Diesel Props S.R.L. v. Greystone Business Credit II, LLC
- Citation:
- No. 09-3899-3900 (January 6, 2011 2d Cir.)
- Tag(s):
-
- Ruling:
- Affirmed in part (Dismissing Diesel’s claims), Reversed in part (Reversed order by District Court awarding Greystone damages on its counterclaim against Props for unjust enrichment).
As to Diesel’s Contract Claims Against Greystone:
To recover from a defendant for a breach of contract, a plaintiff must prove by a preponderance of the evidence (1) the existence of a contract between itself and that defendant; (2) performance of the plaintiff’s obligations under the contract; (3) breach of the contract by that defendant; and (4) damages to the plaintiff caused by that defendant’s breach. Diesel argued that it was error that its claim against Greystone for breach of the TPA notice provisions should be dismissed for lack of sufficient proof that the failures to give Diesel notice of many of GBMI’s defaults caused Diesel’s losses because its witnesses testified that that had Diesel known of the defaults, it would have stopped shipping goods to GBMI. The district court determined that this testimony was not credible, as there was evidence that Diesel requested default information from Greystone, and then Diesel shipped shoes to GBMI before Greystone had an opportunity to respond. Additionally, once Greystone advised Diesel of GBMI’s defaults, Diesel shipped additional shoes to GBMI. The Second Circuit ruled that the District Court was entitled to find the witness testimony not credible and correctly applied the legal principles as to causation. Also, Diesel failed to establish its claims that Greystone breached the TPA payment provisions because Greystone had not received relevant copies of Customer Purchase Orders as required by the TPA. The District Court determined that whether the Customer Purchase Order requirement was a condition precedent to payment by Greystone was somewhat ambiguous, and admitted extrinsic evidence to determine the intent of the parties. Based on language in an email from Diesel to GBMI and evidence of payment to Diesel through mechanisms other than the TPAs, the District Court determined the Customer Purchase Order requirement to be a condition precedent to Greystone’s duty to pay. The Second Circuit ruled that there was no error in the district court’s determination that the documents were ambiguous as to this issue and that in light of the evidence, there was no error in finding the requirement to be a condition precedent to Greystone’s duty to make payments from GBMI’s revolving credit account.
Diesel’s Other Claims:
The Second Circuit ruled that the District Court properly dismissed other claims by Diesel, including a claim of unjust enrichment against GBMI, a claim against Greystone for account stated, and against GBMI for breach of the TPAs.
Greystone’s Counterclaim Against Diesel for Unjust Enrichment:
To prevail on claim of unjust enrichment for unjust enrichment under New York law, the plaintiff must show that (1) defendant was enriched; (2) at plaintiff’s expense; and (3) equity and good conscience militate against permitting the defendant to retain what the plaintiff is seeking to recover. The District Court ruled that Props was unjustly enriched by its receipt of the GBMI Order Book upon the termination of the Distribution Agreements and the TPAs. The Second Circuit reversed on this issue, ruling that Diesel had a contractual right to receive the Order Book, and that right was superior to that of Greystone. The issue is one of priority, and under the circumstances, a first in time, first in right rule applies. The 2005 Distribution Agreements provided unambiguously that Diesel had the right to take possession of the Order Book upon the end of the relevant season sales campaign. The District Court determined that the season sales campaign ended at the time of the termination of the Distribution Agreements. Greystone’s security interest in the Order Book was not acquired until 2006, when the parties entered into the LSA. The LSA expressly referred to the TPAs and the TPAs expressly referred to the Distribution Agreement, so it is undisputed that Greystone had notice and knowledge of the Distribution Agreements at the time it entered into the LSA. The District Court ruled that Diesel “purloined” the collateral from Greystone. The Second Circuit ruled that because Diesel’s interest attached first, and Greystone was on notice of the Distribution Agreement, Props did not receive the Order Book at Greystone’s expense, and equity and good conscience did not militate against allowing props to enjoy the benefit of its bargained-for contract right.
- Procedural context:
- Plaintiffs Diesel Props S.r.l. (“Props”) and Diesel Kid S.r.l. (“Kid”) (collectively, “Diesel”), appealed from a decision in the United States District Court for the Southern District of New York dismissing certain contract claims against Greystone Business Credit I LLC (“Greystone”) and Global Brand Marketing Inc. (“GBMI”) and ordering Props to pay Greystone $677,381.93 in damages on Greystone’s counterclaim for unjust enrichment.
- Facts:
- Props and Kid, Italian subsidiaries of nonparty Diesel S.p.A. (“SpA”) are licensed by SpA to produce adult and children’s shoes, respectively, with the Diesel trademark. In 2005, Props and Kid entered into distribution agreements with GBMI, a CA corporation (the “Distribution Agreements”). Among other things the Distribution Agreements provided that GBMI would purchase Diesel-brand shoes and sell them to retailers in the United States and that within fifteen days from the end of each sales campaign GBMI was to communicate to Props the list of “ . . . Sales Outlets and the relevant orders collected.” By summer of 2006, GBMI owed SpA and Kid significant amounts of money, which amounted by December 31, 2006, to $11.5 million. In December 2006, Greystone, which makes loans to financially distressed companies, entered into agreements with GBMI and Diesel pursuant to which Greystone would make funds available to GBMI and make payments from those funds directly to Diesel. On December 2, 2006, SpA and Kid sent a letter to GBMI, with a copy to Greystone, stating that Props and Kid were willing to join the agreement. On December 4, Greystone and GBMI executed a loan and security agreement (“LSA”). The agreement provided that a $25 million revolving account be established for GBMI in exchange for a security interest in substantially all of GBMI’s present and after-acquired assets, including “all of [GBMI’s] books and records relating . . . to [GBMI’s] business.” That same day Greystone and GBMI executed two identical letter agreements with Props and Kid, referencing the LSA and Distribution Agreements (“TPAs”). The TPAs contained provisions requiring that in order to place an order under the Distribution Agreements GBMI must provide proof of a Customer Purchase Order to Diesel and Greystone, that Diesel provide Greystone with copies of Diesel invoices for those products prior to delivery of the products to GBMI and that GBMI provide Diesel and Greystone with copies of invoices sent by GBMI to its customers. Greystone was not authorized to make payments from GBMI’s credit account where orders were not placed in accordance with the TPAs or to suppliers other than Diesel unless expressly instructed by GBMI. The TPAs provided Diesel the opportunity to request and receive information from Greystone related to GBMI’s noncompliance or default with the terms of the LSA. Starting in December 2006 and January 2007, there were times that GBMI was in default of different terms of the LSA. And, Diesel, for eight months, made shipments to GBMI for which Diesel was not paid. On September 4, 2007, Diesel notified Greystone that it was in default of the TPAs for failure to make payments, and notified GBMI that it was in default of the Distribution Agreements. After both Greystone and GBMI failed to cure alleged defaults, Diesel notified them on October 17, 2007 that their respective contracts were terminated as of October 4. Shortly thereafter, this action was commenced.
By the October 4 date, GBMI had received order from retailers for over 500,000 pairs of Diesel shoes. After termination of the Distribution Agreements, Diesel designated Diesel USA (“D-USA”), a wholly owned subsidiary of SpA, as its US distributor, although D-USA had no information about other retailers’ orders for the relevant season. D-USA hired a former GBMI employee, who gave D-USA a list of the orders (the “Order Book”). D-USA had net sales of over $14 million for that season, selling shoes to retailers, some of who were identified in the Order.
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