Merrill Lynch v. Allegheny Energy, No. 05-5129 (2d Cir. 2007)
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05-5129-cv Merrill Lynch v. Allegheny Energy 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT _______________ August Term, 2006 (Argued October 30, 2006 Decided August 31, 2007) Docket No. 05-5129-cv _______________ Merrill Lynch & Co. Inc., Merrill Lynch & Capital Services, Inc., ML IBK Positions, Inc., Plaintiffs-Counter-Defendants-Appellees, v. Allegheny Energy, Inc., Allegheny Energy Supply Company, LLC, Defendants-Counterclaimant-Appellants. _______________ Before: CARDAMONE, WALKER, and RAGGI, Circuit Judges. _______________ Allegheny Energy, Inc. and Allegheny Energy Supply Company, LLC appeal the judgment entered August 26, 2005 in the United States District Court for the Southern District of New York (Baer, J.) awarding Merrill Lynch & Co. Inc., Merrill Lynch & Capital Services, Inc., and ML IBK Positions, Inc. $158 million on its contract claim and dismissing appellant's counterclaims. Affirmed in part, reversed in part, and remanded. _______________ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 _______________ KATHLEEN M. SULLIVAN, Redwood Shores, California (Daniel H. Bromberg, Daniel A. Zaheer, Quinn Emanuel Urquhart Oliver & Hedges, LLP, Redwood Shores, California; Peter E. Calamari, Sanford I. Weisburst, William B. Adams, Quinn Emanuel Urquhart Oliver & Hedges, LLP, New York, New York, of counsel), for Defendants-Counterclaimants-Appellants. STUART J. BASKIN, New York, New York (Jeremy G. Epstein, John Gueli, Shearman & Sterling LLP, New York, New York, of counsel), for Plaintiffs-Counter-Defendants-Appellees. _______________ 1 2 CARDAMONE, Circuit Judge: Allegheny Energy, Inc. (Allegheny, defendant or appellant) 3 and its wholly-owned subsidiary Allegheny Energy Supply Company, 4 LLC (Supply) appeal from a judgment of the United States District 5 Court for the Southern District of New York (Baer, J.) entered 6 August 26, 2005 awarding Merrill Lynch & Co. Inc., Merrill Lynch 7 & Capital Services, Inc., and ML IBK Positions, Inc. 8 (collectively Merrill Lynch or plaintiff) $158 million on its 9 contract claim against Allegheny and dismissing Allegheny's 10 11 counterclaims. The case arises out of Allegheny's acquisition of Global 12 Energy Markets (GEM), an energy commodities trading business 13 owned by Merrill Lynch, for the sum of $490 million plus a two 14 percent interest in Supply. 15 after the fall of Enron in 2001. 16 to perform its contractual commitment to contribute certain 17 assets to Supply, Merrill Lynch exercised its right to sell back 18 its interest in Supply at an agreed price of $115 million. 19 Litigation ensued when Allegheny questioned the accuracy of 20 Merrill Lynch's representations to it with respect to GEM, and 21 refused to honor Merrill Lynch's right to sell its interest in 22 Supply back to Allegheny. Market conditions spiraled downwards In 2002 when Allegheny failed 23 Some facts critical to the sale of GEM were peculiarly 24 within the knowledge of Merrill Lynch and not disclosed by it to 25 Allegheny. 26 in defendant's decision to purchase GEM. The lack of that information may have played a part 2 But, not knowing the 1 undisclosed facts means Allegheny could not accurately assess its 2 decision. 3 but from what we know?" 4 Epistle I -- Of the Nature and State of Man with Respect to the 5 Universe, in 40 The Harvard Classics, 418 (Charles W. Eliot ed., 6 1910). As Alexander Pope succinctly said "What can we reason, For that reason this judgment must be reversed in part. 7 8 9 Alexander Pope, An Essay on Man: BACKGROUND and FACTS This litigation involves two business entities that have a significant presence in the American economy. Allegheny is a 10 Pennsylvania-based energy company with more than 5,000 employees. 11 Merrill Lynch is a leading financial management company with 12 offices in 36 countries. 13 Supply, its wholly-owned subsidiary, through the acquisition of 14 an energy commodities trading company. 15 until that time acted as Allegheny's financial advisor, offered 16 Allegheny one of its trading desks, Global Energy Markets. 17 Serious negotiations concerning the acquisition of GEM by 18 Allegheny began in September 2000. 19 as Allegheny's financial advisor, Allegheny retained a new team 20 of sophisticated advisors. 21 22 A. Allegheny sought in 2000 to expand Merrill Lynch, which had When Merrill Lynch withdrew Financial Data on GEM Merrill Lynch prepared and delivered to Allegheny financial 23 data on GEM's performance and profitability. These financial 24 summaries covered September, October 2000, and January 2001, and 25 included profit and loss calculations on GEM's largest trading 26 asset, the Williams contract. The September and October 3 1 financial summaries were flawed in two notable respects: 2 data reflected substantially higher revenues and net income for 3 GEM than was reflected on Merrill Lynch's books and records, and 4 the reports were not prepared by Merrill Lynch's finance 5 department as required by its own internal regulations. 6 The GEM had a contract with Williams Energy Marketing & Trading, 7 a Southern California energy provider, giving GEM options to buy 8 electricity over a period of years. 9 recognized additional revenues of $32 million attributed to the The October financials 10 Williams contract. 11 of David Chung, an expert hired by Merrill Lynch to value the 12 Williams contract, that reflected a $10.5 million loss on the 13 contract, defendant challenged the integrity of the process by 14 which Merrill Lynch arrived at the $32 million figure. 15 Nonetheless, the district court credited Merrill Lynch's 16 explanation that Chung's lower valuation was rejected because his 17 methodology was improper under generally accepted accounting 18 principles. 19 When defendant discovered an earlier estimate In early January 2001, within days of the scheduled signing, 20 Merrill Lynch realized that the September and October summaries 21 contained significantly different numbers than those reflected on 22 Merrill Lynch's own books. 23 corrected at least some of the inaccuracies in the earlier 24 reports, but overstated earnings generated by operations other 25 than the Williams contract. 26 component of GEM was only of peripheral concern to the parties. On January 5, 2001 plaintiff It appears that the non-Williams 4 1 The January financials did not reflect $28 million in losses 2 incurred on the Williams contract. Merrill Lynch explained the 3 omission by reference to a company policy under which such losses 4 are reflected at the management level so that traders will not be 5 penalized for unpredictable fluctuations in assets like the 6 Williams contract. 7 disclosed to Allegheny in valuation spreadsheets prepared by 8 Chung. 9 data it informed Allegheny that the updated report should be The district court found these losses were When plaintiff's negotiating team delivered the January 10 substituted for the September and October summaries. 11 Lynch's partial explanation for the different figures was that 12 the January version reflected certain overhead costs that were 13 disregarded earlier. 14 financials and insisted that the deal proceed on the basis of the 15 September and October reports. 16 Merrill Allegheny asserts it rejected the new It is a significant factor in this litigation that Dan 17 Gordon, GEM's chief executive officer, played a large role in 18 Merrill Lynch's alleged fraud. 19 knowingly providing Allegheny with inaccurate information in the 20 September and October financials. 21 deal it was learned that Gordon had embezzled $43 million dollars 22 from Merrill Lynch by rigging a fraudulent contract for outage 23 insurance on the Williams contract with a sham company he owned 24 called Falcon Energy Holdings (Falcon). 25 and jailed for his criminal conduct. Gordon has since admitted to 5 After the closing of the GEM He was later convicted 1 Although there is no direct evidence that other officers at 2 Merrill Lynch knew of Gordon's embezzlement prior to the closing, 3 the record reveals some of plaintiff's officials were aware 4 Gordon had evaded its internal credit controls to set up the 5 Falcon deal and had lied about the evasion. 6 that Gordon had prepared the flawed September and October 7 financials, but seems to have believed that the inaccuracies were 8 the product of disapproved accounting methods, rather than 9 dishonesty. 10 Merrill Lynch failed to disclose any of these facts to Allegheny. 11 12 Plaintiff also knew B. The Purchase Agreement After four months of due diligence the parties signed an 13 Asset Contribution and Purchase Agreement (Purchase Agreement or 14 Agreement) on January 8, 2001. 15 acquired GEM paying Merrill Lynch $490 million in cash and giving 16 it a two percent membership interest in Supply. 17 the Purchase Agreement provided that if Allegheny failed to 18 contribute certain assets to Supply by September 16, 2002 Merrill 19 Lynch could require Allegheny to repurchase its interest in 20 Supply for $115 million. 21 Under the Agreement Allegheny Section 5.15 of Merrill Lynch agreed to several warranties in the Agreement 22 relating to the quality and nature of the information it had 23 provided Allegheny. 24 Selected Data has been prepared in good faith by the management 25 of the business based upon the financial records of the business. 26 The district court found the provision referenced the January Section 3.12(b) stated that the Business 6 1 financial data exclusively. In § 3.12(c), which the district 2 court found applicable to all of the disputed financial data, 3 Merrill Lynch represented the "books of account and other 4 financial records of [GEM] (i) are in all material respects true, 5 complete and correct, and do not contain or reflect any material 6 inaccuracies or discrepancies and (ii) have been maintained in 7 accordance with [plaintiff's] business and accounting practices." 8 Plaintiff agreed in § 3.16 that the information it provided to 9 Allegheny "in the aggregate, includes all information known to 10 the Sellers which, in their reasonable judgment exercised in good 11 faith, is appropriate for the Purchasers to evaluate [GEM's] 12 trading positions and trading operations." 13 "any and all right to trial by jury in any legal proceeding 14 arising out of or related to" the Purchase Agreement. 15 16 C. The parties waived Prior Proceedings In early September 2002 Allegheny reported that it would be 17 unable to contribute to Supply the assets contemplated in the 18 Agreement and Merrill Lynch gave prompt notice of its intention 19 to exercise its put right pursuant to § 5.15. 20 2002 Merrill Lynch filed the instant action against Allegheny in 21 district court, contending Allegheny breached the Agreement by 22 failing to honor Merrill Lynch's put right. 23 On September 24, Defendant brought an action against plaintiff in state court 24 the following day and moved to stay the federal proceedings 25 plaintiff had instituted arguing that Supply's presence in the 26 federal litigation would defeat complete diversity as both Supply 7 1 and Merrill Lynch were Delaware citizens. On May 30, 2003 the 2 district court denied Allegheny's motion for a stay and ordered 3 that Supply, as a necessary party whose absence produced a risk 4 that the parties would be subject to inconsistent obligations, be 5 joined to the action pursuant to Federal Rule of Civil Procedure 6 19(a). 7 7689, 2003 WL 21254420 (S.D.N.Y. May 30, 2003). 8 classifying Supply as a defendant for jurisdictional purposes, 9 the court concluded that 28 U.S.C. § 1367 authorized its exercise Merrill Lynch & Co. v. Allegheny Energy, Inc., 02 Civ. After 10 of supplemental jurisdiction over Supply's "downsloping" claims 11 against Merrill Lynch. 12 Id. at *4-5. Allegheny asserted counterclaims against Merrill Lynch for, 13 inter alia, fraudulent inducement and breach of contract, and 14 requested a jury trial to resolve its fraud counterclaim. 15 Plaintiff moved to dismiss defendant's counterclaims and strike 16 its jury demand. 17 Allegheny had stated viable claims for breach of contract and 18 fraudulent inducement, but found Allegheny's contractual waiver 19 of its right to a jury trial effective vis-à -vis its fraud claim. 20 Merrill Lynch & Co. v. Allegheny Energy, Inc., 382 F. Supp. 2d 21 411 (S.D.N.Y. 2003). 22 On November 24, 2003 the district court ruled Both parties moved for summary judgment, with Merrill Lynch 23 arguing that Allegheny breached the Agreement, and Allegheny 24 contending that it had no duty to perform because Merrill Lynch 25 had materially breached its obligations. 26 Lynch had substantially performed its side of the Agreement, the 8 Reasoning that Merrill 1 district court rejected Allegheny's defense and awarded summary 2 judgment to Merrill Lynch on its contractual claim. 3 Lynch & Co. v. Allegheny Energy, Inc., 02 Civ. 7689, 2005 WL 4 832050, at *3 (S.D.N.Y. Apr. 12, 2005). Merrill 5 Following a 13-day bench trial in May 2005, the trial court 6 dismissed Allegheny's breach of warranty and fraud counterclaims 7 and awarded Merrill Lynch $115 million plus interest on its 8 breach of contract claim. 9 Energy, Inc., 02 Civ. 7689, 2005 WL 1663265 (S.D.N.Y. Jul. 18, 10 2005). 11 Merrill Lynch & Co. v. Allegheny Final judgment was entered on August 26, 2005. This appeal followed. 12 DISCUSSION 13 Appellant raises a number of issues on this appeal that 14 warrant discussion. 15 challenging the subject matter jurisdiction of the district 16 court; second, dismissal of Allegheny's fraudulent inducement 17 counterclaim; third, dismissal of defendant's breach of warranty 18 counterclaim; fourth, the grant of summary judgment to plaintiff 19 Merrill Lynch; and fifth, the denial of Allegheny's demand for a 20 jury trial. 21 touch briefly on the standard of our review. 22 We analyze, first, a threshold issue Before we begin analysis of these five issues, we We review de novo the district court's disposition of a 23 motion for summary judgment under the same standard applied by 24 the district court. 25 486-87 (2d Cir. 2006). 26 trial court's factual findings for clear error, Concourse Rehab. Tocker v. Philip Morris Cos., 470 F.3d 481, Following a bench trial, we review the 9 1 & Nursing Ctr., Inc. v. DeBuono, 179 F.3d 38, 43 (2d Cir. 1999), 2 while its resolution of legal questions, including jurisdiction 3 and the right to a jury trial, are subject to de novo review. 4 See id.; Brown v. Sandimo Materials, 250 F.3d 120, 125 (2d Cir. 5 2001). 6 I 7 Subject Matter Jurisdiction Allegheny challenges first the subject matter jurisdiction 8 of the district court because it contends the joinder of Supply, 9 a Delaware citizen as is Merrill Lynch, destroyed complete 10 diversity. Citing Viacom Int'l, Inc. v. Kearney, 212 F.3d 721 11 (2d Cir. 2000), the district court exercised supplemental 12 jurisdiction under 28 U.S.C. § 1367 over the claims Supply 13 asserted against Merrill Lynch, and aligned Supply as a defendant 14 with Allegheny for jurisdictional purposes. 15 A. The Effect of Exxon on the District Court's Ruling 16 Appellant does not argue the district court reached the 17 wrong result under Viacom, but insists Exxon Mobil Corp. v. 18 Allapattah Servs., Inc., 545 U.S. 546 (2005), bars jurisdiction 19 when citizens from the same state are found on opposite sides of 20 an action. 21 authorizes the exercise of jurisdiction over actions that do not 22 meet the amount-in-controversy requirement in a case where at 23 least one plaintiff's claim satisfies the requirement. 24 558. 25 26 Exxon addressed the question whether 28 U.S.C. § 1367 Id. at The Supreme Court ruled in Exxon that the assertion by a single diverse plaintiff of a claim that satisfies the 10 1 jurisdictional requirements of 28 U.S.C. § 1332 is a civil action 2 over which a district court may take original jurisdiction. 3 at 559. 4 exercise of supplemental jurisdiction over claims asserted by 5 additional diverse plaintiffs, whether or not such claims meet 6 the amount-in-controversy requirement, unless jurisdiction is 7 barred by § 1367(b). Id. Once jurisdiction is anchored, § 1367(a) permits the Id. at 558-59. 8 Exxon makes clear that its expansive interpretation of 9 § 1367 does not extend to additional parties whose presence 10 defeats diversity. Id. at 562, 564, 566; see also 13 Charles A. 11 Wright et al., Federal Practice & Procedure § 3523, at 99 n.42.1, 12 103 (2d ed. 1984 & Supp. 2007). 13 treatment of these two § 1332 requirements is found in their 14 differing purposes. 15 requirement, on one hand, is fulfilled by a single claim of 16 sufficient importance to warrant a federal forum and is not 17 negated by additional, smaller claims. 18 on the other hand, contaminates the action, so to speak, and 19 takes away any justification for providing a federal forum. 20 Exxon, 545 U.S. at 562. The reason for the different The purpose of the amount-in-controversy A failure of diversity, See 21 It follows that a defect of the latter sort eliminates every 22 claim in the action, including any jurisdictionally proper action 23 that might otherwise have anchored original jurisdiction, and 24 removes the civil action from the purview of § 1367 altogether. 25 Id. at 564 ("[T]he presence in the action of a single plaintiff 26 from the same State as a single defendant deprives the district 11 1 court of original jurisdiction over the entire action." (emphasis 2 added)). 3 joined after the action is underway may catalyze loss of 4 jurisdiction. 5 omitted intentionally from the original action, but joined later 6 under Rule 19 as a necessary party. 7 described above, if applicable, means this ruse would fail, but 8 Congress may have wanted to make assurance double sure."). 9 Further, it is clear that a diversity-destroying party Id. at 565 ("A nondiverse plaintiff might be The contamination theory We cannot fault the district court for not anticipating in 10 2003 the Supreme Court's 2005 opinion in Exxon. Nonetheless, in 11 light of Exxon, the district court's reliance on our assumption 12 in Viacom that original jurisdiction is anchored in the diversity 13 between the original parties and so any subsequent joinder that 14 is not prohibited by § 1367(b) comes within the court's 15 supplemental jurisdiction, see 212 F.3d at 726, was misplaced. 16 It is now apparent that the contamination theory furnishes 17 limitations on joinder in certain circumstances that may well 18 extend beyond the restrictions listed in § 1367(b). 19 which came down before Exxon, did not explore these limitations. Viacom, 20 The Supreme Court does not define the reach of the 21 contamination theory and does not purport to announce a new 22 standard for assessing diversity defects but instead relies on 23 the Court's consistent construction of the complete diversity 24 rule. 25 read Exxon as preserving certain well-established exceptions to 26 the complete diversity rule, see, e.g., Owen Equip. & Erection Exxon, 545 U.S. at 553, 556, 564. 12 However, even if we 1 Co. v. Kroger, 437 U.S. 365, 377 (1978); see also, e.g., 2 Caterpillar Inc. v. Lewis, 519 U.S. 61, 66 n.1 (1996); In re 3 Olympic Mills Corp., 477 F.3d 1, 11-12 (1st Cir. 2007), Supply's 4 joinder does not fall within any such exception. 5 practice treatise says "parties that are joined under Rules 19 6 and 20 . . . must independently satisfy the jurisdictional 7 requirements." 8 also Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 9 102, 108 (1968) (noting that joinder of non-diverse defendant A leading 13B Wright et al., supra, § 3608, at 454; see 10 under Rule 19(a) destroys jurisdiction); Haas v. Jefferson Nat'l 11 Bank of Miami Beach, 442 F.2d 394, 396 (5th Cir. 1971) (same). 12 B. 13 Rule 19 Determination; Dismissal of Supply Under Rule 19 Supply's status as a necessary party -- which 14 neither party disputes -- and our holding that its joinder is not 15 feasible require us to determine whether Supply is in fact 16 indispensable. 17 are influenced by the procedural posture in which this case comes 18 to us and obliged to make full use of hindsight in assessing the 19 four factors set out in Rule 19(b). 20 12. 21 preserving a fully litigated judgment may be overborne only by 22 greater contrary considerations than those that would be required 23 at an earlier stage of the litigation. 24 Allegheny has not pointed to adequate opposing considerations, 25 but simply stated conclusorily in its brief on appeal that 26 Supply, as a party to the Purchase Agreement, was a paradigmatic Fed. R. Civ. P. 19; Viacom, 212 F.3d at 725. We Provident, 390 U.S. at 109- At this stage of litigation, Merrill Lynch's interest in 13 See id. at 112. 1 indispensable party. 2 consented to Supply's characterization as a dispensable party by 3 virtue of its failure to argue before the district court, in 4 connection with its motion to stay federal proceedings, that 5 Supply was indispensable, and its subsequent failure to raise the 6 point sufficiently in its brief on this appeal. 7 Moritsugu, 222 F.3d 99, 112 n.4 (2d Cir. 2000). 8 Further, Allegheny may be deemed to have See Cuoco v. Moreover, we are persuaded by Merrill Lynch's point that the 9 retroactive absence of Supply -- defendant's wholly-owned 10 subsidiary -- is not prejudicial to Supply, defendant or 11 plaintiff. 12 Equipamentos e Exportação Ltda. v. Case Corp., 361 F.3d 359, 364 13 (7th Cir. 2004) ("[W]e have great difficulty seeing how a 100 14 percent subsidiary could ever be an indispensable 15 party . . . ."). 16 finality, efficiency, and economy on review of a fully tried 17 case, SCS Commc'ns, Inc. v. Herrick Co., 360 F.3d 329, 337 (2d 18 Cir. 2004), we also think Supply's (retroactive) absence does not 19 render its judgment inadequate. 20 (factor three); Provident, 390 U.S. at 110-11. 21 commented on plaintiff's interest in preserving the judgment. 22 See Fed. R. Civ. P. 19(b) (factor four). 23 24 See Fed. R. Civ. P. 19(b) (factors one & two); Extra Given our emphasis on considerations of C. See Fed. R. Civ. P. 19(b) We have already Dismissal of Supply We exercise our authority under Federal Rule of Civil 25 Procedure 21 to cure, ex post, the above-noted jurisdictional 26 defect by dismissing Supply, a dispensable jurisdictional 14 1 spoiler. 2 Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832-38 (1989). 3 Allegheny's sole objection to Supply's dismissal, that Merrill 4 Lynch sought a tactical advantage by filing in federal court 5 without joining Supply, is meritless. 6 to the possibility that the presence of the party subject to 7 dismissal may have produced a tactical advantage to another 8 party, id. at 838, but defendant seems to argue something else 9 entirely, to wit, that Merrill Lynch sought to benefit from 10 11 12 See SCS Commc'ns, 360 F.3d at 335; see also Newman- Newman-Green did alert us Supply's absence from the action. II Appellant's Fraudulent Inducement Counterclaim Allegheny's fraud claim is based on Merrill Lynch's 13 misrepresentations concerning GEM's finances and its failure to 14 disclose the circumstances surrounding the preparation of the 15 flawed September and October financials and Gordon's evasion of 16 Merrill Lynch's credit controls. 17 the claim on the grounds that defendant: 18 justifiably relied on plaintiff's misrepresentations; and (B) 19 failed to prove that its injury was proximately caused by them. 20 Merrill Lynch asserts on appeal that Allegheny should not be 21 permitted to pursue its fraudulent inducement claim because (C) 22 it is duplicative of defendant's breach of warranty claim. 23 The district court dismissed We analyze these grounds in a moment. (A) failed to show it First we discuss 24 proof of fraud in New York. In New York a plaintiff alleging 25 fraud must show by clear and convincing evidence that the 26 defendant knowingly or recklessly misrepresented a material fact, 15 1 intending to induce the plaintiff's reliance, and that the 2 plaintiff relied on the misrepresentation and suffered damages as 3 a result. 4 234 (2d Cir. 2006); Jo Ann Homes at Bellmore, Inc. v. Dworetz, 25 5 NY2d 112, 119 (1969). 6 fraud by omission, it must prove additionally that the plaintiff 7 had a duty to disclose the concealed fact. 8 v. John Morrell & Co., 790 F. Supp. 459, 472 (S.D.N.Y. 1992). 9 10 See, e.g., Crigger v. Fahnestock & Co., 443 F.3d 230, A. Where a defendant, as here, seeks to show Congress Fin. Corp. Justifiable Reliance and Due Diligence New York courts are generally skeptical of claims of 11 reliance asserted by "sophisticated businessmen engaged in major 12 transactions [who] enjoy access to critical information but fail 13 to take advantage of that access." 14 v. Rohr Indus., Inc., 748 F.2d 729, 737 (2d Cir. 1984). 15 parties before us are sophisticated business entities that are 16 held to a high standard of conduct in the events leading up to 17 the sale and purchase of GEM. 18 Grumman Allied Indus., Inc. Both The district court found that because Allegheny could have 19 discovered the truths that Merrill Lynch obscured or omitted had 20 it pursued its due diligence "with a little more pizzazz," its 21 fraud counterclaim failed to satisfy the justifiable reliance 22 prong. 23 discover, for example, Gordon's embezzlement, notwithstanding 24 Merrill Lynch's claim that its own officials were unaware of the 25 embezzlement until after the sale of GEM. It charged Allegheny with the means and responsibility to 16 1 In assessing whether defendant met its burden in showing 2 justifiable reliance, we look to a number of factors including 3 the content of its agreement with plaintiff. 4 Capital Inv. Mgmt. v. Stonepath Group, Inc., 343 F.3d 189, 195-96 5 (2d Cir. 2003); Lazard Freres & Co. v. Protective Life Ins. Co., 6 108 F.3d 1531, 1543 (2d Cir. 1997) (noting significance of 7 protective language in contract). 8 §§ 3.12(b), 3.12(c) and 3.16 imposed a duty on Merrill Lynch to 9 provide accurate and adequate facts and entitled Allegheny to See Emergent The warranties contained in 10 rely on them without further investigation or sleuthing. See 11 Metropolitan Coal Co. v. Howard, 155 F.2d 780, 784 (2d Cir. 1946) 12 (L. Hand, J.) ("A warranty . . . . is intended precisely to 13 relieve the promisee of any duty to ascertain the fact for 14 himself."). 15 authority follows a two-tier standard in assessing the duty of 16 the party claiming fraud, according to whether the 17 misrepresentations relate to matters peculiarly within the other 18 party's knowledge. 19 without further investigation. 20 615 F.2d 68, 80-81 (2d Cir. 1980). 21 effect represent contractual stipulations that the facts covered 22 by them be treated as information exclusively within Merrill 23 Lynch's knowledge. Further, as Judge Friendly instructs, New York If so, the wronged party may rely on them See Mallis v. Bankers Trust Co., Merrill Lynch's warranties in 24 While the district court wrongly held defendant to too 25 stringent a standard of reliance, Allegheny may not satisfy its 26 burden simply by pointing to the warranties because, for purposes 17 1 of showing fraud, a party cannot demonstrate justifiable reliance 2 on representations it knew were false, see Banque Franco- 3 Hellenique de Commerce v. Christophides, 106 F.3d 22, 27 (2d Cir. 4 1997) (noting that plaintiff cannot show it justifiably relied on 5 statements it had reason to know were false). 6 Allegheny must offer proof that its reliance on the alleged 7 misrepresentations was not so utterly unreasonable, foolish or 8 knowingly blind as to compel the conclusion that whatever injury 9 it suffered was its own responsibility. Thus, on remand See W. Page Keeton et 10 al., Prosser & Keeton on the Law of Torts § 108, at 750 (5th ed. 11 1984); see also Christophides, 106 F.3d at 26-27. 12 Appellant's asserted reliance on the September and October 13 financials despite its receipt of a different financial report 14 appears at first blush to evince the sort of recklessness or 15 knowing blindness that raises doubt about its reliance. 16 apparent malleability of GEM's financial figures to accommodate 17 reserve calculations and sundry accounting concepts tempers any 18 initial skepticism. 19 court did not find any foul play in Merrill Lynch's exposition of 20 the Williams profit and loss estimates notwithstanding 21 defendant's evidence that the final figure was $40 million (or 22 four times) higher than an early estimate produced by a valuation 23 expert at Merrill Lynch. 24 reckless in believing the earlier figures -- qualified by 25 whatever accounting choices underlay them -- were defensible. 26 Such an argument could find support in defendant's assertion that But the We note, for example, that the district It may be that Allegheny was not 18 1 plaintiff, by concealing the circumstances surrounding the 2 preparation and delivery of the earlier financial summaries, 3 failed in its duty candidly to alert defendant to the risk that 4 the earlier financials were flat-out wrong. 5 We recognize that Dan Gordon, the author of those inflated 6 financials, committed crimes against Merrill Lynch, his employer. 7 Yet, insofar as Gordon's crimes injured both plaintiff and 8 defendant, we think as between the two parties the responsibility 9 and risks must be borne by plaintiff, Gordon's employer. 10 Further, Merrill Lynch failed to reveal to Allegheny what it did 11 know about Gordon, its principal officer at GEM. 12 required by credit controls to obtain prior approval from 13 plaintiff's credit department before trading with new partners, 14 Gordon consummated the Falcon transaction without obtaining such 15 approval. 16 control policy and Gordon's lying about his insurance scam in 17 early September 2000. 18 to Allegheny. 19 principal officer, Dan Gordon, was a person of integrity. 20 21 Although Merrill Lynch discovered the violation of its credit But plaintiff did not disclose these facts Instead, plaintiff assured defendant that GEM's B. Proximate Cause In assessing the viability of Allegheny's fraud and contract 22 claims, the district court relied heavily on federal cases that 23 were focused primarily on securities fraud claims. 24 Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) (addressing 25 fraud claims based on federal securities statutes and 26 implementing regulations); Lentell v. Merrill Lynch & Co., 396 19 See, e.g., 1 F.3d 161 (2d Cir. 2005) (same). 2 precedent, the trial court held that GEM's positive performance 3 in the year following the sale, together with the lack of any 4 causal link between GEM's ultimate failure and Merrill Lynch's 5 misrepresentations, precluded Allegheny's fraud claim. 6 Following this line of The concept of loss causation elucidated in Dura is closely 7 related to the common law doctrine of proximate cause. 544 U.S. 8 at 343-44; Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1495 (2d 9 Cir. 1992). Dura culls from the common law the black letter law 10 that a fraud plaintiff must show that he acted on the basis of 11 the fraud and suffered pecuniary loss as a result of so acting. 12 544 U.S. at 343-44. 13 defendant's fraud claim, but Dura's conclusion that overpayment 14 alone cannot prove loss causation, as the district court 15 incorrectly believed, is based on the tailored application of 16 these principles set out by the Supreme Court in the securities 17 context. Without doubt, these principles govern Such application does not govern here. 18 Instead, we look to New York law that follows the well- 19 established common law rule that fraud damages represent the 20 difference between the purchase price of the asset and its true 21 value, plus interest, generally measured as of the date of sale. 22 McGuire v. Russell Miller, Inc. of N.Y., 1 F.3d 1306, 1310 (2d 23 Cir. 1993); Hanlon v. MacFadden Publ'ns, Inc., 302 N.Y. 502, 511 24 (1951); cf. Hotaling v. A.B. Leach & Co., 247 N.Y. 84, 87-88 25 (1928) (explaining that this rule reflects notion that seller's 20 1 fraud is complete at time of sale and subsequent events do not 2 increase or diminish liability). 3 In Dura the Supreme Court explained that a mere disparity 4 between the purchase price plaintiffs paid for their shares of 5 common stock and the shares' true value at the time of purchase 6 is insufficient to prove loss causation. 7 Dura's bar on recovery based on overpayment alone represents an 8 easily explained departure from common law guidelines on 9 computing damages. 544 U.S. at 342, 347. The Supreme Court explained that the inflated 10 purchase payment made for a misrepresented stock is "offset by 11 ownership of a share that at that instant possesses equivalent 12 value." 13 presumption that shares are purchased for the purpose of 14 investment and their true value to the investor is the price at 15 which they may later be sold. 16 Id. at 342. Further, in securities cases there is a Allegheny's fraud claim, by contrast, involves the sale of a 17 business, and under the terms of the Purchase Agreement between 18 the parties New York -- not federal -- law governs its 19 construction and approach to damages. 20 purchase price, we assume the parties placed value on its 21 intrinsic qualities, including its key personnel and its 22 financial performance. 23 fraudulently misrepresented those qualities, it may show that it 24 has acquired an asset at a price that exceeded its true value. 25 If the district court finds Allegheny's fraud claim otherwise 26 valid, damages should be awarded Allegheny to the extent that the In agreeing on GEM's If appellant proves Merrill Lynch 21 1 purchase price overstated GEM's value on the date of sale as a 2 result of Merrill Lynch's misrepresentations and omissions. 3 damages, if any, are considered general, not consequential, 4 damages. 5 6 C. Such Fraud Counterclaim Not Duplicative of Warranty Counterclaim In Bridgestone/Firestone, Inc. v. Recovery Credit Servs., 7 Inc., 98 F.3d 13, 20 (2d Cir. 1996), we observed that under New 8 York law, parallel fraud and contract claims may be brought if 9 the plaintiff (1) demonstrates a legal duty separate from the 10 duty to perform under the contract; (2) points to a fraudulent 11 misrepresentation that is collateral or extraneous to the 12 contract; or (3) seeks special damages that are unrecoverable as 13 contract damages. 14 statement of what will be done in the future that gives rise only 15 to a breach of contract cause of action and a misrepresentation 16 of a present fact that gives rise to a separate cause of action 17 for fraudulent inducement. 18 F.2d 86, 88-89 (2d Cir. 1992). 19 fraudulent inducement of a contract is separate and distinct from 20 a breach of contract claim under New York law. 21 Enters., Inc. v. Ernst & Young, 582 N.Y.S.2d 814, 816 (3d Dep't 22 1992) ("A party fraudulently induced to enter into a contract may 23 join a cause of action for fraud with one for breach of the same 24 contract."). 25 26 New York distinguishes between a promissory See Stewart v. Jackson & Nash, 976 Hence, a claim based on Id.; see also RKB Defendant's allegations in this case involve misstatements and omissions of present facts, not contractual promises 22 1 regarding prospective performance. 2 present facts is collateral to the contract (though it may have 3 induced the plaintiff to sign the contract) and therefore 4 involves a separate breach of duty." 5 v. Motor Car Funding, Inc., 690 N.Y.S.2d 17, 21 (1st Dep't 1999); 6 see also Deerfield Commc'ns Corp. v. Chesebrough-Ponds, Inc., 68 7 NY2d 954, 956 (1986). 8 9 "[A] misrepresentation of First Bank of the Americas That the alleged misrepresentations would represent, if proven, a breach of the contractual warranties as well does not 10 alter the result. 11 basis of misrepresentations that breach express warranties. Such 12 cause of action enjoys a longstanding pedigree in New York. See 13 Ward v. Wiman, 17 Wend. 193 (1837). 14 charge, the New York Court of Appeals has allowed a fraud claim 15 to proceed in tandem with a contract claim where the seller 16 misrepresented facts as to the present condition of his property, 17 even though these facts were warranted in the parties' contract. 18 Jo Ann Homes, 25 NY2d at 119-20 (holding without discussion on 19 duplication); cf. Deerfield, 68 NY2d at 956 (holding oral 20 representation formed proper basis for contract and fraud 21 charge). 22 rationale: 23 statement of present fact." 24 A plaintiff may elect to sue in fraud on the As to the duplication The Appellate Division has provided a convincing III "A warranty is not a promise of performance, but a First Bank, 690 N.Y.S.2d at 21. Allegheny's Breach of Warranty Counterclaim 25 Appellant contends the misrepresentations and omissions 26 discussed above breached §§ 3.12(b), 3.12(c) and 3.16 of the 23 1 Purchase Agreement. The district court did not exonerate Merrill 2 Lynch of all alleged breaches, but dismissed appellant's contract 3 claim because it had failed to prove that any breach had 4 proximately caused its injury or to prove reasonably 5 ascertainable damages. 6 A. Causation and Damages 7 Here too, the district court turned to federal cases 8 addressing securities fraud, discussed above, to hold defendant 9 was required to show Merrill Lynch's misrepresentations caused 10 actual loss. 11 securities context by mere allegation that a plaintiff purchased 12 shares at a price that exceeded their true value. 13 at 342. 14 Allegheny's fraud counterclaim applies a fortiori to its breach 15 of warranty counterclaims. 16 As noted, actual loss cannot be shown in the Dura, 544 U.S. Our conclusion above that these cases do not govern Under New York law, an express warranty is part and parcel 17 of the contract containing it and an action for its breach is 18 grounded in contract. See CBS, Inc. v. Ziff-Davis Publ'g Co., 75 19 NY2d 496, 503 (1990). A party injured by breach of contract is 20 entitled to be placed in the position it would have occupied had 21 the contract been fulfilled according to its terms. 22 Soundview Tech. Group, Inc., 464 F.3d 376, 384 (2d Cir. 2006). 23 It follows that appellant is entitled to the benefit of its 24 bargain, measured as the difference between the value of GEM as 25 warranted by Merrill Lynch and its true value at the time of the 26 transaction. Boyce v. See Bennett v. U.S. Trust Co. of N.Y., 770 F.2d 24 1 308, 316 (2d Cir. 1985); Clearview Concrete Prods. Corp. v. S. 2 Charles Gherardi, Inc., 453 N.Y.S.2d 750, 756 (2d Dep't 1982). 3 It is a well established principle that contract damages are 4 measured at the time of the breach. Sharma v. Skaarup Ship Mgmt. 5 Corp., 916 F.2d 820, 825 (2d Cir. 1990) (collecting cases); Simon 6 v. Electrospace Corp., 28 NY2d 136, 145 (1971). 7 court's inquiry into GEM's performance and market conditions in 8 the months following the acquisition was improper because events 9 subsequent to the breach, viewed in hindsight, may neither offset 10 nor enhance Allegheny's general damages. 11 The district 826. 12 See Sharma, 916 F.2d at Our review of the district court's pertinent findings allows 13 us to dispose with confidence of only one of appellant's 14 allegations. 15 applied to the January financials, coupled with its finding that 16 this latter set of data was prepared in good faith and was 17 basically accurate, renders reconsideration on remand of the 18 alleged breach of this warranty unnecessary. 19 The trial court's determination that § 3.12(b) only By contrast, defendant's claims relating to §§ 3.12(c) and 20 3.16 require further consideration by the district court through 21 the lens of the proper legal standard. 22 that Merrill Lynch had breached "at least some" warranties and 23 that § 3.12(c) was materially breached by the September and 24 October financials. 25 insufficient to determine whether it found plaintiff breached the 26 warranty or whether any such breach resulted in a diminution in The trial court found Its conclusions with respect to § 3.16 are 25 1 the objective value of GEM at the time of the sale. 2 the district court's finding that Merrill Lynch did not deny 3 access to Allegheny during due diligence is not tantamount to 4 finding that Merrill Lynch met its contractual obligation under 5 § 3.16 to "provide" certain information to Allegheny. 6 the trial judge reached no conclusion with regard to whether 7 plaintiff's failure to disclose Gordon's evasion of its in-house 8 credit controls and to alert defendant to the circumstances 9 underlying the preparation of the September and October 10 financials constituted a breach of this warranty. 11 For example, Moreover, of the above recited errors, we must remand. 12 For correction On remand the difference between the value of GEM as 13 warranted and its value as delivered should be calculated. 14 value as delivered should reflect any deductions from its 15 purchase price necessary to reflect the broken warranties. 16 other words, the district court should determine how GEM would 17 have been valued by knowledgeable investors at the time of the 18 sale were such investors aware of any breaches proved by 19 Allegheny. 20 consequential, Allegheny is required to show with reasonable 21 certainty the fact of damage, not its amount. 22 Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 110 (2d 23 Cir. 2007). 24 25 26 GEM's In As any such damages are general rather than B. See Tractebel Reliance on Express Warranties The district court was of the view that Allegheny would not have insisted on a lower price had it known all the facts and 26 1 appears to have inferred from this finding that Allegheny did not 2 rely on Merrill Lynch's representations in agreeing to close the 3 deal at the agreed upon price. 4 flawed. 5 warranties applicable to contract claims. 6 question is whether defendant would have insisted on a lower 7 price had it not believed it was purchasing plaintiff's promise 8 to compensate it for any injury caused by the falsity of the 9 warranted facts. The trial court's reasoning was It incorrectly used the standard for reliance on express The dispositive See Metropolitan Coal, 155 F.2d at 784 10 (defining warranty as "a promise to indemnify promisee for any 11 loss if the fact warranted proves untrue"); CBS, 75 NY2d at 504. 12 In contrast to the reliance required to make out a claim for 13 fraud, the general rule is that a buyer may enforce an express 14 warranty even if it had reason to know that the warranted facts 15 were untrue. 16 1997) (stating that buyer with knowledge of falsity of warranted 17 facts may purchase seller's warranty as insurance against future 18 claims); Vigortone AG Prods., Inc. v. PM AG Prods., Inc., 316 19 F.3d 641, 648 (7th Cir. 2002). 20 important condition. 21 that it was purchasing seller's promise regarding the truth of 22 the warranted facts. 23 where the seller has disclosed at the outset facts that would 24 constitute a breach of warranty, that is to say, the inaccuracy 25 of certain warranties, and the buyer closes with full knowledge 26 and acceptance of those inaccuracies, the buyer cannot later be Rogath v. Siebenmann, 129 F.3d 261, 265 (2d Cir. This rule is subject to an The plaintiff must show that it believed Rogath, 129 F.3d at 265. 27 We have held that 1 said to believe he was purchasing the seller's promise respecting 2 the truth of the warranties. 3 finds that Merrill Lynch candidly disclosed that the September 4 and October financials were wrongly inflated and therefore 5 inaccurate, Allegheny cannot prevail on its claim that Merrill 6 Lynch breached § 3.12(c). 7 IV Id. Here, if the district court Summary Judgment Reversed 8 In April 2005, the district court granted summary judgment 9 to Merrill Lynch on its contract claim and rejected Allegheny's 10 defense that Merrill Lynch's breach of various warranties excused 11 Allegheny from further performance under the Purchase Agreement. 12 The court reasoned that plaintiff had substantially performed 13 inasmuch as it had no further performance pending, i.e., having 14 delivered GEM, there was no further action that Merrill Lynch was 15 required to take under the Purchase Agreement. 16 summary judgment order suggested that allegations of breach of 17 warranty were insufficient, categorically, to excuse the injured 18 party's performance under a contract. 19 Allegheny had obtained the primary intended benefit under the 20 contract through its two-year ownership of GEM. 21 Further, the The court also found Under New York law, a party's performance under a contract 22 is excused where the other party has substantially failed to 23 perform its side of the bargain or, synonymously, where that 24 party has committed a material breach. 25 Edison Co. of N.Y., 34 NY2d 88, 96 (1974) (assessing substantial 26 performance on basis of several factors, such as the absolute and 28 See Hadden v. Consol. 1 relative magnitude of default, its effect on the contract's 2 purpose, willfulness, and degree to which injured party has 3 benefitted under contract). 4 substantially performed is usually a question of fact and should 5 be decided as a matter of law only where the inferences are 6 certain. 7 578 (2d Dep't 1983). 8 9 The issue of whether a party has Anderson Clayton & Co. v. Alanthus Corp., 457 N.Y.S.2d The legal arguments relied on by the district court and the inferences it drew were insufficient to hold that Merrill Lynch 10 substantially performed under the Purchase Agreement at the 11 summary judgment stage. 12 no reason under New York law to treat a breach of warranty any 13 differently than any other contractual breach. 14 at 503. 15 warranties and the cumulative effect of such breaches was 16 material, it did not substantially perform its side of the deal. 17 Further, while we do not dispute that Merrill Lynch's delivery 18 and Allegheny's two-year ownership of GEM represented advanced 19 performance of the contract in a chronological sense, the trial 20 court was required to address appellant's argument that GEM 21 turned out to be substantially different from what the parties 22 had bargained for, thereby "defeat[ing] the object of the parties 23 in making the contract," Frank Felix Assocs. v. Austin Drugs, 24 Inc., 111 F.3d 284, 289 (2d Cir. 1997). 25 Williston on Contracts § 63:3, at 438-39 (4th ed. 2002). We agree with appellants that there is See CBS, 75 NY2d It follows that if Merrill Lynch breached one or more 29 See Richard A. Lord, Such a 1 claim, if proved, would excuse defendant's non-performance under 2 the Purchase Agreement. 3 Appellees contend that the district court's eventual factual 4 findings amply support its prior summary judgment ruling. See 5 generally Kerman v. City of New York, 261 F.3d 229, 235 n.3 (2d 6 Cir. 2001) (considering entire record in reviewing summary 7 judgment). 8 stand in the shoes of the district court at the time of summary 9 judgment to assess the propriety of its disposition, see U.S. E. 10 Telecomms., Inc. v. U.S. W. Commc'n Servs., Inc., 38 F.3d 1289, 11 1301 (2d Cir. 1994) ("Our review is confined to an examination of 12 the materials before the trial court at the time the ruling was 13 made, and neither the evidence offered subsequently at trial nor 14 the verdict is relevant."), it waived this argument by relying on 15 later-developed portions of the record (including the district 16 court's findings) to support its challenge to summary judgment on 17 appeal. 18 acknowledge U.S. E. Telecomms., supra, decided in 1994. Although Allegheny might have argued that we should Kerman, supra, which was decided in 2001, did not 19 Thus, we have considered whether the district court's 20 finding that the January financials were mostly accurate and its 21 statement that "everyone wanted this deal to go through and 22 either understood or did not care about the changed financial 23 statements" are dispositive on the issue of materiality. 24 considered these findings, we conclude the district court's 25 flawed summary judgment cannot be affirmed on the basis of such 26 partial findings. Having We note that Allegheny has alleged breach of 30 1 warranty on the basis of material omissions as well as 2 misrepresentations. 3 its nonchalant response to information it possessed at that time 4 has no bearing on the materiality of information that was 5 withheld by Merrill Lynch. 6 has not provided us with an adequate assessment of the pertinent 7 factors to determine whether the broken warranties amounted to a 8 material breach. 9 must reverse the district court's April 2005 grant of summary 10 More generally, the district court See Hadden, 34 NY2d at 96. Accordingly, we judgment to Merrill Lynch. 11 12 Allegheny's attitude prior to signing and V Allegheny's Jury Demand Under § 11.09(b) of the Purchase Agreement, Allegheny 13 irrevocably waived any right to a jury trial in a proceeding 14 arising out of the Purchase Agreement. 15 the waiver does not apply to its fraudulent inducement claim. 16 The district court agreed with Merrill Lynch that a jury waiver 17 applies to a claim for fraudulent inducement where it is not 18 alleged that the waiver provision itself was procured by fraud. 19 According to Allegheny When asserted in federal court, the right to a jury trial is 20 governed by federal law. McGuire, 1 F.3d at 1313; see also Med. 21 Air Tech. Corp. v. Marwan Inv., Inc., 303 F.3d 11, 18 (1st Cir. 22 2002) (applying federal law to decide enforceability of jury 23 waiver). 24 exists against its waiver, a contractual waiver is enforceable if 25 it is made knowingly, intentionally, and voluntarily. 26 Equip. Rental, Ltd. v. Hendrix, 565 F.2d 255, 258 (2d Cir. 1977). Although the right is fundamental and a presumption 31 Nat'l 1 Whether a contractual waiver is effective against a claim that 2 the contract containing the waiver was induced by fraud is a 3 question of first impression in this Circuit, and federal 4 precedent on the topic is thin. 5 holding that unless a party alleges that its agreement to waive 6 its right to a jury trial was itself induced by fraud, the 7 party's contractual waiver is enforceable vis-à -vis an allegation 8 of fraudulent inducement relating to the contract as a whole. 9 See Telum, Inc. v. E.F. Hutton Credit Corp., 859 F.2d 835, 837-38 10 We join the Tenth Circuit in (10th Cir. 1988). 11 Telum drew an analogy to the arbitration context, in which 12 the Supreme Court has held that an agreement to arbitrate is 13 effective with respect to claims of fraudulent inducement that 14 relate to the contract generally, but not to the agreement to 15 arbitrate specifically. 16 with appellant that the arbitration cases rely on a federal 17 statutory scheme favoring arbitrability that runs contrary to the 18 presumption against waiver applicable here, we think the analogy 19 persuasive as a matter of logic. 20 Id. at 837. Although we do not disagree A promise to bring proceedings before a judge, not a jury, 21 is akin to an agreement to arbitrate in that both express the 22 parties' consent as to how to handle differences that may arise. 23 Indeed, arbitration represents a more dramatic departure from the 24 judicial forum than does a bench trial from a jury trial. 25 838. 26 resolution provision itself was procured by fraud, the fairest Id. at If one litigant alleges that an agreement's dispute 32 1 course is to afford that litigant the protections he would have 2 enjoyed had he never been fraudulently induced to forsake them by 3 contract. 4 the provision as being the product of fraud, we see no reason to 5 replace the agreed upon mode of dispute resolution with another. 6 Further, as we expressed in the arbitration context, we are If, on the contrary, the litigant does not challenge 7 concerned that deciding this issue in favor of appellant makes it 8 too easy for a litigant to avoid its contractual promise to 9 submit a case to a judge by alleging fraud. See, e.g., El Hoss 10 Eng'g & Transp. Co. v. Am. Indep. Oil Co., 289 F.2d 346, 349 (2d 11 Cir. 1961) (discussing problems posed by fraud in the inducement 12 claims including sham litigations pursued to avoid arbitration). 13 CONCLUSION 14 For the foregoing reasons, we (1) order the dismissal of 15 Supply; (2) reverse the award of summary judgment to Merrill 16 Lynch on its breach of contract claim; (3) reverse the dismissal 17 of Allegheny's counterclaim for fraudulent inducement; (4) 18 reverse the dismissal of Allegheny's counterclaim for breach of 19 warranty as to §§ 3.12(c) and 3.16 of the Agreement; and (5) 20 affirm the denial of appellant's jury demand. 21 remanded to the district court for further proceedings consistent 22 with this opinion. 33 The case is
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