Fetter et al v. Schink - Document 43
OPINION AND ORDER: Currently before the Court are (1) Defendant Rosalie Schinks ("Schink" or "Defendant") motion for summary judgment and (2) cross motions to strike. For the reasons that follow, the motion for summary judgment is granted and the cross motions to strike are denied as moot. For the foregoing reasons, Defendant's motion for summary judgment is granted as to 1 counts and the parties' cross-motions to strike are denied as moot. The Clerk of Court is directed to close the case. (Signed by Judge John F. Keenan on 10/1/2012) (ja)
Case 1:09-md-02013-PAC Document 57
Filed 09/30/10 Page 1 of 45
DOC #: _________________
DATE FILED: Oct. 1, 2012
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JOHN UNITED STATES DISTRICT COURT
FETTER, FETTER & HENDERSON
(PTY) LTD., and APPLIED TECHNOLOGY :
SOUTHERN DISTRICT OF NEW YORK
In re FANNIE MAE 2008 SECURITIES
08 Civ. 7831 (PAC)
09 MD 2013 (PAC)
No. 11 Civ. 6239 (JFK)
OPINION & ORDER
OPINION & ORDER
ROSALIE K. SCHINK,
HONORABLE PAUL A. CROTTY, United States District Judge:
For Plaintiffs John Fetter, Fetter & Henderson (Pty) Ltd,
and Applied Technology Limited:
JOHNSON & ASSOCIATES
The early years D.this decade saw a boom in home financing which was fueled, among
By: Bruce of Johnson
other things, by low interest rates K. lax credit conditions. New lending instruments, such as
For Defendant Rosalie and Schink:
LATHROP & GAGE LLP
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
By: William Hansen
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
JOHN F. KEENAN, United States District Judge:
assumption that the market would continue to rise and that refinancing options would always be
Currently before the Court are (1) Defendant Rosalie
available in the future. Lending discipline was lacking in the system. Mortgage originators did
Schink’s (“Schink” or “Defendant”) motion for summary judgment
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
and (2) cross motions to strike. For the reasons that follow,
originators sold their loans into the secondary mortgage market, often as securitized packages
the motion for summary judgment is granted and the cross motions
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
to strike are denied as moot.
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
and home prices began to fall. In light of the changing housing market, banks modified their
This is a breach of contract action, which was removed by
lending practices and became unwilling to refinance home mortgages without refinancing.
Defendant from state court to this Court. Plaintiffs John
Fetter, Fetter and Henderson Ltd., and Applied Technology
Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.
Limited (collectively, “Plaintiffs”) hold patents for single
point watering caps for controlled addition of water to lead
acid batteries. (Compl. ¶ 8).
Defendant Schink is the widow of
Robert Morris (“Morris”), founder of Watermaster of America,
Inc. (“Watermaster”), a company that sold battery watering
systems from its incorporation in 1984 until it filed for
bankruptcy in 2007.
(Def.’s Rule 56.1 Statement ¶ 5).
From 1986 through 2006, Plaintiffs delivered bulk packages
of its watering caps to Watermaster, which Watermaster resold.
(Compl. ¶ 8).
Plaintiff Applied Technology Limited (“ATL”)
No written agreement was ever executed by the
parties. (Def’s Rule 56.1 Statement ¶¶ 24-25).
Plaintiffs, the parties had an implied contract under which
Watermaster would resell Plaintiffs’ patented watering caps
within a certain geographical territory, which comprised the
United States, Canada, and Mexico. (Compl. ¶ 8).
Morris operated Watermaster out of his residence, which he
shared with Schink.
Schink worked for Watermaster in various
capacities, without pay, during the 1980s, and started receiving
compensation for her work during the 1990s.
Morris in 2004 and became an officer of Watermaster one month
before Morris’s death, in 2005. (Id. at ¶¶ 21-23).
Following Morris’s death, Schink operated Watermaster out
of their home for two years, but by June 2007 poor sales forced
her to wind down the business. (Def’s 56.1 Statement at ¶ 32).
On June 22, 2007, ATL filed an action in New York State court
against Watermaster for $611,130 in unpaid invoices.
action was removed to the Southern District and came before
Judge Swain. Applied Tech. Ltd. V. Watermaster of America, 07
Watermaster filed for Chapter 7 bankruptcy on July
16, 2009, causing Judge Swain to stay the 2007 action.
Ultimately, on January 19, 2012, Judge Swain dismissed the case
upon the conclusion of the bankruptcy proceeding. Id.
Plaintiffs now bring the instant action against Schink,
alleging that she is personally liable for Watermaster’s
$611,130 in unpaid invoices by virtue of the fact that she
“entered into a joint venture” with the company.
claims for relief:
They raise six
(1) breach of contract for unpaid invoices,
(2) breach of contract for exceeding the geographical scope of
the joint agreement by reselling bulk packages in Australia and
Germany, (3) breach of contract for refusing to relinquish the
geographic territory of North America, (4) breach of the implied
covenant of good faith and fair dealing, (5) unjust enrichment,
and (6) common law fraud.
At oral argument, Plaintiffs withdrew
their claim for unjust enrichment. (Tr. of Sept 6, 2012 at 1314).
The Court will only address the five remaining claims.
Because the relevant discovery was conducted in connection
with the bankruptcy proceeding and the case before Judge Swain,
the instant summary judgment motion was filed and briefed
without any significant discovery.
Indeed, at oral argument,
Plaintiffs represented that the discovery in the previous cases
yielded sufficient evidence for the Court to decide these
motions. (Tr. of Sept 6, 2012 at 12-13).
A. Summary Judgment Standard
Summary judgment is warranted when “there is no genuine
issue as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a).
party bears the burden of demonstrating the absence of a genuine
issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317,
A genuine issue exists for summary judgment
purposes “where the evidence is such that a reasonable jury
could decide in the non-movant’s favor.” Beyer v. County of
Nassau, 524 F.3d 160, 163 (2d Cir. 2008)).
determining whether such factual issues exist, the Court must
“construe the facts in the light most favorable to the nonmoving
party and must resolve all ambiguities and draw all reasonable
inferences against the movant.” Dallas Aerospace, Inc. v. CIS
Air Corp., 352 F.3d 775, 780 (2d Cir. 2003).
is appropriate when the non-moving party has no evidentiary
support for an essential element for which it bears the burden
of proof. Celotex, 477 U.S. at 322–23.
“The mere existence of a
scintilla of evidence in support of the [nonmovant’s] position
will be insufficient; there must be evidence on which the jury
could reasonably find for the [non-movant].” Hayut v. State
Univ. of N.Y., 352 F.3d 733, 743 (2d Cir. 2003) (alterations in
Claims One Through Four: Breach of Contract
To obtain relief for counts one through four, which all
sound in breach of contract, Plaintiffs must establish (1) that
Schink entered a joint venture with Watermaster and (2) that
Plaintiffs entered into a valid contract with Watermaster in
Absent these findings, Schink cannot be held personally
liable for breach of contract.
Plaintiffs concede that there is no written joint venture
agreement between Watermaster and Schink, but point to evidence
of Morris’s and Schink’s conduct to support their theory of an
implied joint venture agreement.
First, they note that Morris
made arrangements for the continuation of Watermaster after his
death, including appointing Schink the “corporate secretary” of
Watermaster and naming her the principal beneficiary of his
As a result, Schink’s compensation drastically
on March 29, 2005, Morris approved a payroll check
in the amount of $21,992.72, despite having paid her only
$7,221.20 for her services in the prior quarter. (Pl. Rule 56.1
Opp. ¶ 23). Second, Plaintiffs argue that they have identified a
series of “capital contributions,” that are consistent with
Schink and Watermaster’s joint venture:
she used her residence
as the base of operations of the company, donated her car and
her parking space to aid in the promotion and distribution of
Watermaster’s products, used her father’s residence for free
storage of Watermaster files, and contributed her computer
skills and knowledge of the business. (Id. at ¶¶ 34-38).
Plaintiffs argue that these “contributions,” when coupled
with the fact that Schink shared in the profits and losses of
Watermaster while not observing corporate formalities,
establishes that she entered into a joint venture with
Watermaster in 2005. (Id.).
To further support their assertion
that Schink shared profits, Plaintiffs note that Schink has
stated that she determined her compensation based upon “what was
left over that would not impact the business.” (Schink Aff. At
Plaintiffs state that in the two years after Morris’s
death, “the ratio between [Schink’s] salary and Watermaster’s
gross sales receipt mushroomed.”
In order to establish a joint venture under New York law,
“(1) two or more persons must enter into a specific agreement to
carry on an enterprise for profit; (2) their agreement must
evidence their intent to be joint venturers; (3) each must make
a contribution of property, financing, skill, knowledge, or
effort; (4) each must have some degree of joint control over the
venture; and (5) there must be a provision for the sharing of
both profits and losses.” ITEL Containers Int’l Corp. v.
Atlanttrafik Exp. Serv., Ltd., 909 F.2d 698, 701 (2d Cir. 1990).
“The absence of any one of these elements is fatal to the
establishment of a contract.” Zeising v. Kelly, 152 F. Supp. 2d
335, 347-48 (S.D.N.Y. 2001).
As to the first two requirements, while there need not be
an explicit agreement between parties, they must be clear that
they intend to form a joint venture.
Precision Testing Labs. v.
Kenyon Corp., 644 F. Supp. 1327, 1349 (S.D.N.Y. 1986).
there is simply no evidence to suggest that the parties joined
their property, interests, skills, and risks with the intention
of becoming joint venturers.
Rather than demonstrating an
intent to form a joint venture, the evidence supports the
conclusion that Schink stepped into the role that her husband
occupied at Watermaster prior to his death.
salary increased concurrent with her responsibilities.
Plaintiffs’ joint venture theory is further weakened by the
overwhelming evidence that Watermaster was operated as a
corporation, with Morris at the helm until his death, at which
point Schink took control.
Schink has testified that she “took
up [Morris’s] mantle” after Morris passed away and was
compensated in the same way Morris was. (Schink Aff. at 14).
Moreover, other than issuing salary checks to Schink,
Watermaster did not cover any other personal expenses. (Id.).
Without evidence that Schink sought to abandon the corporate
form, the only reasonable conclusion is that Watermaster
continued to operate as a corporation, rendering it impossible
for a joint venture to arise.
“A joint venture and a
corporation are mutually exclusive ways of doing business.” Itel
Containers, 909 F.2d at 702 (citing Arditi v. Dubitzky, 354 F.2d
483, 486 (2d Cir. 1965)).
Similarly, Plaintiffs adduce no evidence to conclude that
Schink made “capital contributions” to Watermaster sufficient to
satisfy the third requirement of a joint venture.
purported capital contributions were part and parcel of
Watermaster since the company’s inception in 1984.
residence – which Schink shared with him until his death - was
always the base of operations for Watermaster. (Def. Rule 56.1
Statement ¶ 21).
Morris’s Pontiac, which Schink inherited, was
always used to distribute Watermaster’s products.
space also passed to Schink in Morris’s will and was always
occupied by the Pontiac. (Id. at 22).
She even used her
computer skills when she volunteered for the company in the
1980s. (Id. at 20, Schink Aff. at 8).
Rather than establish the
existence of a joint venture, this evidence merely confirms that
Schink continued the business as Morris had run it before his
death. See Greenburg v. Ladicorbic, 606 N.Y.S.2d 227, 228 (1st
Dept. 1994) (“Inasmuch as the various items of relief are all
premised on the existence of a partnership between herself and
the individual defendant, summary judgment should have been
granted in the absence of any evidence tending to show that
plaintiff contributed to the capital of the alleged partnership,
or was to share in its losses.”) Kyle v. Brenton, 584 N.Y.S. 2d
698, 699 (4th Dept. 1992) (“Further, the undisputed evidence
that defendants never made a capital contribution to the
business strongly suggests that no partnership existed.”)
Furthermore, Schink’s use of her father’s
basement for the storage of Watermaster’s records is
insufficient to satisfy this element. See Rivkin v. Reese, 95
Civ. 6332, 1997 WL 639239 at *4 (S.D.N.Y. Oct. 16, 1997)
(holding that vague allegations of “small cash outlays” are
insufficient to constitute a capital contribution for the
purpose of a joint venture).
Finally, Plaintiffs have presented no evidence to give rise
to the conclusion that Schink and Watermaster intended to share
profits and losses.
To prove this element, Plaintiffs merely
point to evidence that Schink’s compensation increased after
Morris’s death, and the percentage of gross sales she paid
herself increased annually from 2005 to 2008.
possibly be construed as “providing for the sharing of profits
and losses among the parties.” Zeising v. Kelly, 152 F. Supp. 2d
335, 348 (S.D.N.Y. 2001). Indeed, “the fact that an individual
may receive a share of the profits is not dispositive, since all
of the elements of the relationship must be considered,”
including whether the alleged agreement contained a provision
for sharing losses as well.
Therefore, the fifth requirement is
Maalin Bakodesh Soc’y, Inc. v. Lasher, 301 A.D.2d 634,
634 (N.Y. App. Div. 2001) (“[I]t is well-settled that an
assertion that there was an agreement to distribute the proceeds
of an enterprise on a percentage basis does not suffice to
establish the existence of a joint venture.”).
Additionally, Plaintiffs have presented no evidence to
demonstrate that Schink even impliedly assented to share the
losses of Watermaster, which is an indispensable element of a
joint venture. See Zeising, 152 F. Supp 2d at 348-49 (“If there
was no agreement as to the manner in which the parties were to
share in the profits and the losses, the agreement did not
create a joint venture.”); Kosower v. Gutowitz, 00 Civ. 9011,
2001 WL 1488440, *6, (S.D.N.Y. Nov. 21, 2001) (“It is axiomatic
that the essential elements of a partnership must include an
agreement between the principals to share losses as well as
profits.” (internal quotations and citations omitted)).
Plaintiffs have adduced no evidence to conclude that Schink
entered into a joint venture with Watermaster.
if there were a valid contract between Watermaster and
Plaintiffs, as Plaintiffs suggest, Schink cannot be held liable
for its breach.
Accordingly, Plaintiffs cannot sustain any
claims stemming from their assertion that Watermaster breached
Claim Six: Common Law Fraud
Plaintiffs’ claim for common law fraud also rests on the
theory that Schink and Watermaster had embarked on a joint
venture. (Compl. ¶ 64).
As discussed above, such a theory is
untenable based upon the evidence.
Therefore, Plaintiffs’ sixth
claim also failed.
Even if finding a joint venture between Schink and
Watermaster were not a condition precendent to Plaintiffs’
common law fraud claim, it would still fail.
Under New York
law, “a cause of action sounding in fraud is not viable when the
only fraud charged relates to a breach of contract.”
notes that the only difference between Plaintiffs’ breach of
contract claim and fraud claim is that the fraud claim includes
the assertion that Schink never intended to be bound by her
contractual obligations with Plaintiffs. (Compl. ¶ 64).
Plaintiffs argue that the fraud claim is different from its
contract claims because:
(1) it includes a demand for an
additional $270,000 based upon the fact that Schink never
intended to pay Plaintiffs’ invoices and (2) it notes that
Schink did not have any intention of paying the invoices and
assured Plaintiffs that Watermaster was continuing its normal
operations up until one month before she filed for bankruptcy.
(Pl. Br. Opp. at 15).
Plaintiffs have not distinguished its common law fraud
claims from its breach of contract claims.
The mere fact that
the sixth claim asks for an additional $270,000 in damages and
includes the allegation that Schink never intended to pay
Plaintiffs does not distinguish this claim from the breach of
Where a fraud claim arises out of the same
facts as a breach of contract claim, with the addition “only of
an allegation that defendant never intended to perform the
precise promises spelled out in the contract between the
parties, the fraud claim is redundant and plaintiff’s sole
remedy is for breach of contract.” Telecom Int’l Am. Ltd. v.
AT&T Corp., 280 F.3d 175, 196 (2d Cir. 2001).
Plaintiffs cannot assert a claim for common law fraud.
For the foregoing reasons, Defendant's motion for summary
judgment is granted as to
1 counts and the parties' cross-
motions to strike are denied as moot.
The Clerk of Court is
directed to close the case.
New York, New York
October 1, 2012