National Data Payment v. Meridian Bank ( 2000 )

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
5-19-2000
National Data Payment v. Meridian Bank
Precedential or Non-Precedential:
Docket 99-1445
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Filed May 19, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 99-1445
NATIONAL DATA PAYMENT SYSTEMS, INC,
Appellant
v.
MERIDIAN BANK;
CORESTATES FINANCIAL CORPORATION
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF PENNSYLVANIA
(Dist. Court No. 97-cv-06724)
District Court Judge: J. Curtis Joyner
Argued: March 6, 2000
Before: SCIRICA, ALITO, and ALDISERT, Circuit Judges
(Filed: May 19, 2000)
ROBERT N. FELTOON (Argued)
STEVEN PACHMAN
Conrad O'Brien Gellman &
Rohn, P.C.
1515 Market Street, 16th Floor
Philadelphia, PA 19102
Counsel for Appellant
G. THOMPSON BELL, III (Argued)
MATTHEW W. RAPPLEYE
Stevens & Lee
111 North Sixth Street,
P.O. Box 679
Reading, PA 19603
Counsel for Appellees
OPINION OF THE COURT
ALITO, Circuit Judge:
Appellant National Data Payment Systems, Inc. ("NDPS")
entered into a contract to purchase Meridian Bank's
("Meridian") merchant credit card business. The parties
failed to close the deal prior to the contractual termination
date. After the termination date had passed, Meridian
exercised its option to call off the deal. NDPS brought suit
against Meridian for breach of contract, alleging that it had
failed to exercise its best efforts to bring the deal to a close.
NDPS also sued CoreStates Financial Corp. ("CoreStates"),
which had announced its planned acquisition of Meridian
shortly before the events in dispute, for tortious
interference with contractual relations. The District Court
granted summary judgment in favor of the defendants, and
we affirm.
I.
On September 15, 1995, NDPS entered into a Purchase
Agreement (the "Agreement") with Meridian Bank for the
purchase of Meridian's merchant credit card business.
Three provisions of the Agreement are especially relevant to
this case:
Closing/Best Efforts Clause -- Section 3.1 provided that a
closing was to occur "on the date to be mutually agreed
upon by the parties which shall be within thirty (30) days
after the expiration or termination of any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976." (App. 378-79.) The section further provided
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that "Meridian and NDPS agree to use their best efforts to
achieve satisfaction of the conditions to Closing set forth in
the Agreement and to consummate the Closing on the
terms and subject to the conditions set forth in this
Agreement." (App. 379.)
Termination Clause -- Section 11.1 provided that the
"Agreement may be terminated by either Meridian or NDPS
and shall be of no further force and effect . . . (b) in the
event the Closing shall not have occurred by October 30,
1995." (App. 399.)
Written Waiver Clause -- Section 15.8 provided that
"[t]his Agreement . . . shall not be amended, modified or
waived in any fashion except by an instrument in writing
signed by the parties hereto." (App. 404.)
The Agreement also contained a covenant that Meridian
would not compete with NDPS in the merchant credit card
business for ten years. (App. 388.) This covenant did not
extend, however, to any company that subsequently
acquired Meridian. (App. 389.)
On October 10, 1995--before the Agreement had
closed--CoreStates announced that it had entered into a
merger agreement under which it would acquire Meridian.
CoreStates operated its own merchant credit card business
and believed that Meridian's merchant portfolio--whose
sale to NDPS was then pending--would be a valuable
addition to its own business. CoreStates and Meridian thus
decided to contact NDPS to see if it was still planning to go
forward with the transaction.
On Thursday, October 26, 1995, Meridian arranged a
conference call between representatives of NDPS, Meridian
and CoreStates to discuss the effect that the CoreStates
merger would have on the pending sale. Meridian Senior
Vice President Michael Hughes opened the call by stating
that "[w]e really have two options at this point in time. To
proceed under the terms of the definitive agreement, or to
mutually agree to terminate." (Hughes Dep., App. 160.)
Meridian explained that the pending merger with
CoreStates could change the economics of the NDPS-
Meridian deal, because the Purchase Agreement's non-
3
competition covenant would not extend to CoreStates.
(Hughes Dep., App. 160.)
CoreStates senior executive Thomas Kaplan then took the
floor. In an exchange that various participants
characterized as "heated" and "threatening," (Bucolo Dep.,
App. 67; Shea Dep., App. 215), Kaplan stated that
CoreStates was building a network of "business banking
centers" which would generate merchant credit leads.
(Bucolo Dep., App. 67.) Kaplan claimed that CoreStates
would not be required to share these leads with NDPS
under the Agreement: "look, you know if you do this
agreement, you're not going to get these referrals. . . . you
guys just aren't going to get the value out of this deal."
(Bucolo Dep., App. 67.) Meridian Vice President Chris
Bucolo, who participated in the call, testified that he
believed that "Mr. Kaplan's intent was to not allow the
conversation to go anywhere other than, you know, if this
deal goes through, you're not going to get the value."1 At the
end of the call, NDPS told Meridian that it would advise it
of whether or not it wanted to proceed with the deal by the
next Monday or Tuesday (that is, October 30 or 31).
The next day (Friday, October 27), Bucolo was told by
Hughes that Meridian was "going to let the closing date
[October 30] go by without responding to [NDPS] and
basically try to rely on that part of the contract to not go
through with the deal." (Bucolo Dep., App. 69-70.) As
Bucolo understood it, "the game plan was to let the date
essentially come and go and then rely on it to kill the deal."
(Bucolo Dep., App. 69-70).
As of the following Monday--the October 30 termination
date--Meridian had not heard back from NDPS. That day,
Hughes called NDPS Senior Vice President Kevin Shea to
inquire as to the status of the deal. Shea told Hughes that
_________________________________________________________________
1. Bucolo also testified that he believed that Kaplan's reference to
CoreStates' "business banking centers" was"overstated" and "not
consistent with the facts." He stated that the call was the first time he
had ever heard of these centers, and that CoreStates subsequently
informed him that there were "only a couple" in existence at that time.
As a result, Bucolo opined that Kaplan's statements about the banking
centers "seemed like a sham." (App. 68.)
4
NDPS was meeting on the topic that day, and that they
would call Hughes back later that day or the next day.
Hughes said that this would be "fine." (Shea Dep., App.
218.) Although Hughes recognized that October 30 was the
"drop-dead date" under the Agreement, he consciously did
not bring this fact to Shea's attention.2 (Hughes Dep., App.
163.)
NDPS, in fact, did not get back to Meridian that day or
the next. On November 2, Hughes had a telephone
conversation with NDPS Vice President Eugene Horn,
during which Hughes mentioned that the October 30
termination date had passed. (Horn Dep., App. 137.) Horn
testified that he conveyed his own belief that NDPS wanted
to close, and promised to get back to Hughes the next day.
(Horn Dep., App. 137.)
On Friday, November 3, Horn again spoke with Hughes
and advised him that NDPS was "prepared to close
immediately." (Horn Dep., App. 141.) According to Horn,
Hughes stated that Meridian was prepared to go forward
with the closing and asked NDPS to set a date. (Horn Dep.,
App. 141.) Hughes disputes this account; on his telling, he
never agreed on behalf of Meridian to close the deal.
(Hughes Dep., App. 166-70.) Later that day, Horn faxed a
letter to Hughes purporting to memorialize their
conversation; the letter stated that its purpose was"to
confirm our agreement to close the Purchase Agreement
between Meridian Bank and National Data Payment
Systems, Inc. on Tuesday, November 7, 1995 at 2:00 p.m.
Georgia time at the offices of National Data Corporation in
Atlanta." (App. 428-29.) Hughes was out of the office on
November 3 and did not personally receive the letter until
he returned to work on the following Monday, November 6.
On Monday, November 6, Meridian sent NDPS written
_________________________________________________________________
2. While NDPS does not dispute that the Purchase Agreement explicitly
contained an October 30 termination date, NDPS apparently did not
focus on this provision until it was ultimately invoked by Meridian.
According to one NDPS executive, NDPS's in-house legal counsel, when
asked how long NDPS had to close the deal, mentioned only the 30-day
window following Hart-Scott-Rodino clearance contained in S 3.1 without
alluding to the termination provision. (Horn Dep., App. 126-27.)
5
notice that it was terminating the Agreement pursuant to
S 11.1. NDPS notified Meridian that it considered the
termination a breach of the Agreement, and filed suit in
federal court.
NDPS raised two primary arguments: first, that Meridian
had breached its obligation to use "best efforts" to
consummate the transaction during the period before the
termination date; and second, that Meridian impliedly
waived its right to rely on the termination provisions after
October 30, 1995. NDPS also brought a claim against
CoreStates for tortious interference with the Purchase
Agreement.
After discovery, both sides moved for summary judgment.
The District Court granted summary judgment in favor of
all defendants. See National Data Payment Sys., Inc. v.
Meridian Bank, 18 F. Supp. 2d 543 (1998). NDPS then
moved for reconsideration of the District Court's opinion
and order, claiming the court had failed to rule on its "best
efforts" claim. The District Court denied NDPS's motion,
stating that it had considered and rejected the"best efforts"
argument in its original opinion. NDPS appeals.
II.
On appeal, NDPS challenges three of the District Court's
rulings: (1) the grant of summary judgment in favor of
Meridian on NDPS's "best efforts" claim; (2) the grant of
summary judgment in favor of Meridian on NDPS's claim
that Meridian waived its right to terminate the Purchase
Agreement; and (3) the grant of summary judgment in favor
of CoreStates on NDPS's tortious interference claim.
Pennsylvania law governs all of these claims. We address
each in turn.
A.
NDPS first argues that Meridian breached the Purchase
Agreement by failing to use its best efforts to effectuate a
closing prior to the October 30 termination date. NDPS
acknowledges that, once the October 30 date had passed,
the termination option contained in S 11.1 superseded the
6
best efforts obligation of S 3.1. Consequently, NDPS does
not argue that Meridian's November 6 termination, in itself,
breached the contractual best efforts duty. Rather, NDPS
claims that Meridian breached the contract by its conduct
prior to the October 30 "drop-dead" date. We reject this
claim.
NDPS points to several specific actions which it claims
breached Meridian's good faith obligation. First, NDPS
alleges in general terms that Meridian decided "to align
itself with CoreStates' desire to retain Meridian's Merchant
Business" rather than to sell it to NDPS. Appellant's Br. 42.
According to NDPS, this alignment gave rise to Meridian's
"game plan" to let the clock run on the Purchase Agreement
until the October 30 termination date had passed. Second,
NDPS points to Meridian's participation in the October 26
conference call, during which NDPS alleges that CoreStates
misrepresented certain facts concerning its business
banking centers and processing of referrals. NDPS alleges
that Meridian was aware of these misrepresentations and
had a duty to call them to NDPS's attention. Finally, NDPS
relies on Meridian executive Michael Hughes's conscious
failure to mention the termination date during his October
30 phone conversation with an NDPS official.
The duty of best efforts "has diligence as its essence" and
is "more exacting" than the usual contractual duty of good
faith. 2 E. Allan Farnsworth, Farnsworth on Contracts, 383-
84 (2d ed. 1998). Notwithstanding this high standard,
NDPS's allegations are insufficient as a matter of law to
defeat the District Court's grant of summary judgment.
Even if Meridian's actions constituted a default of its best-
efforts obligation, NDPS has provided absolutely no
evidence that, had Meridian's behavior been any different,
a closing would have occurred by October 30. Indeed, the
record clearly shows that the delay in closing was the result
of NDPS's own evaluation procedures.
At the time of the October 26 conference call, NDPS had
made no effort to schedule a closing before the October 30
termination date.3 Indeed, NDPS officials testified that they
_________________________________________________________________
3. We note that the paperwork and other legal formalities which typically
accompany a closing in a transaction of this magnitude are often
7
had not "focused" on that date; rather, their sole concern
was to secure closing before the end of the 30-day period
following Hart-Scott-Rodino approval. Moreover, after the
October 26 call, NDPS made no efforts to contact Meridian
about the status of the closing. When Meridian's Hughes
contacted NDPS on October 30 to inquire eabout its plans,
NDPS responded that it still had not decided whether to go
through with the deal or not. Although NDPS claimed that
it would have a definite answer by the next day at the
latest, it did not make its final decision to close until
November 3, well after the termination date. By this time,
Meridian's good faith obligation had been superseded by
the Agreement's express termination option, and it was free
to call off the deal at its discretion.
Any "game plan" that Meridian might have had to delay
closing until after October 30 cannot be relevant to this
appeal, because NDPS has presented no evidence that it
would have closed by that date under any circumstances.
NDPS's claim that its closing was delayed because it needed
to reassess its position in light of CoreStates's
representations does not change this fact. Even on the eve
of the NDPS-Meridian-CoreStates conference call--a mere
four days before the October 30 termination date--NDPS
had made no attempt to schedule a closing, and NDPS does
not suggest on appeal that it would have done so had the
conference call not occurred.
Moreover, we believe that Meridian had no duty under
the Agreement's best-efforts provision to remind NDPS of
the approaching termination date. The October 30
termination provision was the subject of substantial
negotiations during the Agreement's drafting, and it was
explicitly spelled out on the face of the Agreement. NDPS is
a sophisticated business party who was represented by in-
house and outside counsel throughout the events that are
the subject of this lawsuit. NDPS was on notice of the
termination date provision, and it cannot blame Meridian
_________________________________________________________________
substantial and time-consuming. NDPS admits that it had not scheduled
a closing date as of October 26--four days before the termination
date--and does not suggest that it could have been prepared to close
prior to October 30.
8
for its failure to "focus" on this unambiguous clause in the
contract.
B.
NDPS next argues that Meridian's course of conduct
constituted an implied waiver of the termination date
provision. In particular, NDPS relies on the October 30
conversation between Hughes and Shea, in which Shea
indicated that NDPS would have an answer on October 31
as to its plans to close. Hughes replied that this would be
"fine," which NDPS reads as a waiver of the October 30
deadline.
We reject this argument. As the District Court noted, the
Agreement's no-oral-waiver clause "clearly and
unequivocally indicates the intention of the parties that
there be no modifications or waivers of the contract
provisions except in a writing signed by both parties. The
parties even provided that delay in exercising rights under
the contract would not constitute a waiver of those rights."
National Data, 18 F. Supp. at 548.
NDPS attempts to avoid the no-oral-waiver clause by
recharacterizing its argument as an estoppel theory. To
succeed on an estoppel claim under Pennsylvania law,
however, NDPS must show that it was "misled and
prejudiced" by Meridian's conduct. See 2101 Allegheny
Assocs. v. Cox Home Video, Inc., 1991 WL 225008, *9 (E.D.
Pa. Oct. 29, 1991) (quoting Consolidated Rail Corp. v.
Delaware & H.R. Co., 569 F. Supp. 25, 29-30 (E.D. Pa.
1983)). "As a general rule, mere silence or inaction is not a
ground for estoppel unless there is a duty to speak or act."
2101 Allegheny, 1991 WL 225008 at *10 (quoting Farmers
Trust Co. v. Bomberger, 523 A.2d 790, 794 (Pa. Super.
1987)).
In this case, NDPS could not have been prejudiced by
Meridian's statement that a response by October 31 would
be "fine." Even if NDPS had reasonably relied on this
representation, the record shows that it did not, in fact,
respond to Meridian on October 31. Rather, it waited until
November 3 to propose a closing. At most, Hughes's
statement would have estopped Meridian from exercising its
9
termination right on October 31; it could not have bound
them until November 3.
Meridian's principal case, Cohen v. Weiss, 51 A.2d 740,
742-43 (Pa. 1947), is inapposite. Cohen dealt with a sale-of-
property contract which contained a termination provision
similar to the one at issue here. The buyer attempted to
contact the seller on the termination date to arrange a
closing three days after that date. The seller, however, did
not respond to this request and instead delayed his
decision until the next day so that he could exercise the
termination option. Throughout, the seller used the pretext
of his son's illness to induce the buyer into believing that
his mind was not on the transaction. The Pennsylvania
Supreme Court found that the seller was estopped from
terminating because his delay and deceit functioned" `as a
trap' to put the purchaser `off his guard.' " Id. at 743.
In the present case, in contrast, NDPS never made a
concrete request to close prior to the termination date; nor
was there any affirmative misrepresentation by Meridian.
The facts before us are more analogous to New Eastwick
Corp. v. Philadelphia Builders Eastwick Corp., 241 A.2d 766
(Pa. 1968), where the Pennsylvania Supreme Court held
that a party who merely remained silent and allowed a
termination date to pass without comment was not
estopped from exercising its termination option. Here, as in
New Eastwick, Meridian's mere inaction "can in no way be
said to give [the appellant] permission to ignore the then
existing terms of that contract." Id. at 769.
C.
Finally, NDPS appeals the District Court's grant of
summary judgment in favor of CoreStates on the tortious
interference with contract relations claim. The District
Court found that CoreStates was privileged to influence
Meridian's contract because it was a prospective purchaser
of Meridian with a substantial financial interest in the deal.
Under Pennsylvania law, "[t]he tort of inducing breach of
contract . . . is defined as inducing or otherwise causing a
third person not to perform a contract with another . . .
without a privilege to do so." Glazer v. Chandler, 200 A.2d
10
416, 418 (Pa. 1964). A number of federal courts, construing
Pennsylvania law, have held that a corporate parent or
prospective corporate parent is privileged to interfere with
the contractual relations of its subsidiary. In Green v.
Interstate United Management Services Corp., 748 F.2d 827
(3d Cir. 1984), a parent corporation instructed its wholly-
owned subsidiary not to sign a lease after an appraiser
opined that the contract was a bad bargain. This Court
found that the interference was privileged due to the
parent's interest in preventing the dissipation of its
subsidiary's assets. Similarly, in Advent Systems Limited v.
Unisys Corp., 925 F.2d 670, 673 (3d Cir. 1991), we noted
that a prospective purchaser's "interest in thefinancial
stability of its subsidiary and the need to avoid a situation
where the two would be working at cross-purposes justified
the disruption" of pending contract negotiations with a
third party. In Mercier v. ICH Corp., 1990 WL 107325 (E.D.
Pa. July 25, 1990), relied on by the court below, the
District Court extended this reasoning to interference by a
prospective corporate purchaser. In Mercier, the defendant
ICH planned to buy Tenneco's Philadelphia Life subsidiary.
Prior to the purchase, Tenneco and plaintiff Mercier agreed
to various severance conditions relating to Mercier's
employment at Philadelphia Life. On ICH's urging, however,
Tenneco decided not to follow through with the agreed-
upon severance package and Mercier sued for tortious
interference. The District Court granted summary judgment
in favor of ICH, noting that "[b]ecause ICH had expressed
its intention to acquire Philadelphia Life from Tenneco, it
was privileged to influence the severance contract Tenneco
offered to Mercier, relating to his continued employment or
termination by Philadelphia Life." Id. at *15.
These cases support the District Court's conclusion that
CoreStates, as a prospective purchaser of Meridian, was
privileged to influence Meridian's contract obligations. This
conclusion is bolstered by the fact that CoreStates
expressed its intention to remain in the merchant credit
processing business--an undertaking that would place it
"at cross-purposes" with Meridian's sale of its own
merchant business assets. See Advent Sys., 925 F.2d at
673.
11
We note, however, that a recent decision by the
Pennsylvania Superior Court has embraced a narrower
version of the corporate parent privilege than was
explicated in the above-cited cases. See Shared Comm.
Servs. of 1800-80 JFK Boulevard, Inc. v. Bell Atlantic
Properties, Inc., 692 A.2d 570 (Pa. Super. 1997). The Shared
Communications court distinguished Advent Systems and
Green, noting that in those cases, the parent's privilege to
interfere was based upon its interest in preventing the
waste of the subsidiary's corporate assets. See id. at 575.
The court found it significant that
In neither of those cases did the corporate parent
instruct the subsidiary to abrogate contractual
relations with a third party in order to commence those
same relations with another subsidiary of the same
corporate parent. In neither of those cases did the
corporate parent instruct the subsidiary to ignore its
contractual relations with a third party and
surreptitiously provide services to a corporate"sibling"
which the subsidiary was contractually bound to
deliver to a third party.
Id. It went on to conclude that when the interference is "not
to prevent asset dissipation, but rather, to help[the parent]
to aggrandize," there is no privilege. Id.
As Shared Communications indicates, the exact scope of
the corporate parent privilege is unclear, and the
Pennsylvania Supreme Court has not yet spoken on this
issue. We need not resolve this difficult question, however,
because CoreStates offers a second basis for its privilege,
which we find independently dispositive.
Under the Restatement (Second) of TortsS 768,
One who intentionally causes a third person . . . not to
continue an existing contract terminable at will does
not interfere improperly with the other's relation if:
(a) the relation concerns a matter involved in the
competition between the actor and another and
(b) the actor does not employ wrongful means and
(c) his action does not create or continue an
unlawful restraint of trade and
12
(d) his purpose is at least in part to advance his
interest in competing with the other.
See Gilbert v. Otterson, 550 A.2d 550, 554 (Pa. Super. 1988)
(recognizing Pennsylvania's adoption of S 768). Because the
Purchase Agreement was terminable at will (by virtue of the
October 30 termination date) when Meridian opted to pull
out, S 768 applies to this case.
CoreStates clearly was a competitor with NDPS in the
merchant credit card business; it acted to advance its own
business; and there is no allegation that its interference
created any unlawful restraint of trade. The determinative
question, then, is whether CoreStates "employ[ed] wrongful
means." Although the Pennsylvania Supreme Court has not
yet supplied a definition of wrongful means, this Court
recently noted that a number of jurisdictions have
interpreted the section "to require independently actionable
conduct on the part of the defendant." Brokerage Concepts,
Inc. v. U.S. Healthcare, Inc., 130 F.3d 494, 531 (3d Cir.
1998) (citing DP-Tek, Inc. v. AT&T Global Information
Solutions Co., 100 F.3d 828, 833-35 (10th Cir. 1996)). See
also Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1507 (8th
Cir. 1992) ("wrongful means" is "conduct which is itself
capable of forming the basis for liability of the actor");
Briner Elec. Co. v. Sachs Elec. Co., 680 S.W.2d 737, 741
(Mo. App. 1984) (same).
This "independently actionable" approach is borne out by
the commentary to S 768. Comment (e) states that
"wrongful means" includes "predatory means . . . physical
violence, fraud, civil suits[,] criminal prosecutions, [and]
exerting a superior power in affairs unrelated to their
competition." Restatment (Second) of Torts S 768, cmt. e.
Each of these enumerated activities would itself be
independently actionable under the laws of torts or unfair
competition. Based on these factors, we believe that
Pennsylvania would follow the "independently actionable"
approach for S 768 claims.
Because the conduct of which NDPS complains was not
independently actionable, CoreStates is protected by the
competitor's privilege. Taking all facts in the light most
favorable to NDPS, we conclude that CoreStates, at most,
13
overstated its future ability to compete with NDPS through
its network of business banking centers. NDPS relies
primarily on the following statements by CoreStates' Kaplan
during the October 26 conference call, as recounted by
Meridian Vice President Chris Bucolo:
[H]e said things like, we're building a network of
business banking centers that aren't branches, and
that's where all of our leads are going to get generated.
So even if it says we're going to get branch referrals in
the agreement, most of our leads aren't even going to
go through the branches. They're going to come
through these business banking centers that we're
building. He said, look, you guys just aren't going to
get the value out of the deal.
(Bucolo Dep., App. 67.) Bucolo further testified that after
the call, CoreStates admitted to him that they had"only a
couple" business banking centers in place. (Bucolo Dep.,
App. 68.)
These allegations are insufficient as a matter law to
establish independently actionable fraud. A statement as to
future plans or intentions is not fraudulent under
Pennsylvania law unless it knowingly misstates the
speaker's true state of mind when made. See College
Watercolor Group, Inc. v. William H. Newbauer, Inc. , 360
A.2d 200, 206 (Pa. 1976). Here, NDPS has presented no
evidence to indicate that CoreStates did not, in fact, plan to
build an extensive network of banking centers, even if they
were not in existence at the time of the October 26
conference call. Because CoreStates' representations did
not constitute independently actionable fraud, and because
CoreStates has satisfied all of the other requirements of
Restatement S 768, it was privileged and therefore protected
for liability for tortious interference with contractual
relations.
III.
For the foregoing reasons, the judgment of the District
Court is affirmed.
14
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
15