HCC INDUSTRIES INC v. DENISE GOLDFARB STEVEN GOLDFARB (2022)

The following e-filed documents, listed by NYSCEF document number (Motion 001) 15, 16, 17, 18, 19, 20, 21, 22, 33 were read on this motion to/for DISMISS.

The following e-filed documents, listed by NYSCEF document number (Motion 005) 55, 56, 57, 58, 59, 61, 69, 70, 71, 72, 73, 74 were read on this motion to/for DISCOVERY.

Upon the foregoing documents and for the reasons on the record (12.19.22) and otherwise set forth below, Ametek Inc. and HCC Industries, Inc.'s (hereinafter, collectively, the Plaintiffs) motion to dismiss (Mtn Seq. No. 001) Andrew Goldfarb, Denise Goldfarb and Steven Goldfarb's (hereinafter, collectively, the Defendants) counterclaims is granted solely to the extent that the recission (first counterclaim) counterclaim is dismissed.

The recission (first counterclaim) and reformation (second counterclaim) counterclaims are predicated on the Defendants' claim that the Supplemental Agreement which they provided signature pages for in 2005 (but allege that they did not review at the time because they say they were never provided a copy of such Supplemental Agreement) fails to provide for a dollar-for-dollar credit for third party funds as to their $30 million indemnification obligation. This they argue is a mistake and does not reflect the business deal. The Defendants are not however entitled to recission. Simply put, the Defendants do not dispute that there was a meeting of the minds as to their $30 million environmental cost indemnification obligation. The parties are fighting about damages related to that obligation and whether the Defendants are entitled to a credit, not whether the obligation exists at all. Thus, the counterclaim seeking recission (first counterclaim) must be dismissed.

On the record before the Court, and although a much closer call, however, dismissal is not appropriate at this time as to their counterclaim seeking reformation (second counterclaim). The Defendants do not dispute that their attorney negotiated and received drafts of the Supplemental Agreement. The drafts of the Supplemental Agreement are not however in the record. Nor is evidence that the final Supplemental Agreement was in fact provided to the Defendants' attorney when the Defendants' signature pages were affixed to such Supplemental Agreement. Thus, the 3211(a)(1) evidence or other evidence in the record does not utterly refute the Defendants' claim that the Supplemental Agreement which they say they were never provided does not properly reflect the business deal or that they reasonably relied on the fact that it provided for a dollar-for-dollar credit. It is also not clear that this dollar-for-dollar credit would have been implicated in the approximately 15 years that the Supplemental Agreement was in existence and during which time period the parties were performing. However, should discovery produce evidence that the drafts of Supplemental Agreement or the final Supplemental Agreement sent to their attorney did not include the dollar-for-dollar credit that they now claim was the deal, the Plaintiffs may move by order to show cause renewing their motion seeking dismissal and may move for appropriate relief. For completeness, the agreements executed in connection with the initial sale of a portion of the Defendants' interests in 1997 did not provide for such dollar-for-dollar credit and, as otherwise indicated above, the Defendants also do not adduce drafts of any documents in opposition to the motion evidencing any such dollar-for-dollar credit. For the avoidance of doubt, at this time it also can not be said that dismissal is warranted based on the time period that the Plaintiffs allege that the Defendants "delayed" in asserting this position or that dismissal based on waiver or laches is appropriate or that the Defendants performed under the agreement since 2005 with this understanding.

Lastly, the Plaintiffs are not entitled to dismissal of the counterclaim for breach of contract (third counterclaim). The Defendants allege that the Plaintiffs breached their obligation to co-manage the site by engaging in work without the Defendants in a manner that caused substantial damage to the Defendants because, as the Defendants allege it, they could have worked out a different plan with the EPA which would have significantly decreased their indemnification obligation. Although the effect of the parties' disagreement over the dollar-for-dollar credit as to their other contractual obligations is not clear at this time, this is sufficient at this stage of the litigation to assert a breach of contract counterclaim.

Ametek's motion to vacate the notice of deposition to David Zapico (Mtn. Seq. No. 005) must be granted. The Defendants fail to establish anything that is in the unique knowledge of Mr. Zapico or why a corporate representative would not be sufficient to address their proper discovery requests.

The Relevant Facts and Circumstances

On or about 1997, Windward Capital Associates, L.P. (Windward) purchased a majority of outstanding shares of HCC Industries, Inc. (HCC) from then HCC shareholders (which HCC shareholders included the Defendants). In connection with the transaction, Windward and the Defendants executed a certain First Amendment and Restatement of the Stock Purchase and Sale Agreement dated December 23, 1996 (the Purchase Agreement). Pursuant to the Purchase Agreement, the Defendants agreed to indemnify, reimburse, defend and hold harmless HCC for, among other things, up to $30 million of environmental losses (the Indemnification Obligation; NYSCEF Doc. No. 2, §§ 11.3[a], 11.4[b]) stemming from management and oversite activities obligations to the United States Environmental Protection Agency (the EPA) in connection with the West Side of the El Monte Operable Unit of the San Gabriel Valley Groundwater Basin Superfund Site (the West EMOU). In support of this Indemnification Obligation, certain funds were held in escrow.

In 2005, Windward and the Defendants decided to sell all of their shares to Ametek Inc. (Ametek) (NYSCEF Doc. No. 12, ¶¶ 16-17). The Defendants allege that Peter MacDonald on behalf of Windward promised Andrew Goldfarb and the other Defendants that they would be entitled to a credit against their $30 million Indemnification Obligation for all sums paid out of escrow and, significantly, all amounts obtained from third-party sources, provided that the Defendants agreed to place an additional $5 million into an escrow account. As discussed below, the escrow credit is reflected in the Supplemental Agreement, a credit for amounts obtained from third-party sources is not.

The Defendants further allege that they executed blank signature pages requested by Windward and HCC on or about September 13, 2005 and were never provided with the full Supplemental Agreement, dated September 14, 2005 (id., ¶¶ 20-22; NYSCEF Doc. No. 4, the Supplemental Agreement).

Pursuant to the Supplemental Agreement, the parties agreed (i) Steven Goldfarb has the right to co-manage all activities at the West EMOU, (ii) the budget for the anticipated work at the EMOU shall be agreed upon by both Ametek and the Defendants, and (iii) any dispute regarding the scope of work shall be submitted to a third party expert for resolution:

4.1. The Company or its designee and Steven Goldfarb or his designee ("Steven Goldfarb") shall have the right to co-manage all activities related to and in furtherance of the Interim Record of Decision for the West Side of the EMOU and the related Consent Decree, as well as any future remedial work for which the Company may be liable or responsible at the EMOU. The Company or its designee shall have the right to manage the on-site remediation of soil and groundwater at the Rosemead Facility to the extent that further remediation is necessary to meet regulatory standards or to facilitate the remediation of the EMOU.

4.2. Prior to the New Closing Date, AMETEK and the Sellers shall agree upon budget for the anticipated scope of work over the next year on the EMOU (such budget, together with subsequently agreed upon budgets, to be referred to herein as the "EMOU Budget"). For each subsequent year until the termination of this Agreement in accordance with Section 5 herein, AMETEK and the Sellers shall, in advance of that year, confer and agree upon a budget for the anticipated scope of work for that period No work whose cost is estimated at the time of its commencement, to be 10% higher than the line item in the then applicable EMOU Budget will be performed unless all of the parties (or their designees) agree. No work shall be performed beyond that called for in the EMOU Budget unless it is mandated by a governmental agency overseeing the work. To the extent that additional work is mandated by said governmental agency, CDM shall prepare a revised budget estimate for such work which shall be included in and considered a part of the approved EMOU Budget. The Company and Sellers shall work within the EMOU Budget in designing and implementing the remediation of the West Side of the EMOU, as required in the Interim Record of Decision for the site

4.4. In the event of a dispute regarding the scope of work to be performed, or the methodology to be employed, the parties shall submit the issue to an independent third party evaluator (the "Evaluator") for resolution. The Evaluator shall be an expert in the field of environmental remediation. If AMETEK and the Sellers cannot agree on an individual to act as Evaluators, each of them shall pick a proposed Evaluator and the two proposed Evaluators shall pick a third person who shall act as sole Evaluator

(NYSCEF Doc. No. 4, at 5-7)

With respect to the Indemnification Obligation, and credits towards the $30 million environmental Indemnification Obligation, Section 3.1 of the Supplemental Agreement provides:

Except for funds obtained from the Deferred Amount described in Paragraph 3.1(a) below, none of the proceeds from sources described in this Paragraph 3.1 will be credited toward the Sellers' Contractual Indemnification Obligation:

(a) Deferred Amount. As of September 8, 2005, the balance of the Deferred Amount being held in escrow is approximately $4,232,000. Payments of all funds paid from the Deferred Amount shall be credited toward the Contractual Indemnification Obligation.

(b) West Side Settlers Group. As of September 8, 2005, the balance remaining of the payments made by the members of the West Side Settlers Group is $1,650,000.

(c) East Side Settlers Group. As of September 8, 2005, the balance remaining of the payments made by the members of the East Side Settlers Group is $3,223,000.

(d) San Gabriel Valley Water Quality Authority ("WOA"). The grants approved by the WQA will be dispersed by WQA upon submission of documented spending on approved projects.

(e) New Grants. AMETEK, the Company and the Sellers agree to use best efforts to pursue and obtain additional grants appropriate for use in funding the investigation and remediation of the groundwater at the EMOU.

(f) Third Party Recoveries. AMETEK and the Company will cooperate with Sellers to pursue claims against third parties to recover additional funds. Any costs incurred by AMETEK or the Company in connection with the pursuit of such recoveries, including attorneys' fees, shall be reimbursed by Sellers under this Agreement

(id., at 4-5 [emphasis added])

In other words, although the Supplemental Agreement does provide a credit for the escrowed money, it expressly disavows any other credits as to the Defendants' Indemnification Obligation. For completeness, the Purchase Agreement and the ancillary documents to the 1997 transaction also do not provide for a dollar-for-dollar credit for amounts obtained from third-party sources.

Lastly, as relevant, the parties agreed that delay should not constitute a waiver of any right under the Supplemental Agreement:

8.3. Waivers and Amendments No delay on the part of any party in exercising any right, power or-privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder

(id., at 9-10)

In early 2020, when Steven Goldfarb requested that the Plaintiffs close out the Indemnification Obligation for approximately $5 million, Ametek objected and explained to Mr. Goldfarb that he was not entitled to a credit for anything other than the escrowed monies. Certain emails exchanges ensued and Ametek referred Mr. Goldfarb to the Supplemental Agreement and provided him with a copy. The Defendants allege that it was at this time that they first became aware that the Supplemental Agreement did not reflect a dollar-for-dollar credit for any third-party funds (NYSCEF Doc. No. 12, ¶¶ 23-26).

In 2020, and after the dispute arose with respect to third-party credits, the Defendants allege that the Plaintiffs allegedly ceased cooperating and co-managing work at the West EMOU with the Defendants (NYSCEF Doc. No. 12, ¶¶ 33-34). Indeed, the Defendants allege that, in late 2020 and early 2021, the Plaintiffs undertook certain additional work at the West EMOU without the Defendants' approval despite Steven Goldfarb's explicit objection indicating that he would not authorize or pay for any further work unless the Plaintiffs agreed to meet with the EPA and discuss certain issues. This, the Defendants allege, breached Sections 4.1, 4.2 and 4.4 of the Supplemental Agreement (id., ¶¶ 35-36, 56-61).

On October 14, 2021, the Defendants initiated an action in the Superior Court of the State of California, County of Los Angeles, Central District, alleging causes of action for (i) rescission, (ii) reformation against all defendants in that action, and (iii) breach of contract against the Plaintiffs (id., ¶ 32). On December 13, 2021, the Plaintiffs brought this lawsuit asserting breach of contract. In this lawsuit, the Defendants asserted counterclaims of (i) recission (first counterclaim), (ii) reformation (second counterclaim), and (iii) breach of contract (third counterclaim).

Discussion

On a motion to dismiss, the pleading is to be afforded a liberal construction and the Court must accept the facts as alleged as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit any cognizable legal theory (Leon v Martinez, 84 NY2d 83, 87-88 [1994]).

I. The Defendants' counterclaim for recission (first counterclaim) must be dismissed

Where a mistake in contracting is both mutual and substantial, there is an absence of the requisite meeting of the minds to the contract and relief will be provided in the form of rescission (Sunlight Funding Corp. v Singer, 146 AD2d 625, 626 [2d Dept 1989]). The effect of rescission is to declare the contract void from its inception and to put or restore the parties to status quo (Schwartz v National Computer Corp., 42 AD2d 123, 125 [1st Dept 1973]; Cnty. of Orange v Grier, 30 AD3d 556, 557 [2d Dept 2006]). As discussed above, recission simply is not appropriate. The Defendants do not dispute that there was a meeting of the minds with respect to the underlying $30 million obligation. They dispute whether they are entitled to certain credits as it relates to that obligation. Thus, even taking their allegations as true, they can not disavow their acknowledged obligation entirely. At most, if true, the Defendants are entitled to reformation. Therefore, the counterclaim for rescission must be dismissed.

II. The Defendants' counterclaim for reformation (second counterclaim) is not dismissed

The doctrine of laches bars the enforcement of a right where there has been an unreasonable and inexcusable delay that results in prejudice to a party, which may be demonstrated by a showing of injury, change of position, loss of evidence, or some other disadvantage resulting from the delay (Westchester Religious Inst. v Kamerman, 248 AD2d 116, 116 [1st Dept 1998]; Diecidue v Russo, 142 AD3d 686, 688 [2d Dept 2016]; Waldman v 853 St. Nicholas Realty Corp., 64 AD3d 585, 588 [2d Dept 2009]; Meding v Receptopharm, Inc., 84 AD3d 896, 897 [2d Dept 2011]; Matter of 101CO, LLC v NY Dept of Envt Conservation, 169 AD3d 1307, 1310—1311 [3d Dept 2019]).

The Plaintiffs argue that the Defendants' counterclaim for reformation is barred because the Defendants waited 14 months to assert such claim and prejudiced the Plaintiffs as they continued to expend money on certain site investigation and cleanup for which the Defendants are contractually obliged to indemnify them (NYSCEF Doc. No. 16, at 13). In their opposition papers, the Defendants argue that dismissal based on laches is inappropriate because the Plaintiffs fail to establish (i) that they lacked knowledge that the Defendants would assert this claim, (ii) the Defendants' unreasonable and inexcusable delay in asserting claim, and (iii) prejudice (NYSCEF Doc. No. 20, at 21-24). The Defendants are correct.

On the record before the Court, it appears that the parties engaged in certain conversations during this 14 month period as it relates to this dispute such that it can not be said that there was any delay in asserting this claim. Indeed, the Defendants brought the lawsuit filed in California within one year after the parties were unable to resolve their different understanding of this dollar-for-dollar credit (NYSCEF Doc. No. 20, at 22). More importantly, the Plaintiffs fail to show any prejudice. The fact that there was this difference in understanding does not seem to have prevented the Plaintiffs from proceeding with remedial work such that they were prejudiced. Indeed, as alleged by the Defendants, they proceeded with remedial work without approval from the Defendants and did not follow the agreed upon mechanism for resolving disputes related to that work. For clarity, it is not apparent whether Steven Goldfarb's refusal to approve of or pay for work was a breach of the Supplemental Agreement. Steven Goldfarb also did not request that the parties follow the dispute resolution mechanism set forth in the agreement. Therefore, the Plaintiffs' argument of laches fails.

The Plaintiffs also argue that the reformation counterclaim must be dismissed because the Defendants can not establish any justifiable reliance. Among other things, the Plaintiffs argue that the Defendants do not dispute that their attorney negotiated the Supplemental Agreement and argue that it is simply inconceivable that the Defendants never received a copy of the Supplemental Agreement which did not provide for the dollar-for-dollar credit that they now, 15 years later, indicate was supposed to be part of the Supplemental Agreement. The Plaintiffs also argue that the Defendants fail to establish justifiable reliance based on any misrepresentation allegedly made by Mr. Macdonald (NYSCEF Doc. No. 16, at 14-15). The argument fails. The issue of whether reliance is justifiable is generally an issue of fact and cannot be determined on a motion to dismiss (Braddock v Braddock, 60 AD3d 84, 88 [2009]; Cohen v Cohen-Fisher, 78 AD3d 640, 641 [2010]). In this case, and given that there are no documents in the record as to what the Defendants received in the way of drafts of the Supplemental Agreement or whether the attorney representing the Defendants in fact received a final copy of the executed Supplemental Agreement, dismissal is inappropriate.

III. The Defendants' counterclaim for breach of contract (third counterclaim) is also not dismissed

The Plaintiffs argue that the Defendants' breach of contract claim must be dismissed because they failed to notice the Plaintiffs of their breach of Sections 4.1, 4.2 and 4.4 of the Supplemental Agreement before asserting such claim (NYSCEF Doc. No. 16, at 16-17) or they otherwise waived their right to assert a claim based on the Plaintiffs alleged breach. The arguments fail.

A party to an agreement who believes it has been breached may elect to continue to perform the agreement and give notice to the other side rather than terminate the agreement. However, by choosing not to terminate the contract at the time of the breach, the nonbreaching party "surrenders his [or her] right to terminate later based on that breach." (Albany Med. Coll. v Lobel, 296 AD2d 701, 702 [3d Dept 2002]).

As an initial matter, the Court notes that the Defendants do not seek termination, they seek damages. More importantly, however, the Defendants assert that they did not know of the Plaintiffs' voluntary taking of additional work after Steven Goldfarb indicated that he would not pay for such work without meeting with the EPA. Finally, the record does not establish a knowing, voluntary and intentional waiver or continued acceptance of the "benefits" of the Supplemental Agreement (Lee v Wright, 108 AD2d 678, 680 [1st Dept 1985]; Todd Eng. Enterprises LLC v Hudson Home Grp., LLC, 206 AD3d 585, 587 [1st Dept 2022]; Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96, 105-106 [2006]). Therefore, the branch of the motion seeking dismissal of the Defendants' breach of contract counterclaim is denied.

IV. Ametek's motion for a protective order (Mtn. Seq. No. 5) must be granted

Ametek argues that they are entitled to a protective order such that David Zapico should not be required to go to a deposition, because Mr. Zaico, who has been Ametek's CEO since 2016, has no unique personal knowledge regarding (i) the events surrounding the co-management of the environmental cleanup in 2020-2021 and (ii) the Defendants' counterclaims for recission and reformation.

In the opposition papers, the Defendants argue that Mr. Zapico's testimony is relevant because (i) he is the "ultimate decision-maker" in Ametek's involvement in certain activities in the West EMOU, which concerns the Defendants' counterclaim for breach of contract, and (ii) his alleged delay and/or failure in settlement responses relates to the issue of whether Defendants timely asserted their right to rescind. This is plainly insufficient.

Although senior officials are not immune from depositions, a party seeking to depose such witnesses must establish that the knowledge of the proffered official is insufficient to produce testimonial and documentary evidence "material and necessary" to the prosecution of the action (CPLR 3101[a]; Colicchio v City of New York, 181 AD2d 528, 529 [1st Dept 1992]; Arendt v General Elec. Co., 270 AD2d 622, 622-623 [3d Dept 2000]; Defina v Brooklyn Union Gas Co., 217 AD2d 681, 682 [2d Dept 1995]; Saieh v Demetro, 201 AD2d 477 [2d Dept 1994]). The record simply does not establish that an Ametek corporate representative would not be able to provide adequate information which is material and necessary to the Defendants' defenses or the prosecution of their counterclaims. Thus, the motion must be granted.

Accordingly, it is

ORDERED that the Plaintiffs' motion to dismiss (Mtn. Seq. No. 001) must be granted to the extent that the Defendants' counterclaim for recission (first counterclaim) is dismissed; and it is further

ORDERED that the Plaintiffs' motion for protective order (Mtn. Seq. No. 005) must be granted; and it is further

ORDERED that Counsel are directed to appear for a conference on January 30, 2023, at 11:30 AM.

DATE 12/20/2022

ANDREW BORROK, J.S.C.

Andrew Borrok, J.