PIRITO v. PENN ENGINEERING WORLD HOLDINGS et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE STEWART DALZELL ON 5/16/13. 5/16/13 ENTERED AND COPIES MAILED, E-MAILED.(mbh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
PENN ENGINEERING WORLD
HOLDINGS, et al.
May 16, 2013
Before us in this protracted international commercial
dispute are cross-motions for summary judgment by plaintiff and
counterclaim defendant Cataldo Pirito (“Pirito”) and defendants
and counterclaim plaintiffs Penn Engineering & Manufacturing
Corp. (“Penn Engineering”) and Penn Engineering World Holdings
After initial consideration of the submissions
we ordered supplemental briefing on the effect of the judgment
of the Milan (Italy) Court of Appeals that rejected Pirito’s
appeals and confirmed the Italian arbitral awards of February 13
and September 18, 2009.
We also consider both Penn entities'
motion for costs.
As we described in our December 22, 2011 Memorandum
(the "Memorandum"), this case arises out of a Stock Purchase
Agreement (“SPA” or “the Agreement”) executed in February 20031
pursuant to which Penn World purchased the capital stock of
Maelux SA, a Luxembourg corporation that owned all the capital
stock of M.A.E. S.p.A. (“M.A.E.”), an Italian manufacturer and
merchant of electric motors.
Pirito v. Penn Engineering World
Holdings, 833 F. Supp. 2d 455, 460 (E.D. Pa. 2011); Def.
Counterclaim ¶ 3. In his complaint, Pirito alleges that Penn
World -- and through its Guarantee Penn Engineering2 -- breached
Though the SPA is dated January 23, 2003, both parties refer to
February 5, 2004 as the first anniversary of the closing date,
see Br. in Supp. of Pl.’s MSJ at 15 (hereinafter “Pl. MSJ”); Br.
in Supp. of Def.’s MSJ (hereinafter “Def. MSJ”) at 15 which
references the closing date as February 5, 2003. Because the
parties seem to agree that the closing took place on February 5,
2003, we will accept that date as the closing date.
When Penn World and Pirito entered into the Agreement, Penn
Engineering executed a Guarantee, providing that
Penn Engineering & Manufacturing Corp.
(“Parent”) irrevocably guarantees each and
every representation, warranty, covenant,
agreement and other obligation of the Buyer,
and/or any of its permitted assigns (and
where any such representation or warranty is
made to the knowledge of the Buyer, such
representation or warranty shall be deemed
made to the knowledge of Parent), and the
full and timely performance of their
respective obligations under the provisions
of the foregoing Agreement.
Def. MSJ Ex. 1 at 45 (“Guarantee”). In our Memorandum we found
that Penn Engineering was not a party to the contract, Pirito,
833 F. Supp. 2d at 467, and Penn World asserts, and Pirito does
not dispute, that “Pirito cannot prevail on his claim for
§ 2(f) of the SPA by making a demand for the Real Property
Payment Amount that was not based on the contract’s formula and
then failed to sell him the property.
Comp. ¶¶ 52-64.
The Penn entities counterclaimed in four counts: (I)
Fraud, (II) Breach and Lapse of Option to Purchase Real
Property, (III) Enforcement of the Determination of the
Independent Public Accountant, and (IV) Breach of Contract.
Def. Ans. ¶¶ 168 - 95.
In our Memorandum, we granted Penn
World’s motion to confirm the September 18, 2009 Final Award,
Pirito, 833 F. Supp. 2d at 470, and because this granted Penn
World the relief it sought in Count III of its counterclaims,
our determination mooted that count.
Here, Penn World moves for
summary judgment on Count II of its counterclaims, Breach (§
2(d) of the SPA) and Lapse of Option (§ 2(f) of the SPA).
For the reasons we here explain at length, we hold
that Penn World did not breach § 2(f) of the SPA, and we will
thus grant the Penn entities’ motion for summary judgment on
Pirito’s claims and deny Pirito’s motion for summary judgment on
We hold that Pirito breached § 2(d) of the SPA
summary judgment on Count II of the Complaint against Penn
Engineering, the Guarantor, unless he prevails on his claims
against Penn World on Count I of the Complaint.” Def. Resp. in
Opp. to Pl. MSJ at 29. See also Pl. MSJ at 30 (“Penn
Engineering guaranteed Penn World’s performance under the SPA”).
We thus focus our inquiry now on Penn World’s liability.
and that the option has lapsed, and so we will grant the Penn
entities’ motion for summary judgment with regard to Count II of
the Counterclaims and in doing so we deny Pirito’s motion for
summary judgment on his corollary contentions.
We decline to
enter the money judgment Penn World seeks on Count II of its
We will dismiss Counts I and IV without
prejudice as Penn World requests, and so will deny Pirito’s
motion for summary judgment with regard to these claims as moot.
Factual and Procedural Background
In our Memorandum, we described the formation of the
Agreement and recounted the (1) provision for determining the
consolidated net worth of Maelux SA after the closing (contained
in § 2(d)), (2) Real Property Agreement (contained in § 2(f)),
(3) choice of law clause selecting Italian law (contained in §
13(m)), and (4) arbitration provision (also in § 13(m)).
Pirito, 833 F. Supp. 2d at 460-62.
We also rehearsed at length
the factual history regarding Penn World’s allegations as to
Pirito’s misrepresentations and failure to comply with § 2(d), §
3, and § 4 of the Agreement, the first and second arbitration
proceedings and awards, and Pirito’s appeal.
Id. at 463-66.
incorporate that information by reference, and we will now
describe the facts relevant to the instant motions.
The Net Worth Deficit Dispute
Our Memorandum also considered the SPA’s mechanism for
determining the consolidated net worth of Maelux SA at closing,
whereby the parties would engage Ernst & Young LLP to determine
the consolidated net worth of Maelux, including M.A.E.3, on the
day of closing, and if Pirito disputed that finding he would
notify Penn World of the dispute and the parties would negotiate
in good faith for fifteen days.
If they were unable to resolve
the dispute, the parties would refer the matter to a mutuallyagreeable independent public accountant, and, if they could not
agree on such an accountant, they would each designate an
accountant, and the accountants would together choose an
independent public accountant to determine the Net Worth.
Pirito, 833 F. Supp. 2d at 461.
[i]f and to the extent that the Net Worth of
the Company reflected on the Closing
Statement as finally determined (“Net Worth
at Closing”) shall be an amount less than
€815,821 (“Minimum Required Net Worth”): (i)
the Purchase Price shall be retroactively
and immediately reduced by an amount equal
to the amount (“Net Worth Deficit”) by which
the Net Worth at Closing is less than the
Minimum Required Net Worth, and (ii) an
The parties agree that the Net Worth here means the Net Worth
of both Maelux and M.A.E., see Def. MSJ at 16 n.11, citing
Letter of Pirito’s counsel, Def. MSJ Ex. 21, wherein Pirito’s
counsel defines “Net Worth” as “Total Assets minus total
liabilities of Maelux and MAE”.
amount equal to the Net Worth Deficit shall
become immediately due and payable to the
Buyer from the Seller, such amount being
payable first from the Escrow, and, if in
excess of the Escrow, then by the Seller.
SPA, Def. MSJ Ex. 1, at § 2(d).
Section 2(e) contains the escrow agreement, and it
provides that “[a]t Closing, the Seller, the Buyer and Union
Bank of Switzerland (the ‘Escrow Agent’) shall enter into a
mutually satisfactory Escrow Agreement . . . in order to secure
the Buyer with respect to (i) any repayment of the Net Worth
Deficit as further provided in Section 2(d) . . . .”
The escrow agreement further provided that
The amount of the Escrow shall initially be
€2.0 million, which shall reduce to €1.0
million on the one-year anniversary of the
Closing Date, €500 thousand on the two-year
anniversary of the Closing Date, €400
thousand on the three-year anniversary of
the Closing Date, €300 thousand on the fouryear anniversary of the Closing Date and
€200 thousand on the five-year anniversary
of the Closing Date. Notwithstanding the
preceding sentence, (i) the applicable
required amount of the Escrow provided for
in this Section 2(e) shall not at any time
be reduced below the aggregate of all then
contested amounts under the Escrow Agreement
and (ii) the amount of funds available to
the Buyer through the Escrow shall not be
less than €400 thousand on the three-year
anniversary of the Closing Date, excluding
then contested amounts under the Escrow
Agreement, even if such requirement results
in the Seller being required to transfer
additional funds into the Escrow.
The parties agree that in July of 2003 Penn World sent
Pirito the Ernst & Young report which found the Net Worth to be
negative €442,000, which would result in a Net Worth Deficit of
Pl. MSJ at 14; Def. MSJ at 16.
informed Penn World that he disputed this finding, and the
parties thereafter negotiated the Net Worth Deficit for several
The parties disagree about whether they came to a
substantive agreement about the Net Worth Deficit: Penn World
maintains that it made a revised offer on October 29, 2003, and
in December of that year Pirito’s lawyer told Penn World Pirito
accepted that offer with one condition to which Penn World
Def. MSJ at 17.
According to Penn World, in order to
avoid arbitration, “[a]ll that had to be done was for the
parties to carry [the agreement] out by sending the necessary
Joint Written instructions to the Escrow Agent, whereby some
funds would be wired to Penn World and all the rest would stay
in escrow”, id., but as the first anniversary of the closing
date approached, Pirito “started playing games”.
World avers that on February 4, 2004 -- the day before the oneyear anniversary -- Pirito’s lawyer informed Penn World that
Pirito was in Brazil and would not sign the instructions to the
Escrow Agent, but would instead “clarify and finalize” the
agreement “in about a week”.
Id. at 18; Declaration of Richard
Davies, Def. MSJ Ex. 41 ¶ 20.
Penn World, fearing the Escrow
Agent would automatically release the funds on February 5, 2004
if it had not yet initiated arbitration proceedings, “notified
the Escrow Agent of its intent to file for arbitration in an
effort to prevent the escrow release”, Def. MSJ at 18; Cohen
Dep., Def. MSJ Ex. 4, at 235:2-10.
According to Pirito, “[t]he parties negotiated the
calculation of the [Net Worth Deficit] for several months,” but
“by January 27, 2004, the parties still had not reached an
agreement”, Br. in Supp. of Pl.’s MSJ (hereinafter “Pl. MSJ”) at
On February 5, 2004, Pirito’s lawyer sent a letter
informing the Escrow Agent that “no arbitration has being [sic]
initiated between the Purchaser and the Seller.”
Def. MSJ Ex.
That day the Escrow Agent released €1 million to Pirito.
Pl. MSJ at 15-16; Def. MSJ at 18.
On January 26, 2005, Penn World filed a Request for
Arbitration seeking reimbursement for the Net Worth Deficit,
damages, and a binding interpretation regarding the § 2(e)
provision in the SPA by which Penn World had the right to
receive from escrow “the amount, if any, by which the Reduction
Threshold (as defined in Appendix B [to the SPA]) exceeds
positive amounts resulting from the Earn-Out calculation not
paid to [Pirito] as a result of the Reduction Threshold (the
Penn World claims this would result in a
total award of about €2.9 million.
Def. MSJ at 8.
The Real Property Agreement Dispute
On February 22, 2005, Pirito exercised the “call
option” by giving Penn World notice of his intent to buy back
land and real property (collectively the “real property”) that
M.A.E. owned in Offanengo, Italy.
See SPA, Def. MSJ Ex. 1 at 4.
The SPA provided a process -- contained in § 2(f) and
titled the “Real Property Agreement” (“RPA”) -- by which Pirito
could buy the real property back from Penn World.
of whether Penn World had an obligation to sell the real
property to Pirito under the RPA and whether Penn World breached
According to § 2(e), the escrow provision of the SPA, “[t]o the
extent that funds are not available under the Escrow to pay the
Reduction Amount, such amount shall be promptly paid by the
Seller to the Buyer.”
that obligation is at the heart of both summary judgment
We will therefore recount in detail the terms of the
agreement and the parties’ actions regarding the purchase of the
The RPA provides,
Upon delivery of a written notice delivered
to the Seller not less than 60 days prior to
the third anniversary of the Closing Date,
the Seller shall be obligated to purchase
the Real Property from the Company and the
Buyer shall be obligated to cause the
Company to sell the Real Property to the
Seller on the third anniversary of the
The parties do not dispute that on February 22, 2005,
Pirito sent a letter to Penn World giving notice of his intent
to purchase the real property pursuant to § 2(f).
at 16; February 22, 2005 Letter, Pl. MSJ Ex. 78.
See Pl. MSJ
closing happened on February 5, 2003, this notice was timely
under the SPA.
The SPA provides a formula for determining the Real
Property Payment Amount.
If Pirito exercised his option to buy
on the third anniversary of the Closing
Date, the Seller w[ould] (X) either pay off
or assume the outstanding debt service
obligation for the Real Property and (Y) pay
the Company an amount equal to (A) the
amount by which the debt service obligations
paid by the Company with respect to the Real
Property during the three-year period
exceeded €1.02 million plus (B) the amount
of real estate taxes paid with respect to
the Real Property over the three-year period
plus (C) the present value, determined as of
the date of the closing of the sale of the
Real Property using the Applicable Rate, of
the amount of any taxes . . . determined at
the time of the sale of the Real Property .
. . plus (D) the aggregate amount of any
costs and expenses incurred by the Company
during the three-year period to remediate
any asbestos contamination.
§ 2(f)(iii) (emphasis added).
The RPA continues, “To effectuate such purchase,
promptly upon agreement on the Real Property Payment Amount to
be paid to the Company pursuant to subsection (iii), the Seller
and the Company shall enter into an agreement with respect to
the sale of the Real Property . . . .”
The RPA provides a specific process for reaching an
agreement as to these amounts.
Upon delivery of Pirito’s notice
that he was exercising his option, Penn World was to “compute
the amount owed . . . pursuant to clause (Y) . . . and provide
notice of such computation to [Pirito].”
parties agree that on March 17, 2005 Penn World’s lawyer,
Frederick W. Dreher, Esq., wrote to Pirito setting forth the
Real Property Payment Amount Penn World had calculated.
MSJ at 9; Def. MSJ Ex. 9; Pl. MSJ at 16.
Penn World proposed a
Real Property Payment Amount of €3,768,090, plus the present
value of any taxes incurred by M.A.E. as a result of selling the
Def. MSJ Ex. 9.
The €3,768,090 included €716,599
in debt service obligations under § 2(f)(iii)(Y)(A), €56,982 in
real estate taxes under § 2(f)(iii)(Y)(B), and €2,994,509, which
Penn World alleged was “the outstanding amounts currently owed
by [Pirito] to [Penn World] with respect to the Net Worth
Deficit . . . the Reduction Amount . . . Slow Moving Inventory
and Obsolete Inventory . . . and [Pirito’s] breach of the
representation and warranty in Section 4(d) . . . .”
The RPA provides that “[w]ithin fifteen business days,
[Pirito] shall provide to [Penn World] a written response . . .
in which [Pirito] shall (i) agree that the proposed Real
Property Payment Amount is accurate or (ii) disagree that the
proposed Real Property Payment Amount is accurate.”
Given the tenor of the parties’ interactions by this
point, it comes as no surprise that Pirito did not agree with
Penn World’s proposed Real Property Payment Amount; Pirito’s
lawyer timely informed Penn World of Pirito's objection in a
March 23, 2005 letter.
Def. MSJ at 9; Pl. MSJ at 16; Def. MSJ
According to the RPA, “If [Pirito] provides a Response
Notice indicating that the Real Property Payment Amount is
inaccurate, then the Parties shall negotiate such matter in good
faith for fifteen business days.”
The RPA then
If no resolution can be reached by the end
of [the negotiation] period, the decision as
to the proper Real Property Payment Amount
as computed in accordance with clause (Y)
shall be submitted upon request of either or
both Parties to a sole arbitrator to be
appointed by the President of the National
and International Arbitration of Milan . . .
§ 2(f)(iii) (emphasis added).
The parties disagree about
whether they had reached a resolution by the end of the
Penn World contends that the parties never reached an
agreement as to the Real Property Payment Amount.
In the March
23, 2005 letter informing Penn World of Pirito’s objections,
Pirito’s lawyers wrote “Our client reserves his position with
regard to the amounts claimed by way of debt service obligations
and real estate taxes and rejects any suggestion that any
outstanding amount is owed under Section 2(f)(vii) of the
Pirito’s counsel further explained that because
“the amounts claimed by [Penn World] as ‘outstanding amounts’
are subject to ongoing arbitration proceedings and fully
disputed,” Pirito “takes the view that the inclusion of these
amounts in the Real Property Payment Amount is an indication of
bad faith on [Penn World]’s part.”
MSJ Ex. 10.
March 23, 2005 Letter, Def.
Penn World’s lawyer Dreher responded on April 28,
2005, objecting to the allegation of bad faith on Penn World’s
part and arguing:
we have reviewed the Agreement and disagree
with your assessment that there are not
“outstanding amounts” owed under the
Agreement. The purpose of the arbitration,
in our client’s view, is to cause Mr. Pirito
to pay outstanding amounts that he has
unreasonably refused to pay to date . . . as
provided by the Agreement, there would be a
reduction in the proposed Real Property
Payment Amount to the extent a portion of
the outstanding amounts remain contested
under the Escrow Agreement. The amount
contested under the Escrow Agreement at the
time of sale cannot be determined at this
April 28, 2005 Letter; Def. MSJ Ex. 11.
Dreher then reminded
Pirito’s counsel that Pirito was obligated to ensure that “the
Escrow holds not less than €400,000 on the date of closing of
the sale of the Real Property”, excluding “any amounts that may
be contested under the Escrow Agreement at that time”.
Dreher noted that Penn World “otherwise reiterates its
calculation of the Real Property Payment Amount as described in
our March 17, 2005 letter” and informed Pirito’s counsel that
the April 28 letter triggered the fifteen day negotiation period
under § 2(f)(iii).
On May 11, 2005, Pirito’s counsel responded that “the
inclusion of the ‘outstanding amounts’ in the Real Property
Calculation will make that calculation unacceptable to our
client, leading to a dispute in relation to the Real Property
May 11, 2005 Letter, Def. MSJ Ex. 12.
Six days later, Dreher sent a letter to Pirito’s
lawyers confirming that the negotiation period had ended and
that Penn World “concur[ed] with [Pirito’s lawyers’] assessment
that there is a dispute with respect the the [sic] calculation
of the Real Property Payment Amount.”
May 17, 2005 Letter, Def.
MSJ Ex. 43.
Penn World contends that in light of these discussions
the parties never reached an agreement as to the Real Property
Def. MSJ at 9.
Pirito disagrees and asserts
that “the parties did not dispute the calculation of the Real
Property Payment Amount and did not have anything to arbitrate
under Section 2(f)(iii).”
Pl. Resp. in Opp. at 6.
not cite any evidence in the record contemporaneous with the
negotiation period that could fairly be read as constituting
Pirito's agreement with Penn World’s calculations.
justifies his argument that the parties reached a resolution as
to the Real Property Payment Amount by drawing a distinction
between disputes over outstanding amounts owed pursuant to §
2(f)(vii) on the one hand, and real estate tax and debt service
amounts owed pursuant to § 2(f)(iii) on the other, with only the
latter matters subject to the arbitration provision.
claims that he agreed to Penn World’s calculations with regard
to amounts owed under § 2(f)(iii), and in support he points to
his recent deposition testimony in which he said that he
understood the letter stating that he “reserve[d] his position”
as to the debt service and the real estate tax calculations to
mean that he agreed with those calculations.
26, 2012 Dep. at 56:5-56:6; Pl. MSJ Ex. 1.
We will address below whether this construction
creates a genuine issue of material fact as to whether “no
resolution [was] reached by the end of [the negotiation]
period”, but we note at this juncture that it is undisputed that
neither party requested arbitration to resolve the proper Real
Property Payment Amount under 2(f)(iii).
in Opp. at 7; Def. MSJ at 11.
See, e.g., Pl. Resp.
Motions for Summary Judgment
Standard of Review
A party moving for summary judgment bears the initial
burden of informing the district court of the basis for its
argument that there is no genuine issue of material fact by
“identifying those portions of ‘the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the 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 (1986).
If the moving party meets this initial burden, Fed. R.
Civ. P. 56 then obliges “the nonmoving party to go beyond the
pleadings and by her own affidavits, or by the ‘depositions,
answers to interrogatories, and admissions on file,’ designate
‘specific facts showing that there is a genuine issue for
Id. at 324.
A factual dispute is genuine
[I]f the evidence is such that a reasonable
jury could return a verdict for the
nonmoving party. . . . The mere existence of
a scintilla of evidence in support of the
plaintiff’s position will be insufficient;
there must be evidence on which the jury
could reasonably find for the plaintiff.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 252 (1986).
A fact is “material” if it “might affect the outcome of the suit
under the governing law”.
Id. at 248.
We “must draw all reasonable inferences in favor of
the nonmoving party, and [we] may not make credibility
determinations or weigh the evidence.”
Reeves v. Sanderson
Plumbing Prods., Inc., 530 U.S. 133, 150 (2000), cited in Amour
v. County of Beaver, PA, 271 F.3d 417, 420 (3d Cir. 2001)).
As we noted in our earlier Memorandum, § 13(h) of the
SPA provides that Italian law will govern the Agreement “without
giving effect to any choice or conflict of law provisions or
rules that would cause the application of the laws of any
jurisdiction other than Italy.”
According to Fed. R. Civ. P. 44.1, “[i]n determining
foreign law, the court may consider any relevant material or
source, including testimony, whether or not submitted by a party
or admissible under the Federal Rules of Evidence.”
court applying foreign law may “rely on its own research and any
submissions from the parties when considering foreign law” and
it “may use an expert report to determine substantive foreign
HFGL Ltd. v. Alex Lyon & Son Sales Managers and
Auctioneers, Inc., 264 F.R.D. 146, 148 (E.D. Pa. 2009) (internal
As our Court of Appeals has explained, parties wishing
to invoke foreign law “carry both the burden of raising the
issue that foreign law may apply in an action, and the burden of
adequately proving foreign law to enable the court to apply it
in a particular case.”
Bel-Ray Co., Inc. v. Chemrite (PTY)
Ltd., 181 F.3d 435, 440 (3d Cir. 1999).
parties fail to satisfy either burden the court will ordinarily
apply the forum’s law.”
Id. at 441 (citing Walter v.
Netherlands Mead N.V., 514 F.2d 1130, 1137 n.14 (3d Cir. 1975)).
See also Banco de Credito Indus. v. Tesoreria Gen., 990 F.2d
827, 836 (5th Cir. 1993) (“When the parties have failed to
conclusively establish foreign law, a court is entitled to look
to its own forum’s law in order to fill in any gaps”).
The parties agree that Italian law governs the breach
of contract dispute here, see Def. MSJ at 35-36; Pl. MSJ at 22.
Both have submitted expert’s briefs to assist us in determining
the exact contours of that law.
Penn World’s Motion for Summary Judgment
Penn World seeks summary judgment for the Penn
entities on Pirito’s claim for breach of contract under the Real
Property Agreement and on Count II of Penn World’s Counterclaim,
which concerns Pirito’s alleged breach of the Real Property
Def. MSJ at 1.
Penn World asks that if we grant summary judgment for
it on Pirito’s claims and on Count II of Penn World’s
counterclaim, “the remaining counterclaims be dismissed without
prejudice to reassertion if Pirito brings additional legal
proceedings or if the pending appeals of the Italian
arbitrations result in further proceedings.”
Def. MSJ at 54-55.
Penn World’s Motion for
Summary Judgment on Pirito’s Claims
Penn World argues that it is entitled to summary
judgment because Pirito’s actions were insufficient to perfect a
contractual right to buy the real property under § 2(f).
The Nature of the Contract
On a motion for summary judgment we are to decide
matters of law.
See, e.g., Gould v. American-Hawaiian S. S.
Co., 535 F.2d 761, 771 (3d Cir. 1976).
Neither party contends
that the contract was ambiguous, and where “the written terms of
the contract are not ambiguous and can only be read one way, the
court will interpret the contract as a matter of law.”
v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d
The Real Property Agreement purports to grant an
option because it provides that upon Pirito's proper notice he
“shall be obligated to purchase the Real Property from the
Company” and Penn World “shall be obligated to cause the Company
to sell the Real Property”.
Def. MSJ Ex. 1 at § 2(f)(i).
World contends that under Italian law where a contract that
purports to grant an option leaves undefined an essential term
such as price, the optionee’s notice of exercise of that option
binds the parties “to discharge in good faith the further
obligations necessary to define those essential terms and create
a final contract”, Def. MSJ at 38, but it does not create an
automatic right to buy the real property.
Such a right would be
created, Penn World argues, only if “the original agreement
[had] specified all essential elements of the final contract,
such that upon acceptance the rights and obligations are firmly
set without anything further being required.”
according to Penn World, where the contract did not define the
price, Pirito’s notice of his exercise of the option bound the
parties to comply in good faith with the procedure for
establishing the Real Property Payment Amount set forth in §
Id. at 39.
Because the parties disputed the calculus of
the Real Property Payment Amount, Penn World contends, §
2(f)(iii) required either party who wished to complete the
transaction to submit the determination of the amount to
arbitration -- which Pirito failed to do.
Penn World argues
that Pirito thus never perfected his right under the contract to
purchase the real property, nor did Penn World’s obligation to
cause M.A.E. to sell it ever arise.
In support of this argument, Penn World relies on the
expert testimony of Giacomo Rojas Elgueta (“Rojas”) regarding
As Rojas explains, the Italian legal system is a
civil law system, and the Italian Civil Code regulates Italian
Rojas Aff. at 7-8.
Article 1331 of the Italian Civil Code governs option
contracts, and it provides that “[w]hen the parties agree that
one of them is to remain bound by his declaration and that the
other has the power to accept or not, the declaration of the
first is considered an irrevocable offer . . . .”5
Appx. 1 at 25.
According to Rojas, Italian law distinguishes between
a “binding option” -- or one that specifies all essential
Neither party contests the translations into English from the
elements of the final contract -- and an “incomplete option” -a bilateral agreement that lacks some essential elements and
whose exercise binds the parties “to fulfill the reciprocal
obligations and procedures agreed upon in order to cause the
conclusion (finalization) of the final contract and to make it
valid and binding.”
Rojas Aff. at 10.
Rojas finds support for
this distinction in jurisprudence of the Italian Supreme Court,
n. 18,201, Sept. 10, 2001, Ghibellini v. Borgesi, in which that
Court found that a “declaration rendered binding by an option
agreement for one of the parties (art. 1331 Civil Code) must
contain all of the essential elements of the contract, without
the need of further agreements, in order to allow the execution
of the contract when the other party manifests its acceptance”.
Rojas Aff. Appx. 1 at 10.
Rojas also cites Supreme Court, n. 10,777, Oct. 29,
1993, Soc. Ombrone v. Michienzi6, in which the Italian Supreme
Court explained that an option agreement under Art. 1331 “must
contain all the essential elements of the contract to be
executed in order to be perfected at the time and due to the
As Rojas explains, the Ufficio del Massimario, and office of the
Corte di Cassazione -- the Italian Supreme Court -- publishes
excerpts of its opinions, referred to individually as Massima.
These Massime set forth the Court’s holdings, and Rojas avers
that Italian lawyers and judges routinely cite them rather than
full opinions. As such, Rojas relies on them to supply the
content of Italian courts’ decisions here.
assent of the other party, without the need for further
stipulations”, id. at 14.
If a contract does not contain all
the essential elements, “it is assumed to be a mere preparatory
agreement intended to be inserted in the formation of a future
contract with the effect of fixing only the elements already
Thus, according to Rojas, in Michienzi, which
concerned a real property contract, the Italian Supreme Court
found that where the agreement did not specify all essential
terms -- there, the terms of payment due the buyer -- “the
explicit acceptance by the optionee is not sufficient to perfect
the transfer of the property, but the acceptance is at most
capable of binding the parties to discharge the further duties
that have been arranged in contemplation of the conclusion
(finalization) of the future contract.”
Rojas Aff. at 10.
Pirito’s Italian law expert, Romano Vaccarella, does
not appear to dispute that there may be a distinction between
option contracts that contain all essential terms and indefinite
options which do not, but he argues for an expanded
understanding of what it means for a contract to contain all
According to Vaccarella, a contract
constitutes a binding option “not only when the sale price is
already determined in the option, but even when it is
determinable in accordance with certain criteria, references, or
pre-established parameters” so long as “the subsequent parties’
activity is merely limited to recognizing or implementing such
criteria, references or parameters.”
Vaccarella Aff. at 6.
Vaccarella relies on Article 1346 of the Italian Civil Code for
this proposition, which provides that the object, or purpose, of
a contract must be “possible, lawful, determined or
Pirito thus argues that this contract was a binding
option because “all of the terms of the option are set forth in
Pl. Resp. in Opp. at 4.
Pirito argues that
§ 2(f)(iii) contained the Real Property Payment Amount because
“[a]ll of the essential elements necessary to determine the
option are specified” in that
the Real Property Payment Amount consists of
four components: repayment of debt service
obligations paid by Penn in excess of the
agreed upon fair market rent . . . , the
amount of real estate taxes Penn paid . . .
, the value of any taxes due by virtue of
Pirito’s exercise of the option . . . . ;
and asbestos remediation costs . . . .
Id. at 4-5.7
Pirito further argues that “[t]he SPA is not
indefinite because the parties actually calculated the Real
Property Payment Amount.”
Id. at 5 (emphasis in original).
We agree that the contract was valid in that it
provided a process for determining the Real Property Payment
But that process was not self-executing, and so even
using the definition of “containing all essential terms”
Pirito’s expert advances, the contract was still incomplete.
The parties apparently recognized the incomplete nature of the
option when they formed the contract since if the terms were
fixed and not susceptible to dispute, the provision for
determination of the Real Property Payment Amount by a third
party would have been unnecessary.
Instead, the contract
contemplates possible disagreements regarding the value of the
categories described in clause (Y): the contract provides that
after Penn World submitted a Real Property Payment Amount to
Pirito, if Pirito disagreed with the amount the parties were to
negotiate the matter in good faith for fifteen business days.
Pirito omits from this calculation the provision under §
2(f)(vii) that the Real Property Payment Amount would be
increased by “outstanding amounts owed at the end of the threeyear period by the Seller to the Buyer.” § 2(f)(vii). This
adds an element of incompleteness to the Real Property
Agreement, but because the parties did not even reach an
agreement on the four items Pirito does mention (as we discuss
below), we need not address the impact of § 2(f)(vii) in order
to find that the contract was incomplete.
If “no resolution can be reached by the end of such period,” §
2(f)(iii), either party, or both parties, were to submit the
decision as to the proper Real Property Payment Amount to an
We find as a matter of law that the contract was valid
but that the option was incomplete.
Pirito’s exercise of the
option bound the parties to engage the process contemplated
under § 2(f)(iii) to finalize their future contract.
Performance Under the Contract
We must consider whether there exists any record
evidence that creates a genuine issue of material fact as to
whether the parties discharged their duties with regard to the
Real Property Payment Amount, thus giving rise to Penn World’s
supposed obligation to cause M.A.E. to sell the real property to
Pirito argues that when Penn World on March 17, 2005
provided its calculation of the clause (Y) elements of the Real
Property Payment Amount, “Pirito agreed with this calculation
and sought to move forward with his purchase of the Property.”
Pl. Resp. at 5-6.
Thus, according to Pirito, the failure to
arbitrate the Real Property Payment Amount is inconsequential
because “the parties did not dispute the calculation of the Real
Property Payment Amount and did not have anything to arbitrate
under Section 2(f)(iii).”
Id. at 6.
Pirito argues that the
arbitrator was to determine the Real Property Payment Amount “as
computed in accordance with clause (Y)”, § 2(f)(iii), and the
dispute as to the Real Property Payment Amount “centered on
Penn’s inclusion of amounts purportedly owed under Section
2(f)(vii), not amounts owed pursuant to Section 2(f)(iii) to
which the arbitration provision applied.”
Pl. Resp. at 7.
In considering Penn World’s motion for summary
judgment, we must draw all reasonable inferences in favor of
Pirito, the non-moving party.
Pirito supports his contention
that the parties reached a resolution as to the clause (Y)
elements by pointing to two items: first, he argues that the
fact “[t]hat neither party sought arbitration further evidences
the parties’ agreement on the calculation of the Real Property
Id. at 6.
This question-begging assertion
hardly supports the inference that the parties affirmatively
reached an agreement as to the Real Property Payment Amount.
Second, Pirito cites his recent deposition testimony in which he
stated that he agreed with the calculations regarding debt
service and taxes.
Pirito has no choice but to rely on those
recent statements because no communication contemporaneous with
the negotiation period exists that could be read to demonstrate
his assent to Penn World’s proposed figures for clause (Y).
we have rehearsed, Pirito’s lawyers wrote at that time that
Pirito “reserves his position with regard to the amounts claimed
by way of debt service obligations and real estate taxes”.
March 23, 2005 Letter, Def. MSJ Ex. 10.
This argument fails for two reasons.
importantly, there is no evidence that Pirito communicated to
Penn World his assent to Penn World’s clause (Y) figures during
or soon after the negotiation period.
There is no record
evidence that the parties reached a resolution as to the price
within the meaning of § 2(f)(iii).
Second, though the
arbitrator’s task was apparently to decide the price under
clause (Y), the “resolution” § 2(f)(iii) contemplates is
broader, for it is a resolution with regard to the Real Property
Payment Amount as a whole, which, by the terms of the contract,
includes any “amounts owed” under § 2(f)(vii).
that the parties reached an agreement as to the Real Property
Payment Amount is simply not reasonable in light of the evidence
We thus find that Pirito has shown no genuine issue of
material fact as to whether the parties reached an agreement
about the Real Property Payment Amount in that he has given us
no basis on which to infer that they did.
Because the record
demonstrates the parties did not reach a resolution, the party
wishing to pursue the real property sale was obliged under the
terms of the contract to submit the question of the Real
Property Payment Amount to an arbitrator -- which it is
undisputed that neither party did.
Penn World’s obligation to
cause M.A.E. to sell the real property thus never arose, and so
Penn World was not in breach of the contract.
We will therefore
grant the Penn entities’ motion for summary judgment with regard
to Pirito’s claims.8
Effect on Pirito’s
Motion for Summary Judgment
Pirito moves for summary judgment on Counts I and II
of his complaint and for summary judgment on Counts I, II, and
IV of the Counterclaims.
Our conclusion that Penn World was not
in breach of § 2(f) of the SPA necessarily resolves Pirito’s
motion for summary judgment on the counts in his complaint.
As we described in footnote 2, supra, Penn Engineering is
liable here only by virtue of its guarantee of Penn World, and
so our finding that Penn World did not breach the contract also
means that Penn Engineering is not liable.
Because, as we discuss below, we will grant Penn World’s request
to dismiss Counts I and IV of the Counterclaims without
prejudice, we will not consider Pirito’s motion for summary
judgment with regard to these claims.
Our analysis below
resolves Pirito’s motion for summary judgment with regard to
Counterclaim Count II.
Penn World’s Motion for Summary
Judgment on Counterclaim Count II
Count II of the Counterclaims concerns Pirito’s
alleged breach of contract (§ 2(d)) and the lapse of the option
Def. Ans. ¶¶ 180-84.
Penn World contends that our determination here
about Pirito’s breach of § 2(d) is governed by the September 18,
2009 Final Award of the Italian arbitrators and the January 16,
2013 decision of the Court of Appeals of Milan confirming that
According to Penn World, the September 18, 2009 Award,
as confirmed, establishes conclusively that Pirito breached §
2(d) of the Agreement and has remained since February 5, 2013 in
breach of his obligation to repay the Net Worth Deficit and this
collaterally estops Pirito from arguing otherwise.
In our Memorandum, we addressed at length the
procedural history of the parties’ arbitration efforts.
833 F. Supp. 2d at 463-66.
We will not rehearse that history
again except to briefly explain that the parties’ dispute
resulted in four Italian arbitration awards, one in 2007, one in
2008, and two in 2009.
On February 13, 2009, the second
arbitration panel issued a partial award in which the majority
concluded that “[t]he Tribunal has jurisdiction on the claim of
the Claimant for the Net Worth Deficit as formulated in the
Request for Arbitration.”
Ex. 39 at 25.
Feb. 13, 2009 Partial Award, Def. MSJ
On September 18, 2009, the second arbitration
panel issued a final award in which it found that “[t]he
conclusions of the Del Prete Report are valid, final and binding
upon the Parties” and ordered that (1) “Pirito shall pay to
Pennengineering World Holdings LP the amount of €1[,]485,677
plus interest at the Euro Libor (one month) as reported in the
Wall Street Journal as from 5 February 2003 until full and
complete payment”, (2) “Pirito shall pay to Pennengineering
World Holdings LP the amount of €40,935.66 as participation to
Mr Del Prete costs and fees, plus interest at the legal rate as
from 9 January 2008 until full and complete payment”, and (3)
Pirito shall pay Penn World “(i) €50,000 as compensation for
costs and fees incurred in connection with the procedure of
Volontaria Giurisdizione; (ii) €60,000 as compensation for costs
and fees incurred in connection with the arbitration
proceedings; (iii) €105,269.31 as participation to the
The panel also dismissed “[a]ny and all
other claims by the Parties.”
MSJ Ex. 40, at ¶ 116; p. 32.
Sept. 18, 2009 Final Award, Def.
Pirito appealed both the partial
Award and the Final Award, and on January 16, 2013, the Court of
Appeals of Milan rejected the appeals and “entirely confirmed”
both the partial and the Final Award.
Judgment, Court of
Appeals of Milan, Def. Effect of Jdgmt Br. Ex. A at 18.
Whether the Arbitration
Has Collateral Estoppel Effect
As Penn World explains, in our Memorandum we
considered the collateral estoppel effect of the September 18,
In the motion for partial summary judgment then
before us, Penn World had argued that the September 18, 2009
award should have preclusive effect because it met the
requirements for a foreign judgment under Hilton v. Guyot, 159
U.S. 113 (1895) and satisfied the requirements of collateral
Because of the significance of these two tests to our
determination here, we will restate each.
As we noted in our
Memorandum, under Hilton United States courts hold foreign money
judgments “conclusive upon the merits tried in the foreign
court” so long as the judgment was “rendered by a competent
court, having jurisdiction of the cause and of the parties, and
upon due allegations and proofs, and opportunity to defend
against them, and its proceedings are according to the course of
a civilized jurisprudence, and are stated in a clear and formal
159 U.S. at 159.
As we explained in our Memorandum, the parties agree
that Pennsylvania law governs the collateral estoppel issue
Pirito, 833 F. Supp. 2d at 473 n.7.
Pennsylvania doctrine of collateral estoppel, parties may not
re-litigate facts or legal issues that earlier actions have
resolved so long as (1) “the issue decided in the prior
adjudication [was] identical to the one presented in the later
action,” (2) the earlier action resulted in “a final judgment on
the merits”, and (3) “the party against whom the doctrine is
asserted [was] a party or in privity with a party to the prior
adjudication” and had “a full and fair opportunity to litigate
the issue in question in the prior action.”
Pittsburgh Press Co., 188 F.3d 163, 169 (3d Cir. 1999) (citing
Dici v. Commonwealth of Pennsylvania, 91 F.3d 542, 548 (3d Cir.
1999), which quotes Safeguard Mutual Ins. Co. v. Williams, 463
Pa. 567, 574 (Pa. 1975)).
In our Memorandum, we noted three concerns with giving
the February 13 and September 18, 2009 arbitration awards
preclusive effect: first, we explained that in light of the
“well-reasoned dissent to the Second Arbitration Panel’s
February 13, 2009 Partial Award on Jurisdiction”, we lacked
confidence that the arbitral tribunal satisfied Hilton’s
Pirito, 833 F. Supp. 2d at 475.
observed that the comity concerns that oblige courts to
recognize foreign courts’ judgments under Hilton do not apply
with the same force to arbitration proceedings.
Id. at 475-6.
We noted, however, that the “respect for the capacities of
foreign and transnational tribunals, and sensitivity to the need
of the international commercial system for predictability in the
resolution of disputes” that the Supreme Court recognized in
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614 (1985) might counsel in favor of applying Hilton to
Pirito, 833 F. Supp. 2d at 476 (quoting
Mitsubishi, 473 U.S. at 629).
Ultimately, it was our concern that the September 18,
2009 arbitration award did not constitute a final judgment under
the collateral estoppel test that then led us to deny the
award's preclusive effect.
Pirito, 833 F. Supp. 2d at 477.
Penn World now (unsurprisingly) argues that “the Milan
Court of Appeals’ Judgment of Confirmation confirming both the
2/13/09 and 9/18/09 Awards addresses and resolves each of the
three problems . . . and satisfies the requirements of the
Hilton test and the requirements for finality for purposes of
Def. Effect of Jdgmt Br. at 8.
According to Penn World, the Judgment of Confirmation
resolves the jurisdictional concern we raised.
In his appeal,
Pirito argued that the arbitral tribunal lacked jurisdiction to
resolve the dispute.
See, e.g., Judgment, Court of Appeals of
Milan, Def. Effect of Jdgmt Br. Ex. A at 5-6.
The Court of
Appeals of Milan found that in his jurisdictional challenge
Pirito “ha[d] not identified the violation of any of the rules
(of substance) that govern the interpretation of contract terms
(including the arbitration clause) consecrated by consent of the
parties and relevant in this case”, id. at 15, and so the court
rejected this challenge.
In our previous Memorandum we noted
that “[t]he interests of comity that the Penn entities espouse
suggest that we should defer to the Italian court where Pirito
is prosecuting his appeal of the Second Arbitration panel's
jurisdiction rather than arrive at an independent determination”
as to the Arbitration Panel’s jurisdiction.
Supp. 2d at 475 n.9.
Pirito, 833 F.
Now that the Court of Appeals of Milan has
ruled on the issue, our jurisdictional concern is fully
satisfied and resolved.
Penn World also contends that the Court of Milan’s
decision negates our concern that Hilton may not extend to
decisions of arbitral bodies: “With the issuance of the Court of
Appeals of Milan’s Judgment of Confirmation affirming the
2/13/09 and 9/18/09 Awards, there can be no doubt that these
awards are now the subject of the judicial act of another nation
and merit comity.”
Def. Effect of Jdgmt Br. at 10.
and find that the Judgment of Confirmation satisfies the Hilton
We turn now to the finality of the decision -- the
concern that ultimately led us to deny preclusive effect to the
arbitration awards when we last considered the issue.9
that if final, arbitration proceedings have collateral estoppel
As Penn World points out, in Pirito’s submission
opposing Penn World’s motion for partial summary judgment that
we considered in rendering our earlier Memorandum, Pirito
admitted that the arbitrations satisfied the collateral estoppel
requirements of identity of issues and similarity of parties.
See Pl. Resp. to Def. MPSJ at 15; Def. Effect of Jdgmt Br. at
effect in Pennsylvania.
See, e.g., Witkowski v. Welch, 173 F.3d
192, 199 (3d Cir. 1999).
Penn World argues that in light of the
judgment of the Milan Court of Appeals, “the judicially
confirmed arbitration awards and the Court of Appeals of Milan’s
judgment are entitled under Pennsylvania law to treatment as
final judgments for collateral estoppel purposes unless or until
the Judgment of Confirmation is reversed.”
Br. at 11-12.
Def. Effect of Jdgmt
Pirito, without briefing us on whether he
acknowledges the Milan Court's decision as final for collateral
estoppel purposes, informs us that “the deadline to appeal the
Decision to the Italian Supreme Court is June 13, 2013 and [he]
has not yet determined whether to file such appeal.”
5, 2013 Letter.
Given the uncertainty about whether Pirito will
in fact file a further appeal, we will assume that he will.
In Shaffer v. Smith, 543 Pa. 526 (Pa. 1996), the
Pennsylvania Supreme Court held that “[a] judgment is deemed
final for purposes of res judicata or collateral estoppel unless
or until it is reversed on appeal.”
Id. at 530.
In the motion
for partial summary judgment we considered in our earlier
Memorandum, Penn World argued that under Shaffer the Arbitration
Awards should be given collateral estoppel effect.
disagreed, finding that because Shaffer “referred to
‘judgment[s]’ and ‘state court judgment[s]’ in its holdings, it
is by no means clear that it meant it should apply to arbitral
awards as well.”
Pirito, 833 F. Supp. 2d at 477.
Penn World now urges that “the present Judgment of
Confirmation is a judicial decision confirming the awards”, Def.
Effect of Jdgmt Br. at 12, and thus Shaffer squarely governs.
Where a foreign court has rendered a judgment that
meets the Hilton test, there is no reason to believe that the
Pennsylvania courts would not apply the Shaffer principle that
such judgment is final for collateral estoppel purposes unless
and until it is overturned on appeal.
This finding is
consistent with the interests collateral estoppel protects:
“reliev[ing] parties of the cost and vexation of multiple
lawsuits, conserve[ing] judicial resources, and, by preventing
inconsistent decisions, encourage[ing] reliance on
Shaffer, 543 Pa. at 531-32 (quoting Allen v.
McCurry, 449 U.S. 90, 94 (1980)).
Moreover, as our Court of
Appeals explained in interpreting Shaffer, the contrary result
would undermine the aims of collateral estoppel: “allowing a
pending appeal to bar the operation of collateral estoppel would
frustrate the doctrine’s purpose of preventing the protraction
and duplication of litigation.”
Rutter v. Rivera, 74 Fed. Appx.
182, 187 (3d Cir. 2003).
We thus find that the judgment of the Court of Appeals
of Milan is entitled to collateral estoppel effect, and we turn
to the impact of that finding on this litigation.
The Effect of the Judgment of the Court of
Milan and the Confirmed Arbitration Awards
Penn World argues that one of the issues that the
arbitral tribunal determined -- and the Court of Appeals of
Milan confirmed -- was that Pirito breached § 2(d) of the
As we discuss above, Pirito does not challenge that
the issues decided in the September 18, 2009 arbitration award
are the same issues present here, nor does he dispute that he,
as a party to that proceeding, had a full and fair opportunity
to litigate his claims.
Having found that the judgment of the
Court of Appeals of Milan confirming the awards was final for
collateral estoppel purposes, we must determine whether the
arbitral tribunal found that Pirito breached § 2(d).
We will therefore first consider the provision of §
2(d) that Penn World alleges Pirito breached.
Section 2(d) provides for a minimum Net Worth of
€815,821 and establishes that if the actual Net Worth as of the
date of closing is ultimately found to be less than that amount,
(i) the Purchase Price shall be
retroactively and immediately reduced by an
amount equal to the amount (“Net Worth
Deficit”) by which the Net Worth at Closing
is less than the Minimum Required Net Worth,
and (ii) an amount equal to the Net Worth
Deficit shall become immediately due and
payable to the Buyer from the Seller, such
amount being payable first from the Escrow,
and, if in excess of the Escrow, then by the
If the parties cannot agree on the Net Worth Deficit,
“the dispute shall be referred to an independent public
accountant satisfactory to the Buyer and the Seller, who shall
be directed to determine the Net Worth of the Company . . . and
the determination of such accountant shall be binding on the
As we have discussed, the parties did not agree on an
independent public accountant, nor did they undergo the process
§ 2(d) prescribes in the event of a disagreement.
World successfully petitioned the Tribunal of Milan to appoint
an accountant, and that court appointed Del Prete.
Memorandum we noted that Pirito found Del Prete not
“satisfactory”, and thus his report did not fit within the plain
language of § 2(d), but we reserved the possibility that
“refusal by one party to participate in the mechanism
established by § 2(d) might justify recourse to use another
mechanism for arriving at a binding determination of the net
worth” -- a possibility about which Penn World had not briefed
us at that point.
Pirito, 833 F. Supp. 2d at 474 n.8.
Penn World now, through its expert, Rojas, argues that
the appointment of Del Prete by the Tribunal of Milan was such a
mechanism that the Italian court would recognize and that would
eventually produce a binding determination.
Rojas points to
Art. 1473 of the Italian Civil Code, which provides for the
determination of price by a third party.
Under Art. 1473,
“[t]he parties can entrust the determination of the price to a
third person designated in the contract or to be designated at a
later date,” and “if the parties do not agree on his appointment
or substitution, the appointment is made, at the request of one
of the parties, by the president of the tribunal of the place in
which the contract was made . . . .”
Def. Effect of Jdgmt Br.
Rojas points out that the Court of Appeals of Milan,
in confirming the arbitration awards, recognized that Del Prete
had been appointed pursuant to Art. 1473.
See, e.g., Opinion of
Court of Appeals of Milan, Def. Effect of Jdgmt Br. Ex. A at 4,
Rojas explains that under Italian law “the request to the
President of the Tribunal to appoint, according to Art. 1473
I.C.C., the independent third party shall be considered a
Ricorso in volontaria giurisdizione (Voluntary Jurisdiction
Proceeding), in which case the order of the court serves as a
perfect substitute of the consent of one party”.
Aff., Def. Effect of Jdgmt Br. Ex. B at ¶ 50.
appointing the expert is thus “considered an exact equivalent of
the consent that one of the parties, failing to perform the
Id. at ¶ 51. In light of this, the
determination of Del Prete would be considered binding on the
parties under § 2(d).
Indeed, in its Final Award the arbitral tribunal
adopted this interpretation of the law where it found that
“there is no question that the Del Prete Report is to be
characterized as a determination (Arbitraggio) pursuant to
Article 1349 c.c.,” and, as such, the Del Prete Report “is
binding upon the Parties unless it is ‘manifestamente iniqua o
erronea’”, Sept. 18, 2009 Award, Def. MSJ Ex. 40, at ¶¶ 93, 96.
The panel then considered whether the Report was manifestly
unjust or erroneous and found “no legal ground to declare
invalid the conclusions of the Del Prete Report” and declared
“[t]he conclusions of the Del Prete Report are valid, final and
binding upon the Parties.”
Id. at ¶¶ 114, 116.
As we discussed in our Memorandum, in the September
18, 2009 Arbitration Penn World asked the panel, inter alia, to
“[c]ondemn the Respondent to pay the amount of €1,485[,]677,
deriving from the determination of Mr Del Prete, with interest
from the 5th February 2003 to the moment of payment at the
applicable Rate”, Final Award, Sept. 18, 2009, Def. MSJ Ex. 40
at ¶ 52.1.
The panel found that
The Parties having agreed that the reduction
in the purchase price by the Net Worth
Deficit would be retroactive, and the
Closing having occurred as contractually
agreed on 5 February 2003 . . . the Tribunal
holds that the amount of €1,485[,]677 fell
due on the date of the Closing. Respondent
does not dispute [this] due date as being
the due date for the payment of the adjusted
Id. at ¶ 127.
The panel noted that “[a]s to interest rate, this
has been determined in the SPA as being ‘the Euro Libor (one
month) as reported in the Wall Street Journal . . . as of
December 31, 2002’” and thus concluded, “[a]s claimed by
Pennengineering and not challenged by Mr Pirito, this interest
will run as from 5 February 2003 until full payment.”
Id. at ¶
In its decision, the panel ordered Pirito to “pay to
Pennengineering World Holdings LP the amount of €1[,]485,677
plus interest . . . as from 5 February 2003.”
Id. at 32.
The panel thus determined that Pirito owed Penn World
the amount of €1[,]485,677 for the Net Worth Deficit -- as
determined by Del Prete -- and Pirito is estopped from
challenging this finding.
It is also undisputed that Pirito did
not pay Penn World when Del Prete issued his Report.
accepting the arbitral tribunal’s confirmed determination of
what Pirito owes as binding, we find that Pirito breached §
2(d), and we will grant the Penn entities’ motion for summary
judgment on Count II of the Counterclaims.
As a corollary, we
will also deny Pirito’s motion for summary judgment on this
The Date of Pirito’s Breach
Penn World argues that Pirito has “been in breach of
his obligation to repay the Net Worth Deficit under [§ 2(d)]
since February 5, 2003.”
Def. Effect of Jdgmt Br. at 3.
date is significant because Penn World argues that it “resolves
adversely to Pirito his ‘timing argument’ . . . that he was not
in breach when he sent the February 22, 2005 RE Notice Letter or
on the February 5, 2006 date set for transfer of the Real
Property (because his payment obligation arose later).”
We find no support for the argument that Pirito
breached on February 5, 2003 in either the contract or in the
The post-closing adjustment in the
contract was included to protect Penn World if the actual value
of Maelux was lower than the minimum required net worth.
SPA § 2(d).
Inherent in that purpose (and the escrow provisions
that support it) is the possibility that the value would be less
than the minimum required net worth.
Section 2(d) provides a
remedy for Penn World if the value is insufficient, but the fact
of that insufficiency does not constitute a breach as of the
closing date, as Penn World suggests.
Instead, under § 2(d) an
amount equal to the net worth deficit becomes immediately due
and payable upon its determination.
The closing date is
significant because the net worth deficit measures what Penn
World overpaid on that date, and so it drives the interest
calculation, but the closing date is not the date of the breach.
If it were, any net worth deficit would render Pirito
retroactively in breach, and this is not a logical reading of
Penn World has provided no Italian authority that
would support its position, and Pennsylvania contract law
counsels us to “adopt the interpretation, which under all of the
circumstances of the case, ascribes the most reasonable,
probable and natural conduct of the parties, bearing in mind the
objects manifestly to be accomplished.”
Unit Vending Corp. v.
Lacas, 190 A.2d 298, 300 (Pa. 1963); see also, e.g., Ress v.
Barent, 548 A.2d 1259, 1262 (Pa. Super. 1988) (citing the Unit
Vending Corp. standard).
In its final decision, the arbitral tribunal found
that the parties “agreed that the reduction in the purchase
price by the Net Worth Deficit would be retroactive” and so “the
amount of €1[,]485,677 fell due on the date of the Closing”,
Final Award, Sept. 18, 2009, Def. MSJ Ex. 40 at ¶ 127, but the
significance of this finding was not that Pirito had breached as
of that date, but that interest would run as of that date, as
the tribunal’s order commands.
Id. at 32.
Because § 2(d) provides that the Net Worth Deficit
will become “immediately due and payable” upon its calculation,
we find that Pirito breached § 2(d) on October 12, 2007, when
Del Prete produced his report, and when, it is not disputed,
Pirito neither paid Penn World pursuant to § 2(d), nor put the
funds in escrow pending resolution of his dispute of the Del
Prete Report pursuant to § 2(e).
Pirito thus breached § 2(d),
but not during the period of the real property transfer.10
Remedy for Count II Of
The Penn Entities’ Counterclaims
In Count II of their Counterclaims, the Penn Entities
ask that the Court “issue a Declaratory Judgment that the option
We note that § 2(f) also imposed an obligation on Pirito with
regard to the disputed funds, and this obligation arose earlier
than did that of § 2(e), but we need not address this
determination in order to resolve the motions before us.
has lapsed and is of no further force and effect”, which we will
As we discussed above, because the parties failed to
reach a resolution as to the Real Property Payment Amount, and
neither party submitted the determination to an arbitrator
pursuant to § 2(f), Penn World’s obligation to cause M.A.E. to
sell the property to Pirito never arose.
The option has thus
lapsed and is of no further force and effect.
The Penn entities also ask that we enter a money
judgment against Pirito for “all costs of maintaining and
carrying the Real Property since February 5, 2006”.
Def. Answer and Counterclaims.
Exercising the option to buy the
real property under § 2(f) was entirely a matter of Pirito’s
Pirito breached § 2(f) insofar as he failed to
escrow the disputed amount on February 5, 2006.
Pirito never exercised the option, though he would still have
had to escrow the disputed amounts, Penn World would have borne
the costs of maintaining and carrying the real property.
thus find this remedy inappropriate.
Dismissal Of Counts I and IV Of
The Counterclaims Without Prejudice
Penn World requests that if we grant its motion for
summary judgment “the remaining counterclaims be dismissed
without prejudice to reassertion if Pirito brings additional
legal proceedings or if the pending appeals of the Italian
arbitrations result in further proceedings”.
Def. MSJ at 55.
Penn World explains that it does not wish to pursue
these claims in this proceeding because
[I]f Pirito’s claims are dismissed, the
single purpose for a trial of the fraud and
breach of contract claims would be to
recover damages over and above the existing
$1.2 million judgment. Assuming Pirito’s
claims that he is judgment proof are true,
then Penn World would incur the costs of
trial merely to add to an uncollectible
judgment. Even if Pirito’s claims are
false, the further delay of trial would only
render collection of the existing $1.2
million judgment more difficult than it
Id. at 54.
In the face of these compelling reasons for dismissal,
Penn World explains that it seeks dismissal without prejudice
out of fear that Pirito will continue to litigate these claims
outside of the United States:
“Pirito is currently appealing
the 9/18/09 Award . . . and to the extent he prevails, a whole
new set of proceedings is the likely result.”
Id. at 55 n.32.
As we rehearsed above, Pirito has represented to us
that he has not yet decided whether to appeal the judgment of
the Court of Appeals of Milan, but we agree with Penn World that
given the history of the case it would hardly surprise anyone if
Pirito “continue[d] to litigate and assert claims outside the
Penn World contends that it “should not be deprived
of its ability to assert its claims in such circumstances as,
for example, if Pirito wins on appeal, obtaining an entirely new
trial in Italy on the issues resolved . . . in the 9/18/09
Voluntary dismissal without prejudice pursuant to Fed.
R. Civ. P. 41(a)(2) “is within the sound discretion of the trial
court”, and “a very significant number of courts have followed
the traditional principle recognized by the federal courts that
dismissal should be allowed unless the defendant will suffer
some plain legal prejudice other than the mere prospect of a
9 Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 2364 (3d ed. updated Apr.
See also, e.g., Kwan v. Schlein, 634 F.3d 224, 230-32
(2d Cir. 2011) (no abuse of discretion where court dismissed
defendants’ counterclaims on a finding that plaintiff would
suffer no legal prejudice because the defendants did not intend
to pursue counterclaims unless the plaintiff prevailed on
Here, we find that Pirito will not suffer any legal
harm by dismissal without prejudice of these counterclaims as we
credit Penn World’s representation that it will only reassert
these claims if Pirito continues to litigate the matter outside
of the United States.
We will therefore dismiss Counts I and IV
of the Counterclaims without prejudice.
Penn Entities' Motion for Costs
The Penn entities also move us to require Pirito to
(1) reimburse Penn World for $8,510 in costs Penn World says it
incurred on Pirito’s behalf during discovery, and (2) deposit an
additional $23,476 in the Security Account now held in the
Registry of the Court (for a total of $43,476) as security
pursuant to Local Rule 54.1.
Def. Mot. for Costs at 1.
(2) is mooted by this decision, and we will deny the motion
without prejudice to its reassertion in light of this
For the reasons discussed herein, we will deny
Pirito’s motion for summary judgment in all respects, grant the
As to the adequacy
Registry, this more
defendants claim as
is now nothing more
of the $20,000 already in the Court's
than suffices to cover the $8,510 in costs
already incurred. Any sum above this $8,510
Penn entities’ motion for summary judgment, and dismiss without
prejudice Counts I and IV of the Penn entities’ counterclaims.
Our judgment confirming the September 18, 2009 arbitration award
will be made final and enforceable.
We will also deny the Penn
entities’ motion for costs without prejudice.
Lastly, we will
deny as moot the Penn entities’ motion for leave to file a reply
brief in support of that motion.
BY THE COURT:
/S/ STEWART DALZELL, J.
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