Opinion
NO. 217-2010-CV-635
08-04-2011
Sabbow & Co., Inc. v. RBS Citizens, N.A. f/k/a Citizens Bank New Hampshire
ORDER
Defendant RBS Citizens, N.A. f/k/a Citizens Bank New Hampshire ("Citizens") has moved for summary judgment against the claims brought by Sabbow & Co., Inc ("Sabbow"). For the reasons stated in this Order, the motion is DENIED.
I
Many of the facts do not appear to be in dispute. On May 18, 2006 the Plaintiff Sabbow entered into a commercial term loan with Citizens in the amount of $2,916,000.00. As part of the loan agreement, the parties agreed to an interest rate swap, whereby Sabbow received a fixed rate of interest in exchange for a monthly payment. The Swap Agreement also provided that certain breakage fees, calculated based upon a USD-LIBOR rate, would be assessed upon the occurrence of defined events, such as prepayment of the loan or an event of default. Numerous documents were exchanged prior to the closing, including a document titled "General Statements of Risks Associated with Swap Transactions," which detailed many of the risks associated with this type of transaction.
Charles Morley, ("Morley"), who was the president of Sabbow, signed the Statement of Risk. He is a sophisticated business person who possesses both an MBA and a J.D. and is also a CPA. Sabbow entered into a second commercial loan agreement with Citizens on March 23, 2007 in the amount of $750,000.00 and also obtained a $500,000 line of credit. Sabbow once again entered into an accompanying Swap Agreement in order to receive a fixed rate of interest on this loan.
As early as March 2009 Sabbow acknowledged the existence of so called "breakage fees" and their application upon the occurrence of certain events such as prepayment or default. By late 2009 or early 2010 Sabbow had actually paid a breakage fee under the swap agreements in place.
On October 7, 2009 the parties entered into a modification of both of the loan agreements. Section 2.2 of each modification document provided a release which was both general and prospective and broadly included "any claim or cause of action at common law, in equity, statutory or otherwise, in contract or in tort, for fraud, malfeasance, misrepresentation, financial loss, user rate, deceptive trade practice or other loss, damage or liability of any kind... The release also purported to also release any claim which was "known or unknown."
On January 27, 2010 Sabbow executed an amendment to the May 2006 loan agreement, which included a general release. The release provided:
"Release: Borrower releases lender in Citizens Leasing Corporation, their officers, employees, agents, servants, representatives and attorneys, and all predecessors thereto, of and from all claims, known or unknown, that it might have with respect to the notes, leases or the loan documents. Borrower acknowledges lender relies upon this release."
Peter Scott, who became an owner of Sabbow after the initial loan transactions and is also an attorney, acted as Sabbow's counsel for the modifications in the agreement. Mr. Scott is a graduate of Harvard Law School, had worked in a law firm that included a litigation practice and as part of his practice had been involved in negotiated settlement agreements that included release documents. Sabbow does not dispute the language of the release documents nor the fact that its representatives signed them. However, in its Memorandum in Opposition to Citizens' Motion for Summary Judgment, it states:
"There is one glaring error in Citizens' Motion for Summary Judgment. Citizens repeatedly states that Sabbow "had full knowledge of its potential claims against Citizens" at the time it entered into the October 7,2009 and January 27, 2010 modification agreements, which contained release provisions that purportedly bar Sabbow's claims. As discussed in detail below, however, although Sabbow became aware of the potential for a large breakage fee in March 2009 and, therefore, was aware that Mr. Newcombe had made some misstatements regarding the nature of the swap agreements, Sabbow did not begin to suspect that Mr. Newcombe had made these misrepresentations with the intent to defraud Sabbow until March 2010 - months after Sabbow entered 4nto the releases. Citizens' Motion for Summary Judgment should be denied because there exists a question of fact as to whether Sabbow had knowledge of its claims against Citizens at the time it entered into the releases."Sabbow's Memorandum in Opposition to Citizens' Motion for Summary Judgment, P. 1.
II
The Declaration of the Writ of Summons brought by Sabbow is detailed. It sets forth the transactions between the parties and the expense that Sabbow claims it incurred under the transactions. Its claim is brought in five counts. Count II alleges Fraud in the Inducement; Count III alleges Intentional Misrepresentation; Count IV alleges Negligent Misrepresentation and Count V alleges Unjust Enrichment. Count I purports to make a claim under the Consumer Protection Act.
Summary judgment is appropriate when the pleadings, discovery and affidavits on file show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. RSA49i:8-A, III. Sabinson v. Trustees of Dartmouth College, 160 N.H. 452,455 (2010). Material facts are those that would affect the outcome of the litigation. Sabinson, 160 N.H. 455. The evidence submitted is considered in the light most favorable to the non-moving party. Id.; Grandmaison v. Martel, 140 N.H. 246 (1995).
Citizens argues that since there is no dispute that at the time of the October 2009 modifications and January 2010 amendments, Sabbow was aware of the breakage fees it contests, its claim is barred by the releases it signed. The releases include a prospective waiver of fraud. Citizens correctly notes that ordinary principles of contract formation and interpretation apply to releases. See generally, Huguelot v. Allstate Insurance Co., 141 N.H. 777,779 (1979). The language of the releases is clear and unambiguous. Citizens notes that the release also would purport to release it from claims of fraud going forward and argues that the New Hampshire Supreme Court's decision in MeGrath v. SNH Development. Inc., 158 N.H. 540, 542 (2009), would be applicable to this case. In MeGrath, the Court applied three factors in determining the validity of a prospective release; 1) whether the prospective release is not contrary to public policy; 2) whether the Plaintiff understood the import of the release where a reasonable person in a plaintiff's position would have; and, 3) whether the plaintiff's claims were within the contemplation of the parties when they executed the contract. Id.
If the MeGrath factors are applied, a prospective waiver of fraud cannot be given effect, because of waiver of a parry's fraud is against public policy in New Hampshire. The New Hampshire Supreme Court has long taken the view that fraud is a valid defense in a contract action and an independently actionable tort. Van Per Stok v. Voorhees, 151 N.H. 679,681-82 (2005). In Van Per Stok, the Court stated that "positive fraud vitiates every space thing - contracts, obligations, deeds of conveyances and even the requisite judgments of courts, incontrovertible as they are in every other ground..." Id. at 683, quoting Jones v. Emery, 40 N.H. 348,350 (i860). Moreover, "neither a standard merger clause, See Colby v. Granite State Realty, Inc., 116 N.H. 690, 691 (1976), nor the parol evidence rule, See Goldstein v. Gilman, 93 N.H. io6y 109 (1944) bars an action for fraud". Van Per Stok, 151 N.H. at 682. Positive fraud includes not only intentional misstatements, but statements made with conscious indifference to their truth with the intention the cause another to rely on them. Van Per Stok, Id. at 683; Snierson v. Scruton, 145 N.H. 73,77 (2000). New Hampshire law will not "permit a covenant of immunity to be drawn that will protect a person against his own fraud." Van Per Stok, 151 N.H. 679, quoting Panann Realty Corp. v. Harris, 157 N.E.2d 597, 601 (N.Y. 1959) (Fuld, J. dissenting). Under these circumstances, this Court must find that a prospective waiver of intentional fraud would violate public policy, and under McGrath, such a waiver cannot be given effect.
?
A more difficult question is raised by the fact that at the time the January 27, 2010 document, which included a release was signed, Morley had actual knowledge of at least of some of the misstatements and that as early as March 2009 Sabbow had actual knowledge of Mr. Newcombe's statements relating to the Swap Agreement were untrue.
Citizens relies on the well-settled principle that when one has been induced by fraud to enter into a contract and then after discovery of the contract enters into an agreement concerning the subject matter of the contract, he is conclusively determined to have waived any claim for damages on account of fraud. Anselmo v. Manufacturers Life Ins. Co., 771 F.2d 417,421 (8th Cir. 1985). See also Barney v. General Foods Corp., 1984 U.S. Dist. Lexis 24912 (N.D. Ind. 1984) *13,14. Daniel E. Francis Properties, L.C. et al. v. National Citibank, 2006 U.S. Dist. Lexis 85626 (November 27,2006) * 11. The thrust of Sabbow's argument is that:
It was true that Sabbow was aware of the potential for a breakage fee at the time it entered the release. However, Sabbow was not aware that Craig Newcombe had made intentional misrepresentation to Chuck Morley for the purpose of fraudulently inducing Mr. Morley to enter into a swap agreement that was not appropriate for Sabbow's stated financial needs, nor was Sabbow aware that Citizens' misrepresentations rose to the level of rascality that would raise an eyebrow of someone inured to the rough and tumble world of commerce.Sabbow's Memorandum in Opposition, Page 8. See also Sabbow's Surreply to Citizen's Motion for Summary Judgment, p. 1 (...although Sabbow was aware of the representations in March of 2009, it was not until March of 2010 that Sabbow began to suspect that Mr. Newcombe had made intentional misrepresentations in order to induce Mr. Morley to enter into a Swap Agreement...")
It bears repeating, however, that summary judgment can only be granted if no genuine issue as to any material fact exists and the moving party is entitled to summary judgment as a matter of law. See also Green Mt. Ins. Co. v. Bonney, 131 N.H. 762, 766 (1989). On summary judgment the trial court cannot weigh the content of parties' affidavits and resolve factual issues; rather it must determine whether a reasonable basis exists to dispute the facts claimed in movant's affidavit at trial and if so, summary judgment must be denied. Ianelli v. Burger King Corp., 145 N.H. 190,192-193 (2000). The New Hampshire Supreme Court has emphasized that while summary judgment affords savings in time, effort and expense, the value of judicial economy may not be gained at the expense of denying a litigant the right of trial where there is a genuine issue of material fact to be litigated. Concord Group Ins. Co. v. Sleeper, 135 N.H. 67,69 (1991). While summary judgment's most effective use is in breach of written contract or debt cases, Ianelli at 192, a court cannot resolve issues of credibility or weigh evidence on summary judgement.
The Plaintiff in this case has a difficult burden; it alleges fraud, and it must therefore establish fraud by clear and convincing evidence. Hair Excitement. Inc. v. L'Oreal, 158 N.H. 363, 369 (2009). However, whether or not fraud occurred depends upon the credibility of Sabbow's officers and agents and not on the documents that they alleged they were fraudulently induced to sign. It follows, therefore, that the Motion for Summary Judgment must be DENIED.
SO ORDERED.
Richard B. McNamara,
Presiding Justice