14 million.
Appellants commenced this action in 1986, claiming
that Skaarup tortiously interfered with contractual rela-
A-7
tions between appellants and Chemical Bank and that
Chemical Bank breached implied and express duties of
good faith and fair dealing under the various agree-
ments. In the course of pretrial proceedings, they specif-
ically asserted that Chemical Bank did not act in good
faith by refusing charter parties in excess of the three
months’ duration of Paragraph XIV under the Settle-
ment Agreement and breached the October Modification
by preventing appellants from obtaining a three-year
charter with Thakur Shipping. They also claimed that
Chemical Bank acted in bad faith by instructing appel-
lants’ insurance broker to cancel the insurance on the
three tankers in October 1984, and that Chemical
Bank’s arrangement with Skaarup, appellants’ competi-
tor, was injurious to appellants. Finally, they alleged
that Chemical Bank breached an implied duty of confi-
dentiality regarding plaintiffs’ banking business and also
breached an express duty of confidentiality set forth in
the September 12, 1984 Settlement Agreement.
Appellants sought as damages, not the market value
of the vessels on the date of the various breaches and
repossession, approximately $15 milli »n, but the profits
that would have been earned in future years had appel-
lants retained the three tankers. In their view, these
damages amount to $80 million.
The gravamen of appellants’ theory is that the Settle-
ment Agreement was entered into by Chemical Bank to
escape the effect of the High Court injunction and that
Chemical thereafter wanted to prevent a refinancing.
They argue that Chemical believed an upturn in the
shipping industry was around the proverbial corner and
wanted to acquire the vessels to resell them when that
corner was turned. According to appellants, Chemical
Pe
A-8
Bank arranged that Skaarup would take title to the ves-
sels and operate them until a profitable sale could be
made. Allegedly, this arrangement was necessary to
evade banking regulations that prevent banks from own-
ing and operating ships for speculation. It is argued that
the bank’s various breaches of the Settlement Agreement
and October Modification were intended to, and did,
prevent a refinancing, enabling Skaarup to take title to
the vessels. As a result, appellants lost the substantial
profits they would have reaped had they continued to
own the vessels when the demand for shipping
increased.
Chemical Bank, of course, disputes this view of
events. It points out that the Settlement Agreement was
reached within four days after the ex parte injunction
was issued and before its validity had been litigated.
That Agreement, moreover, released Mr. Sharma
entirely from his personal guarantee and appellants from
over $14 million of the amount due, thus making it eas-
ier for appellants to satisfy the mortgage. The new prin-
cipal amount, $16.5 million, is conceded by appellants
to have been intended ‘‘to approximate the then market
value of the vessels.’’ Brief of Appellants at 29. The
October Modification and subsequent amendments
agreed to by Chemical Bank further liberalized the terms
of the Settlement Agreement by extending the time for
compliance and reducing the debt to $16 million. When
title finally passed to Skaarup, the vessels had a value of
$15 million. They were ultimately sold by Chemical
Bank for $14 million. In the Bank’s view, the present
litigation, in which $80 million is sought as damages
from a party that lost some $16 million on the transac-
tion, is a case of no good deed going unpunished.
A-9
In October 1988, the district court dismissed all claims
against the Skaarup defendants. See Sharma v. Skaarup
Ship Management Corp., 699 F. Supp. 440, 446-47
(S.D.N.Y. 1988). With regard to the tortious interfer-
ence claim,’ the district court held that appellants had
failed to allege that the Skaarup defendants’ acts were
the ‘‘but for’’ cause of the alleged intentional breach of
contract by Chemical Bank. Jd. at 447. In the same rul-
ing, the district court also dismissed various of appel-
lants’ claims against Chemical Bank, including the claim
that Chemical Bank breached the Settlement Agreement
by refusing to approve charters of more than three
months under Paragraph XIV. Jd. at 449. It reaffirmed
this ruling on a motion for reconsideration. Sharma v.
Chemical Bank, 723 F. Supp. 200 (S.D.N.Y. 1989).
According to the district court, the following issues
remained alive in the case after the October 1988 ruling:
Fact questions exist, as to whether Chemical
breached its duty of good faith and fair dealing
through its arrangement with the Skaarup defen-
dants, by advising [plaintiffs’ insurance broker] to
cancel plaintiffs’ insurance in October 1984 and by
giving confidential information to unknown per-
sons, and whether Chemical breached its duty of
confidentiality to plaintiffs by disclosing informa-
tion about their Chemical accounts to third parties.
699 F. Supp. at 450. Not mentioned, but also pending,
was the claim that Chemical Bank prevented appellants
from obtaining the two Thakur Shipping charters that
1 As to the Skaarup defendants, appellants challenge on appeal only
the dismissal of Count III, the tortious interference claim.
A-10
are alleged by appellants to have been within the thirty-
eight month limit of the October Modification.
The parties’ trial briefs and the joint pretrial order
were filed on October 3, 1989. In a letter dated October
5, 1989, Chemical Bank asked the district court to strike
significant portions of appellants’ evidence. The district
court treated the letter as a motion in limine, and at a
pretrial conference on October 11, 1989, Judge Stanton
by oral decision struck a number of appellants’ pro-
posed findings of fact, including proposed findings on
damages.
With regard to damages, the court stated that the sole
measure of recovery was the market value of the vessels
at the time title was transferred to Skaarup and that lost
future earnings from the vessels were not recoverable as
a matter of law.
At a conference the following day, the district court
indicated that it had not struck appellants’ claim regard-
ing Chemical Bank’s alleged breach of its obligation to
approve the Thakur Shipping charters under the October
Modification. It further indicated that it had not struck
appellants’ claims of breach of an implied duty of good
faith and fair dealing in agreeing with Skaarup that it
take title and operate the vessels, its instructions to the
insurance broker, and its imparting of confidential
information to various persons. The court did, however,
reiterate that lost prospective earnings from the vessels
was not a proper measure of damages.
At the conference, appellants advised the court that
because the value of the vessels at the time title was
transferred to Chemical Bank’s designees was $15.2 mil-
lion and the final amendment to the Settlement Agree-
A-11
ment provided for payment of $16 million to Chemical
Bank, the market value of the vessels was less than the
amount owed to Chemical under the settlement agree-
ment. Appellants thus concluded that if damages were
to be limited to the vessels’ market value, they could
recover no damages. Accordingly, they requested that
the court enter judgment dismissing their claims. Cn
October 18, 1989, the district court entered a final judg-
ment dismissing all plaintiffs’ claims pursuant to Fed.
R. Civ. P. 54(b).’
DISCUSSION
On appeal, appellants challenge the district court’s
rulings striking proof of consequential damages. Appel-
lants also appeal from the district court’s earlier ruling
that Chemical Bank had an unqualified right to refuse
charters for more than three months under Paragraph
XIV of the Settlement Agreement and from the dis-
missal of the tortious interference claim against
Skaarup.
1. Lost Profits
As described above, appellants’ theory is that Chemi-
cal Bank’s alleged breaches of the various financing
agreements prevented refinancing and caused appellants
to lose the vessels in question. The loss of the vessels in
turn deprived appellants of assets that would have pro-
duced substantial profits once demand for their use
increased sometime in the future. They claim a right to
those profits as damages. We disagree.
2 The district court’s order severed and stayed proceedings on Chemi-
cal Bank’s counterclaim pending the appeal in this matter.
A-12
It is a fundamental proposition of contract law,
including that of New York,’ that the loss caused by a
breach is determined as of the time of breach. See
Simon v. Electrospace Corp., 28 N.Y.2d 136, 145, 269
N.E.2d 21, 26, 320 N.Y.S.2d 225, 232 (1971). It is also
fundamental that, where the breach involves the depri-
vation of an item with a determinable market value, the
market value at the time of the breach is the measure of
damages.* See id at 145-46, 269 N.E.2d at 26, 320
N.Y.S.2d at 233.
Numerous cases illustrate these principles. For exam-
ple, changes in currency exchange rates subsequent to a
breach may not be taken into account in measuring
damages. See Perker v. Hoppe, 257 N.Y. 333, 178 N.E.
550 (1931). The damage award resulting from a breach
of an agreement to purchase securities is the difference
between the contract price and the fair market value of
the asset at the time of breach, not the difference
between the contract price and the value of the shares
sometime subsequent to the breach. See Aroneck vy.
Atkin, 90 A.D.2d 966, 967, 456 N.Y.S.2d 558, 559
(App. Div. 4th Dep’t 1982) (rejecting claim that value of
securities should be based on performance of business in
1979 and 1980 rather than at time of breach in 1978
when value was $0). Where a purchaser breaches a con-
3. = The Settlement Agreement provides that it ‘‘shall be governed by
and construed in accordance with English Law and shall be subject to
the Jurisdiction of the English Courts."’ The parties agree, however,
that New York and British law are the same and ask us to apply New
York law. Brief of Appellants at 25; Brief of Appellee at 18. See also
723 F. Supp. at 202 (noting that English law comports with New York
law on contract interpretation question).
4 Whether we view appellants’ claim as involving the deprivation of
financing or the deprivation of the three vessels is irrelevant because
each had a market vglue at the time of the breach.
|
|
A-13
tract to buy real estate, the measure of damages is the
difference between the contract price and the fair mar-
ket value at the time of breach, even though the seller is
able to seli the real estate only later and for less than the
value on the date of breach. See Webster v. DiTrapano,
114 A.D.2d 698, 699, 494 N.Y.S.2d 550, 551 (App. Div.
3d Dep’t 1985) (contract price $63,500, value at time of
breach $57,500, sold eleven months later for $55,000,
damage award should have been $6,000). The same mea-
sure applies when a seller of a home breaches and the
buyer is forced to assume higher interest rates in pur-
chasing another home as a result of the breach. See
Lotite v. Mazzeo, 132 A.D.2d 650, 651, 518 N.Y.S.2d
22, 23 (App. Div. 2d Dep’t 1987).
Appellants have not led us to any New York authority
that even remotely undercuts the numerous contrary
precedents. They rely heavily upon Greasy Spoon, Inc.
v. Jefferson Towers, Inc., 75 N.Y¥.2d 792, 551 N.E.2d
585, 552 N.Y.S.2d 92 (1990). However, that case .
involved a lessor’s refusal to execute documents enabling
the lessee to obtain municipal licenses and permits to
operate a sidewalk cafe adjacent to the lessee’s restau-
rant. The licenses and permits did not have a market
value and were not replaceable. Lost profits were there-
fore the best measure of the loss. Other cases that have
awarded lost profits, such as McLeod, Inc. v. R.B.
Hamilton Moving and Storage, 89 A.D.2d 863, 453
N.Y.S.2d 25i (2d Dep’t 1982), are similarly distinguish-
able. In McLeod, a lessee of a crane failed to return it
in good condition and thus caused it to be unusable for
ten weeks. The court awarded the lessor the profits lost
for the period in which it could not be leased. Had the
crane been permanently rather than temporarily dis-
abled, damages under New York law would have been
A-14
the value of the crane on the date of breach. Damages
for the temporary loss would be the leasing value for
that period, which is the same as lost profits.
Measuring contract damages by the value of the item
at the time of the breach is eminently sensible and actu-
ally takes expected lost future profits into account. The
value of assets for which there is a market is the dis-
counted value of the stream of future income that the
assets are expected to produce. This stream of income,
of course, includes expected future profits and/or capi-
tal appreciation. To be sure, uncertainties about the
future and lack of perfect information may cause an
asset to be under- or over-valued at any particular time.
At that time, however, either party has an opportunity
to hedge according to his or her judgment about the
future streain of income. New York courts have thus
explicitly upheld damage awards based on ‘‘what knowl-
edgeable investors anticipated the future conditions and
performance would be at the time of the breach’’ and
have rejected awards based on what “‘the actual eco-
nomic conditions and perfermance’’ were in light of
hindsight. Aroneck, supra, 90 A.D.2d at 967, 456
N.Y.S.2d at 559. Moreover, appellants are unclear
about the time at which damages are to be determined
under the rule they espouse. Certainly they are not enti-
tled to select the precise date on which the vessels had
their highest value or a period of time that was profit-
able but that excludes periods when losses occurred. If
the time of trial governed, the rule would be a two-
edged sword, because courts would have to diminish
damage awards where the value of the item decreased or
where losses were encountered subsequent to the breach
as well as enhance them where conditions improve.
However, New York courts have expressly refused to
A-15
adopt this ‘‘wait and see’’ theory of damages. They
have explicitly rejected the use of subsequent changes in
value or profits where they would increase an award, see
Webster, supra, 114 A.D.2d at 699, 494 N.Y.S.2d at 551
(seller able to sell real estate only later and for price less
than value on date of breach), Lotito, supra, 132
A.D.2d at 651, 518 N.Y.S.2d at 23 (buyer forced to
assume higher interest rate in purchasing other home
subsequerit to breach), and where they would decrease
the award, see Aroneck, supra, 90 A.D.2d at 967, 456
N.Y.S.2d at 559 (excluding increase in value of shares
after buyer breaches contract to purchase).
Thus, under New York law, if the contract in ques-
tion were for the sale of the vessels to appellants and the
seller were to breach the contract, appellants’ recovery
would be limited to the value of the vessels on the date
of the breach. We see no reason to reach a different
result in the instant matter. In fact, the efficiency of the
credit market will be impaired if a measure of damages
other than the value of the collateral at the time of
breach were applied to secured financing agreements.
Collateral satisfactory to the lender almost always has a
market value, allowing the lender to take possession and
convert the security to money. The principal of the loan
is determined by the market value of the collateral and
the creditworthiness of the borrower. If, as in the case
of the Settlement Agreement, a default permits a fore-
closure on the collateral without further liability on the
borrower’s part, the principal has a ceiling at or near
the value of that collateral. The lender would be foolish
to risk more because the borrower has little incentive to
repay. The interest rate is determined by the time’ value
of money in the credit market and the creditworthiness
of the borrower.
A-16
Under the rule espoused by appellants, lenders would
have to take into account the risks of post-foreclosure
litigation involving the value of the collateral at some
unknown future time. These risks would be particularly
great where the collateral fluctuates in value. When that
value is low, borrowers would have a great incentive to
default, the lender usually encountering a loss. How-
ever, if some time after default the value increases, the
lender, who may well have lost money on the transac-
tion, may be exposed to future claims that dwarf the
original financing. Many ordinary items, such as securi-
ties, would be less valuable as collateral. The rule
espoused by appellants would thus benefit neither
lenders nor creditors, because it would render secured
loans more risky, thereby impairing the availability of
credit and increasing interest rates.
The facts of the instant case illustrate these principles.
In making the Settlement Agreement and October Modi-
fication that are the basis for the breach of contract
claim, the Bank consented to a reduction of the debt
from $30 million to $16.5 million, a further reduction
after the breaches alleged as the basis for this litigation
to $16 million, a release of Mr. Sharma and an exten-
sion of time for obtaining refinancing. Appellants con-
cede that the reductions in the principal of the debt were
intended ‘‘to approximate the then market value of the
vessels.”’ Brief of Appellants at 29. Moreover, it is not
disputed that when appellants defaulted, they were
released from a $16 million debt in return for vessels
worth $15 million. It seems wholly far-fetched to infer
that a bank that reduces a mortgage loan by almost 50
percent so as to align the size of the loan with the con-
temporaneous value of the collateral would have so
agreed if it contemplated an exposure to damages five
A-17
times the size of the reduced loan, $80 million, based on
the value of the collateral at some unknown time long
after the alleged breach.
We find, as did the district court, support in tort law
for our conclusion. Had Chemical Bank negligently
destroyed the vessels in question, its liability would have
been limited to the vessels’ market value at the time of
their destruction. See The Umbria, 166 U.S. 404, 422
(1897); Ozanic v. United States, 165 F.2d 738, 743 (2d
Cir. 1948); The Hamilton, 95 F. 844, 845 (E.D.N.Y.
1899). It would be odd to deny damages for lost profits
in tort and award them in the present case, particularly
since the measure of damages in tort cases is more gen-
erous than in contract actions. See Corbin, On Con-
tracts, § 1019.
2. Refusal of Charters Under Paragraph XIV of the
Settlement Agreement
Appellants argue that the district court erred in hold-
ing that under Paragraph XIV of the September 12,
1984 Settlement Agreement, Chemical Bank had an
absolute right to withhold approval of charters longer
than ninety days.’ The district court was clearly correct,
however, in finding that Paragraph XIV is unambigu-
ous, 723 F. Supp. at 201, and gives Chemical Bank an
unrestricted right to refuse charters longer than three
months. This right furthers the purpose of the agree-
ment to provide a limited opportunity to secure refi-
nancing and to protect Chemical Bank’s interest in the
collateral for the long-overdue debt. Appellants would
have us imply a duty to act reasonably in such circum-
5 Whether this issue need be reached in view of our disposition of the
consequential damages issue is unclear. We reach it to obviate the need
for further proceedings.
A-18
stances, but the content of any such duty is entirely
unclear in light of the provision’s plain intent to render
the Bank’s refusal unreviewable. We see no reason not
to acknowledge the plain meaning of a clause that
allows a lender to impose restrictions on the use of col-
lateral and to have the unreviewable right to invoke
those restrictions. Secured lenders have a clear interest
in overseeing the disposition of their collateral and
understandably bargain for rights that may be exercised
without a court or other tribunal deciding whether such
exercise was reasonable according to standards the par-
ties have not defined.
Appellants’ argument that Chemicaj Bank knew that
long-term charters were necessary to obtain refinancing
and was therefore bound to approve such charters where
‘*reasonable”’ is unavailing. If the parties were indeed
aware of that fact, Paragraph XIV could not have been
inadvertent. It reflects, therefore, a conscious decision
to allow Chemical Bank to refuse all such charters lest
the refinancing fall through while the vessels become
bound by long-term charters. Appellants were, of
course, free to arrange refinancing, if available, simulta-
neously with long-term charters.
Extrinsic (parol) evidence regarding the terms of the
agreement was properly excluded in light of the absence
of any ambiguity. See Cibro Petroleum Products, Inc.
v. Sohio Alaska Petroleum Co., 602 F. Supp. 1520,
1545 (N.D.N.Y. 1985) (stating general contracts princi-
ple that if contract is unambiguous, extrinsic evidence
should be excluded), aff’d per curiam, 798 F.2d 1421
(Temp. Emer. Ct. App.), cert. dismissed, 479 U.S. 979
(1986); Schmidt v. Magnetic Head Corp., 97 A.D.2d
151, 157, 468 N.Y.S.2d 649, 654 (2d Dep’t. 1983) (refer-
A-19
ence to extrinsic evidence not permitted even to deter-
mine whether ambiguity exists in contract).
Finally, we reject as utterly frivolous the argument
that the Settlement Agreement is rendered ‘‘illusory’’ by
this straightforward interpretation of Paragraph XIV.
The agreement reduced appellants’ liabilities by almost
50 percent, released Mr. Sharma from his persona! guar-
antee, and extended the time in which appellants might
satisfy the debt. As noted, moreover, nothing in the
Agreement prevented appellants from arranging refi-
nancing simultaneously with a long-term charter.
3. Tortious Interference Claim
As to the tortious interference claim against Skaarup,
the district court properly dismissed Count III of the
amended complaint for failure to allege that Skaarup’s
actions were the ‘‘but for’’ cause of Chemical Bank’s
alleged breach of the Settlement Agreement. Intentional
procurement of a breach is an essential element of the
tort of interference with contractuai relations. A plain-
tiff must allege that ‘‘there would not have been a
breach but for the activities of defendants.’’ Special
Event Entertainment v. Rockefeller Center, Inc., 458 F.
Supp. 72, 78 (S.D.N.Y. 1978); see Merrill Lynch
Futures, Inc. v. Miller, 686 F. Supp. 1033, 1040
(S.D.N.Y. 1988). The appellants’ theory of this case—
that Chemical Bank’s efforts to obtain the vessels were
motivated by profit—is incompatible with an allegation
of ‘‘but for’’ cause as to Skaarup. As stated by the dis-
trict court, ‘‘In no way do plaintiffs allege that the
Skaarup defendants were the motivating force behind
Chemical’s breach.’’ 699 F. Supp. at 447.
A-20
CONCLUSION
Because of our disposition of the legal issues raised on
this appeal, the various procedural errors claimed by
appellants are moot. Affirmed.
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B-1
ENTERED ON
0) ) 989
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
BIRENDRA MOHAN SHARMA,
ASTRAL HOLDING CORPORATION,
FREESIA SHIPPING CORPORATION,
SUN LILY MARITIME INC., DOMAN
TANKERS INC., and ZODIAC
FINANCE CORPORATION,
86 CIV.
Plaintiffs, 3236 (LLS)
-Vv- ORDER AND
JUDGMENT
CHEMICAL BANK,
Defendant.
Plaintiffs, because of the
court’s pre-trial rulings, request entry
of judgment (a) dismissing the complaint
pursuant to Fed. R. Civ. P. 54(b) so
that an appeal can be taken, and (b)
severing and staying defendant’s
counterclaim pending the outcome of the
appeal; defendant consents thereto; and
B-2
since that judgment disposes of all of
plaintiffs’ claims, there is no just
reason for delay in its entry; and it is
ORDERED that the counterclaim
of Chemical Bank against plaintiffs is
severed and further proceedings in
respect of the counterclaim are stayed
pending the outcome of a timely appeal
by plaintiff from this judgment; and it
is
ADJUDGED AND DECREED that the
fourth amended complaint and all prior
complaints herein are dismissed with
prejudice, with costs to be taxed by the
Clerk in favor of defendant but payment
thereof by plaintiffs, and execution
thereon by defendant are stayed pending
the outcome of plaintiffs’ appeal from
this judgment.
The Clerk is directed to enter
-2-
Meret Ome Lolth te Pe pat io.
B-3
this judgment forthwith.
Dated: New York, New York
October 18, 1989
LOUIS L. STANTON
U.S.D.Jd.
O
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C-1
ENTERED ON
OCTOBER 18, 1989
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
— ee ee ee ee ee ee ee ee ee ee ee ee ee ee ee ete? . 4
BIRENDRA MOHAN SHARMA,
ASTRAL HOLDING CORPORATION,
FREESIA SHIPPING CORPORATION,
SUN LILY MARITIME INC., DOMAN
TANKERS INC., and ZODIAC
FINANCE CORPORATION,
86 CIV.
Plaintiffs, 3236 (LLS)
-v- ORDER
CHEMICAL BANK,
Defendant.
ausecoeucessuaeeseesonseensone x
Since the pre-trial rulings
striking Plaintiffs’ Proposed Findings
Of Fact # 6, 7, 9(a), 9(e), 10, 12(a),
14(c), 16, 17 and 17(a) (but net other
sub-paragraphs), 18, 21(b) (second
sentence only), 25(d), 32, and 39 as
contained in the parties’ October 3,
1989 joint pre-trial order did not rest
C-2
upon the evidence to be adduced in
support of those paragraphs, there is no
need or purpose in filing the three
large boxes containing that evidence, as
requested by plaintiffs’ counsel in
paragraph 5 (a) through (f) of his
affidavit (affidavit of Paul F. Doyle,
Esq., sworn to October 16, 1989), and
that request is accordingly denied.
The request that the Clerk be
directed to docket letters, transcripts
and other materials as listed in
paragraphs 6 and 7 of Mr. Doyle’s
affidavit is granted.
So ordered.
Dated: New York, New York
October 18, 1989
LOUIS L. STANTON
ee
Appendix D
ea a
D-1
ENTERED ON
OCTOBER 23, 1989
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-—— — <— << << ee oe ee ee ee oe oe oe oe oe ee ee ee ee oe ee oe oe oe oe oe x
B. M. SHARMA, et al,
86 Civ.
Plaintiffs, 3236 (LLS)
Vv.
CHEMICAL BANK,
Defendant.
me awe me we ae ia ea ea ea eae es ee eee x
October 11, 1989
2:35 p.m.
Before:
HON. LOUIS L. STANTON
District Judge
APPEARANCES
KELLEY DRYE & WARREN
Attorneys for plaintiff
PAUL F. DOYLE
SARAH L. REID
Of Counsel
ZALKIN, RODIN & GOODMAN
Attorneys for defendant
HENRY L. GOODMAN
MENACHEM O. ZELMANOVITZ
MARGOT B. SCHONHOLTZ
Of Cov~rel
D-2
(Case called; both sides ready)
THE COURT: Last week when we set
this appointment for this afternoon, it
was with the hope that at this time I
could have reviewed the pretrial
submission more completely and make some
rulings which would be of use to the
parties and their final preparation for
trial, and I have been able to do that,
and so I will discuss some of the
pending matters before me.
Most of these matters, if not all
of them, have been discussed by the
parties in their trial briefs and in
letters to the court during the past
recent period, and I will have those
letters docketed with the file in this
action so the record is complete.
As you probably know, because I
think my chambers advised you yesterday,
D-3
I have denied the application for a 1292
B certificate with respect to the denial
of the motion for reargument, and I have
also added to the memorandum denying the
motion for reargument a citation and a
quotation from a 1981 decision of the
New York Court of Appeals, Collard v.
Incorporated Village of Flower Hill,
which dealt with the point.
Is there anyone to whom that
announcement comes as news? Good.
All the letters referred to and
the dates given for those letters all
refer to letters to the court. In two
of Mr. Doyle’s letters, he tendered the
view that the fourth amended complaint
had received the sanction of the court,
resting that on a conference earlier
this year at which drafting changes were
made to what I suppose must have been
D-4
the third amended complaint. It is true
that the first three years of this
litigation were spent in successive
motions against complaints which were so
prolix and verbose, so full of evidence
and so far from compliance with F.R.C.P.
8(a), which requires a short and plain
statement of the claim showing that the
pleader is entitled to relief, that
finally I had to participate in cutting
the complaint down to a proper pleading
of claims.
Of course, claims are merely
assertions. Nobody could have imagined
that in helping a party in its fifth
efforts to express its claims, I was
also ruling on the validity of those
claims or determining that they would
survive later motions as the case
developed. Thvs, Mr. Doyle’s October
D-5
6th letter, as well as his October 5
letter stating that the complaint was
santioned by the court, is in error if
it is intended to imply prejudgment in
the drafting process of defendant’s
present application.
By the same token, it should be
obvious that in eliminating a pleading
of evidence as being an improper
pleading, I did not rule one way or the
other on whether that evidence would be
admissible at trial.
I turn at this point to the
defendants’ claim that the execution of
amendments to the September 12 agreement
bar evidence of intermediate breaches.
At this stage, the mere execution of
those amendments standing alone will not
bar evidence of intermediate breaches.
The cases dealing with this point have
D-6
reached their conclusions on rather full
records concerning the circumstances of
the amendments, and they have addressed
particularly whether there was a
specific arrangement with respect to the
performance which had been expected
under the main contract.
The principal that they apply is
fairly stated in Thomson v. Poor in 147
N.Y. at page 409: "We know of no
principle of law which will permit a
party to a contract who is entitled to
demand the performance by the other
party of some act within a specified
time and who has consented to the
postponement of the performance to a
time subsequent to that fixed by the
contract and where the other party has
acted upon such consent and in reliance
thereon has permitted the contract time
D-7
to pass without performance, to
subsequently recall such subsequent and
treat the nonperformance within the
original time as a breach of the
contract."
Mr. Doyle’s letter of October 10
says the amendments do not condone
Chemica)’s actions or waive rights to
damages for breaches, and I am not at
this point excluding evidence of such
claimed breaches merely because of the
execution of the amendments.
Turning to another topic, Mr.
Goodman’s letter of October 5 requested
that it be taken as a motion for summary
judgment or as a motion to dismiss or as
an application for in limine rulings. I
choose the third and regard it as an
application for in limine rulings, and
as such, it is granted to the following
D-8
extent only: The proposed findings of
fact which I will list are stricken.
When a paragraph number is stated, that
paragraph and all subdivisions are
stricken unless specific subparagraphs
are identified, in which case they ere
the only subparagraphs which are
stricken.
The stricken paragraphs and
subparagraphs are plaintiff’s proposed
findings of fact Nos. 6, 7, 9 A, 9 E,
10, 12 A, 14 C, 16, 17 and 17 A.
MR. DOYLE: Your Honor, I’m ina
bit of embarrassing bind. We didn’t
seem to bring a copy of the pretrial
order with us. I wonder if I could one
borrow one for a moment?
THE COURT: I think you better
follow the list for a moment, Mr. Doyle.
The 17 there refers to the
D-9
lead-in paragraph following the
designation of the paragraph as 17; in
other words, the material before 17 A.
17 A is also stricken, but the balance
of 17, other than the first paragraph
and 17 A, are not stricken. Paragraph
18 is stricken, paragraph 21 B, the
| second sentence only; paragraph 25 D,
paragraph 32, and paragraph 39.
These rulings give effect to the
prior orders of the court, the doctrine
of merger and integration, the parole
evidence rule, and the Federal Rules of
Evidence, including Rules 402 and 403 to
the extent proper for rulings in
limine. Rulings in all respects, except
these rulings on those paragraphs and
subparagraphs, are reserved until
trial. I am not at this time
foreclosing any specific witnesses from
D-10
testifying except with respect to Mr.
Bays and Mr. Wells. Mr. Bays’ proposed
testimony is inadmissible since it deals
with the present value of the vessels,
not their market value at the relevant
time. Mr. Wells’ statement is too vague
Since it gives the topics, but not the
substance of his testimony.
As those of you who have been
able to follow in the pretrial order
will have observed, I. have stricken the
plaintiff’s damage calculation as
improper in law. The proper measure of
recovery is the market value at the time
of the vessels. That conclusion is
supported by most relevant cases on the
point starting with the Hamilton, The
Umbria, Ozanic v. United States,
Witheree v. Myer, Hadley v. Baxendale,
and Herman Schwabe, Inc. v. United Shoe
D-11
Machinery Corporation, 297 F.2nd, 906.
MR. DOYLE: Your Honor?
THE COURT: Mr. Doyle?
MR. DOYLE: Your Honor, you
started to say the market value at the
time of the vessels, and you didn’t
finish the sentence. I don’t think the
reporter caught it, your Honor.
THE COURT: Could you read back
what you got.
(Record read)
THE COURT: It is the market
value of the vessel, Mr. Doyle.
| MR. DOYLE: At what time, your
Honor? The market value at the time of
the vessel is what you said.
THE COURT: Leave out the words
"at the time," Mr. Doyle. Construe the
sentence as saying the market value of
the vessels at the relevant time rather
D-12
than their prospective stream of
earnings.
MR. DOYLE: Your Honor, when you
say at the relevant time, what time are
you referring to?
THE COURT: I would suppose it
would be at the time that they were
foreclosed.
MR. DOYLE: In other words --
THE COURT: When the title was
transferred.
MR. DOYLE: April 26th, ‘85.
THE COURT: Mr. Doyle, I will
allow you to present your case within
the legal limits I am setting. If you
think there is some other relevant time,
you are free to argue it. The point is
that the plaintiff’s calculation in its
present form, resting upon a future
stream of earnings, is unavailable in
D-13
law and is stricken.
Now, I have not dealt with some
other matters which were put before me
such as the form of a verdict, the
complaints about plaintiff’s answers to
interrogatories, and an application with
respect to evidence concerning other
vessels. I have not dealt with that
because it may be that the parties would
like some time to digest those matters
with which I have dealt and to evaluate
what they wish to say with respect to
those other matters. So I am prepared
to recess at this point to allow that
process if counsel has no other
suggestion.
Mr. Doyle?
MR. DOYLE: Your Honor, would it
be possible to recess until tomorrow
morning, perhaps? In other words, I
D-14
would like to assess the impact of your
rulings, and if possible come back
perhaps tomorrow morning, if that’s
conceivable. I think that probably
makes the most sense.
THE COURT: Mr. Goodman?
MR. GOODMAN: If I understood
your Honor, by recess, we might recess
for approximately a half hour or 15
minutes, whatever? Did I understand
your Honor correctly when you said
recess, recess briefly now and then
resume this afternoon?
THE COURT: We could do either or
both.
MR. GOODMAN: I would prefer to
do the latter, if that is consistent
with your schedule.
THE COURT: The latter being
tomorrow morning or a short recess now,
D-15
or both?
MR. GOODMAN: I would prefer the
short recess now, your Honor. I do have
two matters to deal with which are
totally unrelated to the rulings that
you have made.
THE COURT: What are they?
MR. GOODMAN: One is with respect
to the trial, that is, transparencies,
charts, exhibits to jurors and
objections to opening statements and
submissions and schedule of experts’
depositions. These are really
housekeeping matters. I have just
prepared a list, your Honor, which I can
show to you if you care to see it.
THE COURT: Wnat was the other
matter?
MR. GOODMAN: The other matter
had to do with a letter demand we made
D-16
on October 4th to Mr. Doyle’s office
asking for the identification and
production of all documents and
materials provided to each of the expert
witnesses for the plaintiffs by their
counsel. We have not received a reply
to that yet or the materials.
MR. DOYLE: Your Honor, why don’t
we take that up tomorrow morning if it
is all right? It is up to you. We
could take it up now, but I think we
ought to think through what you have
done and see if we can deal with it.
MR. GOODMAN: The only reason I
raise it is there are depositions |
continuing tomorrow and Friday.
THE COURT: Of whom?
MR. GOODMAN: I deposed Mr.
Lambert yesterday --
THE COURT: Are you counsel for
D-17
Mr. Lambert?
MS. SCHONHOLTZ: No, your Honor.
THE COURT: Is counsel for Mr.
Lambert here?
MR. GOODMAN: He was and he left.
MR. DOYLE: They reached an
agreement with hin.
THE COURT: All right.
MR. GOODMAN: I had deposed Mr.
Lambert yesterday and this morning
together with my associate Mr.
Teitlebaum. Since we had this
conference scheduled at 2:30, I had
wanted my colleague, Mr. Teitlebaum, to
continue and finish the deposition
today. That met with resistance by Mr.
Horowitz of Gilroy Downes & Horowitz,
who Mr. Doyle selected as counsel for
Mr. Lambert, and they wouldn’t go
forward on that basis. So it just
D-18
adjourned until 12:30, your Honor. I
have to pick them up on Friday.
There are two depositions of
defendants’ witnesses scheduled for
tomorrow, and that’s whv I would prefer,
if at all possible, that we take a
recess now and of either papers or
assertions over the weekend, all of
which by the way I have had docketed so
that they are on file.
MR. DOYLE: It is intended to be
respectful, your Honor.
THE COURT: I understand that and
I take it entirely as such. Please
understand that. These are matters of
concern to us all as lawyers and trying
to do the right thing with the case and
I take it entirely in that spirit and
you should do it to protect your
positions.
D-19
it seems to me that does bring us
to the damage point.
MR. DOYLE: Yes, your Honor.
As far as our interrogatory
answers, if you total them up, in
effect, say we got valuation of the
vessels in April which total 15.2
million. The March 8 agreement provides
for a payment to Chemical of 16. Asa
practical matter, once you say that is
the vessel’s market value at the time of
the transfer in April 85, that means we
have no recovery on our affirmative
claims. I guess my point is I don’t see
any point in going to trial on an
affirmative case that you are going to
recover damages and spending all that
money on it.
THE COURT: I understand that
all. I’m confident that the law is that
D-20
the proper measure of recovery for the
destruction or nonavailability of the
subject matter of this the contract,
even seen as a contract to subject
matter, was the vessels rather than the
debt. Even seen that way, the recovery
for the loss of the vessels is the
market value of the vessels, not their
proposed projected earnings over a
period of 15 years. And if I were not
confident on the law I wouldn’t have
dismissed that damage approach.
MR. DOYLE: As I say, we
respectfully disagree. Obviously, we
are bound by your ruling.
THE COURT: Jf it’s dispositive.
MR. DOYLE: It is dispositive.
THE COURT: I’11 hear Mr. Goodman
first. It seems to me there is some
sense in setting that in concrete in
D-21
some way that allows you an appeal and
then considering what should be done
with the counterclain.
MR. GOODMAN: I think your Honor
correctly ruled on the measure of
damages. We briefed the subject fully.
I think your Honor’s rulings with
respect to the proposed findings and
with respect to the damage issue as a
matter of law, which it always is, is
properly dealt with in limine at the
threshold end of the, among others,
National Football League case. I have
no opposition to Mr. Doyle seeking a
judgment dismissing the case and he’s
taking an immediate appeal and severing
the counterclaim and staying the
counterclaim pending the outcome of the
appeal.
THE COURT: One of the reasons
D-22
why a proper damage calculation should
be dealt with in limine in a case of
this nature and complexity is that it
avoids flooding the jury’s ears with
evidence which they may later have to be
told to disregard. If a damage
calculation is to be testified to by
experts and displayed with the
elaboration that this damage calculation
has the jury can never be told
effectively to disregard it when the
evidence is stricken.
Furthermore, it’s unfair to the
parties on both sides, in my judgment,
to allow the effort of preparation and
presentation of that much evidence to be
undertaken in a directior which the law
ultimately will hold to be futile and
for all those reasons it seems to me a
proper in limine ruling. It’s not one I
ll
D-23
made simply to deal with a minor
matter. I regard it as a major matter
for the trial, one on which pretrial
guidance was justifiably requested and
should have been given as it was.
MR. GOODMAN: Can Mr. Doyle
settle a judgment?
THE COURT: Do you have all you
want on the record?
MR. GOODMAN: The only thing I
wanted to add, your Honor, with respect
to the damage issue, is that it was
fully briefed in the trial briefs of
both parties. It is a legal issue. I
think you’re entirely proper in doing
what you did.
THE COURT: I’m not sure you
can’t find another case or two to brief
in the Court of Appeals. But I think
it’s a question of law and I correctly
D.24
ruled on it. I intend to adhere on it.
MR. GOODMAN: I put forward
Chemical’s position that there has been
no breach of this refinancing
agreement. For the purpose of
discussion, there are numerous instances
in the law where there is a breach
without damage, injury without damage
and I think your Honor was entirely
correct which is why I am consenting to
Mr. Doyle’s suggestion and asking that
he settle a judgment on three days
notice and we’ll get cracking.
MR. DOYLE: Your Honor, the other
aspect --
THE COURT: I’m not sure we can’t
draft a judgment here among ourselves.
Judgments in the feceral court are very
short.
MR. DOYLE: We can do a
D.25
judgment. I do want to put in offers of
proof. In other words, unless your
Honor is directing me not to and I don’t
think you are, your Honor, I do want
to <==
THE COURT: I’m not. I will say
that in ruling tf looked at your proffer
in the proposed findings of fact and in
your answers to interrogatories and
those satisfied me the damage
calculation and theory must be dismissed
as a matter of law.
MR. GOODMAN: Your Honor, I think
of no better offer of proof that the
proposed findings with the evidence.
THE COURT: That’s the purpose of
the pretrial order.
MR. GOODMAN: Exactly. I would
oppose any additional offers of proof,
your Honor. I think they are entirely
D-26
unnecessary.
MR. DOYLE: In other words, I
gather what Mr. Goodman is saying for
purposes of appeal he will not seek to
in any way, shape or form on appeal to
suggest that we should have made offers
of proof at this time. In other words,
he’s waived, in all forms, any argument
to that effect.
MR. GOODMAN: I’m not saying that
I’m waiving anything in all forms. What
I am saying is very clear. I think that
your offer of proof is your joint
pretrial order. The judge has dealt
with it.
THE COURT: I may say the ruling
rested on what I considered the
presentation that the plaintiff was
obliged to make at this stage of the
case with respect to its damage proof
D-27
and that was contained in its experts’
affidavits, its answers to the
defendants’ interrogatories and those
paragraphs of its joint pretrial order
that dealt with its damages.
MR. DOYLE: It is isn’t only
damages I would want to make the offers
of proof on. There are a whole of other
series of findings of fact that were
stricken.
MR. com: There were expert
affidavits submitted on both sides. I
assume all of that is going to go up as
well.
MR. DOYLE: If Mr. Goodman is
saying on appeal he’s not going to ever
say or argue that we should have made
offers of proof at this time, if he
would say that here and now, we don’t
need to make an offer of proof.
D-28
‘
THE COURT: It seems to me fair
if you are going to say he should come
up with something else, then he should
have a chance.
MR. GOODMAN: I will rest on it.
MR. DOYLE: What do you mean by
you rest on it, counsel?
MR. GOODMAN: Which is to say
that you need not put in any additional
offers or proof. I think that the joint
pretrial order and under the judge’s
rules the proposed experts’ affidavits
and the references in the pretrial order
to the evidence to be adduced under it,
which we all know about, is an abundant
record for the Court of Appeals to
determine the issues.
MR. DOYLE: I gather what Mr.
Goodman is saying he’s never going to
make an argument that we needed offers
D-.29
of proof and that’s my understanding on
the record and on that basis I think we
can go forward without an offer of proof.
THE COURT: That’s my
understanding also.
MR. DOYLE: Did you hear that?
MR. GOODMAN: I’m sorry.
MR. DOYLE: Maybe the reporter
should read it back.
(Record read)
MR. GOODMAN: My colleague, Mr.
Zelmanovitz, reminds me to the extent
that he’s had the opportunity in the
joint pretrial order, your Honor, in the
expert affidavits -- I don’t want Mr.
Doyle to come in and say that he had
additional proof that was not contained
in the joint pretrial order and in any
evidentiary submissions made to date.
This is a little tricky, your Honor, and
D-30
I want to be perfectly clear and
candid. We regard your rules as
requiring the parties to submit the
joint pretrial order and the evidentiary
material in support of it as being the
complete record of what was to be tried.
THE COURT: I think my rules
require that the findings of fact be
stated in sufficient detail to support a
judgment.
MR. GOODMAN: Right.
THE COURT: I believe that these
findings and the theory which they
tender could not in law support a
judgment. The basis of the ruling is
not that some detail of evidence has not
been stated. The basis of the ruling is
that the theory upon which the
calculation of damages goes forward is
inadmissible in a case of this nature.
D-31
MR. DOYLE: Could I just
respond? This is apparently getting
quite complicated.
Two weeks ago I noted that Mr.
Crean, who was one of the witnesses who
has been noticed in their pretiral order
as a possible witness on a point -- I
said we needed to take his deposition,
and I said in your presence, your Honor,
tell me what he’s going to testify to.
Your Honor ruled that Mr. Goodman did
not have to tell me what he was going to
testify to.
Now, having said that, okay, I
don’t think it’s open to Mr. Zelmanovitz
or Mr. Goodman to say that now we’re
bound by everything we said. In other
words, obviously, you put your findings
of fact in the pretrial order. You
don’t put everything a witness is going
D-32
to say which is what you could
potentially do in an offer of proof. I
would like to avoid an offer of proof
obviously, your Honor. I think Mr.
Goodman is leaning in that direction but
I don’t want any kickers here. That’s
my problem. I see sort of something
coming that you are bound by what you
put in the pretrial order.
MR. GOODMAN: I think you are
bound by what you put in the pretrial
order.
MR. DOYLE: Witnesses are quite
different than an offer of proof.
MR. GOODMAN: Secondly, you
raised the issue of Mr. Crean. What I
said is you’ll see it in the pretrial
Order. He’s listed in the pretrial
order and if my memory serves me
correctly Mr. Crean’s testimony dealt
D-33
solely with the counterclaim. If you’ve
reviewed the pretrial order you would
have seen that.
Mk. DOYLE: I don’t think you
understand my point, Henry. Your Honor,
my point is that I don’t think your
pretrial rules require us to say every
word or every sentence that a witness is
going to testify to and ruling that Mr.
Goodman did not even have to tell me
what Mr. Crean was going to testify to.
I think that’s implicit in the ruling of
the court for Mr. Goodman to turn around
and say somehow the pretrial order has
all of the same sort of requirements as
a offer of proof -- I mean, Henry, can’t
we just get over this without sort of
any qualifications that you are not
going to rely on any lack of offers of
proof?
D-34
MR. GOODMAN: Can I have a word?
MR. DOYLE: Sure.
MR. GOODMAN: Thank you.
I wanted to respond specifically
to the Crean issue and to what District
Judge Stanton said. We told you that
Crean would be identified in the joint
pretrial order. He was. He is a
witness solely with respect to the
counterclaim. He is the controller of
the Skaarup organization. He has
nothing to do with the plaintiffs’
complaint.
MR. DOYLE: Can we get off the
record for a second?
THE COURT: Sure.
(Discussion off the record)
MR. DOYLE: While we were off the
record Mr. Goodman raised or expressed a
concern that we had put in a supplement
D-35
to our pretrial order and they had not
yet had the opportunity to make
objections to it and I said and I will
say on the record as far as I’m
concerned they will be deemed to have
made any and all objections to the
evidence set forth in that supplement
permissible under the federal rules of
evidence and that they can raise such
objections in the Court of Appeals.
MR. GOODMAN: And we will have
objections to that and they will be part
of the record.
MR. DOYLE: If you’re going to
make specific objections then and they
are going to be part of the record, put
them in.
MR. GOODMAN: Fine.
MR. DOYLE: Then we don’t need to
agree that you can make any at all.
D-36
Let’s go off the record again.
(Discussion off the record)
MR. GOODMAN: If your Honor would
care to repeat your statement on 103(2)
on how you would approach this.
THE COURT: Sure. The question
has arisen whether it is necessary for
the plaintiff to make a further offer of
proof, that is, of course, primarily a
decision within the domain of the
plaintiff.
The rule of evidence 103 states
that, “Error may not be predicated upon
a ruling which admits or excludes
evidence unless a substantial right of
the party is affected and, subdivision
2, in case the ruling is one excluding
evidence, the substance of the evidence
was made known to the court by offer or
was apparent from the context within
D-37
which questions were asked."
In ruling in limine as I did
there was no doubt in my mind that the
substance of the evidence to be offered
was sufficiently clear from the answers
to interrogatories, the experts’
affidavits and the plaintiffs’ proposed
findings of fact to support and justify
and, indeed, to require the rulings
which were made.
MR. DOYLE: It’s my understanding
that the judgment that’s to be entered
in effect is a final judgment and would
bring up all interlocutory orders.
That’s my understanding. Is that your
understanding, Mr. Goodman also?
MR. GOODMAN: It brings it up
except in the case of reargument there
was the additional ground in the court’s
opinion that you were too late.
D-38
MR. DOYLE: Yes.
MR. GOODMAN: And that of course
I will argue as well on appeal.
MR. DOYLE: You can argue that.
In effect, what we’re saying it’s a
final judgment for all purposes.
MR. GOODMAN: Yes, a final
judgment for all purposes.
00000
Appendix E
E-1
ENTERED ON
NOVEMBER 30, 1990
At a stated term of the United
States Court of Appeals for the Second
Circuit, held at the United States
Courthouse, in the City of New York, on
the 30th day of November, one thousand
nine hundred and ninety.
BIRENDRA MOHAN SHARMA,
ASTRAL HOLDING CORPORATION,
FREESIA SHIPPING CORPORATION,
SUN LILY MARITIME INC., DOMAN
TANKERS INC., and ZODIAC
FINANCE CORPORATION,
DOCKET
Plaintiff-Appellants, NUMBERS
89-9191,
-Vv—- 90-7015
SKAARUP SHIP MANAGEMENT
CORPORATION, OLE SKAARUP,
BENT LARSON and CHEMICAL
BANK,
Defendants~-Appellees.
A petition for rehearing
containing a suggestion that the action
E-2
be reheard in banc having been filed
herein by Appellants BIRENDRA MOHAN
SHARMA, et al.,
Upon consideration by the panel
that heard the appeal, it is
Ordered that said petition for
rehearing is DENIED.
It is further noted that the
suggestion for rehearing in banc has
bee: transmitted to the judges of the
court in regular active service and to
any other judge that heard the appeal
and that no such judge has requested
that a vote be taken thereon.
ELAINE B. GOLDSMITH
Clerk
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.