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Rankine v. Roller Bearing Company of America, Inc,

United States District Court, Ninth Circuit

November 5, 2013

JOYCE M. RANKINE; LAWRENCE S. STANTON, Plaintiffs,
v.
ROLLER BEARING COMPANY OF AMERICA, INC, ; DOES 1 THROUGH 10, inclusive Defendants. ROLLER BEARING COMPANY OF AMERICA, INC., Counter Claimant,
v.
JOYCE RANKINE; LAWRENCE S. STANTON, Counter Defendants.

ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT [Doc. No. 91]

MICHAEL M. ANELLO, District Judge.

Presently before the Court is Plaintiffs'/Counter Defendants' Joyce Rankine and Lawrence Stanton's ("Plaintiffs") motion for summary judgment. [Doc. No. 91.] Defendant/Counter Claimant Roller Bearing Company of America ("Defendant" or "RBC") opposed the motion, and Plaintiffs filed a reply. [ See Doc. Nos. 97, 102.] For the reasons set forth below, the Court GRANTS Plaintiffs' motion for summary judgment.

BACKGROUND[1]

This is a breach of contract case arising from a dispute over the payment of two promissory notes executed in connection with the sale of capital stock.

In 2006, Plaintiffs Joyce Rankine and Lawrence Stanton, in addition to Ms. Rankine's late husband, Baxter Rankine, were the three sole shareholders in All Power Manufacturing, Inc. ("All Power"). All Power principally designs and manufactures bushings for the aerospace industry.

On September 11, 2006, Plaintiffs entered into a Stock Purchase Agreement ("Agreement") with Defendant RBC, a bearings manufacturer, to sell their outstanding shares in All Power for a total price of $10, 321, 163. [Defendant's Statement of Disputed Facts ("DSF") ¶ 1, Doc. No. 99; Agreement § 2.2.] The parties executed two Non-Negotiable Promissory Notes in connection with the Agreement-one note in favor of Rankine ("Rankine Note")[2] and one in favor or Stanton ("Stanton Note") (together "Notes"). [Plaintiffs' Statement of Undisputed Facts ("SUF") ¶ 1, Doc. No. 91-1.] The principal amount of the Rankine Note is $600, 000 with an annual interest rate of 6.5%. [ Id. ] The principal amount on the Stanton Note is $150, 000 with an annual interest rate of 6.5%. [ Id. ] Both Notes were originally payable in full on September 12, 2007. [ See Non-Negotiable Promissory Notes, Doc. Nos. 91-3, 91-4.]

Section 1.3 of the Notes permits RBC to "set-off" the amount due under the Notes should RBC be entitled to indemnification or payment as set out in the Stock Purchase Agreement. [ See id. § 1.3.] On September 10, 2007, two days before the Notes became due, RBC exercised its set-off rights, claiming (1) All Power was unable to collect $12, 406 of accounts receivable; (2) $98, 451 of All Power inventory was not usable; (3) RBC was required to make an estimated corporate income tax payment of $150, 000; and (4) RBC was exposed to Mexican income taxes in excess of $900, 000. [DSF ¶ 93-94.] Of these four claims, the Mexico tax issue was of the greatest concern for RBC. [ Id. ¶ 95.] Plaintiffs disputed that any Mexican taxes were owed. The parties each hired independent Mexican counsel to assess the tax liability to RBC. After nearly a year and a half of investigation, the parties agreed that there was a five-year statutory period within which RBC was potentially exposed to tax liability in Mexico. [ Id. ¶¶ 95-96.] Accordingly, the parties agreed to extend the payment date on the Notes past the five-year liability period to June 30, 2012. Additionally, the parties amended the Notes' set-off provision as follows:

Limitation on Right of Set-Off. Notwithstanding anything to the contrary set forth in Section 10.7 of the Agreement or Paragraph 1.3 of the Note, unless on or prior to June 30, 2012, [RBC] receives a communication from the Mexican taxing authorities alleging a tax due from All Power relating to the period prior to September 11, 2006 (a "Mexico Tax Claim"), the principal amount of the Note, and all accrued and unpaid interest thereon, shall be paid in full by [RBC] on June 30, 2012, without off-set of any kind or nature. If a Mexico Tax Claim is received by [RBC] on or prior to June 30, 2012, then the provisions of the Stock Agreement and the Note applicable thereto will apply in full force and effect.

[Amendments to Notes, Doc. Nos. 91-3, 91-4 (emphasis added).]

RBC did not receive any communications from the Mexican tax authority prior to June 30, 2012. [SUF ¶ 4.] However, RBC refused to pay the amounts due under the Notes, claiming that it did not agree to waive RBC's set-off rights. [DSF ¶ 99.] Instead, RBC maintained that the Amendments to the Notes were limited to resolution of the Mexico tax set-off claim, and that the only set-off claims waived were the three remaining, known set-off claims (accounts receivable, inventory, and U.S. tax issues) listed in the September 2007 letter. [DSF ¶ 100-101.]

This action followed. In their state-court complaint, Plaintiffs assert breach of contract claims relating to RBC's failure to fulfill its obligations under both Notes. After removing to this Court, RBC simultaneously answered and counterclaimed for, inter alia, breach of contract and fraud. [Doc. Nos. 4-5.] After the Court dismissed RBC's counterclaim for failure to state a claim, RBC filed the operative First Amended Counterclaim ("FAC"). [Doc. No. 42.] Defendant's FAC revolves around its allegations that former All Power employees, David Rankine, Jeffrey Rindskopf, Charles Sharp, David McCulloch, and Mary Alvarado illegally used All Power's intellectual property to unfairly compete with RBC. [ See FAC ¶ 16.] On February 5, 2013, Plaintiffs moved to dismiss the FAC on grounds that (1) any alleged misconduct by All Power employees occurred after the sale of All Power to RBC, and (2) RBC is contractually barred from making claims of set-off. [ See Doc. No. 43-1.] The Court denied Plaintiffs' motion, accepting as true Defendant's allegations that the alleged misconduct occurred before the sale and that the amendment to the Notes only limited the Mexico tax set-off. [Doc. No. 70.]

Plaintiffs move for summary judgment as to both their claims and Defendant's FAC. Plaintiffs argue that no genuine issues of material fact remain as to Defendant's obligation to perform under the Notes.

LEGAL STANDARD

A motion for summary judgment should be granted if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The purpose of summary judgment "is to isolate and dispose of factually unsupported claims or defenses." Celotex v. Catrett, 477 U.S. 317, 323-24 (1986). The moving party bears the initial burden of informing the Court of the basis for the motion, and identifying portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits which demonstrate the absence of a triable issue of material fact. Id. at 323. The evidence and all reasonable inferences ...


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