Opinion
600996/00.
Decided September 21, 2004.
In this action for breach of an insurance contract, the following motions are hereby consolidated for disposition: mot. seq. nos. 015, 016, and 017.
In mot. seq. no. 015, plaintiff The Chase Manhattan Bank (Chase) moves, pursuant to CPLR 3212, for summary judgment on its complaint. Defendant New Hampshire Insurance Company (New Hampshire) cross-moves for summary judgment dismissing the complaint, also pursuant to CPLR 3212. In mot. seq. no. 016, third-party defendants Paul Kurta (Kurta) and Echo Productions, Inc. (Echo) move for summary judgment dismissing the third-party complaint as to themselves, while in mot. seq. no. 017, Chase moves for summary judgment against Kurta and Echo, to dismiss their cross claim against Chase.
I. Facts
The facts of this case have been set forth in a prior decision of this court, dated November 1, 2001, and so, shall only be repeated as required for the present motions. In 1998, Echo procured a loan from Chase, in the sum of approximately $4.2 million, to produce a feature-length theatrical motion picture entitled "Looking for an Echo" (the Project). Chase, in turn, obtained a Contingent Loss of Revenue Insurance Policy (the Policy) from New Hampshire, to indemnify Chase against the possibility that Chase's loan would not be repaid within the time period called for in the Policy. AXA Corporate Solutions, (AXA) is a reinsurer of the Policy.
It is agreed that the sole remaining issue in the main action is whether the various video and sound elements required to complete the Project were "delivered" to Arthur Kananack Associates (AKA), Echo's sales agent, as required under the terms of the parties' agreements. Chase moves for summary judgment, claiming that there is no dispute as to the fact that timely delivery of all of the necessary elements was accomplished, entitling Chase to recover under the Policy, while New Hampshire cross-moves for summary judgment, claiming that the undisputed facts establish that such delivery did not occur.
The "Interparty Agreement" entered into among Chase, Echo, AKA, and Echo's guarantor, Film Finances, Inc., which was intended to detail the terms and conditions for the film's production and marketing, defines "Delivery," in section 2.1, as applicable, as follows:
(a) "Delivery" shall be deemed for all purposes of this Agreement to have occurred upon (and only upon) satisfaction of the following: (i) delivery or granting access, as applicable, to AKA on behalf of [Echo] (or if AKA has been removed pursuant to paragraphs 1.3 or 9.5 hereof, to its replacement or [Chase]) of the delivery items set forth in Exhibit E hereto (the "Delivery Items") and (ii) delivery to [Chase] of a certificate of AKA in the form of Exhibit F hereto (the "AKA Certificate") (or a deemed acceptance in connection therewith pursuant to paragraph 11.12 below), or, in the absence of delivery of the AKA Certificate, a determination pursuant to paragraph 11.1 that Delivery has occurred. Delivery shall be made hereunder on or before December 1, 1998 (the "Delivery Date"), subject to any delays (not to exceed thirty (30) days) caused by events of force majeure, but no later than December 31, 1998 (the "Outside Delivery Date").
(b) Notwithstanding anything to the contrary contained herein, the first commercial exploitation or exhibition of the Picture by any licensee of [Echo] that received delivery from AKA shall be deemed acceptance of Delivery of the Picture by AKA on behalf of [Echo] for all purposes under this Agreement and shall have the same effect as though an Acceptance Notice (as defined in paragraph 11 below) had been delivered by AKA to Guarantor and [Chase] as contemplated by paragraph 11.
Interparty Agreement, at 3-4. Thus, the Interparty Agreement included two alternative means by which Delivery could be effectuated.
"Delivery Items," as set forth in Exhibit E to the Interparty Agreement, include "Lab Access Reports" giving AKA access to numerous elements required for the completion of the Project, which were to be warehoused at various film labs, along with numerous delineated items which had to be delivered to AKA. The "Picture Specifications," an annex to Exhibit E to the Interparty Agreement, required, among several other conditions, that the Project as delivered "(iii) qualify for a rating by the Motion Picture Association of America not more restrictive than "R" by the Code and Rating Administration of such Association. . . ." Aff. of Kenneth R. Wilson, Ex. C.
The import of the definition of "Delivery Date" to the present action, as it appears in the Interparty Agreement, is that New Hampshire, in the Policy, (1) explicitly stated in the "Completion Clause" (Policy, at 4) that no claim could be made under the policy until Delivery had been accomplished, and (2) that the definition of Delivery was to be that as defined in section 2.1 of the Interparty Agreement. Further, the Policy specified that any claim brought pursuant thereto could not be made until 12 months subsequent to the date of Delivery of the Project (Claim Date). Policy, at 1. In this court's previous decision, it was found that the parties agreed, on September 20, 1999, to extend the Delivery Date to March 1, 1999, and the outside Claim Date to January 1, 2000.
Chase brought a timely written claim under the Policy on December 16, 1999, seeking $4,292,292.38, plus interest, running from the Claim Date. Chase argues that Delivery, as defined in the Interparty Agreement, was completed by or prior to March 1, 1999, entitling it to indemnification from New Hampshire under the terms of the Interparty Agreement and the Policy, while New Hampshire claims that such Delivery failed to occur.
II. Discussion
A. Discussion of Mot. Seq. No. 015
As limited previously by this court, whether or not Chase has a claim under the Policy depends entirely on whether Delivery was made on the Delivery Date, as set forth in the Interparty Agreement.
The Court of Appeals "has repeatedly held that in order to obtain summary judgment, movant must establish its defense or cause of action sufficiently to warrant a court's directing judgment in its favor as a matter of law." Gilbert Frank Corporation v. Federal Insurance Company, 70 NY2d 966, 967 (1988); Zuckerman v. City of New York v. City of New York, 49 NY2d 557 (1980). In order to defeat the motion, the defending party must establish the existence of a factual issue requiring a trial, through the production of admissible evidence. Gilbert Frank Corporation v. Federal Insurance Company, 70 NY2d at 967.
Under Interparty Agreement § 2.1(a), whether Delivery occurred depends on whether the numerous elements necessary to the completion of the Project were delivered or made available to AKA by March 1, 1999, as specified therein. It has already been established in this court's prior decision that AKA's Certificate of Delivery, which was delivered to Chase on March 1, 1999, was but one aspect of delivery, and did not, in itself, signify that Delivery had occurred.
"'The best evidence of what parties to a written agreement intend is what they say in their writing' (citation omitted)." Greenfield v. Philles Records, Inc., 98 NY2d 562, 569 (2002). "Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Id. It is this court's determination that the Interparty Agreement is unambiguous in requiring the delivery of all of the Delivery Items prior to March 1, 1999 in order to constitute Delivery. Consequently, the failure to deliver any of the specific items by the Delivery Date would result in a failure of Delivery under both the Interparty Agreement and the Policy.
The undisputed evidence establishes that, at the very least, the following items required by the Interparty Agreement were not delivered by the Delivery Date: a laboratory access letter from Deluxe Laboratories (although a laboratory access letter was apparently delivered by March 17, 1999); a laboratory access letter from Four Media, a company involved in post-production work on the Project; a complete video master with correctly synchronized sound elements, a problem which was still uncorrected by Four Media Company in April 1999; the 35mm printmaster, which was not vaulted at Film Bond Services, Inc., a company responsible for storing various film elements, until after March 1, 1999; and a laboratory access letter from Film Bond Services, Inc.
An unexecuted laboratory access letter from Four Media, dated February 1999, has been produced, but is inadequate to fulfill the role of an executed letter.
Chase's insistence that access to the elements could have been obtained earlier than the laboratory access letters themselves, or if Echo had made such a request, does not erase the express contractual requirement that these items be in AKA's hands on or before the Delivery Date. Further, Chase's argument that any of these failures of Delivery might be considered to be so minor or immaterial, as to be forgivable under the Interparty Agreement and the Policy, is not well taken, since the language of these agreements requiring full Delivery is unequivocal.
This court does not find Chase's reliance on the case of Silicon Valley Bank v. New Hampshire Insurance Co. ( 203 F Supp 2d 1152 [CD California 2002]) ( Silicon Valley), determining that immaterial breaches of a similar Interparty Agreement do not require forfeiture of an insurance policy, to be justified, despite the similarities between that case and the present one.
In Silicon Valley, New Hampshire, as insurer, issued a Contingent Loss of Revenue Policy, which is very similar to the Policy in the present case, to the plaintiff bank. The Silicon Valley policy also insured the risk of the bank's failure to reap a return on a loan to fund a motion picture, and contained clauses similar to those contained in the Policy herein.
The California court found, in sum, and under California law, that the language in that policy's General Conditions section, which stated that no claim could be made under the policy if delivery, as defined in a similar interparty agreement, was not made, was ambiguous in the context of the entire policy. The California court also interpreted a "variations clause," similar to the one in the present Policy, to allow "minor, immaterial departures" in delivery. However, the court did not define these departures, but merely said that they had occurred. The court also said, somewhat ambiguously, that the parties to the underlying agreements "all concurred that 'delivery' had occurred, as illustrated by Plaintiff's evidence." Silicon Valley, 203 F Supp 2d at 1158.
This court does not see the ambiguity in the plain language of the present Policy, which calls for Delivery, as defined in the Interparty Agreement, before a claim can be made. There also does not appear to be evidence to create a question of fact that, under the terms of the Interparty Agreement, the failures in Delivery, as delineated above, were immaterial or unimportant to the parties. Chase's conclusory allegations that the deficiencies in Delivery must be considered immaterial or minor are not sufficient to defeat summary judgment. Zuckerman v. City of New York, 49 NY2d 557, supra; Castro v. New York University, 5 AD3d 135 (1st Dept 2004). Therefore, this court, which is not bound by the California decision, is not persuaded that Delivery occurred in the present matter.
In another attempt to invoke a right to be excused from allegedly immaterial flaws in Delivery, Chase invokes Insurance Law § 3106, claiming that the Completion Clause in the Policy is a warranty. However, the Completion Clause's requirement that Delivery of all of the enumerated Delivery Items must occur before a loss may be recoverable under the Policy is more akin to a condition precedent than it is to a warranty under this section of the Insurance Law.
A condition precedent is "'an act or event . . . which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises' [citation omitted]." Oppenheimer Co., Inc. v. Oppenheim, Appel, Dixon Co., 86 NY2d 685, 691 (1995). An express condition precedent, as in the present case, must be "literally performed," and is not satisfied by substantial compliance. Id.; see also Preferred Mortgage Brokers, Inc. v. Byfield, 282 AD2d 589 (2d Dept 2001). In contrast, a warranty, under Insurance Law § 3106(a), is
any provision of an insurance contract which has the effect of requiring, . . . as a condition precedent of the insurer's liability thereunder, the existence of a fact which tends to diminish, or the non-existence of a fact which tends to increase, the risk of the occurrence of any loss, damage, or injury within the coverage of the contract.
The Completion Clause, which contains the Delivery conditions required for completion of the insurance contract, is not a "fact" as described in Insurance Law § 3106, it is a set of events, the occurrence of which must precede coverage, i.e., conditions precedent. Consequently, Insurance Law § 3106 is inapplicable.
Chase also raises, in conclusory fashion, the doctrines of waiver and estoppel as grounds for summary judgment in its favor, because, allegedly, defendants waited until Chase commenced the present action before raising the defense that Delivery had not been completed. In doing so, Chase insists that it did not have any obligation to "marshal the evidence that Delivery occurred" (Chase's Memorandum of Law, at 24, n 13), as required under the Policy. However, Chase has failed to explain why the insurers, rather than the insured, would have the obligation to investigate whether the conditions of the Interparty Agreement had been complied with prior to a claim being made, and the court finds the suggestion to be without merit. Chase has failed to show a waiver on the part of defendants by their intentional relinquishment of a "known right" in waiting to assume their defense ( see Gilbert Frank Corp. v. Federal Insurance Co., 70 NY2d at 968), and such intention cannot be "lightly presumed." Id.; see also Goudie v. State of New York, 291 AD2d 432 (2d Dept 2002). Nor has Chase established an estoppel. "An estoppel 'rests on the word or deed of one party upon which another rightfully relies and so relying changes his position to his injury' [citation omitted]." Nassau Trust Company v. Montrose Concrete Products Corp., 56 NY2d 175 (1982). Chase does not explain, or offer evidence to establish, how it rightfully relied on any word or deed of defendants in relation to the completion of Delivery, except to make the conclusory and doubtful claim that defendants, rather than itself, were somehow required to assure that Delivery was completed on time. Consequently, there is no basis to estop defendants from pursuing the defense that Delivery did not occur.
As a result of the foregoing, it is this court's determination that complete Delivery of the elements contained in the Delivery List was not accomplished by the Delivery Date, and that, as a result, Delivery did not occur.
Defendants also argue that Delivery did not occur by the Delivery Date because the picture was not given its "R" rating by the Motion Picture Association of America (MPAA) until years after the Delivery Date. However, the Interparty Agreement only required that the picture "qualify for a rating by the [MPAA] not more restrictive than an "R" by the Code and Rating Administration of such Association." Aff. of Bakal, Ex. 3. There is no reason to assume that the picture did not "qualify" for such a rating when it was completed, before the rating was actually assigned. In fact, it is more reasonable to believe that it did.
Chase next argues that Delivery was accomplished under section 2.1(b) of the Interparty Agreement, so as to entitle it to summary judgment. Under section 2.1(b), "[t]he first commercial exploitation or exhibition of the Picture by any licensee of [Echo] that received delivery from AKA shall be deemed acceptance of Delivery of the Picture by AKA on behalf of [Echo]. . . ." It is undisputed that "Looking for an Echo" was played in seven movie theaters in New York and New Jersey on November 10, 2000, and in one theater in Los Angeles on December 8, 2000, which was owned by Regent Worldwide, Inc. before it was released on video and DVD, and on cable television. The parties dispute whether this limited release amounted to "commercial exploitation" under the Interparty Agreement.
By this time, AKA had been replaced as sales agent for Echo by Regent Worldwide, Inc.
There also appears to be a question as to whether Regent Worldwide, Inc. was a "licensee" of Echo at the time that "Looking for an Echo" opened in theaters.
The Interparty Agreement fails to define "commercial exploitation." However, whether or not "Looking for an Echo" was commercially exploited in 2000, pursuant to section 2.1(b), so as to constitute Delivery under the Interparty Agreement, appears to be a moot question.
The Policy clearly states that only one claim can be made thereunder. Policy, at 4. When the parties agreed to an outside Claim Date of January 1, 2000, as has already been determined, they essentially decided that any Delivery under section 2.1(a) or 2.1(b) would have to occur before that date. In this case, the film's commercial exploitation (if it occurred at all), did so after the outside Claim Date had already passed. Therefore, section 2.1(b) of the Interparty Agreement, and its definition of Delivery therein, under the parties' amendment to the Policy, could only apply to commercial exploitation which occurred prior to January 1, 2000.
As a result, the eventual limited release of "Looking for an Echo" in November 2000 does not create an issue of fact as to whether Delivery occurred. In consequence, Chase's motion for summary judgment must be denied, and New Hampshire's cross motion for summary judgment dismissing the complaint granted.
B. Kurta and Echo's Motion for Summary Judgment
In the third-party action, New Hampshire, as relevant here, sues Kurta and Echo for fraudulent inducement and negligent misrepresentation, claiming that but for the misrepresentation of these parties as to the true production budget for the project, New Hampshire would not have issued the Policy to Chase. Kurta and Echo move for summary judgment dismissing the third-part complaint as to them.
A cause of action against Kurta and Echo sounding in negligence was dismissed by this court in a previous decision.
New Hampshire brings its third-party action against a host of other parties as well, alleging numerous causes of action. This Court will follow the paries practice of referring to these claims as cross-claims, although some or all may be, in fact, counter-claims.
New Hampshire claims that it has evidence that the final production budget for "Looking for an Echo" was actually less than the $2,940,000 represented to it by Echo, and that this alleged misrepresentation was part of a fraudulent scheme by Kurta, Echo, and Chase to procure insurance for repayment of the loan, upon which New Hampshire relied in agreeing to insure Chase for over $4 million. Based on this claim, New Hampshire seeks to deny coverage, and also seeks recision of the Policy.
New Hampshire grounds its claim of a fraudulent scheme on a letter which Kurta and Echo wrote to the Screen Actors' Guild (SAG) on March 9, 1998, claiming that the production budget would be $1.7 million. New Hampshire, in its Memorandum of Law in opposition to the motion, claims that the final production budget was, in fact, only $1.7 million. Id. at 2.
As has been earlier stated, the party bringing a motion for summary judgment has the burden to make a prima facie showing of entitlement to judgment as a matter of law. Gilbert Frank Corporation v. Federal Insurance Company, 70 NY2d 966, supra. To this end, Kurta and Echo produce the affidavit of Paul Kurta, principal of Echo, asserting that the proposed budget of $2.94 million was, indeed, accurate, and that, in fact, the final cost of the Project actually exceeded this amount.
Kurta explains that he did send a letter to one Susan Lowry of SAG referring to a proposed production budget of $1.7 million, but that he was down-playing the proposed production budget in order to induce SAG to accept the smallest possible foreign residuals bond that Echo would have to post in order to allow the Project to proceed. In short, as New Hampshire points out, Kurta admits that he was misrepresenting the amount of the production budget for "Looking for an Echo" to SAG in the March 1998 letter.
New Hampshire insists that Kurta's affidavit cannot be used as the basis for summary judgment, because it raises issues of Kurta's credibility, and credibility issues should not be resolved on a motion for summary judgment. See Rivera v. 2160 Realty Co., L.L.C., ___ AD3d ___, 2004 WL 2002537 (1st Dept 2004). However, Kurta has never told conflicting stories concerning the final $2.9 million production budget presented to New Hampshire, and has never stated in sworn deposition testimony, or in a conflicting affidavit, that the final production budget was $1.7 million. Thus, his affidavit does not raise credibility issues, much less issues of perjury, as New Hampshire suggests, concerning the $2.9 million budget presented to Chase and New Hampshire, nor as to the final production amount.
Kurta, in his deposition, testifies that the final budget was $3,181,711, based on a production cost summary prepared by an unidentified independent accountant.
Kurta and Echo also produce a letter from one Florian G. Schereck, attesting to the correctness of the projected $2.94 million production budget, and the actual cost overrun of $241,302. However, this letter is not in admissible form, as it is not an affidavit, and is unsworn. Movants' attempt to rectify this error by producing a sworn affidavit from Mr. Schereck, containing information as to his qualifications, and repeating the information concerning the numerous documents which he had reviewed concerning the veracity of the $2.94 million figure.
However, this affidavit comes too late, as the affidavit submitted by Kurta and Echo with their reply papers may not be considered, since it "'sought to remedy . . . basic deficiencies in [their] prima facie showing rather than respond to arguments in [the] opposition papers' (citation omitted)." Power Cooling, Inc. v. Wassong, ___ Misc 3d ___, 2004 WL 1769211 *1 (App Term 1st Dept 2004) (citation omitted).
Despite this lapse, Kurta and Echo, by presenting Kurta's affidavit, have produced evidence sufficient to set forth a prima facie right to summary judgment, shifting the burden to New Hampshire to come forward with evidence in admissible form sufficient to create a question of fact as to the final production costs of the Project. Because New Hampshire has provided no evidence that the final production cost was misrepresented (i.e., was false), despite the letter to SAG, New Hampshire cannot claim that it was fraudulently induced to issue the Policy to Chase. See Small v. Lorillard Tobacco Company Inc., 94 NY2d 43 (1999) (a prima facie case of fraud requires a showing of representation of material fact, falsity, scienter, reasonable reliance, and damages). See also Urquhart v. Philbor Motors Inc., 9 AD3d 458 (2d Dept 2004).
Nor has it established a claim for negligent misrepresentation, which requires a showing that a special relationship existed between the parties. See Fresh Direct LLC v. Blue Martini Software, Inc., 7 AD3d 487 (2d Dept 2004); Glanzer v. Keilin Bloom LLC, 281 AD2d 371 (1st Dept 2001). No such special relationship has been shown to exist.
C. Chase's Motion to Dismiss Cross Claim
Finally, as pertinent to this motion, Kurta and Echo have brought a cross claim against Chase sounding in contribution, should Kurta and Echo be found liable for misrepresenting the size of the production budget to New Hampshire. Since Chase's third-party action has been dismissed, the cross claim has been rendered moot, along with the present motion.
III. Conclusion
Because New Hampshire has established, by a presentation of admissible evidence, that Delivery of all of the Delivery Items did not occur under the terms of the Interparty Agreement and the Policy, it is entitled to summary judgment dismissing the complaint. New Hampshire has failed to establish its right to summary judgment on its third-party claims for fraud and negligent misrepresentation against Kurta and Echo, so as to require the dismissal of its third-party action against these parties. Finally, Kurta and Echo's cross claim for indemnification against Chase must be dismissed as moot.
Accordingly, it is
ORDERED that Chase Manhattan Bank's motion for summary judgment (mot. seq. 015) is denied; and it is further
ORDERED that New Hampshire Insurance Company's cross motion to dismiss the complaint is granted, and the complaint is hereby dismissed, with costs and disbursements to New Hampshire as determined by the Clerk of the Court; and it is further
ORDERED that the motion brought by Paul J. Kurta and Echo Productions, Inc. to dismiss the third-party complaint (mot. seq. 016) is granted, and the third-party complaint is hereby dismissed, with costs and disbursements to these parties as directed by the Clerk of the Court; and it is further
ORDERED that the motion brought by Chase Manhattan Bank to dismiss the cross claim brought by Kurta and Echo (mot. seq. 017) is denied as moot; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.