Opinion ID: 182383
Heading Depth: 2
Heading Rank: 2

Heading: The District Court's Rulings After Trial

Text: In the present action, Diesel asserted numerous claims, several of which were dismissed prior to trial. To the extent pertinent to this appeal, Diesel's third amended complaint alleged principally that Greystone had failed to give Diesel notice of many defaults by GBMI under the LSA and had thereby breached the TPA notice provisions; that the failures of GBMI and Greystone to pay Diesel for shoes shipped to GBMI breached the Distribution Agreements and the TPA payment provisions; and that Diesel was entitled to recover from each defendant for breach of contract, unjust enrichment, or account stated. Diesel sought approximately $20 million in damages, plus interest. Greystone, in connection with Props's acquisition of the GBMI Order Book, in which Greystone claimed a security interest, asserted a counterclaim seeking more than $30 million for unjust enrichment. The district court held a three-day bench trial on the above claims. In a posttrial Opinion and Order reported at 2009 WL 2514033, No. 07 Civ. 9580 (S.D.N.Y. Aug. 18, 2009) ( Diesel ), annotated with citations to pertinent documents and to testimony and other sworn statements by officials of Greystone, GBMI, SpA, Kid, and Props, the district court ruled against Diesel on all of its claims and ruled in favor of Greystone on its unjust enrichment counterclaim against Props. The court dismissed Diesel's claims against GBMI on the ground that GBMI's obligations to make payments to Diesel arose only under the Distribution Agreements, and those agreements contained forum-selection clauses requiring all claims thereunder to be litigated in Milan, Italy. See Diesel, 2009 WL 2514033, at , . As to Diesel's claim against Greystone for breach of the payment provisions of the TPAs, the court concluded that Diesel was not entitled to recover, principally because it had not shown that a condition precedent to Greystone's obligation to make payments had been performed. The court found that the TPAs and the LSA, executed on the same day, made express reference to one another, and that the terms of each w[ere] conditioned on the performance and fulfillment of conditions of the other. Id. at . [T]he LSA authorized Greystone to wire GBMI's funds directly to Diesel pursuant to the terms of the [TPAs].. . . . Likewise, Greystone's payment obligations under the TPA w[ere] expressly [s]ubject to the terms and conditions of the [LSA].. . . . Thus, the standing instructions from GBMI to Greystone to advance revolver proceeds directly to Diesel applied only if the TPA applied to the particular orders for which payment was requested and all conditions under the TPA were met. . . . That is, if the terms of the TPA did not apply to a particular order for which payment was requested (i.e., the order was outside the structure set forth in the TPA), Greystone had no authority under the LSA to wire GBMI's revolver proceeds directly to Diesel; rather, GBMI, as the borrower under the LSA, would be required to send Greystone a separate instruction to disburse loan proceeds to Diesel as a third-party. . . . The TPA contained three primary independent provisions. First, GBMI was required to obtain a purchase order from a bona fide customer (Customer Purchase Order) before placing an order for shoes with Diesel. . . . A copy of the Customer Purchase Order was to be delivered to both Diesel and Greystone. . . . Second, the TPA provided that at any time before shipping the shoes, Diesel had the right to request written notice from Greystone as to whether at the time of such request there were (a) sufficient funds to permit payment in the amount requested in the Diesel Invoice, (b) if not, GBMI would be prevented from requesting a loan under the LSA, or (c) if GBMI was not in compliance with any of the covenants and/or warranties under the LSA, or is in default under the LSA, irrespective of whether that non-compliance or default has been waived by Greystone[ ] . . . (the Notice Provision). Third, pursuant to the TPA, GBMI was required to deliver to Diesel and Greystone a copy of any invoices to customers (Customer Invoice), which were deemed an irrevocable request for disbursement of a revolving loan in the amount of the corresponding Diesel Invoice[ ] . . . (the Payment Provision). In accordance with the terms and conditions of the LSA, within two days of its receipt of a Customer Invoice, Greystone was required to wire the proceeds of the new loan in the amount of the corresponding Diesel Invoice. . . . The only express conditions prior to payment w[ere] a receipt of a Customer Invoice and availability of funds under the LSA. . . . Diesel, 2009 WL 2514033, at  (citations to the record omitted; emphases added). The court noted that Diesel's December 2 Letter expressly stated that the [TPA] should only be applied to orders placed by GBMI upon receipt of a purchase order for product from a bona fide customer of Diesel Products. . . . . Although Greystone did not sign the December 2 Letter, it is undisputed that it would not have closed on the LSA if Diesel had not signed the December 2 Letter, and that Greystone agreed to the terms of the December 2 Letter by accepting the TPA and closing on the LSA. [Joint Pretrial Order] ¶ 16. Diesel, 2009 WL 2514033, at  (other citations to the record omitted; emphasis ours). Although noting that rejection of a contract claim on the basis of nonperformance of a condition precedent is generally disfavored, the district court found that in this case the words and actions of the parties demonstrate that all interested parties intended that the December 2 Letter make the Customer Purchase Order requirement a condition precedent to the operation of the TPA. Diesel, 2009 WL 2514033, at . It found that when Diesel shipped shoes to GBMI that were not supported by Customer Purchase Orders the TPA simply did not apply to these shipments, id. at : The effective date of the TPA was December 4, 2006. . . . At that time, there were 110,000 pairs of shoes being held at SNATT, Diesel's consolidator warehouse in Hong Kong, waiting to be shipped to the United States. . . . Although the procedure set forth under TPA was supposed to cover all orders after its execution, GBMI paid for these shoes by letter of credit because it wanted fast delivery, and the formalities required to implement the TPA were not yet in place on GBMI's end. . . . While Diesel contends all parties understood the rest of the shipments for the SS07 season would be paid for under the TPA, that does not appear to be what happened. Beginning in January 2007, Diesel began accepting orders from GBMI that were not supported by Customer Purchase Orders, understanding that the terms of the TPA would not apply to those shipments. . . . Diesel opted to take the risk of accepting those orders because it was anxious to have its shoes distributed into the United States in time for the Fall/Winter 2007 (FW07) season. . . . Diesel continued to ship to GBMI without requiring Customer Purchase Orders throughout the life of the TPA knowing full well that, based on the structure of the TPA and as made explicit in the December 2 Letter, those orders were not covered by the TPA. . . . Because the TPA simply did not apply to these shipments, Greystone lacked any authority to lend funds to a third-party (such as Diesel) without the direct authorization of GBMI as its borrower under the LSA. . . . GBMI and Greystone's actions under the LSA were consistent with this understandingon 18 occasions, GBMI requested that Greystone wire revolver funds directly to Diesel in specified amounts; Greystone honored each instruction. Diesel, 2009 WL 2514033, at - (footnote and citations to the record omitted; emphases added); see also id. at . As to Diesel's claim against Greystone for breach of the TPA notice provisions, the district court found that there were indeed numerous occasions on which Greystone failed to give notice of GBMI's noncompliance with the LSA. But it found that Diesel had failed to carry its burden of showing that losses it suffered from nonpayment for shoes it shipped to GBMI were caused by those failures. GBMI's Greystone credit account was available for payments not only to Diesel but to other GBMI creditors as well, and the court found that Diesel, with awareness of GBMI's financial problems, shipped shoes to GBMI even when it had received notice of GBMI defaults or of the current lack of funds in the credit account sufficient to pay for shoes being shipped by Diesel. See, e.g., id. at -, . There is no dispute that Diesel was well aware of GBMI's dire financial situation, and that it chose to take the business risk associated with continuing to ship shoes to GBMI, because it wanted to ensure a market for its footwear in the United States. . . . One example is the occasion on January 16, 2007, when Diesel sent a Notice Letter requesting a response under the Notice Provision of the TPA, but failed to wait the requisite two business days for a response from Greystone, and shipped over three-quarters of a million dollars worth of shoes that same day. To make the cheese more binding, the testimony revealed that on the two occasions when Diesel was notified of GBMI's defaults under the LSA, rather than discontinue its relationship with GBMI, it continued to ship goods. In February, over the four days following the first default notice, Diesel shipped $1.7 million worth of shoes. Thereafter, even though it knew GBMI was in financial difficulty and in default under the LSA, and that it had not been paid for its shipments, in the three months following the first notice of default, Diesel proceeded to ship over $13 million dollars worth of shoes to GBMI, After it received the second notice of GBMI's default on July 18, 2007, undeterred by GBMI's financial state, Diesel continued to ship shoes, shipping over $1 million worth of shoes in the ensuing two weeks. Diesel continued to ship shoes up until the day before it sent its notices to Greystone and GBMI of its intent to terminate the TPA and Distribution Agreements, almost two months after it received the second notice of default. Id. at . The court noted testimony by Diesel witnesses who testified that had they received notice of any of the additional instances of covenant breaches of availability (in addition to the two notices of default actually received), they would not have continued to ship shoes to GBMI. Id.; see also id. at . But the court found that this testimony [wa]s belied by the events as they actually unfolded, id. at , and that Diesel's own actions and business decisions to continue to ship shoes irrespective of GBMI's financial condition constituted an intervening cause of [Diesel']s losses, id. at . Addressing Diesel's alternative claims against Greystone, the district court dismissed the claim for account stated, finding that the e-mails on which Diesel relied for that claim were statements of accounts owed not by Greystone, but by GBMI. See id. at . As to the claim for unjust enrichment, which was premised on Greystone's receipt from GBMI of proceeds of sales of shoes for which payment was not made to Diesel, the court found that Greystone had not been enriched unjustly: The evidence in this case reveals the only benefit Greystone retained was to the extent it was, or could have been, repaid for loan funds disbursed to GBMI under the LSA. However, GBMI was obligated to repay Greystone for those loans. Equity and good conscience do not require a party to give up what it rightfully obtained, or is entitled to, under a contract. . . . ([B]argained-for benefits cannot be deemed to unjustly enrich a contracting party.) Diesel, 2009 WL 2514033, at  (internal quotation marks omitted). The district court found merit, however, in Greystone's counterclaim for unjust enrichment against Props for the value that Props unjustly obtained by purloining Greystone's collateral, i.e., GBMI's SS08 Order Book. Id. at . The court rejected Props's contention that the Distribution Agreements entitled Props to the Order Book at the end of the SS08 sales campaign. Having found that the SS08 sales campaign had ended as of the termination of the Distribution Agreement[s], id. at , the court found that the facts show that Props purposely timed its notice of default so that the end of the 30-day cure period would coincide with the end of the sales campaign. . . . The Distribution Agreement nowhere states that Props is entitled to the Order Book if the Agreement is terminated; Props timed its notice of default and termination to correspond exactly with the end of the sales period. The Court is not persuaded by Props's arguments that GBMI was required to provide it with the Order Book, id. at . The court ordered Props to pay Greystone unjust enrichment damages in the amount of $572,616.75 plus $104,765.18 in interest, for a total of $677,381.93. This appeal followed.