Thales Alenia Space France v. Thermo Funding Company, LLC

Filing 74

OPINION AND ORDER re: 58 MOTION for Summary Judgment filed by Thales Alenia Space France. For the foregoing reasons, plaintiff's motion for summary judgment is GRANTED. The Clerk of the Court is directed to close this motion [D ocket No. 58] and enter a judgment in favor of plaintiff in the amount of $14,296,917.81 ($12.5 million principal and 9% statutory prejudgment interest calculated from January 1, 2013 through August 7, 2014). (Signed by Judge Shira A. Scheindlin on 8/7/2014) (lmb)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

----------------------------------------------------- )(
THALES ALENIA SPACE FRANCE,
OPINION AND ORDER

Plaintiff,

13-cv-712 (SAS)

- against THERMO FUNDING COMPANY, LLC,
Defendant.

----------------------------------------------------- )(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

INTRODUCTION

Plaintiff Thales Alenia Space France ("Thales") brings this diversity
breach of contract suit against Thermo Funding Company, LLC ("Thermo").
Thales now moves for summary judgment. For the following reasons, Thales's
motion is GRANTED.
II.

BACKGROUND

This action arises from a series of contractual relationships among
three entities. Thales is a French aerospace company involved in the manufacture
of low Earth orbit ("LEO") satellites.' Globalstar, Inc. ("Globalstar") is a publicly
See Plaintiff's Local Rule 56.1 Statement of Undisputed Material
Facts ("Pl. 56.1 ") ~~ 1-2.

1

traded, commercial provider of satellite communication services that owns and
operates LEO satellites.2 Thermo is a limited liability company that has invested
millions of dollars in Globalstar and, as of April 2012, owned a controlling interest
in Globalstar. 3 The material facts are undisputed.
A.

The Parties' Business Relationships
In 2009, Thales and Globalstar entered into an Amended and Restated

Contract for the Construction of the Globalstar Satellite for the Second Generation
Constellation ("Construction Contract"), which required Thales to design and
manufacture forty-eight LEO satellites. 4 In order to fund this arrangement,
Globalstar arranged for financing from the Compagnie Francaise d' Assurance pour
le Commerce Exterieur ("COF ACE")-the French export credit agency-and
several French banks. 5 As part of this agreement, Globalstar was required to fund
a Debt Service Reserve Account ("DSRA") of$12.5 million, and COFACE and
the banks requested Thales provide a guarantee of the full amount of the DSRA. 6
Thales agreed, provided that Thermo reimburse Thales for any payments it made
2

See id.

iii! 13-15.

3

See id.

iii! 16-19.

4

See id.

iii! 22-23.

5

See id.

if 24.

6

See id.

iii! 25-26.
2

under the guarantee. 7 This arrangement between Thermo and Thales was
memorialized in a separate 2009 contract (the "Reimbursement Agreement"),
which provided that such reimbursements must be made by December 31, 2012, or
within ten business days of a change in control of Globalstar. 8 Ultimately, Thales
paid the maximum $12.5 million, thereby obligating Thermo to reimburse it for the
same amount. 9

B.

The Thales-Globalstar Arbitration
In 2011, Globalstar initiated arbitral proceedings against Thales in

relation to its obligations under the Construction Contract, and Thales filed
counterclaims against Globalstar. 10 Thales prevailed in the arbitration, winning an
approximately €52. 7 million award on its counterclaims. 11 Knowing Globalstar
would file for Chapter 11 bankruptcy if Thales proceeded to enforce the arbitral
award, Thales agreed to enter into settlement negotiations with Globalstar, which
included discussing the terms of Globalstar' s purchase of six additional satellites

7

See id.

if 27.

8

See id.

iii! 28-29

9

See id.

iii! 32-33.

10

See id.

iii! 35, 37.

II

See id.

if 41.
3

from Thales. 12
C.

The Settlement Agreement and the Release Agreement 13

As part of the settlement, Thales sought to resolve claims relating to
the Construction Contract that Globalstar had threatened to bring and obtain a
release from Globalstar of all potential claims relating to the Construction
Contract. 14 To this end, Thales insisted that Thermo be a party to any settlement
and Thermo did not object. 15 After weeks of negotiation, beginning in mid-May
2012, Thales, Thermo, and Globalstar ("Parties") reached a final agreement and
signed the Settlement and Release Agreements ("Agreements") simultaneously on
June 24, 2012. 16
1.

The Settlement Agreement

The Settlement Agreement's introductory paragraph recites that the
Parties intend it "to settle and extinguish the obligations, disputes and differences

12

See id. ifif 44, 46.

13

The Settlement Agreement and Release Agreement explicitly
reference each other, making it clear they were intended to be read together. See,
e.g., Settlement Agreement ("Settlement"), Exhibit ("Ex.") 1 to Memorandum of
Law in Support of Plaintiffs Motion for Summary Judgment ("Pl. Mem."), at 2.
14

See Pl. 56.1ifif47, 55.

15

See id. ifif 57, 69.

16

See id. ifif 78, 83, 85.
4

hereinafter described." 17 The Settlement Agreement then describes Thermo's prior
obligation to pay Thales $12.5 million under the Reimbursement Agreement. 18
The Agreement then goes on to state that "Thermo shall pay to Thales
$12,500,000 in relation to the DSRA, by wire transfer" on the earlier of "the New
Contract Effective Date [for the six new satellites] or on December 31, 2012." 19 In
addition, Thales agreed to postpone or waive the amount it was awarded in
arbitration. 20 Article 14 of the Settlement Agreement extinguishes the prior
Reimbursement Agreement. The clause reads: 'This Agreement constitutes the
entire agreement between the Parties and supersedes all prior understandings,
commitments and representations between the Parties." 21

2.

The Release Agreement

As part of the Release Agreement, Thales released Thermo from all
present and future obligations under the Reimbursement Agreement. The Release
Agreement expressly states that the "Released Claims" include "Claims, except the
Excluded Claims, whether or not now known or asserted, which any Party ever
17

Settlement at 1.

18

See id. at 1.

19

Id. at§ 2(a).

20

See id. at § 2( d).

21

Id. at§ 14.

5

----------------------

had, now has, or ever will have against another Party, including without limitation
Claims relating to any facts known to the Parties, arising out of or in any way
related to the Contract ... except the Excluded Claims. 22 "Excluded Claims"
include" ... (ii) any Claims for amounts payable pursuant to the Settlement
Agreement. " 23

D.

Procedural History
Thales expected that the New Contract Effective Date, as defined in

the Settlement Agreement, would occur prior to December 31, 2012 but it did
not. 24 Thermo refused to pay Thales the $12.5 million on December 31, 2012. 25
According to James Monroe, III, who executed the Agreements on behalf of
Thermo, the "spirit" of the Settlement Agreement did not support payment until
Globalstar first obtained financing for the six new satellites. 26 Globalstar has not
yet obtained financing for the six satellites. 27
Thales commenced this litigation on January 31, 2013. Thermo filed
22

Release Agreement ("Release"), Ex. 2 to Pl. Mem. § 1(e).

23

Id. § l(f).

24

See Pl. 56.1

25

See id.

if 139.

26

See id.

ifif 91, 142-143.

27

See id.

if 144.

if 106.

6

a motion to dismiss, claiming that no consideration supported Thermo' s promise to
pay Thales $12.5 million because Thermo had a "preexisting duty" to pay that sum
under the Reimbursement Agreement. 28 On June 25, 2013, I rejected this argument
as well as Thermo' s "lack of consideration" argument because the Complaint
alleged that a third party, Globalstar, received consideration from Thales. 29
Thermo then filed a Rule 12(b)(l) motion, arguing that Thales and
Thermo are both foreign and that the Court lacked diversity jurisdiction. On
November 12, 2013, I found that complete diversity of citizenship exists and this
Court therefore has subject matter jurisdiction. 30
Thales now brings this motion for summary judgment. While the
material facts are undisputed, the parties disagree as to whether the documents
were structured such that the $12.5 million DSRA payment owed by Thermo under
the Reimbursement Agreement would continue, or whether the Parties intended
that the Settlement Agreement would supersede and extinguish the prior
Reimbursement Agreement. Thermo argues that the 2012 Settlement Agreement

28

Pl. Mem. at I 0.

29

Thales Alenia Space France v. Thermo Funding Co., LLC, 959 F.

Supp. 2d 459 (S.D.N.Y. 2013).
30

See Thales Alenia Space France v. Thermo Funding Co., LLC, No. 13

Civ. 712, 2013 WL 5996148, at *l (S.D.N.Y. Nov. 12, 2013).
7

merely reiterated a preexisting contractual duty to pay under the 2009
Reimbursement Agreement. Accordingly, the Settlement Agreement is a nullity
because Thermo received no consideration from Thales.
Thales does not challenge the law on preexisting duties but contends
that it does not bar Thales from recovering under the Settlement Agreement
because (1) the 2012 documents reflect a cancellation of all prior obligations and
the creation of a new obligation; (2) Thermo received and gave consideration for
taking on "new and different" obligations regarding the $12.5 million DSRA; (3)
in the alternative, the 2012 obligation is enforceable as an "accord" or a written
acknowledgment of a preexisting obligation; and (4) no additional consideration
was necessary to support Thermo's undertaking because Globalstar received
consideration and Thales incurred a detriment in their agreements with one
another. 31 Although the Parties argue about their intent in executing the
Agreements, the interpretation of those Agreements presents only questions of law
that can be resolved by reviewing the unambiguous language of the contract.

III.

LEGAL STANDARD ON SUMMARY JUDGMENT
Summary judgment is appropriate "only where, construing all the

evidence in the light most favorable to the non-movant and drawing all reasonable
31

See Thermo Funding Company LLC's Response in Opposition to
Plaintiff Thales Alenia Space France's Motion for Summary Judgment at 5.
8

inferences in that party's favor, there is 'no genuine issue as to any material fact

and ... the movant is entitled to judgment as a matter of law. "'32 "The role of the
court is not to resolve disputed issues of fact but to assess whether there are any
factual issues to be tried." 33 "Credibility determinations, the weighing of the
evidence, and the drawing of legitimate inferences from the facts are jury
functions, not those of a judge."34

IV.

APPLICABLE LAW

The Settlement Agreement provides that it is to be governed by the
laws of the State of New York. 35 To establish a claim for breach of contract under
New York law, a party must prove "(1) a contract; (2) performance of the contract
by one party; (3) breach by the other party; and (4) damages. " 36 The first of these
elements-the existence of a contract-is in part determined by the presence or

32

Rivera v. Rochester Genesee Reg'! Transp. Auth., 702 F.3d 685, 692
(2d Cir. 2012) (quoting Fed. R. Civ. P. 56(c)) (other quotations omitted).
33

Cuff ex rel. B.C. v. Valley Cent. School Dist., 677 F.3d 109, 119 (2d

Cir. 2012).
34

Reeves v. Sanderson Plumbing Prod. Inc., 530 U.S. 133, 150 (2000).

35

See Crane Co. v. Coltec Indus., Inc., 171 F.3d 733, 737 (2d Cir. 1999)
(applying New York law where agreement so specified).
36

Terwilliger v. Terwilliger, 206 F.3d 240, 245-46 (2d Cir. 2000).
9

absence of consideration. 37
In determining a party's obligations under a contract, it is not for the
court to "supply a specific obligation the parties themselves did not spell out." 38
"The interpretation of an unambiguous contract is a question of law for the court,
and the provisions of a contract addressing the rights of the parties will prevail
over the allegations in a complaint." 39

A.

Preexisting Duty
New York has long recognized and enforced the

"preexisting duty rule." Under this rule, a promise to perform a preexisting duty
cannot be valid consideration for a contract because the promisor is bound by no
additional detriment, and the promisee receives no additional benefit from the
bargain. 40 "[N]either the promise to do a thing, nor the actual doing of it, will be a
good consideration if it is a thing which the party is bound to do by the general

37

See, e.g., Roth v. Isomed, Inc., 746 F. Supp. 316, 319 (S.D.N.Y.

38

Tanking v. Port Auth. ofNew York & New Jersey, 3 N.Y.3d 486, 490

1990).
(2004).
39

Id.

40

See Care Travel Co., Ltd. v. Pan Am. World Airways, Inc., 944 F .2d
983, 990 (2d Cir. 1991) (citing Fafoutis v. Lyons, 540 N.Y.S.2d 20, 21 (1989) ("A
covenant to do what one is already under a legal obligation to do is not sufficient
consideration for another contract.") (citations omitted)).

10

law, or by a subsisting contract with the other party."41 Based on this rule, New
York courts have declined to enforce agreements in which a party's sole promise
was to perform a preexisting obligation. 42

B.

Consideration
In New York, "consideration is a necessary ingredient for an

enforceable contract."43 Thus, unless no consideration is required, 44 the promisee
(or some other person) must give consideration to the promisor (or some other
person). 45 Consideration does not have to benefit the promisor; it can benefit a

41

Vanderbilt v. Schreyer, 91 N.Y. 392, 401 (1883). Accord Goncalves
v. Regent Int'l Hotels, Ltd., 58 N.Y.2d 206, 220 (1983) ("A promise to perform an
existing legal obligation is not valid consideration to provide a basis for a
contract.").
42

See Murray v. Northrop Grumann Info. Tech., Inc., 444 F.3d 169, 178
(2d Cir. 2006) (affirming dismissal of breach of contract claim where defendant's
obligations were based on preexisting legal duty to the Department of State,
because "[a] promise to perform a pre-existing legal obligation does not amount to
consideration") (citation omitted). See also In re Bennett, 149 B.R. 16, 18-19
(N .D .N. Y. 1993) (dismissing breach of contract claim because plaintiff had
preexisting duty to repay defendant for prior credit).
43

Roth, 746 F. Supp. at 319.

44

See, e.g., N.Y. Gen. Oblig. Law§ 5-1103 (eliminating the

consideration requirement for written and signed modifications of preexisting

contracts).
45

See 22 N.Y. Jurisprudence 2d Contracts § 64 (2014).
11

third party. 46 For example, and relevant to the instant case, "the discharge of one
person from liability under a debt is a sufficient consideration for the promise of

another to pay."47
C.

Release of Contractual Obligations
Parties to a contract may mutually agree to cancel and rescind the

contract. 48 In addition, one party to an agreement may release another of a duty
owed to the maker of the release, and thus discharge the duty upon the occurrence
of any conditions provided for in the release. 49 "The duty that is released need not
be matured." 50 A release of a preexisting obligation can occur at the same time the
parties enter into a new agreement, in which case the new promise is not
46

See, e.g., Mencher v. Weiss, 306 N.Y. 1, 8 (1953) ("[I]t is fundamental
that a benefit flowing to a third person or legal entity constitutes a sufficient
consideration for the promise of another."). See also Restatement (Second) of
Contracts§ 71(4) & cmt. e (1981) ("It matters not from whom the consideration
moves or to whom it goes. If it is bargained for and given in exchange for the
promise, the promise is not gratuitous."); 22 N.Y. Jurisprudence 2d Contracts§ 64
("[T]o constitute an adequate consideration for a promise, the benefit need not
move to the promisor, as it may move to a third person.").
47

County Trust Co. ofN.Y v. Mara, 273 N.Y.S. 597, 603 (1st Dep't
1934) (citing Hayes v. Mestaniz, 29 N.Y.S. 1114 (Super. Ct. 1894)).
48

See Rodgers v. Rodgers, 235 N.Y. 408, 410 (1923).

49

See Restatement (Second) of Contracts § 284(1) (1981) ("A release is
a writing providing that a duty owed to the maker of the release is discharged
immediately or on the occurrence of a condition.").
50

Id. cmt. a.

12

inadequate consideration under the preexisting duty rule. 51

V.

DISCUSSION
A.

Preexisting Duty
Thales argues that the Release Agreement released Thermo' s

obligation to pay the $12.5 million DSRA obligation. Thermo counters that
although the Agreements were executed on June 24, 2012, the release of claims did
not take effect until more than five months later on December 31, 2012. Thermo
further contends that without full rescission of the old contract, the new promise
was not legally enforceable because it falls within the preexisting duty rule and
fails for lack of consideration.
Thales counters by pointing out that the Settlement Agreement by its
own terms "superseded and extinguished the Reimbursement Agreement upon
coming into force and effect on June 24, 2012, meaning that Thermo never had two
obligations to pay Thales the $12.5 million." 52 In support, Thales cites the

51

See Schwartzreich v. Bauman-Basch, Inc., 231N.Y.196, 203-05
( 1921) ("Where the new contract gives any new privilege or advantage to the
promisee, a consideration has been recognized, though in the main it is the same
contract. ... There is no reason that we can see why the parties to a contract may
not come together and agree to cancel and rescind an existing contract, making a
new one in its place. We are also of the opinion that reason and authority support
the conclusion that both transactions can take place at the same time.").
52

Pl. Mem. at 18.
13

introductory language of the Settlement Agreement which states that the parties
intended "to settle and extinguish the obligations, disputes and differences
hereinafter described" 53 as well as the merger clause language that the Agreement
"supersedes all prior understandings, commitments and representations between
the Parties with respect to the subject matter hereof." 54
Thales is correct. The plain language of the Agreements extinguished
Thermo' s duties under the Reimbursement Agreement. Because there is no
ambiguity in the contractual language, I do not consider the intent of the parties,
but consider only the text of the contracts. If these sophisticated Parties intended
to continue the obligations under the Reimbursement Agreement, they could and
would have so provided. By their express terms, however, the Agreements
extinguished the existing obligations under the Reimbursement Agreement and
created new obligations for the Parties on the same subject, which the law permits
them to do.
B.

Consideration Flowed to All Three Parties
As I noted in my June 25, 2013 opinion denying Thermo's motion to

dismiss, "[t]he text of the Settlement Agreement also expresses consideration from

53

Settlement at 1.

54

Id. § 14.

14

Thales in exchange for Thermo's promises." 55 Because the Reimbursement
Agreement was no longer in effect, the consideration the parties gave to create it
was no longer in effect.
Further, Thales correctly notes that Thermo's promise is enforceable
even if Thermo received nothing in the settlement. "[A] promisee who has
incurred a specific, bargained for legal detriment may enforce a promise against
the promisor, notwithstanding the fact that the latter may have realized no concrete
benefit as a result of the bargain." 56 As a result of the settlement, Thales gave up
its right to enforce a €52.7 million arbitration award and relinquished €35 million
of that award. Thales waived these rights in exchange for Globalstar and Thermo's
promises, including Thermo's promises (i) to liquidate its future obligation to pay
Thales $12.5 million; (ii) to expedite payment of that $12.5 million ifthe New
Contract Effective Date occurred prior to December 31, 2012, thereby enabling
Thales to pay its subcontractors and to cover industrial costs associated with the
new contract; and (iii) to release Thales from all liability relating to the

55

Thales Alenia Space France, 959 F. Supp. 2d at 467.

56

Holt v. Feigenbaum, 52 N.Y.2d 291, 299 (1981). Accord AXA Inv.
Managers UK Ltd. v. Endeavor Capital Mgmt. LLC, 890 F. Supp. 2d 373, 384
(S.D.N.Y. 2012).
15

Construction Contract. 57 Thus Thales incurred a bargained-for legal detriment in
reliance upon Thermo' s promises, which serves as consideration for Thermo' s
promise to pay Thales the $12.5 million.
Moreover, Thermo need not have received any new consideration for
its promise to pay Thales $12.5 million because a third party, Globalstar, received
consideration from Thales. "Consideration does not have to flow directly to the
promisor; it may flow to a third party instead. In this case, the Complaint and the
Settlement Agreement clearly pled the existence of bargained-for consideration,
which if not flowing directly to Thermo was instead going to benefit Globalstar." 58
Thus, even if Thermo were correct in arguing that it received no consideration, the
consideration flowing between Thales and Globalstar is sufficient to make the
Agreements valid and enforceable.
VI.

CONCLUSION
For the foregoing reasons, plaintiffs motion for summary judgment is

GRANTED. The Clerk of the Court is directed to close this motion [Docket No.
58] and enter a judgment in favor of plaintiff in the amount of $14,296,917.81
($12.5 million principal and 9% statutory prejudgment interest calculated from

57

See Pl. Mem. at 24.

58

Thales Alenia Space France, 959 F. Supp. 2d at 467.
16

January 1, 2013 through August 7, 2014).

Dated:

New York, New York
August 7, 2014

17

- Appearances For Plaintiff:

For Defendant:

Elliot E. Polebaum, Esq.
Eugene N. Hansen, Esq.
Fried, Frank, Harris, Shriver & Jacobson LLP
801 l 71h Street, NW
Washington, DC 20006
[phone]
[e-mail]

Gerald S. Greenberg, Esq.
W. Stuart Domette, Esq.
Matthew D. Lawless, Esq.
Taft Stettinius & Hollister LLP
425 Walnut Street, Suite 1800
Cincinnati, OH 45202
[phone]
[e-mail]

18