Airweld, Inc. v Medical Gases, Inc.

[*1] Airweld, Inc. v Medical Gases, Inc. 2006 NY Slip Op 51782(U) [13 Misc 3d 1211(A)] Decided on September 19, 2006 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 19, 2006
Supreme Court, Nassau County

Airweld, Inc., Plaintiff,

against

Medical Gases, Inc., d/b/a MEDIGAS; MEDIGAS, LLC, HARRY RUDDY, CONVA-AIDS INCORPORATED, H&M MEDICAL EQUIPMENT, d/b/a NEW YORK HOME HEALTH CARE EQUIPMENT, NEW YORK HOME HEALTH CARE EQUIPMENT, LLC AND, DEFENDANTS "DOE" 1 THROUGH "10", INCLUSIVE, Defendants.



14551-03



COUNSEL FOR PLAINTIFF

Platzer, Swergold, Karlin, Levine, Goldberg & Jaslow, LLP

1065 Avenue of the Americas

New York, New York 10018

COUNSEL FOR DEFENDANT

Walter Black, Esq.

98 Cutter Mill Road

Great Neck, New York 11021

Leonard B. Austin, J.

Plaintiff Airweld, Inc. ("Airweld") moves pursuant to CPLR 3212 for summary judgment against Defendants Medigas, LLC ("Medigas") and Medical Gases, Inc. d/b/a Medigas ("Medical Gases").

BACKGROUND

Airweld is engaged in the business of selling and distributing industrial and specialty gases, including nitrogen, oxygen, argon, helium and hydrogen.

In May 2000, Airweld entered into an agreement with Medical Gases. The agreement provided for the sale of a customer route consisting of physicians, hospitals, clinics, laboratories and other health care providers which purchased Plaintiff's industrial gas products on a regular or continuing basis ("Customer Purchase Agreement").The Customer Purchase Agreement was coordinated with and conditioned upon the simultaneous execution of two additional contracts; to wit: one with Medical Gases for the purchase of Plaintiff's industrial gases ("Product Agreement"), and the other with Medigas for the lease of high pressure or liquid cylinders to store those gases ("Lease Agreement"). The leased cylinders were located on the premises of the Purchase Agreement customers.

A letter from Medical Gases, dated January 30, 2001, modified both the Customer Purchase Agreement and the Lease Agreement ("Modification Letter"). The Modification Letter, which was executed by Keith Redding ("Redding"), as President of

Medical Gases, referred to Medical Gases, the purchaser of the customer list, and to

Medigas, the lessee of cylinders, as "we" and "our". The Modification Letter made no distinction between the separate legal entities of Medical Gases, Inc. and Medigas LLC. In relevant part, according to Redding's deposition testimony, the Modification Letter reduced the number of cylinders leased to Medigas as a consequence of reducing the number of customers transferred; some of whom were non-existent or no longer purchasing gas products from Airweld at the time of the transfer.

DISCUSSION [*2]

A.First Cause of Action Breach of Lease Agreement

Airweld seeks summary judgment based upon the admissions of the principals of Medical Gases and Medigas at their deposition. The first cause of action asserts a breach of the Lease Agreement by Medigas for failure to make monthly lease payments commencing in December 2001.At his deposition, Redding admitted that the payments were stopped due to a lack of funds.

The only defense asserted against the alleged breach of the Lease Agreement is a claim for reformation of the Modification Letter on the basis of mutual mistake. Medigas now claims that the number of cylinders was reduced by 60% and the monthly payments should have been adjusted by the same percentage.

Medigas offers no explanation why it continued to make payments under the Letter Modification for almost one year without question or protest. It offers no evidence that it made a claim of mistake, mutual or otherwise, before this litigation.

Such circumstances, coupled with the heavy burden of proof on a claim for reformation, mandate granting summary judgment in favor of Airweld with respect to the Lease Agreement.

A party seeking to reform an agreement based upon mutual mistake must produce clear and convincing evidence. Ross v. Food Specialties, 6 NY2d 336 (1959). Medigas has produced no evidence to support its allegation of mutual mistake. Its conclusory allegation is insufficient to defeat summary judgment. "Where a written agreement between sophisticated, counseled businessmen is unambiguous on its face, one party cannot defeat summary judgment by a conclusory assertion that, owing to mutual mistake . . . the writing did not express his own understanding of the oral agreement reached during negotiations." Chimart Assocs. v. Paul, 66 NY2d 570, 571 (1986).

Accordingly, Airweld is entitled to summary judgment as against Medigas on the first cause of action.

B.Second Cause of Action Breach of Product Agreement

Airweld avers that Medical Gases failed and refused to purchase medical gases

in accordance with the terms of the Product Agreement. Medical Gases contends that it complied with the Product Agreement, which states, in relevant part, at paragraph 9:

From time to time, AIRWELD shall have the right to increase the price(s) ... by giving the Purchaser written notice. Such increased price (5) shall become effective fifteen (15) days after the date of said notice. . . provided, however, that (i) Purchaser, within fifteen (15) days after the date of said notice, furnishes AIRWELD with a bona fide, firm written offer from a responsible seller offering to sell Purchaser comparable Product in like quantities, under similar conditions and at a lower price, and (ii) if within fifteen (15) days thereafter, AIRWELD shall not agree either (a) to meet such lower price, or (b) to reinstate the price(s) in effect at the time of said notice of revision, whichever is higher, purchaser shall have the right to cancel this Agreement only with respect to such product by giving AIRWELD written notice of its election to do

so . . .

Pursuant to that provision, Airweld sent a notice to Medical Gases that it was [*3]increasing its price for oxygen from $0.31 per hundred cubic feet to $0.36 per hundred cubic feet. Medical Gases furnished what it purported to be a bona fide price quote from Metropolitan Gas Technologies ("Metropolitan") "to sell medical oxygen which it is purchasing from AGA, to Medical Gases, for a price of $0.32 per hundred cubic feet." Airweld rejected the Metropolitan quote stating that the offer was not bona fide as it came from a company owned by Harry Ruddy, the majority shareholder of Medical Gases.

Medical Gases contends that the bona fides of the price quote constitute a question of fact. Airweld contends the offer is not a bona fide offer as a matter of law. The Court agrees.

There are no factual questions regarding the status of Metropolitan Gas Technologies or its relation to Defendant Harry Ruddy ("Ruddy"). It is owned by Ruddy. His deposition testimony indicates that he treated Metropolitan as his alter-ego. He testified that Metropolitan was formed "about the same time" as Medical

Gases, that it was solely under his control, and that it had no function other than to sell oxygen to Medical Gases, Inc. At his deposition, Ruddy testified:Q. Has it [Metropolitan] sold product toanyone but Medical Gases Inc. ?

A. No.

Q. Does it have any other business?

A. No.

Q. Does it - -

A. Anything else it ever did was trivial,incidental. I am not aware of.

Q. So its sole purpose was to buy oxygenfrom AGA and sell it to Medical Gases,Inc.?

A. That is not the sole purpose. That is thesole thing it does.

Q. What is its other purpose?

A. Whatever I want it to do.

Ruddy also testified that Metropolitan sold oxygen to Medical Gases without making any profit from the sale. Thus, the purported bona fide quote is the equivalent of a quote from Harry Ruddy, a principal/majority shareholder of Medical Gases, at a price which does not allow for profit. Clearly, a price offer which is not arm's length or from a third party and which foregoes profit to reach the price provided is not a bona fide offer. At the very least, a bona fide offer must be arm's length and issue from a [*4]third party. See, Blake v. Blake Agency, 107 AD2d 139, 146 (2nd Dept.), app. den.,

65 NY2d 609 (1985)(regarding closely held corporate stock sales). See also, Barbour v. Knecht, 296 AD2d 218, 219 (1st Dept. 2002) (bona fide transaction involves third party). Indeed, Paragraph 1 of the Product Agreement calls for the bona fide offer to come from a third party. Accordingly, Medical Gases did not comply with the requirements for a bona fide price quote under the Product Agreement. It cannot rely upon same to avoid the Airweld price increase.

Medical Gases' alternative claim that it was entitled to purchase oxygen from another supplier without complying with Paragraph 9 of the Product Agreement must also be rejected. Medical Gases avers that the Customer Purchase Agreement permits unilateral cancellation of the Product Agreement when the price charged by Airweld is ten (10%) percent higher than that of a competitor's product.

The relevant provision of the Customer Purchase Agreement is Paragraph 10 which states that the non-competition and restrictive covenant portions of the Customer Purchase Agreement are predicated upon the parties' agreement that the Buyer shall

purchase "the gases it shall require to service the needs of all" of its customers, "so long as the Seller's prices for such gases are competitive with the market price for such gases as charged by other suppliers." Competitive price is defined as "not more than ten (10%) percent above that of other distributors of the same gases". Thus, the provision requires, as a basis for the parties' agreement not to compete with each other in the sale of medical and industrial gases, that the purchaser satisfy its customers' product needs by purchase of such product from the seller at a competitive price.

The foregoing provision does not, however, state that the purchaser may cease purchasing product if the seller's price exceeds the ten (10%) percent limit. Therefore, it is not in conflict with the Product Agreement which specifically defines the process for addressing price increases. Presumably, if Airweld's price increase rendered its price 10% higher than that of competitors, the securing of a competitor's bona fide lower price quote would not require great effort. Thus, the provisions of the two agreements are in harmony.

"When the language of a contract is unambiguous, a court will enforce its plain meaning rather than rewrite the agreement, and its meaning may be determined as a matter of law on the basis of the writing alone without resort to extrinsic evidence." H. Fox & Co., Inc. v. Blumenfeld, 24 AD3d 722 (2nd Dept. 2005). The Court finds no conflict between the two provisions. The related contracts are not ambigous or contradictory. As a matter of law, the price matching mechanism triggered by a price

increase requires the purchaser to give the seller an opportunity to meet any lower bona fide price offer, including when the price increase renders the seller's price 10% higher than those of its competitors. Otherwise, the defined bona fide price matching mechanism would be rendered "without force and effect", a result which the court endeavors to avoid. Snug Harbor Square Venture v. Never Home Laundry, 252 AD2d 520, 521 (2nd Dept. 1998). [*5]

The Court also rejects Ruddy's disingenuous and artfully phrased allegation in his affidavit in opposition to this motion that Airweld unilaterally stopped supplying all

other medical gases several months after Medical Gases breached its agreement to purchase oxygen. In his affidavit, Ruddy states, "Medical Gases . . . never told the Plaintiff not to sell or deliver Nitrogen, Argon, Helium and Hydrogen to Medical Gases, Inc.". Neither, however, does he aver that Medical Gases ordered any further Nitrogen, Argon, Helium or Hydrogen from Airweld. No unfilled purchase orders or other documentary evidence have been produced to demonstrate that Airweld refused to fill orders for the named gases, which it had continued to do without incident for a period of five months after Medical Gases breached it agreement to purchase oxygen. In short, Medical Gases has produced no admissible evidence to support Ruddy's claim. It has thus not met its burden in opposing Plaintiff's prima facie case. Alvarez v. Prospect Hosp., 68 NY2d 320, 326-327 (1986).

Medical Gases' final argument that Airweld abandoned its rights under the Product Agreement because it eventually sold the oxygen storage tank on Medical

Gases' premises to Medical Gases rather than remove it, is precluded by the Product

Agreement which requires a written waiver in order to bind Airweld. See, Application of Halpern, 155 Misc 2d 771, 774 (Sup. Ct. NY Co.1992).

As a result, Airweld's motion for summary judgment with respect to the second cause of action as against Medical Gases must also be granted.

C.Third Cause of Action Conversion

With respect to the third cause of action, Medigas has not disputed Airweld's claim that it demanded return of the cylinders. Accordingly, summary judgment with respect to the third cause of action sounding in conversion should be granted.

D.Affirmative Defenses

In addition to moving for summary judgment on its first, second and third causes of action, Airweld moves to dismiss Defendants' second, fourth, fifth, sixth and seventh affirmative defenses and its eighth affirmative defense/counterclaim.

1.Second Affirmative Defense

The second affirmative defense pleads that Airweld failed to plead fraud with specificity as required by CPLR 3016(b). This affirmative defense lacks merit because Airweld has not plead any causes of action for fraud. Thus, it must be striken.

2.Fourth Affirmative Defense

The fourth affirmative defense asserts the parol evidence rule. This is a rule of evidence and not an affirmative defense. This rule bars the admission of any prior or contemporaneous oral agreements that allegedly modify or amend the terms of fully integrated written agreement. Rong Rong Jiang v. Tan, 11 AD3d 373 (1st Dept. 2004). Airweld is not seeking to modify or amend the terms of a written agreement. It is seeking to enforce the agreements as written. [*6]Thus, this affirmative defense is without merit and should be stricken.

3.Fifth Affirmative Defense

The fifth affirmative defense alleges the defendants cancelled the agreement. This Court has already found that the defendants did not cancel the agreement. Thus, this affirmative defense is without merit and must be stricken.

4.Sixth Affirmative Defense

The sixth affirmative defense relates to the conversion cause of action. Defendants allege that they offered to return the cylinders. However, despite this offer, the cylinders remain in their possession. Plaintiff's summary judgment on the conversion cause of action is being granted herein. Therefore, this affirmative defense is without merit and must be dismissed.

5.Seventh Affirmative Defense

The seventh affirmative defense alleges that actions are barred by the statute of limitations. The causes of action for breach of the Lease Agreement accrued in May 2001. The cause of action for conversion accrued in December 2001. This action was commenced in September 2003.

The statute of limitations for a cause of action for breach of lease is six years. CPLR 213(2). The statute of limitations for a cause of action for conversion is three years. CPLR 214 (3). This action was commenced within the applicable periods. Therefore, the affirmative defense is without merit and must be dismissed.

6.Eighth Affirmative Defense/Counterclaim

The eighth affirmative defense/counterclaim seeks reformation based upon mutual mistake or fraud. However, the agreement which Medigas seeks to reform is an agreement it prepared. This agreement reflects the full and complete understanding of the parties. Medigas has failed to place before the Court any evidence that the agreement does not contain the full agreement between the parties. Therefore, the defense/counterclaim is without merit and must be dismissed.

E.Conclusion

Although summary judgment is being granted herein on the first and second causes of action, such award can only be as to liability. Upon the trial of this matter, Airweld shall have the opportunity to establish its damages.

Accordingly, it is,

ORDERED, that Plaintiff's motion for summary judgment as against Defendants Medical Gases, Inc. and Medigas, LLC is granted as to liability only; and it is further,

ORDERED, that Defendants' second, fourth, fifth, sixth, seventh and eighth affirmative defenses are hereby stricken; and it is further,

ORDERED, that the assessment of Plaintiff's damages is referred to the trial of this matter; and it is further,

ORDERED, that the remaining claims are hereby severed and continued; and it is further, [*7]

ORDERED, that counsel shall appear for a status conference on October 25, 2006 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

September 19, 2006Hon. LEONARD B. AUSTIN, J.S.C.