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GARDEN STATE TANNING v. MITCHELL MFG. GROUP

July 6, 1999

GARDEN STATE TANNING, INC., PLAINTIFF,
v.
MITCHELL MANUFACTURING GROUP, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Katz, Senior District Judge

MEMORANDUM & ORDER

Two of the defendants in this case, the Mitchell Manufacturing Group, Inc., and Mitchell Corporation of Owosso,*fn1 move for summary judgment on all plaintiff's claims against them. The motion will be granted in part and denied in part. The plaintiff has agreed to withdraw the counts alleging civil conspiracy and violations of the RICO statute, and they will therefore be dismissed. Consequently, the court will address the breach of contract, quantum meruit, unjust enrichment, fraudulent conveyance, common law fraud, and alter ego counts. The court will grant summary judgment as to fraudulent conveyance, common law fraud, and alter ego claims, but deny summary judgment as to the contract and quasi-contract claims.

I. Background

The plaintiff, Garden State Tanning, Inc. (GST), sells leather used in automobile manufacturing. For many years, it sold leather to MMG, a wholly-owned subsidiary of Owosso. During 1997, MMG became increasingly delinquent in paying its bills to GST. As a result of pressure from GST, Owosso issued GST a guaranty for any sums not paid by MMG. The guaranty was put in writing in September 1997. GST also put MMG on a COD delivery basis. Following the guaranty and the change in the payment method, MMG began to bring its account current, and by March 1998 the delinquency was almost eliminated.

In February and March of 1998, Owosso informed GST that it was selling MMG to a third corporation, Lamont. Specifically, GST was told that "Mitchell Corporation of Owosso is in the process of closing on the sale of Mitchell Manufacturing Group, Inc. to a minority Group." At this time, Owosso also requested that MMG be taken off the COD delivery status. In the same letter, it reiterated the guaranty of September 1997 in exactly the same words.

GST complied with the request to remove MMG from COD basis and, prior to the (late of the sale on April 22, 1998, MMG ran up $2.8 million in additional debt that was unpaid at the time of the sale. After the sale, Lamont MMG ordered more goods,*fn2 and, based on its belief that Owosso's guaranty still applied, GST continued to supply the goods. The debt accordingly grew by $1.3 million more after the sale to Lamont. Soon after the sale, Lamont MMG became insolvent, and these bills were never paid.

The claims in this case into two groups revolving on two central theories: (1) the meaning of the guaranties and (2) whether or not Owosso, Mitchell, and Lamont, or some combination of those entities, intentionally misled GST as to the nature of the sale and the guaranties in an effort to have GST extend credit for bills that the defendants knew could not be paid. As to the first issue, the court finds that it cannot grant summary judgment for defendants, and the motion will be denied as to the contract and quasi-contract issues. As to claims related to the allegations of fraud, the motion will be granted.*fn3

II. Discussion*fn4

  A. The Guaranty Related Claims: Breach of Contract, Unjust Enrichment,
     and Quantum Meruit

MMG and Owosso request summary judgment on the claims pertaining to the guaranties: the breach of contract, unjust enrichment, and quantum meruit claims.

As to the breach of contract claims, MMG argues that the terms of its payment plan to GST mean that it ought not be held liable to GST for any debts not due at the time of the asset sale. Owosso argues that the guaranties it signed were not intended to cover any debts except those already owed at the time the guaranties in question were drafted, meaning that no post-guaranty invoices presented are owed by Owosso. Owosso also argues strenuously that even if the court were to take an expansive interpretation of the guaranties' language, GST's misconduct in extending credit and failing to notify Owosso that bills were not being paid should release Owosso from its guaranties as to amounts incurred after the sale. Finally, Owosso argues that the guaranties do not cover any shipments that became due after the sale because the guaranties referred only to its "wholly owned subsidiary." The court finds that there are genuine issues of material fact on all of these points such that summary judgment would be inappropriate. There are too many ambiguities pertaining to the guaranties and the resulting transactions for the court to rule in defendants' favor.

As to MMG's arguments, it relies on Michigan interpretation of the UCC and argues that the plaintiff has not shown that MMG accepted the goods in question. Plaintiff correctly points out that all of MMG's contentions require additional factual development and cannot be decided on a motion for summary judgment, even assuming its statement of the law is correct.*fn5

The court will now briefly address Owosso's arguments. Under Pennsylvania law, guaranty contracts are subject to the same rules of interpretation as other contracts. See Meeting House Lane, Ltd. v. Melso, 427 Pa.Super. 118, 628 A.2d 854, 857 (1993); Hyster Credit Corp. v. O'Neill, 582 F. Supp. 414, 416 (E.D.Pa. 1983). The well-settled rules of contractual interpretation in Pennsylvania were recently summarized by the Pennsylvania Superior Court:

  The paramount goal of contractual interpretation is to
  ascertain and give effect to the intent of the
  parties. In determining the intent of parties to a
  written agreement, the court looks to what they have
  clearly expressed, for the law does not assume that
  the language of the contract was chosen carelessly.

Id., quoting PBS Coals, Inc. v. Burnham Coal Co. 384 Pa.Super. 323, 558 A.2d 562, 564 (1989); Mellon Bank, N.A. v. Aetna Business Credit, 619 F.2d 1001, 1009 (3d Cir. 1980) (noting same). Obviously, the strongest indication of the parties' intentions are the words of the contract. See Mellon Bank, 619 F.2d at 1009. The court should not attempt to rewrite a contract, and the contract must be construed as a whole. See Meeting House Lane, 628 A.2d at 857. If possible, the court should give meaning to all terms in a contract. See id. at 858; see also Paul Revere Protective Life Ins. Co. v. Weis, 535 F. Supp. 379, 386 (E.D.Pa. 1981).

Unfortunately, the language of the guaranties in this case do not enable the court to form any firm conclusions. The guaranty of September 8, 1997, states in full as follows:

    Following is the letter we have committed to Garden
  State Tanning:
    We, Mitchell Corporation of Owosso, the parent
  company of Mitchell Manufacturing Group, Inc., do
  promise to pay in full all monies owed to you for
  goods received in the event ...

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