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CASEY EQUIP. CORP. v. ARMCO

May 11, 1992

CASEY EQUIPMENT CORPORATION, Plaintiff,
v.
ARMCO, INC., Defendant.


Lewis


The opinion of the court was delivered by: TIMOTHY K. LEWIS

MEMORANDUM OPINION

LEWIS, District J.

 The above-captioned case involves a dispute between plaintiff Casey Equipment Corporation ("Casey"), which acts as a broker in selling equipment and other portions of steel mills, and Armco, Inc., ("Armco"), which hired Casey to sell certain of its equipment. Casey and Armco have filed cross-motions for partial summary judgment concerning only Count I of a four-count amended complaint. The issue presented is a pure question of law -- whether, under the terms of the brokerage agreement, Casey is entitled to a commission for the sale of a wide flange mill. For the following reasons, the court will deny Casey's motion and grant Armco's motion.

 FACTS

 On April 1, 1985, Casey and Armco entered into a brokerage agreement whereby Casey agreed to act as Armco's exclusive agent in selling equipment located at Armco's steel mill facilities in Houston, Texas. See Casey Exhibit Book, Ex. 1 (Contract, § 1.1).

 The brokerage contract was to terminate on March 31, 1987, two years from the date of its execution, but it was ultimately extended to April 13, 1987. Casey and Armco agree that the contract terminated on April 13, 1987.

 Section 4.2 of the brokerage contract provides:

 
At the time of termination of the Agreement, ARMCO shall register as CASEY'S customers, all known potential customers who had inspected and with whom CASEY had direct and specific negotiations concerning the Equipment listed on Exhibit A. CASEY shall be entitled to a commission of seventeen and on-half percent (17-1/2%) on all sales made to such registered customers during the one (1) year period after termination of this Agreement.

 Both parties agree that this section entitled Casey to a commission on any sales made to its customers within one year after April 13, 1987, or by April 13, 1988. This commission amount would be in addition to that Casey earned on sales made before April 13, 1987.

 One sub-facility of its Houston operation which Armco wished to sell as an entire unit was a wide flange mill. The parties agreed that the sale of the wide flange mill would entitle Casey to a commission of 15%, instead of the 17-1/2% set forth in the brokerage agreement. Otherwise, the sale of the wide flange mill was subject to all other terms of the brokerage contract.

 In June of 1986, while Casey's brokerage contract was in effect, a company called Northwestern Steel & Wire ("NSW") submitted a letter of intent to Armco, offering to purchase the entire wide flange mill for $ 23.5 million. Enclosed was a down payment of $ 1,000,000. Armco rejected this offer.

 On June 8, 1987, within the one-year grace period following termination of the brokerage agreement, NSW entered into an option contract with Armco. In the option contract, Armco agreed to extend the date for closing on the sale of the wide flange mill in exchange for $ 300,000. NSW's option on the wide flange mill was extended several times, and there may have been times when the option was not in effect. *fn1" It is clear, however, that as of June 22, 1989, an option agreement was in place, because on that date NSW exercised its option and purchased the wide flange mill and equipment.

 Casey claims that, by virtue of the brokerage agreement, it is entitled to a 15% commission on $ 12,000,000 Armco received from the sale of the wide flange mill. Apparently, the cost of the wide flange mill alone, excluding the metal buildings and cranes, was $ 12,000,000. Armco denies that Casey is entitled to such a commission.

 DISCUSSION

 A. Applicable Standard

 Federal Rule of Civil Procedure 56(c) provides that summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P.56(c).

 When confronted with a motion for summary judgment, it is not the court's function to weight the evidence and determine the truth of the matter, but rather simply to determine whether there is a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). An issue is genuine only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.

 The moving party has the burden of identifying the portions of pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The nonmoving party then must go beyond the pleadings and by affidavits, depositions, answers to interrogatories, and admissions on file, designate facts showing that there is a genuine issue for trial. Id. at 324.

 B. Preliminary Issues

 The court must address two preliminary issues before delving into the merits of the parties' motions. First, Armco asserts that Casey's motion should be denied because it was filed out of time. On September 20, 1989, this court ordered that "defendant's motion for partial summary judgment shall be filed by November 27, 1989; any motion for summary judgment or partial summary judgment which plaintiff wishes to file shall also be filed by such date." Casey, however, filed its motion for partial summary judgment on January 2, 1990, without requesting an extension of time. Armco argues that Casey's motion should be denied because it was timely filed. In light of the court's ultimate decision in favor of Armco, Armco's objection is moot.

 Second, Casey suggests that Texas, not Pennsylvania, law should be applied. Both parties agree, however, that there is no significant difference between Pennsylvania and Texas contract law. In fact, both parties cite both Pennsylvania and Texas cases in their brief. Therefore, no true choice of law issue exists. As a result, as a federal court sitting in diversity, the substantive law of the forum state, Pennsylvania, applies. Erie R. Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938).

 C. The Brokerage Contract Dispute

 As noted previously, the issue presented in this case is purely legal -- whether under the terms of the brokerage agreement, Casey is entitled to a 15% commission for the sale of Armco's wide flange mill. Casey asserts that the sale of the wide flange mill occurred when Armco accepted NSW's letter of intent on July 13, 1986, or at least in June, 1987, when Armco entered into an option agreement to extend the closing date of the sale to NSW. Because both of these events occurred before April 13, 1987, Casey concludes that a "sale" occurred within the grace period provided by the contract and that it is entitled to a commission.

 Armco responds that Casey is not entitled to a commission because neither the letter of intent nor the option agreement constitute a sale. Armco argues that the sal of the wide flange mill occurred on June 22, 1989, when NSW exercised its option to purchase the mill and other equipment. Because this occurred after the expiration of the grace period provided for in the brokerage contract, Armco contends that Casey is not entitled to a commission on the sale to NSW.

 Section 4 of the brokerage contract is entitled "Commission" and provides in relevant part:

 
In consideration of the services rendered pursuant to this Agreement, Casey shall be paid a commission calculated on the basis of the amount of sales revenues, excluding taxes, received by Armco covered by and pursuant to the terms of this Agreement.
 
For the purpose of calculating this commission, sales shall mean the amount of actual payments received by Armco from purchasers under this Agreement.

 Contract, § 4.1 (emphasis added).

 From this position, it is clear that Casey was to be paid a commission on the basis of sales, and that "sales" are defined as the "amount of actual payments received by Armco." Casey, in fact, admits that this is the only place in the entire brokerage agreement where the term "sales" is fully defined.

 In this case, "sales" to NSW consummated during the one year grace period include only the $ 1,000,000 which NSW paid with the letter of intent, not the $ 12,000,000 paid after NSW exercised its option in June, 1989. Armco paid Casey its commission on the $ 1,000,000.

 Casey advances several arguments in support of its contention that it should receive a commission on the $ 12,000,000. None result in a ruling in its favor.

 First, Casey asserts that the option agreement constituted a sale. This is not so. An option contract contemplates a subsequent contract of sale, which will arise only if the optionee elects to exercise the option. Warner Bros. Theatres, Inc. v. Proffitt,, 329 Pa. 316, 198 A.56 (1938). Surely, if the deal had fallen through, Armco would not assert that it is nevertheless entitled to a commission on the $ 12,000,000 because the parties had entered into an option agreement at some time while it was acting as a broker for Armco.

 Second, Casey points to the portion of the contract which provides:

 
All sales by Casey under this Agreement shall require the purchases to pay (50%) fifty per cent of all the purchase price in cash or certified check at the time of sale with the balance of the purchase price to be paid in cash or by certified check before the purchased Equipment is dismantled or removed from the plant or forty-five (45) days from the date of the sale, whichever is earlier.

 Contract, § 3.3. Casey contends that, according to this language, the "sale" to NSW occurred when it paid its $ 1,000,000 down payment in July of 1986, not when NSW paid the balance of the purchase price in 1989, upon closing the deal.

 This provision, however, is contained in section 3 of the contract, entitled "Conditions of Sale." It addresses the procedure governing sales of equipment under the brokerage contract. In contrast, section 4 of the contract, recited earlier, is entitled to "Commission" and relates to Casey's entitlement to a commission. Therefore, it is more appropriate to refer to section 4 in determining whether Casey is entitled to a commission than it is to refer to section 3. As this court has already noted, ...


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