Case Title: MHR Capital Partners LP v. Presstek, Inc.

Citation: 

Docket Number: 

State: new-york

Court: New York Appellate Court

Date: 2009-06-24T00:00:00Z

Document:
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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 114  
MHR Capital Partners LP, et al.,
            Appellants,
        v. 
Presstek, Inc.,
            Respondent, 
Silver Acquisitions Corp., &c.,  
            Defendant.
Michael M. Fay, for appellants.
Victor M. Metsch, for respondent.
GRAFFEO, J.:
In this breach of contract action, we conclude that
defendant's obligation to perform under a stock purchase
agreement did not arise because an express condition precedent
was not fulfilled.  We therefore affirm the order of the
Appellate Division so holding.
In 2003, defendant Presstek, Inc. and its wholly owned
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subsidiary, defendant Silver Acquisitions Corp., entered into
discussions to purchase A.B. Dick Company (ABD) -- a financially
distressed graphic arts and printing supplier -- from its parent
corporation, Paragon Corporate Holdings, Inc.  The negotiations
culminated in a June 2004 stock purchase agreement, which
provided that Paragon would receive $24 million in cash and
approximately $20 million worth of Presstek's stock in exchange
for ABD's stock.  Under an ancillary agreement incorporated into
the stock purchase agreement, plaintiffs MHR Capital Partners LP
and its affiliates (collectively, MHR) -- major creditors of ABD
-- agreed to the terms of the stock purchase arrangement and
waived their rights in return for the payment of over $10 million
in cash and stock from Presstek.
On June 16, 2004, Presstek, Silver, ABD, Paragon and
MHR executed a separate escrow agreement that required the stock
purchase agreement and related documents to be placed in escrow
and released upon the occurrence of certain conditions. 
Specifically, the escrowed materials were not to be released
"unless and until" Key Corporate Capital, Inc. (Key Bank), ABD's
lender, consented to the stock purchase transaction "on the terms
and conditions contained herein."  Further, the escrow agreement
obligated Paragon to obtain Key Bank's approval before "the close
of business on June 22, 2004," together with the bank's execution
of a consent form annexed to the escrow agreement.  The escrow
agreement stated that Presstek was to destroy or return the
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escrowed documents deemed "null and void" if Key Bank did not
sign the consent form by June 22.
In the consent document, Presstek agreed to satisfy
ABD's outstanding indebtedness with a combination of cash and
Presstek stock (rather than cash only) and Key Bank was required
both to continue funding ABD "by increasing its total aggregate
lending commitment to [Paragon] as necessary to ensure adequate
funding for [ABD] through the closing" and forbear from declaring
any default under its loan agreement with ABD until the deal
closed.  Key Bank, however, refused to execute the consent form. 
Instead, on June 22, 2004, Key Bank faxed a one-page letter to
Presstek that "consent[ed]" to the transaction, but included
terms that differed from some of the requirements in the consent
form.  In particular, Key Bank did not consent to fund ABD "as
necessary," nor did it agree not to declare a default.  Presstek
terminated the stock purchase transaction later that day.
The following month, Presstek and Silver entered into a
more lucrative asset purchase agreement with ABD and Paragon. 
The new agreement contained no provision for Presstek's
satisfaction of ABD's outstanding indebtedness to MHR.  As
required by this new agreement, ABD filed for bankruptcy in
Delaware.  Paragon applied to the United States Bankruptcy Court
for the District of Delaware for an order authorizing the sale of
ABD's assets to Presstek pursuant to an auction process that
would allow third parties to offer higher bids.  MHR filed
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1  According to MHR, it received only $175,000 for its ABD
notes as a result of the bankruptcy proceeding.
2  Supreme Court dismissed the complaint as against Silver
for lack of personal jurisdiction.
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objections to the auction sale of ABD's assets on the basis that
Presstek and Silver were not "good faith" purchasers within the
meaning of 11 USC § 363 (m).
After an evidentiary hearing, the Bankruptcy Court
overruled MHR's objections and approved the sale.  The United
States District Court for the District of Delaware dismissed
MHR's appeal as moot because MHR had failed to seek a stay.  The
District Court also noted that, in any event, Presstek's pre-
bankruptcy proceeding behavior had no bearing on whether it was a
good faith purchaser under the Bankruptcy Code.1
In February 2005, MHR commenced this action for breach
of contract against Presstek and Silver, alleging that they
improperly terminated the stock purchase agreement.2  The
complaint seeks $10 million in damages.  Following discovery,
Presstek moved for summary judgment dismissing the complaint.
Supreme Court granted the motion and dismissed the
complaint, concluding that the Bankruptcy Court's approval of the
sale of ABD's assets over MHR's objections precluded this breach
of contract action under principles of res judicata and
collateral estoppel.  The Appellate Division, with two Justices 
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dissenting, affirmed, albeit on a different ground (55 AD3d 12
[1st Dept 2008]).  The majority held that Key Bank's failure to
sign the consent form by June 22, 2004, which it characterized as
a condition precedent, relieved Presstek of any obligation to
close under the stock purchase agreement.  The dissent would have
reinstated the complaint, finding an issue of fact as to whether
Presstek had improperly prevented Key Bank from executing the
consent form.  MHR appeals as of right based on the two-Justice
dissent pursuant to CPLR 5601 (a).
MHR urges three grounds for reversal and reinstatement
of its breach of contract claim.  First, MHR contends that the
escrow agreement is ambiguous and that Key Bank's approval was
not a condition precedent.  In a related vein, MHR argues that
Key Bank's June 22 fax was an adequate approval and that any
differences in terms between the consent form and fax are
immaterial.  Second, MHR submits that the consent form improperly
added conditions not contemplated by the stock purchase
agreement.  Third, MHR asserts that, even if Key Bank's approval
of the transaction was a condition precedent, a question of fact
exists as to whether Presstek actively interfered with Key Bank's
execution of the consent form.
It is well settled that a contract is to be construed
in accordance with the parties' intent, which is generally
discerned from the four corners of the document itself. 
Consequently, "a written agreement that is complete, clear and
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unambiguous on its face must be enforced according to the plain
meaning of its terms" (Greenfield v Philles Records, 98 NY2d 562,
569 [2002]).  Furthermore, a condition precedent is "an act or
event, other than a lapse of time, which, unless the condition is
excused, must occur before a duty to perform a promise in the
agreement arises" (Oppenheimer & Co. v Oppenheim, Appel, Dixon &
Co., 86 NY2d 685, 690 [1995] [internal quotation marks and
citations omitted]).  We have recognized that the use of terms
such as "if," "unless" and "until" constitute "unmistakable
language of condition" (id. at 691).  Express conditions must be
literally performed; substantial performance will not suffice.
Here, pursuant to the escrow agreement, the contract
documents were not to be released "unless and until" Key Bank
consented to the deal "on the terms and conditions" outlined in
the agreement.  Among those terms and conditions was the
requirement that Key Bank manifest its approval through its
execution of the accompanying consent form by June 22, 2004. 
Upon the failure of Key Bank to accept the terms of the consent
form by that date, Presstek was authorized to destroy or return
the stock purchase agreement and annexed documents, all of which
then became "null and void."  Based on this clear and unambiguous
language, we conclude that Key Bank's approval of the stock
purchase transaction by the fixed date -- through its execution
of the consent form -- was an express condition precedent.
It is uncontested that Key Bank did not sign the
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consent form.  Moreover, Key Bank's June 22 fax, presenting a
more limited acceptance, did not fulfill the explicit requirement
that Key Bank execute and agree to all of the terms contained in
the consent form, as required by the escrow agreement.  Hence,
Key Bank did not perform the express condition.
To the extent MHR complains that the consent form
imposed additional burdens on Key Bank not originally
contemplated by the stock purchase agreement, we concur with the
Appellate Division majority's view that MHR's time to voice its
displeasure with the wording and requirements of the documents
expired when it accepted and signed the escrow agreement.  Each
of the parties to the escrow agreement, including MHR, was a
sophisticated business entity represented by counsel, and the
agreement, negotiated at arms length, incorporated the annexed
consent form and plainly required Key Bank to sign it
(see generally Innophos, Inc. v Rhodia, S.A., 10 NY3d 25, 29
[2008]).  That the consent form obligated Key Bank to refrain
from declaring a default and increase its lending commitment to
Paragon "as necessary to ensure adequate funding" -- requirements
viewed in hindsight as overly burdensome by MHR -- is therefore
irrelevant.
Finally, MHR correctly observes that a "party to a
contract cannot rely on the failure of another to perform a
condition precedent where he has frustrated or prevented the
occurrence of the condition" (ADC Orange, Inc. v Coyote Acres,
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Inc., 7 NY3d 484, 490 [2006] [internal quotation marks and
citation omitted]).  But MHR failed to raise a question of fact
in this regard.  Critically, the escrow agreement placed the
burden on Paragon -- not Presstek -- to obtain Key Bank's consent
by June 22.  Nevertheless, Presstek met with Key Bank's
representative before that date and at that time Key Bank had the
consent form in its possession, but refused to sign it on the
basis that it considered its terms too onerous.  The fact that
Presstek entered into a more favorable arrangement to buy ABD's
assets shortly after the stock purchase transaction fell apart
does not, by itself, raise an issue of fact as to whether it
prevented Key Bank from signing the consent form.
Because we agree with the Appellate Division majority
that Presstek had no duty to proceed with the stock purchase
agreement due to the nonperformance of an express condition,
namely, Key Bank's failure to execute the consent form, we do not
reach Presstek's alternative grounds for affirmance.
Accordingly, the order of the Appellate Division should
be affirmed, with costs.
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Order affirmed, with costs.  Opinion by Judge Graffeo.  Chief
Judge Lippman and Judges Ciparick, Read, Smith, Pigott and Jones 
concur.
Decided June 24, 2009