                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-23-1994

Otis Elevator Company v. George Washington
Hotel Corp.
Precedential or Non-Precedential:

Docket 93-3447




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                UNITED STATES COURT OF APPEALS
                    FOR THE THIRD CIRCUIT
                          __________

                         NO. 93-3447
                          __________

                    OTIS ELEVATOR COMPANY
                       Appellee

                               v.

             GEORGE WASHINGTON HOTEL CORPORATION
                      STANLEY S. BAZANT

                               Stanley S. Bazant,
                                              Appellant
                          __________

         Appeal from the United States District Court
           for the Western District of Pennsylvania
               (D.C. Civil Action No. 91-1966)

                          __________

                     Argued May 13, 1994

            Before: BECKER, LEWIS, Circuit Judges
                  and POLLAK, District Judge1

                             Filed June 24, 1994

                          __________

                  Albert J. Zangrilli, Jr. (argued)
                  Yukevich, Blume & Zangrilli
                  6th Floor, One Gateway Center
                  Pittsburgh, PA 15222

                       Attorney for Appellee

                  Steven M. Petrikis (argued)
                  Jeffrey P. Brahan
                  Rose, Schmidt, Hasley & DiSalle, P.C.
                  900 Oliver Building
                  Pittsburgh, PA 15222-5369


1
Honorable Louis H. Pollak, United States District Judge for the
   Eastern District of Pennsylvania, sitting by designation.

                              1
                          Attorneys for Appellant
                             __________

                       OPINION OF THE COURT
                            __________


POLLAK, District Judge.

     This diversity case arises out of a contractual dispute

between Stanley Bazant, a hotel owner, and Otis Elevator Company.

Intertwined with certain procedural questions is one substantive

question of Pennsylvania law.   That question concerns the

construction of a so-called "automatic renewal provision" -- that

is, a contractual provision pursuant to which a contract for a

term is renewed automatically for a further term unless, before a

specified date, one party gives notice of an intent to terminate.

The district court held that Bazant's late notice of his intent

to terminate the contract did not suffice to avoid renewal.     On

appeal, Bazant argues that his late notice ought to have been

deemed sufficient since Otis did not demonstrate that it would be

prejudiced by Bazant's tardiness.   Bazant relies on a

Pennsylvania Superior Court decision -- Music, Inc. v. Henry B.

Klein Co., 245 A.2d 650 (Pa. Super. 1968) -- which appears to be

the only Pennsylvania appellate case directly addressing the

question.   In Music, the Superior Court was sharply divided.

Since Music, and prior to the case at bar, the question has been

addressed on at least three occasions by district judges in this

circuit, and Music has received mixed reviews.      We conclude that

in the case at bar the district court correctly declined to

follow the prevailing opinion in Music -- an opinion which we



                                2
think is not likely to be followed by the Pennsylvania Supreme

Court.

     Part I of this opinion describes the background and

procedural history of this case.     Part II analyzes the issues

raised by Bazant's appeal.


                                I.

     Otis Elevator Company ("Otis") entered into an elevator

maintenance and service contract with the George Washington Hotel

Corporation on December 12, 1980.     The contract provided for

service from January 1, 1981 until December 31, 1990 at the

George Washington Hotel in Washington, Pennsylvania.    The

contract also provided that the contract would be renewed

automatically for a five-year term unless a party gave notice of

an intent to terminate at least ninety days before the end of the

contract term:


     Either party may terminate this agreement at the end of the
     extended contract term selected above or at the end of any
     subsequent five year period by giving the other party 90
     days prior written notice.


     Stanley Bazant ("Bazant") is the successor in interest to

the George Washington Hotel Corporation and is the only remaining

defendant in this case.   On November 30, 1990 -- thirty-one days

before the end of the extended contract term -- Robert Bazant,

Stanley Bazant's son and the Hotel's controller, sent a letter to

Otis stating an intent to terminate the contract as of December

31, 1990.   On December 6, 1990, a representative of Otis


                                3
responded by letter.    In Otis' view, the contract had already

been automatically renewed for a five-year term.

     Stanley Bazant disagreed with Otis' position that automatic

renewal had occurred.    In addition, Bazant withheld payments for

the last three months of the contract term (October through

December, 1990).   According to Bazant, he withheld payments

because of problems with Otis' service.

     Otis filed the instant action in the United States District

Court for the Western District of Pennsylvania on November 15,

1991.   On January 2, 1992, Otis filed an amended complaint

alleging two counts against Bazant:    (1) count II, seeking

damages from Bazant for breach of contract based on Bazant's

failure to pay Otis the monthly contract price for the months of

October through December, 1990; and (2) count IV, seeking damages

from Bazant based on Bazant's failure to honor the renewed

contract term.

     On February 6, 1992, Bazant filed an answer to the amended

complaint that contained a counterclaim.    The counterclaim

alleged that Otis had failed to follow through on a commitment to

give Bazant a twenty-percent discount.

     On July 21, 1992, Bazant moved for partial summary judgment.

Bazant argued in that motion that he was entitled to

summary judgment on count IV of Otis' complaint because Robert

Bazant's November 30, 1990 letter terminated the contract with

Otis.   Otis filed a response to Bazant's motion, but did not file

a cross-motion for summary judgment on count IV.




                                 4
     On August 24, 1992, Otis moved for summary judgment on

Bazant's counterclaim.   Bazant did not file a response.

     In an opinion dated October 9, 1992, the district court

denied Bazant's motion for summary judgment on count IV and,

acting sua sponte, granted summary judgment to Otis on count IV.

The district court also granted Otis' motion for summary judgment

on Bazant's counterclaim.

     Up to that point in the proceedings, Bazant's only

substantive defense to Otis' count IV claim had been that, under

the terms of the contract and the applicable Pennsylvania case

law, Robert Bazant's letter of termination sufficed to avoid

automatic renewal.   Five months after the district court granted

summary judgment in Otis' favor on count IV, Bazant filed a

motion to amend his answer to the amended complaint to include

the contention that termination was justified due to Otis'

substantial non-performance of its contractual duties.     By order

dated March 17, 1993, the district court granted Bazant's motion

to file an amended answer.

     At a pre-trial conference on August 4, 1993, Bazant voiced

an objection to the district court's proposed jury instructions:

Bazant complained that the proposed instructions directed the

jury that Bazant's liability with respect to count IV had already

been determined, and that the only issue for the jury with

respect to that count was the measure of damages.   Bazant

protested that the proposed instructions did not allow him to

raise non-performance as a defense to liability under count IV;

he was only allowed to raise non-performance as a defense to


                                5
liability under count II, the count seeking damages for Bazant's

non-payment for services rendered by Otis in October through

December of 1990.   Bazant argued that, by allowing him to amend

his answer, the district court had reopened the issue of Bazant's

liability under count IV, notwithstanding the October 9, 1992

order granting summary judgment on that count.    The district

court disagreed.    The district court regarded the issue of

liability with respect to count IV as decided by its October 9,

1992 order, and concluded that Bazant could assert non-

performance only as a defense to liability under count II.

     At trial, on August 5, 1993, Bazant sought to testify about

two events relevant to his claim that he was entitled to a

twenty-percent discount.    At side-bar, Bazant made the following

proffer.   Bazant said that, if allowed to testify, he would say

that he telephoned Otis in October 1990 and asked to speak to an

Otis representative regarding the Hotel's account.    His call was

directed to someone identified as Mr. Mahoney who stated that the

Hotel would be given a twenty-percent discount if it agreed to

the five-year renewal term.    The district court excluded the

testimony on the ground that Bazant had not come forward with

evidence that the person identified as Mahoney had authority to

make admissions for Otis.    Bazant was permitted to testify that,

at a meeting in December 1990, Otis' account representative for

the Hotel, Peter Volmer, reiterated this twenty-percent discount

offer.   The district court, however, later concluded that this

testimony could not support a jury verdict for Bazant on the

counterclaim and directed a verdict in Otis' favor on the


                                 6
counterclaim.   The district court reasoned that, because the

December 1990 meeting occurred after the ninety-day deadline for

providing notice of termination, the contract had already been

renewed and thus there was no consideration to support a promise

to give a twenty-percent discount.

     The jury rendered a verdict in favor of Otis and against

Bazant, in the amount of $4,000 for the months of October,

November and December of 1990 (count II), and $33,194 for the

five-year renewal period (count IV).

     On appeal, Bazant challenges the rulings of the district

court:   (1) denying Bazant's motion for summary judgment on count

IV; (2) granting summary judgment, sua sponte, in Otis' favor on

count IV, and instructing the jury that Bazant's liability had

been established with respect to that count; and (3) excluding

evidence relevant to Bazant's counterclaim and directing a

verdict in Otis' favor on the counterclaim.


                               II.
A.   The denial of Bazant's motion for summary judgment
     on count IV
     In his motion for summary judgment on count IV, Bazant

argued that his son's November 30, 1990 letter stating the

Hotel's intention to terminate the contract with Otis sufficed to

avoid automatic renewal.   To support his position, Bazant relied

upon Music, Inc. v. Henry B. Klein Co., 245 A.2d 650 (Pa. Super.

1968).   In Music, the prevailing opinion in the Pennsylvania

Superior Court observed that the automatic renewal provision at



                                7
issue did not contain a "time is of the essence" clause.      After

making this observation, the Music court refused to enforce the

automatic renewal provision because the plaintiff had not shown

that it was prejudiced by the late notice.       The district court in

the present case declined to follow Music and instead endorsed

the approach taken in Sungard Services Co. v. Joint Computer

Center, 1989 U.S. Dist. LEXIS 4449, No. 88-8367 (E.D. Pa. April

26, 1989).     In Sungard Services v. Joint Computer, Judge Newcomer

enforced an automatic renewal provision that did not contain a

"time is of the essence" clause without requiring a showing of

prejudice.     Accordingly, in the case at bar, the district court

concluded that Bazant's untimely notice was not effective to

terminate the contract and denied Bazant's motion for summary

judgment.     On appeal, Bazant challenges the district court's

unwillingness to follow Music.

     The contract at issue in Music provided for automatic

renewal for a second term of nearly four years unless a party

gave written notice of termination sixty days before the end of

the term.     The defendant mailed such notice sixty-one days before

the end of the contract term; the notice was received fifty-eight

days before the end of the term.       The sole question raised on

appeal was whether effective termination notice was given

pursuant to the terms of the contract and the intent of the

parties.     Judge Spaulding, joined by Judges Wright and Jacobs,2


2
Judge Montgomery concurred in the result. Judge Hoffman filed a
dissenting opinion in which Judge Watkins joined. Judge Hannum
did not participate in the disposition of the case.


                                   8
first noted that "[t]here was no specific provision in the

contract making time of the essence and no circumstances have

been demonstrated which clearly indicate that both parties

intended that time should be of the essence."     Music, 245 A.2d at

651.   The Superior Court next observed that "[s]everal other

courts have applied a rule of construction which permits a

finding that a termination is sufficient even though delivered

later than the period specified in the contract when the

terminating party acted reasonably under the circumstances and

there is no demonstrable prejudice resulting from the delayed

notice."   Id. at 652.     The Music court concluded that, "[a]bsent

a showing that appellant was damaged in any way by receipt of the

termination notice on October 3rd, or that he changed his

position to his detriment, it would be unconscionable to hold

appellee to an additional contract of three years and eight

months."   Id.

       In dissent, Judge Hoffman argued that "[t]his holding

disregards the clear meaning of the contract and the intent of

the parties."    Id. at 653.    Judge Hoffman reasoned that the time

limitation was included for the benefit of both parties, and

contended that "[t]o allow the defendant to expand the time

limitation, in and of itself reasonable, by an additional

reasonable period of time would give it something for which it

did not bargain."    Id.   Because the requirement of the automatic

renewal clause was "clear and unequivocal," Judge Hoffman

concluded that no "time is of the essence" clause should be

required, and that the contract should be enforced as written.

                                   9
Id.   Judge Hoffman recognized that the law will infer that time

is not of the essence in order to avoid a severe penalty or

forfeiture. See id. (citing 5 A. Corbin, Contracts, § 1177

(1964)).   However, Judge Hoffman explained:


      [N]o forfeiture or penalty results here if it is held that
      the termination notice as given is ineffective. The
      defendant would still be entitled in the future to whatever
      benefits were conferred upon him by the contract. While
      defendant may have determined that these benefits were of
      little or no value to him, he can no more seek to avoid the
      clear obligations of the second term of his contract than if
      he had discovered this fact immediately after the
      commencement of the initial term of the contract.


Id.

      Two district judges have followed the approach taken by

Judge Spaulding for the plurality in Music.    The contract in

Eastern Milk Producers Cooperative Assoc. v. Lehigh Valley

Cooperative Farmers, 568 F. Supp. 1205 (E.D. Pa. 1993), contained

an automatic renewal provision that required sixty-days notice to

avoid renewal for another year.    Judge Troutman noted that, as in

Music, the contract contained no "time is of the essence" clause.

See id. at 1209.   However, Judge Troutman concluded that the

plaintiff had made an unrebutted showing that it was damaged by

the forced sale of large volumes of milk at distress prices.     See

id.   For this reason, Judge Troutman held that the untimely

notice was not effective.

      In Schindler Haughton Elevator Corp. v. The America College,

Slip Opinion, No. 85-2577 (E.D. Pa. February 11, 1986), then

District Judge Scirica addressed the question of the



                                  10
enforceability of an automatic renewal provision.   Judge Scirica

explained that, "[u]nder Music, such untimely notice is

effective, provided 'the terminating party acted reasonably under

the circumstances and there is not demonstrable prejudice

resulting from the delayed notice.'   These issues of

reasonableness and prejudice are questions of fact to be

determined at trial."   (citations to Music and Eastern Milk

omitted).

     In contrast, Judge Newcomer declined to follow Music in

Sungard Services v. Joint Computer.   Judge Newcomer explained

that "two sophisticated business entities," Sungard and JCC, had

a written contract with a "clear and unambiguous automatic

renewal provision" that required six months notice to avoid a new

two-year term.   Three and one-half months before the end of the

term, JCC gave notice to Sungard of its wish to terminate the

contract and refused to make payments for the next term.     Judge

Newcomer first observed:


     As a result of this breach, Sungard suffered damages by
     being deprived of revenue that it would have received
     through the remainder of the contract period. At the risk
     of stating the obvious, this revenue would serve as a source
     of funds by which Sungard could meet its contractual
     obligations to entities supplying it with goods and services
     and would also provide profit to Sungard. Clearly, then,
     the loss of such revenue harmed Sungard.


Id. at *9.   After making this observation, Judge Newcomer

reviewed the facts and holdings of Music, Eastern Milk,




                                11
Schindler, and Sungard Services Co. v. Wang Laboratories, Inc.,

No. 87-3150 (E.D. Pa. April 5, 1988).3

     Based on his review of the applicable Pennsylvania case law,

Judge Newcomer concluded that the automatic renewal provision at

issue was not, in and of itself, unconscionable.    Judge Newcomer

stated:


     To the extent that the court's holding conflicts with the
     Pennsylvania Superior Court's holding in Music, I
     respectfully disagree with that court. I note, however,
     that the facts of the instant case are distinguishable from
     those in Music, as Music involved a notice of termination
     mailed prior to the time required and received only two days
     after the deadline for advance termination of the contract.


Id. at *14.
     In the case at bar, the district court enforced the

automatic renewal provision and held that Bazant's late notice of

termination was ineffective.    The court first undertook to

distinguish Music:   "Bazant's reliance on Music . . . is

misplaced.    Music involved a notice of termination mailed prior

3
In Sungard Services Co. v. Wayne Laboratories, Inc., No. 87-3150
(E.D. Pa. April 5, 1988), an automatic renewal provision required
six-months notice to avoid renewal for an additional two year
term. Judge Bechtle held that, in light of the defendant's
untimely termination notice, the contract was automatically
renewed. Judge Bechtle did not require a showing of prejudice;
however, this omission probably did not reflect a decision by
Judge Bechtle not to follow Music. It appears from Judge
Bechtle's opinion, delivered from the bench, that the defendant
did not argue that the plaintiff had to show prejudice or
otherwise call Music to the attention of the district court.
Indeed, the defendant apparently conceded that its late notice
was ineffective under the automatic renewal clause, and argued
instead that it had terminated the contract under a separate
provision allowing termination on ninety days notice if certain
conditions were satisfied. See Bench Opinion, at 17.

                                 12
to the time required and received only two days after the

deadline for advanced termination of the contract.     The instant

case involves notice of termination which was dated (and

presumably mailed) 58 days after the required date for advanced

termination."     Opinion, at 6-7 (citation omitted) (emphasis in

original).    The court next undertook to draw an analogy to

Eastern Milk:    "The automatic renewal provision in [Eastern Milk]

was upheld in the absence of a 'time of the essence' clause,

because the Court found that there had been a showing of

prejudice as a result of the late notice.     The instant case is no

different."     Opinion, at 7.   The court explained that, just as in

Sungard Services v. Joint Computer, the damage in the instant

case is obvious:


     "[The plaintiff] suffer[s] damages by being deprived of
     revenue that it would have received through the remainder of
     the contract period. . . . [T]his revenue would serve as a
     source of funds by which [the plaintiff] could meet its
     contractual obligations to entities supplying it with goods
     and services and would also provide profit to [the
     plaintiff]. Clearly, then, the loss of revenue harmed [the
     plaintiff]."


Opinion at 7 (quoting Sungard Services v. Joint Computer).
Finally, the district court concluded that because the automatic

renewal provision is clear and unambiguous, it would be enforced.

The court indicated that it was adopting "the cogent perspective

set forth by Judge Newcomer in [Sungard Services] v. Joint

Computer."    Opinion, at 9.

     We do not concur in the district court's conclusion that,

even under the approach taken in Eastern Milk (building on the


                                   13
plurality opinion in Music), Otis made a showing of prejudice

sufficient to justify enforcement of the automatic renewal

provision.    The case at bar is not like Eastern Milk in this

respect.   In Eastern Milk, there was evidence that the plaintiff

was harmed by the lateness of the notice -- the plaintiff was

forced to sell large volumes of milk at distress prices.      In

contrast, the harm to the plaintiff in the present case is harm

caused by the breach of contract, not harm caused by the late

notice.    That is, even if the notice had been timely, Otis would

have suffered the same harm (loss of profits expected under the

contract).   This type of harm cannot be characterized as

prejudice in the sense used by the Eastern Milk and Music courts.

     We are persuaded, however, by the district court's

decision to enforce the automatic renewal provision without

requiring a showing of prejudice -- that is, by the district

court's rejection of Music in favor of the approach taken by

Judge Newcomer in Sungard Services v. Joint Computer.   We do not

believe that the Pennsylvania Supreme Court, if it has occasion

to address this issue, will acquiesce in the rationale adopted by

the plurality opinion in Music.    Instead, we conclude that the

analysis pursued by Judge Hoffman in his dissent is confirmed by

the reasoning of Brakeman v. Potomac Insurance Co., 371 A.2d 193

(Pa. 1977), decided by the Pennsylvania Supreme Court nine years

after the Superior Court's decision in Music.

     Brakeman involved an automobile insurance policy that

required, as a condition of coverage, that the insured give

notice of an accident "as soon as practicable."    Prior to

                                  14
Brakeman, the Pennsylvania Supreme Court had held that untimely

notice releases an insurer from its obligation to pay, regardless

of whether the insurer was prejudiced by the delay.       In Brakeman,

the Pennsylvania Supreme Court overruled its prior decisions to

this effect and announced that an insurer would have to show that

it was prejudiced by the delay.    The court explained that "[t]he

rationale underlying the strict contractual approach reflected in

our past decisions is that courts should not presume to interfere

with the freedom of private contracts and redraft insurance

policy provisions where the intent of the parties is expressed by

clear and unambiguous language."       Id. at 196.

     The Brakeman court gave two reasons for departing from a

strict contractual approach.   First, the court explained that the

only aspect of an insurance contract over which an insured can

bargain is the amount of coverage.      See id. at 196.   The court

noted that an automobile is a virtual necessity, that liability

insurance coverage is required by state law, and that insurance

policies uniformly include provisions requiring notice "as soon

as practicable."   See id. at 196 & n.6.      Second, the court

explained:
     A strict contractual approach is also inappropriate here
     because what we are concerned with is a forfeiture. The
     insurance company in the instant case accepted the premiums
     paid by the insured for insurance coverage and now seeks to
     deny that coverage on the ground of late notice.


Id. at 197.   See also id. at 198 ("Allowing an insurance company,

which has collected full premiums or coverage, to refuse

compensation to an accident victim or insured on the ground of



                                  15
late notice, where it is not shown timely notice would have put

the company in a more favorable position, is severe and

inequitable.").

     The reasons given in Brakeman for departing from a strict

contractual approach do not justify requiring a showing of

prejudice to enforce the automatic renewal provision in the case

at bar.   First, although the automatic renewal provision appears

in Otis' standard form contract, there is no indication that

Bazant lacked the power to bargain over the contractual terms.

Indeed, Bazant's contention in his counterclaim that he had

negotiated a twenty-percent discount is incompatible with the

notion that Bazant lacked significant bargaining power.   Second,

enforcement of the automatic renewal provision does not result in

a forfeiture.   Although -- assuming enforcement of the provision

-- Bazant would be obligated by the automatic renewal of the

contract to continue to make payments to Otis, Otis would be

correspondingly obligated to continue to maintain and provide

service for the Hotel's elevators.   Because the reasons given in

Brakeman for departing from a strict contractual approach do not

apply, we conclude that the district court correctly held that

Bazant's untimely notice did not enable him to avoid a new five-

year term.   Accordingly, we affirm the district court's denial of

Bazant's motion for summary judgment on count IV.




B.   The sua sponte grant of summary judgment in favor of Otis
     on count IV



                                16
     The district court not only denied Bazant's motion for

summary judgment with respect to count IV, it granted summary

judgment for Otis with respect to that count, sua sponte.

Bazant argues on appeal that the district court improperly

granted Otis summary judgment sua sponte, because the court did

not give Bazant notice of its intent to do so or an opportunity

to oppose summary judgment.

     The district court's decision to grant Otis summary judgment

on count IV sua sponte was understandable given the state of the

record.   The only defense Bazant had raised in his answer to the

amended complaint was that the November 30, 1990 letter sufficed

to terminate the contract.    Bazant moved for summary judgment on

count IV, arguing that there was no disputed issue of material

fact.   Accordingly, after the district court concluded that

Bazant was incorrect on the legal issue -- that is, after

determining that Robert Bazant's notice was ineffective -- the

district court entered summary judgment for Otis.    Although the

district court's decision was understandable, it nonetheless

constituted error under Rule 56 of the Federal Rules of Civil

Procedure.

     Under our cases, a district court may not grant summary

judgment sua sponte unless the court gives notice and an

opportunity to oppose summary judgment.   See Davis Elliott

Intern. v. Pan American Container, 705 F.2d 705, 707-08 (3d Cir.

1983) ("'[b]ecause the procedure of Rule 56 requiring an

opportunity to present pertinent material, which presumes notice

to the party so that he may take advantage of the opportunity,

                                 17
was not followed, the entry of judgment must be reversed'")

(quoting Bryson v. Brand Insulations, Inc., 621 F.2d 556, 559 (3d

Cir. 1980)).     See also Bradley v. Pittsburgh Bd. of Educ., 913

F.2d 1064, 1069-70 (3d Cir. 1990) ("[I]n the absence of a formal

motion for summary judgment, plaintiff was under no formal

compulsion to marshall all of the evidence in support of his

claims").

     The district court could have cured its error by allowing

Bazant to reopen the issue of his liability under count IV, but

did not do so.    Five months after the court sua sponte granted

Otis summary judgment on count IV, Bazant moved to amend his

answer to the amended complaint to add, as a defense, the

allegation that Otis's substantial non-performance of its

contract was cause for termination.     It is apparent from this

motion that Bazant wanted to assert non-performance as a defense

against liability with respect to both count II and count IV --

not with respect to count II only.     For example, paragraph 13 of

the motion recites:    "The bulk of evidence of such non-

performance has already been submitted with respect to Count II

and allowance of evidence with respect to Count IV would not

materially prolong the arbitration which is set to continue on

March 5, 1993."    (A.78).   The district court granted Bazant's

motion to amend on March 17, 1993.

     At a pre-trial conference on August 4, 1993, Bazant

protested that the proposed jury charge instructed the jury that

Bazant's liability under count IV had been determined as a matter

of law and that the jury's role was simply to determine damages.

                                  18
Bazant reminded the district court that, after summary judgment

was granted for Otis on count IV, the district court gave Bazant

leave to amend his answer to add the non-performance defense. The

district court responded:    "Well, once we enter summary judgment,

it doesn't matter what you do in way of amending your answer."

(A.119).    The district court noted that it saw nothing in the

"opinion [granting leave to amend] that talks about any counts,"

(A.120) and concluded that "liability [with respect to Count

[IV]] had already been established, and so that your amendment

has nothing to do with Count [IV]."    (A.122).

     It is arguable that the district court's decision to

instruct the jury that Bazant's liability was established with

respect to count IV was inconsistent with the district court's

decision to grant Bazant's motion for leave to file an amended

answer.    We need not, however, address this possible

inconsistency.    Because the district court erroneously granted

summary judgment in Otis' favor sua sponte and without giving

Bazant notice and an opportunity to oppose summary judgment, and

did not cure this error by allowing Bazant to reopen the issue of

his liability under count IV, we vacate the order granting Otis

summary judgment sua sponte on count IV.    Our ruling is not to be

taken as a direction to the district court to allow Bazant to

raise non-performance as a defense to count IV liability. Whether

Bazant is now entitled to raise that defense and whether that

defense is substantively cognizable, are, at this point,

questions for the district court to consider.




                                 19
C.   The order directing a verdict in favor of Otis on
     Bazant's counterclaim


     As explained above, Bazant brought a counterclaim asserting

that Otis breached an agreement to give the Hotel a twenty-

percent discount.   In the October 9, 1992 opinion, the district

court granted Otis' motion for summary judgment on the

counterclaim for two reasons.   "First, and foremost, defendant

Bazant failed to reply to this motion [for summary judgment],"

although he had been given two extensions of time within which to

file his brief in opposition.   Opinion, at 4.   Second, there was

no evidence in the record to support Bazant's assertion that he

was entitled to a twenty-percent discount.   Opinion, at 4-5.

     Bazant argues on appeal that, at trial, the court erred by

refusing to allow the jury to consider evidence offered to

support his counterclaim -- namely, the evidence of his

conversations with Peter Volmer and the person identified as Mr.

Mahoney -- and by directing a verdict for Otis on the

counterclaim.   We need not, however, consider the court's

specific evidentiary rulings.   Having already determined that

summary judgment in Otis' favor was warranted by virtue of

Bazant's failure to oppose the summary judgment motion, the court

was under no obligation to let the counterclaim go to the jury.

For this reason, we affirm the district court's order directing a

verdict for Otis on the counterclaim.


                                III.




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     For the foregoing reasons:    (1) the denial of Bazant's

motion for summary judgment on count IV of Otis' complaint is

affirmed; (2) the sua sponte grant of summary judgment in Otis'

favor on count IV is vacated; and (3) the order directing a

verdict for Otis on the counterclaim is affirmed.    The case is

remanded for proceedings consistent with this opinion.




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