Megatech Inc v. NSD Acquisitions LP ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MEGATECH, INCORPORATED; MMG
INTERNATIONAL, INCORPORATED,
Plaintiffs-Appellees,
v.
NSD ACQUISITIONS LP; KIMBER
MANUFACTURING, INCORPORATED,
No. 99-2344
Defendants-Appellants,
and
JP MANUFACTURING CORPORATION;
LESLIE EDELMAN; NATIONWIDE SPORTS
DISTRIBUTORS, INCORPORATED,
Defendants.
MEGATECH, INCORPORATED; MMG
INTERNATIONAL INCORPORATED,
Plaintiffs-Appellants,
v.
NSD ACQUISITIONS LP; KIMBER
MANUFACTURING, INCORPORATED,
No. 99-2345
Defendants-Appellees,
and
JP MANUFACTURING CORPORATION;
LESLIE EDELMAN; NATIONWIDE SPORTS
DISTRIBUTORS, INCORPORATED,
Defendants.
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-98-27)
Argued: April 4, 2000
Decided: June 5, 2000
Before WILKINSON, Chief Judge, TRAXLER, Circuit Judge,
and Roger J. MINER, Senior Circuit Judge of the
United States Court of Appeals for the Second Circuit,
sitting by designation.
_________________________________________________________________
Affirmed in part, reversed in part, and remanded with instructions by
unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: David Gary Tripp, LAW OFFICES OF DAVID TRIPP,
Fairfax, Virginia, for Appellants. Peter Steven Pearlman, COHN,
LIFLAND, PEARLMAN, HERRMANN & KNOPF, Saddle Brook,
New Jersey, for Appellees. ON BRIEF: Leonard Z. Kaufmann,
COHN, LIFLAND, PEARLMAN, HERRMANN & KNOPF, Saddle
Brook, New Jersey; Karl W. Pilger, BORING & PILGER, P.C.,
Vienna, Virginia, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
2
OPINION
PER CURIAM:
NSD Acquisitions LP ("NSD") and Kimber Manufacturing, Inc.
("Kimber") appeal from the district court's grant of summary judg-
ment for MMG International, Inc. ("MMG"). Concluding that NSD
assumed the duty to pay MMG commissions due under a Representa-
tive Agreement between MMG and JP Manufacturing Corporation
("JP"), NSD's predecessor-in-interest, the district court held NSD and
Kimber jointly and severally liable for the $300,972 awarded in dam-
ages. By cross-appeal, MMG challenges the district judge's calcula-
tion of damages and prejudgment interest. We affirm in part, reverse
in part, and remand with instructions.
I.
From 1992 until September 3, 1996, JP manufactured and sold pre-
cision metal parts, including firearms, for commercial and military
markets. In February 1995, JP entered into a Representative Agree-
ment with MMG whereby MMG agreed to market JP's products in
exchange for certain commissions. Though MMG was successful in
securing orders, JP nonetheless ran into financial difficulties and was
unable to purchase materials or pay vendors. Searching for a pur-
chaser of its assets, JP entered into an agreement with Global Preci-
sion Manufacturing Corporation ("Global"). Global, however, failed
to raise the necessary money and the sale never closed.
JP next turned to Nationwide Sports Distributors, Inc.
("Nationwide"), JP's largest customer. MMG had introduced Nation-
wide to JP in late 1994, and as a result of MMG's efforts, Nationwide
purchased 10,000 Model 1911 pistols from JP. Hoping to secure a
permanent supply of Model 1911 pistols, Nationwide's president,
Leslie Edelman, agreed to purchase JP's assets through NSD. Formed
under the laws of Pennsylvania solely for the purchase of JP's assets,
NSD consists of JPNY, Inc. ("JPNY"), a general partner, and Kimber,
a limited partner. Edelman is the president and sole shareholder of
Kimber, president of JPNY, and president of NSD.
3
JP and NSD executed an Asset Purchase Agreement on August 21,
1996, and closed the deal on September 3, 1996. Nine days after the
closing, NSD, doing business as Kimber, informed MMG"that Kim-
ber Mfg., Inc. does not recognize nor does it have any obligation to
you under the . . . Representation Agreements." J.A. 362. Asserting
that NSD had assumed JP's liabilities regarding payment of commis-
sions, and demanding payment of commissions due, MMG filed suit
in the Southern District of New York against the Edelman entities.1
Citing a choice-of-venue clause in the Representative Agreement
requiring litigation to be commenced in Virginia, the district court
dismissed the complaint. MMG refiled in Virginia state court, and the
defendants removed the action to the Eastern District of Virginia on
grounds of diversity. Hearing cross-motions for summary judgment
after the completion of discovery, the district judge entered judgment
against NSD and Kimber jointly and severally for $300,972 following
a one-day bench trial on the issue of damages.2 The court concluded
that NSD breached the Representative Agreement, and, in the alterna-
tive, found NSD and Kimber liable on quasi-contractual grounds.
NSD and Kimber appeal; MMG cross-appeals the judge's calculation
of prejudgment interest and the judge's refusal to grant MMG com-
missions on a sale that is currently the subject of litigation in Tennes-
see.
II.
A summary judgment motion should be granted only if there is no
genuine dispute as to an issue of material fact and the moving party
is entitled to judgment as a matter of law. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247-48 (1986). The court must consider
_________________________________________________________________
1 In the original action, MMG and its sister corporation Megatech Inc.,
brought suit against NSD, Kimber, JP, Leslie Edelman, and Nationwide.
The complaint consisted of thirteen counts and raised claims sounding in
tort, fraud, contract, and quasi-contract. For purposes of this appeal, the
only remaining parties are MMG, Kimber, and NSD.
2 This amount represents commissions earned from September 1996 to
March 1998, the date of Nationwide's bankruptcy. The lion's share of
the damages results from the original 10,000 pistols purchased by
Nationwide and Nationwide's repeat orders which were covered by sec-
tion 6.8 of the Representative Agreement.
4
the evidence in the light most favorable to the non-moving party and
draw all reasonable inferences from the facts in the non-movant's
favor. See United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
A.
NSD's assumption of the liability to pay MMG's commissions
hinges on the language of the Asset Purchase Agreement. Issues of
contractual interpretation are reviewed de novo . See United States v.
Martin, 25 F.3d 211, 217 (4th Cir. 1994). According to the Asset Pur-
chase Agreement, the laws of Pennsylvania govern its construction.
When the contract's terms "are clear and unambiguous the [parties']
intent is to be discovered only from the express language of the agree-
ment." Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982). An
ambiguity exists if the terms "are subject to more than one reasonable
interpretation." Madison Constr. Co. v. Harleysville Mut. Ins. Co.,
735 A.2d 100, 106 (Pa. 1999). Courts, however, are forbidden to "dis-
tort the meaning of the language or resort to a strained contrivance in
order to find an ambiguity." Id. In sum, absent an actual ambiguity,
"the focus of interpretation is upon the terms of the agreement as
manifestly expressed, rather than as, perhaps, silently intended." Steu-
art, 444 A.2d at 661.
Under section 1(c) of the Asset Purchase Agreement, NSD agreed
to "assume the Assumed Liabilities." J.A. 315."[NSD] shall not
assume or be bound by any duties, responsibilities, obligations or lia-
bilities of [JP] of any kind or nature, known, unknown, contingent or
otherwise, other than those obligations and liabilities referred to
herein as the Assumed Liabilities expressly assumed by it." J.A. 292.
Assumed Liabilities, central to the dispute at issue, is defined, in per-
tinent part, as "all obligations of [JP] under the agreements, contracts,
leases, licenses, and other arrangements referred to in the definition
of Acquired Assets." J.A. 288. Turning to the definition of Acquired
Assets, we find that it includes "agreements, contracts, purchase
orders, indentures, mortgages, instruments, Security Interests, guaran-
ties, and other similar arrangements and rights thereunder" which are
not listed in the Excluded Assets. J.A. 286. The Excluded Assets sec-
tion makes no mention of the MMG contract. In light of the broad
definition of Acquired Assets and the omission of the MMG contract
from the assets excluded, the plain language of the contract compels
5
the conclusion that NSD assumed the liabilities under the Representa-
tive Agreement, including the duty to pay MMG duly earned commis-
sions.
NSD counters that the language referring to liabilities "expressly
assumed" at the very least renders the contract ambiguous. These two
words, according to NSD, should lead the court away from the broad
definition of Acquired Assets. Under NSD's analysis, upon encoun-
tering the "expressly assumed" language, the court should ignore the
Assumed Liabilities and Acquired Assets portions of the contract, and
instead search for an Expressly Assumed Liabilities section. Because
such a section does not exist, NSD concludes that the contract does
not contemplate assumption of the MMG Representative Agreement.
Though inventive, we conclude that NSD's mode of analysis is at
best an attempt to manufacture an ambiguity. Under Pennsylvania
law, we must not focus on the absence of an enumeration in the con-
tract, but rather "the terms of the agreement as manifestly expressed."
Steuart, 444 A.2d at 661. And the express language of the contract
directs the court to the Assumed Liabilities section, which in turn
directs the court to the Acquired Assets section. Because the MMG
Representative Agreement, by the terms of the Asset Purchase Agree-
ment, clearly falls under Acquired Assets and is not mentioned in
Excluded Assets, NSD cannot escape its assumption of the MMG
contract.
NSD also invites the court to examine parol evidence. The parol
evidence rule is one of substance, and therefore the law of the forum
state must be applied. See Childers Oil Co. v. Exxon Corp., 960 F.2d
1265, 1269 (4th Cir. 1992). Virginia decisional law does not indicate
whether the Virginia Supreme Court, under its conflicts rules, would
apply its own or Pennsylvania's parol evidence decisions. See Rock-
Ola Mfg. Corp. v. Wertz, 282 F.2d 208, 210 (4th Cir. 1960). However,
we need not linger over this question because both states permit parol
evidence in suits involving a stranger to the writing. See McComb v.
McComb, 307 S.E.2d 877, 879 (Va. 1983) (holding that "the parol
evidence rule operates only between the parties to a writing and has
no application in a suit involving strangers to the writing nor in a suit
involving one party to the writing and a stranger thereto"); In re
Sewer Dist. No. 4, 24 A.2d 678, 679 (Pa. Super. Ct. 1942) ("The parol
6
evidence rule does not apply generally in case of a stranger to the
contract."). Because MMG is a stranger to the Asset Purchase Agree-
ment, parol evidence may be considered.
NSD points out that JP's Asset Purchase Agreement with Global
formed the basis of the agreement with NSD. The Global agreement
contained specific provisions providing for the assumption of the
Representative Agreement, but this section was dropped from the
NSD agreement. Moreover, before the closing JP demanded that NSD
sign an assumption agreement in which NSD would agree to assume
liabilities, including "all obligations of [JP] under the agreements,
contracts, leases, licenses, and other arrangements referred to in the
definition of Acquired Assets." J.A. 358. NSD refused to accept the
assumption agreement, and the closing occurred even though JP had
reserved the right not to close if NSD rejected the assumption agree-
ment. From this history of the Asset Purchase Agreement, which NSD
describes as an "evolution," NSD argues it did not assume the Repre-
sentative Agreement. While we agree that the Asset Purchase Agree-
ment underwent changes from the version signed by Global, we
disagree with NSD on the extent of the evolution. For all the changes
proposed and made, the Agreement retained its broad language con-
cerning the assumption of assets and liabilities. As evidenced by
numerous emendations, the parties consciously retained the Excluded
Assets section of the original Global agreement yet declined to list the
MMG contract among the assets excluded. The parol evidence is sim-
ply inadequate to explain away the clear language of the contract
which resulted from arm's length negotiations. In sum, the parol evi-
dence offered by NSD does not change our conclusion that the Repre-
sentative Agreement was assumed.
B.
NSD also argues that the Representative Agreement forbids assign-
ments without the written consent of MMG. Because MMG never
consented in writing to NSD's assumption of the Representative
Agreement, NSD concludes that MMG may not demand commissions
due. The Representative Agreement, however, provides that it "may
not be assigned or transferred by [MMG] without the express written
prior consent of [JP]." J.A. 166. This prohibition clearly applies only
7
to MMG's attempted transfers or assignments, and not those of JP.
Hence, NSD's argument fails on this point.
C.
Finally, NSD argues that MMG lacks privity with NSD and thus
cannot sue for breach of contract absent proof it was an intended third
party beneficiary of the Asset Purchase Agreement. In general, when
one company purchases the assets of another, "the successor company
does not embrace the liabilities of the predecessor simply because it
succeeded to the predecessor's assets." Philadelphia Elec. Co. v. Her-
cules, Inc., 762 F.2d 303, 308 (3d Cir. 1985) (applying Pennsylvania
law) (internal quotation marks omitted). There are exceptions to the
general rule, including when "the purchaser of assets expressly or
impliedly agrees to assume obligations of the transferor." Id. Because
we have concluded that NSD assumed JP's liabilities and stands in
JP's shoes as to MMG, the third party beneficiary theory is inapplica-
ble. MMG, a party to the contract that NSD assumed, has standing to
sue for breach of the Representative Agreement. 3
III.
Kimber challenges the district court's decision to hold it jointly and
severally liable with NSD for MMG's commissions. Kimber observes
that by the terms of the Asset Purchase Agreement, NSD was the only
entity that assumed JP's assets and liabilities. As a limited partner in
NSD, Kimber contends that the district court erred in depriving it of
limited liability. We review the district court's findings of fact for
clear error and its legal conclusions de novo . Rutherford Hosp., Inc.
v. RNH Partnership, 168 F.3d 693, 698 (4th Cir. 1999).
A district court sitting in diversity applies the forum state's conflict
of laws rules. Under the Virginia Code, "the laws of the state or other
jurisdiction under which a foreign limited partnership is formed gov-
ern its formation and internal affairs and the liability of its limited
_________________________________________________________________
3 In the alternative, the district court also granted summary judgment in
favor of MMG on quasi-contractual grounds. Because we affirm sum-
mary judgment on the breach of contract, we do not reach the district
court's alternative holding.
8
partners." Va. Code Ann. § 50-73.53 (Michie 1998). Hence, the court
must turn to Pennsylvania law to determine Kimber's liability.
Under Pennsylvania law, a limited partner will not be personally
liable to third parties unless (1) the limited partner "participates in the
control of the business", and (2) the third party transacting business
with the limited partnership reasonably believes,"based on the con-
duct of the limited partner, that the limited partner is a general part-
ner." 15 Pa. Cons. Stat. Ann. § 8523(a) (West 1995); see also In re
Labrum & Doak, LLP, 237 B.R. 275, 301 (Bankr. E.D. Pa. 1999)
("Limited partners surrender the right to participate in the conduct of
the partnership's business in exchange for limited liability."). In con-
cluding that NSD and Kimber were "effectively the same entity," J.A.
841, the district court relied on the following facts:
- NSD trades as Kimber Manufacturing, Inc.
- NSD has no employees and leases employees from Kim-
ber
- NSD and Kimber have the same fax number
- NSD and Kimber are represented by the same attorney
- the letter terminating MMG's representation of NSD was
sent on Kimber letterhead
- Edelman is the only officer and director of Kimber
- Edelman is the president of NSD
We believe that the district court correctly concluded that Kimber,
through Leslie Edelman, participated in the control of NSD. Edelman,
as evidenced by his deposition testimony, was unable to distinguish
between NSD and Kimber, and in general ignored the separate identi-
ties of the entities he controlled. Acting in his capacity as the presi-
dent of Kimber, Edelman discarded his NSD puppet shortly after the
closing of the Asset Purchase Agreement and openly operated JP's
former business as Kimber. Without question, Kimber controlled
9
NSD. In addition, MMG had no reason to believe that Kimber was
anything but a controlling entity or general partner. The letter termi-
nating the Representative Agreement, dated nine days after the clos-
ing, was written on Kimber stationary, sent by an entity doing
business as Kimber, and made no mention of NSD. Such an unequiv-
ocal assertion of authority could have reasonably led MMG to believe
that Kimber was the controlling entity or general partner. Hence, the
district court did not err in holding NSD and Kimber jointly and sev-
erally liable for MMG's commissions.
IV.
A.
NSD next challenges the district court's conclusion that Nation-
wide's December 1994 order for 10,000 pistols was covered under the
Representative Agreement, which was signed on February 1, 1995.
As noted by the district judge, the Representative Agreement contem-
plates purchase orders in existence prior to February 1995. For exam-
ple, section 6.1 provides for commissions "on proceeds from the
current order of the `Dessert Eagle' [sic] by Tass." J.A. 161. Sections
6.7 and 6.8 provide for commissions on pistol orders and repeat
orders, "including any additions and amendments to and reductions
from the purchase order." J.A. 162. Moreover, Annex C of the Repre-
sentative Agreement specifically refers to the Nationwide purchase
order and authorizes MMG to continue efforts to secure additional
sales. NSD does not dispute that JP had begun to fill the purchase
order before the asset sale and that JP paid MMG some commissions
on the order prior to the asset sale. We agree with the district court
that the Representative Agreement contemplated pre-existing orders,
including the Nationwide order referred to in Annex C. As JP's
successor-in-interest, NSD assumed the duty to continue with the pay-
ment of commissions on the original Nationwide order as well as any
additions to the order. In sum, the district court did not err in finding
that the sale to Nationwide was covered by the Representative Agree-
ment.
B.
NSD also argues the MMG is due no commissions because the sale
to Nationwide was nothing more than a transfer between commonly-
10
owned businesses. This characterization ignores that MMG intro-
duced Edelman to JP, and that Edelman did not own JP when Nation-
wide placed the December 1994 order for 10,000 pistols. Edelman's
later acquisition of JP's assets--almost two years after the 1994 order
--did not erase MMG's efforts. By the terms of the Asset Purchase
Agreement, NSD assumed the Representative Agreement and the
accompanying duty to pay MMG commissions earned. NSD and JP
did not include the MMG contract with the "Excluded Assets"; there-
fore, we cannot permit NSD to enjoy the results of MMG's services
without paying duly earned commissions.
C.
NSD also challenges the inclusion in the damages award of com-
missions resulting from a sale to the Israel Military Industries
("IMI"). The district judge's calculation of damages is reviewed for
clear error. See United States ex rel. Maddux Supply Co. v. St. Paul
Fire & Marine Ins. Co., 86 F.3d 332, 334 (4th Cir. 1996). In the Asset
Purchase Agreement, the parties listed the $150,000 account receiv-
able from the IMI sale as an excluded asset. Because NSD could not
produce "documentary proof of that payment [to JP], such as a can-
celed check," the district court concluded that MMG was entitled to
a $3000 commission from NSD. J.A. 837. We agree with NSD that
the district judge erred on this point. Under the terms of the Asset
Purchase Agreement, NSD was not to receive the monies due from
IMI, and an affidavit offered by MMG indicated that JP had indeed
received the $150,000. Surveying the record, we find nothing to indi-
cate why NSD would have IMI's canceled check, or why the court
required more proof that NSD had no entitlement to the $150,000.
MMG should look to JP for its $3000 commission, not NSD. Thus,
the district court clearly erred in including the $3000 in MMG's dam-
ages.
V.
A.
By way of cross-appeal, MMG asserts that the district court erred
in the calculation of prejudgment interest. The parties agree that under
Virginia conflicts rules, New York law governs the calculation of pre-
11
judgment interest. The relevant New York statute provides that
"[w]here such damages were incurred at various times, interest shall
be computed upon each item from the date it was incurred." N.Y.
C.P.L.R. § 5001(b) (McKinney 1992). But if the precise dates are not
ascertainable, the court awards damages "from a single reasonable
intermediate date." Id.; see also Rose Assoc. v. Lenox Hill Hosp., 695
N.Y.S.2d 1, 2 (N.Y. App. Div. 1999) (affirming award of prejudg-
ment interest from the midway point of tenant's holdover period).
Because of the continuing nature of the breaches and lack of precise
evidence, the district court awarded MMG prejudgment interest "for
half of the three years since the breaches began, or 18 months." J.A.
839. MMG argues that there was sufficient evidence in the record to
calculate damages from the date each commission was due. In support
of its position, MMG presents a chart which gives the invoice dates
of the various sales of pistols. However, the Representative Agree-
ment provides that commissions shall be paid within fifteen days after
receipt of payment, and MMG provided no information dealing with
actual payment. Given the lack of information on the date of actual
payment, the district judge's use of an intermediate date to calculate
prejudgment interest was not clearly erroneous.
B.
Finally, MMG challenges the district court's decision regarding
pistol sales to All American Sales, Inc. ("All American"). NSD and
All American are currently litigating in Tennessee to determine
whether All American ordered 100 or 2500 pistols. All American
asserts that it ordered 2500 pistols from JP and only 100 have been
delivered. NSD, as JP's successor-in-interest, argues that All Ameri-
can purchased only 100 pistols. MMG has been paid its commission
on the 100 pistols shipped to All American.
At the summary judgment hearing in the present case, MMG asked
the district judge to issue an order providing that MMG is entitled to
its 2.5 percent commission on the remainder of the All American sale
if the Tennessee court determines that the order was for 2500 pistols
rather than 100. The district court refused, stating that "[e]ven if All
American prevails in that litigation . . ., there still would have been
no sale of the 2,400 pistols on which MMG could collect a commis-
sion. If the Tennessee court orders JP to sell 2,400 more pistols to All
12
American, MMG would still not be entitled to those commissions
because that sale would be the product of a court order, not MMG's
marketing work." J.A. 833. We disagree with the district court's anal-
ysis. It is axiomatic that courts enforce, rather than write, contracts.
The purpose of the Tennessee litigation is to determine whether All
American contracted for the purchase and delivery of 100 or 2500
pistols. If the Tennessee court concludes that NSD owes All Ameri-
can 2400 more pistols, then MMG is entitled to a commission on the
pistols just as it was on the first 100 of the order. Hence, we remand
to the district court to enter an order on the All American sale consis-
tent with this opinion.
VI.
For the foregoing reasons we affirm the district court's grant of
summary judgment in favor of MMG on the breach of contract claim.
However, we reverse the district court's inclusion of the IMI commis-
sions in the damages award and the court's refusal to grant MMG
commissions, contingent on the outcome of the Tennessee litigation,
on the All American sale.
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED WITH INSTRUCTIONS
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