Chock Full O'Nuts Corporation v. Tetley, Inc.

152 F.3d 202, 1998 U.S. App. LEXIS 19860, 1998 WL 481105

• Court: Court of Appeals for the Second Circuit
• Decided: August 17, 1998
• Docket: Docket 97-9166
• Status: Published

Opinions

Judge BRIEANT dissents by separate opinion.

LEVAL, Circuit Judge:

Plaintiff Chock Full O’Nuts Corporation (“Chock”), appeals from a judgment of the United States District Court for the Southern District of New York (Peter K. Leisure, Judge), dismissing Chock’s complaint against defendant Tetley, Inc. Chock claimed it was entitled to payment for a shortfall in the funding of a pension plan covering a facility acquired by Chock from Tetley. The district court determined that the contract of sale was not susceptible of an interpretation under which Chock would be entitled to recover and therefore granted summary judg-' ment in favor of Tetley. We affirm.

BACKGROUND

From 1982 to 1989, Tetley owned and operated a plant to process and package instant coffee in Linden, New Jersey (“the Linden plant” or “the plant”). Tetley sold the coffee produced there nationwide, in part to “private label” customers. Apparently all the instant coffee sold by Tetley was produced at the plant. Chock operated a small instant coffee plant, in Queens, New York.

On November 7, 1989, Tetley entered into an agreement to sell its instant coffee business to Chock (“the contract” or “the agreement”). A recital clause of the contract defined the business as follows:

[Tetley] is engaged in the business of processing and packaging in Linden, New Jersey and selling instant coffee (the “Business”). .

The contract provided that Chock pay Tet-ley a total of $8 million for, inter alia: (i) with some exceptions, “all of the assets and properties of every kind and description used in the Business,” (ii) “all inventory of instant coffee (whether raw materials, work-in-process or finished goods) and packaging supplies, used in the Business”; and (iii) a covenant under which Tetley agreed not to compete with the business for a period of five years. In addition to the lease of the physical plant, the purchased assets included “all customer lists, production records and other records relating to the Business”, “all intangible assets relating tq the Business”, and “the labor and, collective bargaining agreement with respect to the Busi-ness_”

Pursuant to the contract, Chock assumed Tetley’s liabilities under the collective bargaining agreement between Tetley and Local 478 of the International Brotherhood of Teamsters, including sponsorship of a union pension plan (“the pension plan” or “the plan”). As of mid-1989, the pension plan had an “Unfunded Actuarial Accrued Liability”— a shortfall between the plan’s assets and its accrued liabilities — of approximately $1.5 million. As partial assurance against the possibility that Chock would be unable to operate the. business profitably but would nonetheless incur a substantial pension liability, the parties agreed in the contract that:

If within five (5) years of thé' Closing Date of the sale, [Chock] elects to close the Business and terminate the Plan, [Tetley] shall pay [Chock] ... an amount equal to the lesser of [the Unfunded Actuarial Accrued Liability as of September 1, 1989 or the date of the closing of the business].

Because the Closing Date was determined to be October 30, 1989, Chock could trigger Tetley’s obligation to pay for any, deficiency in the pension plan by “closing] the Business and terminating] the Plan” at any time before October 30,1994.¹

Beginning in November 1989, Chock operated the Linden plant and sold the instant coffee produced there (“Linden-produced coffee”) to customers nationwide, including customers obtained from Tetley. Chock experienced high production costs at the plant. Thus, in early 1994 Chock executives informed Tetley that Chock intended to close the Linden plant within several months. Chock stated that it would continue selling instant coffee, which would be packed for Chock by a Mexican company.² Chock subsequently informed Tetley by letter dated June 23, 1994 that it would close the Linden plant by July 9, 1994 “at which time all production will: cease and production personnel will be terminated” and that it would terminate the pension plan on or before October 8, 1994. By letter dated July 6, 1994, Chock informed Tetley that the plan trustees had voted, on July 1, to terminate the plan on or before October 8,1994, and that, pursuant to the contract, Tetley would be liable for a plan deficiency of some $1.6 million.

Chock permanently ceased operations at the Linden plant in July and terminated the plan on September 30. After the expiration of the five-year period, however, Chock made liquidating sales of inventory produced at the Linden plant. In addition, Chock continued to sell instant coffee produced by its Mexican source to customers it had obtained from Tetley in the purchase of the plant. Tetley refused to pay for the pension deficiency, arguing that its obligation to do so had lapsed because Chock had failed to "close the Business" by October 30, 1994.

Chock brought this action for breach of contract in the Supreme Court of New York, New York County, on October 6, 1994, seeking declaratory relief that Tetley was obligated to pay Chock for the unfunded pension liability in the amount of $1,683,467 plus interest. Tetley removed the case to the United States District Court for the Southern District of New York, on the basis of diversity of citizenship.

Tetley moved for summary judgment. It was undisputed that Tetley's liability depended on Chock's "clos[ing] the Business" by October 30, 1994. Because the contractual definition of "the Business" included "the selling of instant coffee," Tetley argued that the requirement of "closing the Business" would not be satisfied unless by October 30, 1994, Chock either (i) ceased selling instant coffee (whether or not produced at the Linden plant), (ii) ceased selling instant coffee to customers acquired from Tetley, or (iii) ceased selling Linden-produced instant coffee, none of which Chock had done.

In an Opinion and Order dated August 8, 1997, the district court granted Tetley's motion for summary judgment. Judgment was entered on August 14, 1997. This appeal followed.

DISCUSSION

Although in the conventional formulation of the rule, "in a contract dispute, summary judgment may be granted only where the language of the contract is unambiguous," Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1192 (2d Cir.1996), this case illustrates a refinement of that principle.

Notwithstanding the existence of contractual ambiguities, summary judgment may be granted if under any of the reasonable interpretations the moving party would prevail. In such a case, the non-movant will have failed to show that there is any issue of material fact for trial; however the ambiguity were resolved, the movant would prevail. "If `the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no "genuine issue for trial"' and summary judgment is appropriate." Bouzo v. Citibank, N.A., 96 F.3d 51, 56 (2d Cir.1996)(quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986)).

It is undisputed that Chock was required to "close the Business" before October 30 to trigger Tetley's liability. In light of the contract's definition of "the Business" as "processing and packaging in Linden, New Jersey and seffing instant coffee," three plausible interpretations of the phrase "close the Business" have been advanced.

Under the first interpretation, in order to trigger Tetley's liability, Chock was required to close the Linden plant and stop selling instani coffee regardless where produced, since "the Business" includes "selling instant coffee." Neither the source of the coffee nor the identity of the buyers would be material. Under the second interpretation, Chock was required to close the plant and stop selling instant coffee to customers it had obtained from Tetley. On this view, the `~Business" purchased by Chock under the contract was Tetley's business of processing, packaging, and selling instant coffee. Given that Chock had an instant coffee business before entering into the contract, the contract could be read as requiring only that Chock "close" that which it bought from Tetley-including the plant in Linden and the business of selling instant coffee to customers acquired from Tetley. Finally, under the third interpretation, the Business included sales of instant coffee only to the extent it was processed at the Linden plant, and Chock could close the Business by closing the plant and ceasing to sell that instant coffee.

It is undisputed that Chock failed to satisfy any of these three alternative conditions: after October 30, Chock continued to sell instant coffee; it continued to sell instant coffee to customers acquired from Tetley; and it continued to sell instant coffee produced at the Linden plant. Unless Chock identified some other plausible interpretation of the contract, summary judgment in favor of Tetley was appropriate.³

Chock maintains the contract is susceptible of such an interpretation, under which it could “close the Business” by closing the Linden plant, notwithstanding its subsequent sales of Linden-produced instant coffee to liquidate its inventory. The district court rejected this interpretation on the ground that the definition of “the Business” unambiguously included “selling instant coffee.” We agree.

In making this argument, Chock is undertaking to rewrite the contract. The contract did not require Chock to close the plant; it required Chock to close “the Business,” and “the Business” included the selling of instant coffee. Where the definition of the Business included the selling of instant coffee, and Chock continued to sell instant coffee after the specified date, we cannot agree that it had “closed” the Business. Closing the plant did not satisfy the contract’s requirement.

Because Chock failed to identify any reasonable construction of the contract under which it would be entitled to prevail, summary judgment was properly granted in favor of Tetley.

CONCLUSION

The judgment of the district court is affirmed.

1 . In addition to the purchase/sale agreement, the parties also entered into a "packing agreement” under which Chock undertook to supply Tetley with instant coffee for at least three years.

2 . On April 19, 1994, Chock entered into a contract with a Mexican company, Industrias Mari-no S.A. de C.V., under which Chock agreed to purchase instant coffee processed and packaged at Marino's plant in Mexico.

3 . Judge Brieant argues with some force that the first two readings are not likely to have been the intention of the parties. He may be right that Chock could not sensibly have undertaken to abandon altogether the sale of instant coffee, merely to avoid bearing the cost of the plan's shortfall. It might also have been unwilling to give up the customers acquired from Tetley for which it paid a fair price. Judge Brieant is less convincing as to the third possible interpretation — -the termination of sale of inventory produced at the Linden plant. This interpretation did not force Chock to dispose of the Linden inventory unprofitably or wastefully, as Judge Brieant suggests. All the contract required was advance planning, so that Chock would sell the Linden inventory before the fifth anniversary. We can see no reason to doubt that the parties might reasonably have contracted with this understanding.

Moreover, such an interpretation is not so disadvantageous to Chock that we should attribute it to a lawyer’s mistake, as Judge Brieant implies. Chock could easily have met this requirement. The problem occurred not when the contract was written, but five years later when Chock undertook to trigger Tetley’s obligation, but did so without carefully reading the contract’s requirements.

In short, we see no merit to Judge Brieant’s contention that this reading of the contract reduces it to “gibberish [that cannot] reflect the objective intentions of the parties." The dissent’s willingness to rewrite a carefully negotiated contract, furthermore, would give rise to highly undesirable commercial uncertainty.

Nor do we find this a suitable occasion to burden the New York Court of Appeals by certification of the question. The issue involved in the appeal does not raise a question of the meaning of New York law of general application. It does not concern an unsettled issue of New York law. And we see no reason to believe that a New York court would- come to a different conclusion than we have.