UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
May 30, 2007
AVATAR BUSINESS CONNECTION, INC., PLAINTIFF,
UNI-MARTS, INC., DEFENDANT.
The opinion of the court was delivered by: Simandle, District Judge
This matter comes before the Court upon a second motion by Defendant Uni-Marts, Inc. ("Uni-Marts") for summary judgment. This motion comes after the completion of Court-ordered additional discovery following Plaintiff Avatar Business Connections, Inc.'s ("Plaintiff") motion for leave to amend its Complaint to add a claim of breach of the covenant of good faith and fair dealing against Defendant. For the reasons discussed below, Uni-Marts' motion will be granted.
A. Background Facts
The parties are familiar with the facts of the underlying dispute and the Court need not repeat them here. A brief summary of the dealings between Plaintiff and Uni-Marts, however, is warranted. While pursuing a plan to divest 170 stores, Uni-Marts engaged Plaintiff to serve as its business broker. Plaintiff was charged with marketing the business assets of 67 of Uni-Marts' stores and would be paid a sales commission for each store sale he brokered. The agreement between Uni-Marts and Plaintiff was memorialized in a September 19, 2002 exclusive brokerage agreement (the "Expired Brokerage Agreement"). The Expired Brokerage Agreement contained a "wind-up" provision stating that, in the event Uni-Marts sold all of the assets of the company or undergoes another business combination resulting in a change of control of equity ownership (e.g., a stock sale or merger) during the term of the Expired Brokerage Agreement, Uni-Marts would pay Plaintiff a flat fee of $2,500 for any unsold store listed in an exhibit to the agreement in lieu of a commission.*fn1
The Expired Brokerage Agreement expired on March 19, 2003 and on March 26, 2003, Uni-Marts and Avatar entered into a second brokerage agreement (the "Second Brokerage Agreement"). This new agreement, which expressly replaced and superseded the Expired Brokerage Agreement, differed from the Expired Brokerage Agreement in one key way: the Second Brokerage Agreement did not contain a "wind-up" provision. As in the Expired Brokerage Agreement, however, Plaintiff (1) was entitled to a commission if an "Asset" (as defined in the Second Brokerage Agreement) was purchased by a party procured by Plaintiff*fn2 and (2) would be paid its commission only at the closing of the sale of the Asset(s) and solely from the proceeds Defendant realized from such sale.
In 2002, Defendant set up an Ad Hoc Committee that, beginning in the summer of 2002 and continuing through early 2004, investigated many alternatives to sell the company outside of the efforts being made by Plaintiff. Specifically, according to Defendant's Proxy Statement, the Ad Hoc Committee aggressively pursued a possible stock acquisition of the company and a "going-private" merger transaction. Between 2002 and 2004, Defendant had a number of ultimately unsuccessful suitors interested in acquiring either substantial assets of its business or its entire business. (Id.) In June of 2003, one such suitor, Raj Vakharia, who was introduced to Uni-Marts by Plaintiff, negotiated with Uni-Marts for the purchase of 125 Uni-Marts stores, but ultimately terminated negotiations after it became clear that the parties could not reach an agreement as to the structure and timing of the deal. (Id.)
In December of 2003, during the term of the Second Brokerage Agreement, Mr. Vakharia again approached Uni-Marts' management about a potential deal, but this time to take Uni-Marts private through a merger involving a number of entities. The proposal involved a limited liability company called Green Valley Acquisition Co., LLC. ("Green Valley") that would serve as an acquisition company. (Id. at 28.) Green Valley in turn was owned by two limited liability companies: Tri-Color Holdings, LLC ("Tri-Color")(whose members were three individuals that were directors and executive officers of Defendant) and KOTA Holdings, LLC ("KOTA")(whose members were Raj Vakharia and Paul Levinsohn). After the establishment of Green Valley, Uni-Marts was merged with Green Valley and Green Valley emerged as the surviving company. (Id.) The parties signed a merger agreement on January 26, 2004.
B. Procedural History
On April 15, 2004, Plaintiff brought a breach of contract claim against Uni-Marts alleging that they breached the "broker agreements" and Plaintiff was owed a commission. (Original Compl. ¶ 12.) In August and September of 2005, the parties filed cross-motions for summary judgment. The Court heard oral argument on the cross-motions and, on December 29, 2005, issued an opinion and order granting Uni-Marts' motion for summary judgment and denying Plaintiff's cross-motion for summary judgment upon Plaintiff's breach of contract claim. See Avatar Bus. Connection, Inc. v. Uni-Marts, Inc., No. 04-1866, 2005 U.S. Dist. LEXIS 37506, *4 (D.N.J. Dec. 29, 2005)(the "December 2005 Opinion").
Literally on the eve of oral argument on the parties' cross-motions, Plaintiff filed a Motion to Amend/Correct its Complaint seeking to (a) add Uni-Marts, LLC as a defendant and (b) add causes of action for in quantum meruit, fraud and breach of the covenant of good faith and fair dealing. (See Amended Compl. ¶ 13-35.) On June 30, 2006, this Court issued an opinion and order allowing Plaintiff to amend its Complaint but only to (1) name Uni-Marts, LLC as the defendant and (2) add a claim for breach of the covenant of good faith and fair dealing (and not to add claims of fraud or unjust enrichment/quantum meruit). See Avatar Bus. Connection, Inc. v. Uni-Marts, Inc., No. 04-1866, 2006 U.S. Dist. LEXIS 44434, *1 (D.N.J. June 30, 2006)(the "June 2006 Opinion"). In granting Plaintiff leave to amend to add a claim of breach of covenant, the Court held:
Despite considerable discovery, Plaintiff has yet to bring to the Court's attention evidence that Uni-Marts acted in bad faith or colluded with Vakharia to structure the ultimate transaction between Green Valley Acquisition Co., LLC and Uni-Marts as a merger in order to avoid paying a commission to Plaintiff (under the Second Brokerage Agreement). . . . Plaintiff should be afforded the opportunity to conduct discovery on this issue.
Id. at *25. The Court ordered Plaintiff to file "an appropriate Amended Complaint consistent with [the Court's opinion]" within fourteen days of the entry of the Order.
On July 19, 2006, Plaintiff filed its Amended Complaint containing Plaintiff's claim of breach of the implied covenant of good faith and fair dealing. [Docket Item No. 31].*fn3 On July 24, 2006, U.S. Magistrate Judge Ann Marie Donio issued a scheduling order ordering that all additional factual discovery on the breach of covenant claim be concluded by September 29, 2006. [Docket Item No. 32.] On October 30, 2006, Uni-Marts filed a second motion for summary judgment to which Plaintiff filed opposition on November 21, 2006.*fn4 The Court has considered all submissions and decides this motion without oral argument pursuant to Rule 78, Fed. R. Civ. P.
C. Facts Arising From Additional Discovery
Pursuant to Judge Donio's order, additional discovery took place in August and September of 2006. Among other permitted discovery, Plaintiff's counsel was permitted to redepose Ara Kervandjian, President of Uni-Marts. [Docket Item No. 35.]
Aside from Kervandjian's deposition being taken, it is difficult to discern what additional discovery Plaintiff conducted on the issue of whether Uni-Marts acted in bad faith or colluded with Vakaharia to structure the ultimate transaction as a merger to avoid paying a commission to Plaintiff. Indeed, Plaintiff has failed to file a statement of material facts to which there exists or does not exist a genuine issue as required by L. Civ. R. 56.1.*fn5 Not only has Plaintiff failed to provide this statement required by Rule 56.1, his brief in support of his opposition to summary judgment contains no statement of facts and thus, it is entirely unclear which facts Plaintiff relies on in its opposition to Uni-Marts' motion.*fn6 The only new evidence the Court can be certain arose during the additional discovery period during July and August of 2006 was the Certification from Braja Mahapatra, President of Avatar Business Connections, Inc. In the Certification, Mahapatra:
* Points out that Defendant avoided paying Plaintiff over three million dollars ($3,000,000) in commissions it would have paid "had the transaction at issue been completed in a forthright manner." (Certification of Braja Mahapatra ¶ 2);
* Details the ultimately unsuccessful negotiations between Vakaharia and Uni-Marts to purchase 125 Uni-Marts stores in June and July of 2003. It is undisputed that negotiations were ultimately terminated because the parties could not agree on issues related to a penalty clause in the purchase contract. (Id. at ¶¶ 7-13). Mahapatra also detailed Uni-Marts' unsuccessful negotiations with Reliance Management, LLC. (Id. at ¶¶ 25-26.);
* States that, during meetings between Vakaharia and Kervandjian in August of 2003 "[i]t [was] clear to [Mahapatra] that . . . another way to acquire the assets of Uni-Marts was proposed," (id. at ¶ 28), that "Uni-Marts, engaged in a systematic effort to enter into a contract with the individual [Mahapatra] introduced to Uni-Marts, Mr. Vakaharia, so that they would not have to pay [Plaintiff] a commission," (id. at ¶ 29), and that the parties "mislead [him] and continued to put [him] off for several months while [they] negotiated with each other." (Id.)
* Details side deals Mahapatra arranged with Vakaharia to sell certain Uni-Marts stores to third parties once Vakaharia acquired the stores from Uni-Marts. (Id. ¶¶ 18-24.) Indeed, in admitting that he found buyers for 43 stores at $23 million, and another buyer for 19 stores at $14 million, he had assembled buyers for 62 Uni-Marts stores for $37 million, which was a better deal for the principal, Uni-Marts, than the Vakharia offer of $35 million for 155 stores. (Id. at ¶¶ 19-20.) Mahapatra presented these deals to Vakaharia, not to his principal, Uni-Marts. By withholding these offers from Uni-Marts, Plaintiff stood to earn a double commission of six percent on the Vakharia purchase and three percent on the 62-store side deal.*fn7
II. STANDARD OF REVIEW
Summary judgment is appropriate when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."*fn8 Fed. R. Civ. P. 56(c). In deciding whether there is a disputed issue of material fact, the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party; in other words, "the nonmoving party's evidence 'is to be believed, and all justifiable inferences are to be drawn in [that party's] favor.'" Hunt v. Cromartie, 526 U.S. 541, 552 (1999) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party."*fn9 Liberty Lobby, 477 U.S. at 250; Brewer v. Quaker State Oil Ref. Corp., 72 F.3d 326, 329-30 (3d Cir. 1995) (citation omitted).
Under New Jersey law, every contract contains an implied covenant of good faith and fair dealing. See Wade v. Kessler Inst., 172 N.J. 327, 340 (2002) (citing Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001); Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 690 A.2d 575, 587 (N.J. 1997). This implied covenant is "an independent duty and may be breached even where there is no breach of the contract's express terms." Black Horse Lane Assoc., L.P. v. Dow Chemical Corp., 228 F.3d 275, 288 (3d Cir. 2000), (quoting Emerson Radio Corp. v. Orion Sales, Inc., 80 F. Supp. 2d 307, 311 (D.N.J. 2000))(internal quotations omitted); see also Bak-a-Lum Corp. v. Alcoa Bldg. Prods., Inc., 69 N.J. 123, 351 A.2d 349, 352 (1976). Under this covenant, "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." See Sons of Thunder, Inc., 690 A.2d at 587-89; see also Black Horse Lane Assoc., L.P., 228 F.3d at 288. To succeed on a claim of breach of this covenant, a plaintiff must show evidence of bad faith, collusion or ill motive. Wade, 172 N.J. at 341 (quoting Wilson, 168 N.J. at 251); Seidenberg v. Summit Bank, 348 N.J. Super. 243, 261 (App. Div. 2002); Kapossy v. McGraw-Hill, Inc., 921 F. Supp. 234, 248 (D.N.J. 1996).
In its June 2006 Opinion, this Court reopened discovery in this matter to provide Plaintiff an opportunity to seek discovery on the issue of whether Uni-Marts acted in bad faith or colluded with Vakaharia to structure the ultimate transaction between Green Valley and Uni-Marts as a merger in order to avoid paying a commission to Plaintiff. See Avatar Bus. Connection, Inc., 2006 U.S. Dist. LEXIS *25. The issue here then is whether there is sufficient evidence from which a reasonable jury could conclude that Uni-Marts showed bad faith, collusion or ill motive for the purpose of denying Plaintiff a sales commission and thus breached the implied duty of good faith and fair dealing during the negotiations with Green Valley. Here, the Court finds that there is not and that Uni-Marts is entitled to summary judgment on Plaintiff's breach of covenant claim.
After the Court's June 2006 Opinion, Plaintiff had numerous opportunities to provide a factual basis for its breach of covenant claim. However, Plaintiff failed to provide such evidence (and, if the affidavit of Uni-Marts' counsel is to be believed, may have failed even to participate in the Court-ordered additional discovery in a meaningful way as Plaintiff failed to produce documents requested by Uni-Marts and answer a second set of interrogatories served by Uni-Marts). (Affidavit of Michael J. Conlan, Esq. ¶¶ 3-5.) Indeed, Plaintiff has submitted as newly discovered evidence only the certification of Braja Mahapatra that contains his speculation that Vakaharia and Uni-Marts structured the ultimate transaction as a merger in order to avoid Uni-Marts' obligation to pay him a sales commission. (Mahapatra Cert. ¶¶ 28-29.)
This Court cannot agree with Plaintiff that the evidence presented in Plaintiff's opposition to Uni-Marts' motion (i.e., Mahapatra's conjectural statements) supports the existence of a genuine issue of material fact on the issue of whether Vakaharia and Uni-Marts colluded or acted in bad faith to avoid paying the commission. Plaintiff's position rests exclusively on Mahapatra's assumptions about the reasons why the transaction was ultimately structured as a merger (rather than a sale of assets) and his speculation about what took place at a meeting --- that he did not attend --- when the deal's ultimate structure was finalized. A party's subjective interpretation of events or speculation as to the reasons for events is insufficient to create a genuine issue of material fact. See Black Horse Lane, 228 F.3d at 289. Rather than relying on Mahapatra's assumptions and conjecture regarding the motives for structuring the transaction as a merger, Plaintiff could have sought to depose Vakaharia, Kervandjian or the individuals who were involved in the decision to structure the transaction as a merger to obtain facts. Plaintiff could have also pointed the Court to documents where the parties discussed the reasons for ultimately structuring the transaction as a merger rather than another type of business combination. This however, was not done.*fn10
Consequently, Plaintiff has failed to point to evidence from which a reasonable jury could find in its favor and the Court finds no genuine issue of material fact on whether Uni-Marts breached its duty of good faith and fair dealing and grants summary judgment in favor of Uni-Marts.
For the reasons discussed above, this Court grants the motion of Defendant Uni-Marts, Inc. for summary judgment. Uni-Marts has successfully demonstrated that no genuine issue of material fact exists as to the issue of Plaintiff's claim of breach of the covenant of good faith and fair dealing and that Uni-Marts is entitled to judgment as a matter of law.
The accompanying Order is entered.
JEROME B. SIMANDLE U.S. District Judge