Opinion
No.2012-CV-0037
01-15-2016
WHS Homes, Inc. and W. H. Silverstein, Inc. v. Traditional Living, Inc., Tod H. Schweizer d/b/a Lyme Investment Company and d/b/a Lyme Investment Partnership
ORDER
This case involves a dispute arising out of an Asset Purchase Agreement ("APA") entered into by the Plaintiffs, WHS Homes, Inc. and W. H. Silverstein, Inc. (collectively "WHS"), and the Defendant, Traditional Living, Inc. ("TLI"). The dispute began when a creditor of TLI, Brockway-Smith Company, attempted to collect the amount owed on its open account from both or either WHS or TLI. That claim has been resolved. However, the litigation between WHS and TLI has become complex. Initially, TLI filed cross-claims against WHS for breach of contract, unjust enrichment, and indemnification, while WHS filed a single cross-claim against TLI for indemnification. As the dispute progressed, WHS filed additional claims against TLI for misrepresentation, breach of warranty, reimbursement, indemnification, unjust enrichment, and conversion, all based on the APA between WHS and TLI. WHS then filed for partial summary judgment on TLI's cross-claim, which was denied. TLI subsequently sought, and was permitted, to file an amended cross-claim, including five claims for breach of contract, unjust enrichment, and indemnification.
The Court held a bench trial during the week of October 26, 2015. By the time of trial, there were three areas of dispute. First, TLI alleges that WHS was responsible for paying $1.7 million in trade payables pursuant to the APA, but did not do so. Second, TLI alleges that WHS failed to perform a number of obligations that it undertook as part of the APA in that it failed to pay a $430,000 promissory note, a broker's fee, and rent on properties owned by TLI. Finally, WHS claims that TLI is liable to WHS for a number of missing assets which were not turned over to it at the closing. Both parties seek attorneys' fees under the provisions of the APA, which provides that fees must be assessed against the prevailing party in litigation. For the reasons stated in this order, the Court finds TLI is not liable to WHS, and WHS is liable to TLI in the amount of $1,022,997.99.
I
This case involves the sale of the assets of TLI, a manufacturer of log homes. Tod Schweizer began working in the manufactured home construction business in 1970. In 1979 he and his partner, Brian Pattison, purchased the company that became TLI. They constructed additional plants across the country, including plants in New Hampshire, Oregon, and Montana, and the company's yearly revenue increased as the firm expanded. It developed two valuable trademarks, Timberpeg and Real Log Homes. Pattison died in 2005, and as result of the economic downturn in 2008, TLI was incurring substantial losses by 2010. Schweizer retained Briggs Capital ("Briggs") to act as a broker for sale of the business. Briggs solicited several offers, including an offer from the Silverstein Group whose principal was William H. Silverstein ("Silverstein").
Schweizer's goal was to have the buyer take on TLI's payables, to insure both that the vendors TLI had worked with for many years would be paid and that the company would continue to provide job for its employees. There were three serious bidders for the assets. Schweizer refused to negotiate with one of them because the bidder wanted to bypass Briggs, but he negotiated with the remaining bidders—Metapoint and Silverstein. The two offers did not appreciably differ. Briggs' December 23, 2010 e-mail established that both offers proposed to assume TLI's debt to its vendors. (Def.'s Ex. 56.) Both bidders submitted a letter of intent ("LOI"). Metapoint's LOI proposed assuming debt in the amount of $1.723 million, and Silverstein's LOI proposed assuming debt in the amount of $1.7 million. Briggs' e-mail summarized the two offers stating:
[P]ayables: Metapoint wants the right before closing to approach and negotiate with vendors a cut in their A/P. This would be standard procedure in a like situation. Silverstein, however says he would not to cut vendors as he feels this is unethical.(Def.'s Ex. 56.)
The $1.7 million number was not arbitrary, but was based on what Schweizer believed was the total of outstanding invoices from vendors, unvouchered receipts, and backordered materials. Silverstein's proposal also included a promissory note of $430,000 over 7 years. In round numbers, the deal was worth approximately $2.2 million to Schweizer.
Briggs recommended Silverstein as a potential buyer. Silverstein's LOI specifically provided in paragraph 3 that WHS would pay all the accounts payable up to $1.7 million. However, the APA did not include that language. The APA only required WHS to "assume liabilities" of TLI of no greater than $1.7 million from three different categories: liabilities reflected on the balance sheet, liabilities of seller under assumed contracts, and liabilities of seller for vacation time accrued.
WHS argues that customer deposits on contracts were "Assumed Liabilities" within the meaning of the APA and that it did not have to pay TLI's trade payables of $1.7 million. TLI, on the other hand, argues that a principal part of the agreement was that WHS would pay $1.7 million in trade payables and that customer deposits were not intended to be included in the $1.7 million WHS was required to pay.
A critical issue in resolving this part of the claim is the meaning of the term "Assumed Liabilities" within the context of Section 1.2 of the APA and what liabilities this provision required WHS to assume. Section 1.2 provides in relevant part:
1.2 Assumption of Liabilities. At the Closing, Buyer will assume only the following liabilities ("the Assumed Liabilities"):At the time of the closing, liabilities existed in certain categories: 1.2(a) Trade Payables, $1,831,032.07; 1.2(b) Customer Contracts, $1,270,789.28; and 1.2(c) Employee Vacation Time, $119,840.61.
(a) Liabilities reflected on the balance sheet (and schedules) of Seller attached as Exhibit A hereto (the "Closing Balance Sheet");
(b) Liabilities of Seller under the Assumed Contracts, including warranty issues, but excluding any obligations for pre-Closing default or breach by Seller for which Seller shall remain liable; and
(c) Liabilities of Seller for vacation time accrued by the Seller Employees (as defined in Section 2.12) and not yet used as of the, Closing Date, but only to the extent such amounts are set forth on Schedule 2.13(a).
The total amount of the Assumed Liabilities shall not exceed One Million Seven Hundred Thousand Dollars ($1,700,000). Buyer expressly shall not assume, or be responsible for, any other liabilities or obligations of Seller or Stockholder, whether actual or contingent, matured or unmatured, known or unknown, and whether arising out of occurrences prior to, at or after the Closing (the "Excluded Liabilities").
A
WHS moved for summary judgment on TLI's cross-claim in 2013. WHS maintained that it fulfilled its obligations under the APA when it assumed $2,208,449.57 of liabilities—some $500,000 more than it was required to pay. Specifically, WHS asserted that it:
[A]ssumed all of the existing TLI customer contracts (Item 1.2(b)), and all of the employee vacation time (Item 1.2(c)). It selectively assumed and paid trade payables, according to whether the relationship would be useful in WHS' ongoing business or the deliverables from the vendor were necessary to complete a TLI project which WHS had committed to complete.(WHS's Mot. Summ. J. 6.)
TLI objected to WHS's Motion for Summary Judgment on two grounds. First, TLI argued that the parties understood that liabilities under the APA related to trade payables, not customer deposits. It also argued that the deposits on customer contracts that WHS assumed should not count toward the $1.7 million cap on "Assumed Liabilities" because those deposits may never be refunded. Second, TLI argued that the term "Assumed Liabilities" is ambiguous because: (1) the balance sheet referred to in Section 1.2(a) was not attached to the APA, and WHS submitted two different documents purporting to be the balance sheet; and (2) the term "liability" could refer to an "accounting liability, a legal liability, or a common sense understanding of the term." (TLI's Surreply to WHS's Mot. Summ. J. 3.) WHS, on the other hand, argued that the term "Assumed Liabilities" is not ambiguous because: (1) the two different balance sheets are consistent; and (2) the term "Assumed Liabilities" has a definite and precise meaning under the APA.
More specifically, TLI argued that the term "Assumed Liabilities" is ambiguous because the term "liability" has several meanings. TLI referenced the Financial Accounting Standards Board ("FASB"), Statement of Financial Accounting Concepts ("SFAC"), which states, "Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events." SFAC No. 6 ¶ 35 (emphasis added). As TLI indicated, the SFAC also acknowledges a difference, though slight, between legally enforceable liabilities and equitable liabilities. SFAC No. 6 ¶ 40. TLI also relied on Black's Law Dictionary, which defines "liability" as "[t]he quality or state of being legally obligated or accountable; legal responsibility to another or to society, enforceable by civil remedy or criminal punishment or [a] financial or pecuniary obligation; DEBT." Black's Law Dictionary 997 (9th ed. 2009). Essentially, TLI argued that there is a difference between a legal liability and an accounting liability; therefore, the entirety of Section 1.2 of the APA is ambiguous because it is unclear which definition of "liability" applies.
TLI further argued that assumed contractual liabilities under Section 1.2(b) will actually result in revenue, given the unique circumstances of TLI's business. (TLI's Obj. to WHS's Mot. Summ. J. 7.) TLI required customer deposits on design contracts, on which TLI earned fees on an hourly basis. On build contracts, TLI earned fees as it manufactured the components of a home or addition. If a customer canceled a contract, TLI would refund the deposit, less any fees earned. Therefore, according to TLI, "[m]ost, if not all, of the net liability account shown on the [TLI] books in connection with uncompleted build contracts was not a liability, but would, in the event of cancellation, be recognized as Sales Revenue on the Company's [profit and loss statement.]" (TLI's Obj. to WHS's Mot. Summ. J. 13.) In other words, TLI asserted that Section 1.2(b) of the APA does not represent liabilities.
The Court rejected TLI's argument because it was contrary to the very language of Section 1.2, which by its own terms defines "Assumed Liabilities," and relevant accounting authority. An interpretation that runs contrary to the plain language of a contract is not reasonable. See Sherman v. Graciano, 152 N.H. 119, 123 (2005) (finding that where the language of a contract is not ambiguous, any difference in the parties' interpretation of the agreement was not reasonable). TLI asserted that because customer contracts eventually become profits, these contractual liabilities cannot truly be considered liabilities. However, the APA demonstrates that the parties placed customer contracts into the category of assumed liabilities. In other words, the parties themselves defined customer contracts as a liability. Thus, the Court held that TLI's interpretation of "Assumed Liabilities" was not reasonable.
WHS relied on a variety of references to general accounting principles, which indicate that customer deposits on services to be rendered are, in fact, liabilities. Essentially, WHS argued that receiving a deposit creates a "liability" in the sense that, when a company receives a cash deposit from a customer, it must either refund that cash or provide the requested services; there is a debt that must be paid back, whether in cash or in service. In substance, it argued that assumed liabilities includes contingent liabilities for the return of customer deposits. WHS's argument is consistent with general accounting principles. See note 1 infra. The Court therefore found that the term "liability" is not ambiguous, and the Court declined to admit extrinsic evidence to interpret it.
Needles, Anderson & Caldwell, Principles of Accounting 56-57 (4th ed. 1990); Learning Center, Accounting Concepts and Classified Financial Statements 341 (n.d.); McGraw-Hill, Intermediate Accounting eBook ch. 13 (2011), available at http://highered.mcgraw-hill.com/sites/0077328787/student_view0/.
B
In its summary judgment order, the Court found that one issue remained to be determined: does the APA permit WHS to choose among the three categories of contractually defined liabilities for which liabilities it would assume? TLI argued that the APA must be interpreted to require WHS to assume all liability to trade vendors as a priority and that this interpretation is consistent with the parties' conduct prior to and after contracting. WHS asserts the APA permitted it to choose among the categories at its discretion which means, based on the value of the assumed contracts, it would be entitled to pay none of TLI's vendors if it wished. The APA is silent on this issue. It merely defines assumed liabilities and categorizes them into three groups. Importantly, it does not prioritize among those three groups.
The interpretation of a contract is a question of law. Birch Broad., Inc. v. Capitol Broad. Corp., 161 N.H. 192, 196 (2010). The Court will give effect to clear, unambiguous language. Id. But when parties to a contract reasonably differ as to the meaning of a clause or term, the clause or term is ambiguous. Sunapee Difference, LLC v. State, 164 N.H. 778, 790 (2013); Birch Broad., 161 N.H. at 196. "Parol evidence may be used . . . to aid in interpreting or explaining an ambiguous term of a contract." Richey v. Leighton, 137 N.H. 661, 663 (1993).
In the summary judgment order, the Court reasoned that the APA's silence as to whether there is priority among the three classes of liabilities also creates ambiguity because prioritizing the liabilities is language WHS would assume the contract should have included, but it did not. "Silence creates ambiguity when it involves a matter 'naturally within the scope of the contract.'" Saccucci Auto Grp. v. Am. Honda Motor Co., 617 F.3d 14, 22 (1st Cir. 2010) (quoting 11 Richard A, Lord, Williston on Contracts § 30.4 (4th ed. 1999)) (recognizing the principle but declining to apply it to the case before it because a term constraining internet sales was not reasonably within the scope of an agreement drafted when the internet was not ubiquitous); Cole v. Combined Ins. Co. of Am., 125 N.H. 395, 396 (1984) ("The definitional issues before us arise not from any ambiguity of the contract, but from its silence. Our obligation, therefore, is to supply reasonable definitions."); see also Adria Int'l Grp., Inc. v. Ferre Dev., Inc., 241 F.3d 103, 110 (1st Cir. 2001) (applying Puerto Rican law, finding "silence can be a source of ambiguity"); Thomas v. Gusto Records, Inc., 939 F.2d 395, 402 (6th Cir. 1991) (finding silence created an implied term by admitting extrinsic evidence); Moncrief v. Williston Basin Interstate Pipeline Co., 174 F.3d 1150, 1173 (10th Cir. 1999) (applying Colorado law and finding that silence as to matters naturally within the scope of a contract creates ambiguity); Consol. Bearings Co. v. Ehret-Krohn Corp., 913 F.2d 1224, 1233 (7th Cir. 1990) ("Silence creates ambiguity, however, only when the silence involves a matter naturally within the scope of the contract written."); Cheyenne Mtn. Sch. Dist. No. 12 v. Thompson, 861 P.2d 711, 715 (Colo. 1993) (finding an employment contract's silence as to whether the employee would be compensated for unused vacation time was ambiguous because it was a matter naturally within the scope of the contract). "A contract's silence on an issue does not establish ambiguity if there is only one reasonable interpretation of the parties' intent." First Am. Bank v. First Am. Transp. Title Ins. Co., 759 F.3d 427, 432 (5th Cir. 2014).
The APA unambiguously provides that WHS was to assume liabilities for three categories: trade payables, customer contracts, and employee vacation time. However, the APA also specifically provided a $1.7 million liability cap for the assumed liabilities. At closing, the parties knew the total liabilities for these three categories exceeded the liability cap, yet the APA did not articulate a procedure for prioritizing among the assumed liabilities. Nor did the APA articulate any language granting WHS the discretion to determine the priority. Because prioritization of the assumed liabilities would necessarily have to occur in some way under the terms of the APA, language explaining which of the assumed liabilities must be prioritized would be expected to be in the agreement. Without prioritization, the agreement is open to both parties' interpretations, which differ substantially in terms of the value of the deal to both parties. If WHS's interpretation of the agreement is accepted, the transaction results in a net loss of over $1.7 million to Schweizer; if TLI's interpretation of the agreement is accepted, the transaction results in a net benefit of $2.2 million to Schweizer. The agreement is therefore ambiguous, and parol evidence may be admitted to explain which liabilities must be prioritized.
Moreover, there is an independent basis to admit parol evidence. Regardless of whether an agreement is integrated, parol evidence may be admitted to explain conditions or meanings necessary to apply unambiguous language. "Even in the absence of ambiguity, parol evidence may be admitted to prove the existence of unexpressed terms or conditions that are not inconsistent with the writing." Richey v. Leighton, 137 N.H. 661, 663 (1993) (emphasis added). When disputes arise "not from any ambiguity of the contract, but from its silence," it is the Court's "obligation . . . to supply reasonable definitions." Cole v. Combined Ins. Co. of Am., 125 N.H. 395, 396 (1984) (finding that a contract was silent on a matter necessary to apply the language of the contract and using extrinsic evidence to explain the matter). While Richey prohibits looking toward parol evidence to prove an unexpressed term in an integrated agreement, N.H. 661 at 663, it supports the conclusion that, like Cole, the Court may use extrinsic evidence necessary to explain unexpressed conditions or meanings necessary to apply the otherwise unambiguous language.
The Restatement of Contracts makes clear that a court need not close its eyes to all the circumstances of the transaction and rely solely on the agreement, even if that agreement is an integrated agreement. "The interpretation of an integrated agreement is directed to the meaning of the terms of the writing or writings in the light of the circumstances, in accordance with the rules stated in this Chapter." Restatement (Second) Contracts § 212(1) (1981). Comment (b) elaborates:
Plain meaning and extrinsic evidence. It is sometimes said that extrinsic evidence cannot change the plain meaning of a writing, but meaning can almost never be plain except in a context. Accordingly, the rule stated in subsection (1) is not limited to cases where it is determined that the language used is ambiguous. Any determination of meaning or ambiguity should only be made in the light of the relevant evidence of the situation and relations of the parties, the subject matter of the transaction, preliminary negotiations and statements made therein, usages of trade, and course of dealing between the parties. See §§ 202, 219-23. But after
the transaction has been shown in all its length and breath, the words of an integrated agreement remain the most important evidence of intention.Id. § 212 comment b at 126. Moreover, "Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish . . . that the integrated agreement, if any, is completely or partially integrated [or] the meaning of the writing, whether or not integrated." Id. § 214(b) & (c). With respect to interpretation of the meaning of an integrated agreement, the Restatement comments further explain, "Words, written or oral, cannot apply themselves to the subject matter. The expressions and general tenor of speech used in negotiations are admissible to show the conditions existing when the writing was made, the application of the words, and the meaning or meanings of the parties." Id. § 214 comment b at 133. (emphasis added).
It is true that the APA includes an integration clause indicating that the APA constitutes a fully integrated agreement. But while the APA was fully integrated, the Court may use extrinsic evidence to determine the meaning of the APA and its intended application without adding any additional contract term. In this case, it is impossible to apply the language of the APA to the assumed liabilities without some knowledge of the parties' intended prioritization. Because the nature of the cap necessarily leads to the conclusion that WHS would not be entirely liable for all of the assumed liabilities iterated in the APA, applying the language to determine WHS's actual assumed liabilities requires some analysis of prioritization. Evidence regarding whether or not the $1.7 million assumed liability cap must be applied to trade payables first does not contradict the agreement. Rather, it provides context. Consideration of extrinsic evidence which does not contradict the express terms of the agreement is permissible to determine the parties' intended application of the APA language. The Court may therefore consider parol evidence regarding the intention of the parties for the prioritization of WHS's payments toward the $1.7 million cap.
C
The extrinsic evidence establishes conclusively that the parties intended that WHS pay the trade payables up to $1.7 million prior to deciding whether to assume any other liabilities. In the first place, the agreement does not reflect what the evidence of the negotiations indicates was the central point of the transaction: that WHS would agree to pay TLI's vendor payables, which totaled $1.7 million, and essentially take over the business. TLI points out that the dramatic change from the LOI, which specifically provided for prioritization of vendor payables, to the APA, which was silent on the issue, is not evidenced by any document or e-mail record. (TLI Post-Trial Br. 14.) WHS's sole evidence of the change was Silverstein's testimony that WHS sent a redline document making the change to TLI, which never commented on it. However, WHS did not produce the document, and the Court does not credit that testimony.
It is of course true that, as experienced businessmen, both Schweizer and Silverstein recognized that an LOI cannot not contradict the terms of an integrated agreement. However, the LOI and the circumstances surrounding the execution of the APA are relevant to determining the ambiguity about priority and, in any event, do not contradict the APA. Here there is ample and credible testimony that payment of vendors was the predominant consideration in the LOI and that the $1.7 million cap was derived from vendor payables.
Schweizer testified that if the contract were interpreted as WHS suggests, the value of the transaction went from a $2.2 million benefit to a $1.7 million dollar loss to him. He testified credibly that if the contract were interpreted as WHS advocates, he never would have entered into the transaction. WHS argues that Schweizer was desperate and would have taken any deal WHS presented. The Court does not accept that argument as all the evidence is to the contrary. At the time of the APA with Silverstein, Schweizer had two potential buyers for the company, there were no mortgages on TLI's property and no bank debt, and Schweizer testified credibly he had the funds to keep the company running as long as necessary to find a buyer.
But even more important is the conduct of the parties after the contract was executed. "There is no surer way to find out what the parties meant, than to see what they have done. Self-interest stimulates the mind to activity, and sharpens its perspicacity." Bogosian v. Fine, 99 N.H. 340, 342 (1955). See also Birch Broad., Inc. v. Capitol Broad., Inc., 161 N.H. 192, 197 (2010) (stating that in determining the parties' intention, the court may properly consider their actions after the contract was executed); Spectrum Enterprises Inc. v. Helm Corp., 114 N.H. 773, 776 (1974) ("In this state how the parties acted with regard to the contract is considered part of the relevant circumstances.").
If WHS's interpretation of the APA were correct, it would have no responsibility for vendor payables; it would have been within $10,000 of the $1.7 million cap by considering the liabilities under assumed contracts of $1,478,165 and in payroll obligations of $211,837. But in the months following the closing, WHS acted as though it was responsible for vendor payables. Silverstein told vendors that he would pay vendor liabilities up to $1.7 million, but that Schweizer needed to "step up" to pay the rest. (Def.'s Ex. 68.)
Critically, in March 2011, Teressa Prucha, the bookkeeper at WHS was tracking the TLI payables and prepared a spreadsheet which she referred to as the "paydown schedule." In an e-mail to Chris Brown, an accountant for WHS, she requested direction on what to tell vendors, who were all creditors of TLI. It would make no sense for Prucha to prepare such a document if WHS thought there was no obligation to pay down TLI vendors. Moreover, in a June 2011 meeting regarding a customer deposit dispute she prepared a document indicating that WHS believed that any unshipped contract or canceled contracts do not count against the $1.7 million cap, only refunded amounts due. This would be consistent with an agreement that WHS be responsible for prioritizing obligations and assume TLI's payables prior to assuming contracts, which in the unique circumstances of this transaction might not result in any net out-of-pocket cost.
The parties did not agree that WHS would take over the business, leave TLI to pay all of the $1.7 million in trade payables, and only execute a note payable over some time for $430,000. Rather, based upon the conduct of the parties in negotiating the agreement, the documents exchanged between them, and the conduct of the parties after the transaction, the Court finds that the parties intended that WHS would prioritize payment of vendor payables within the $1.7 million liability cap.
WHS has paid $932,7343 to TLI's vendors. Schweizer has paid vendors $456,500, which should have been paid by WHS. Therefore, WHS has $310,755 remaining on the $1.7 million liabilities cap, which must be paid to vendors or as employee salary. It is also liable to Schweizer for the $456,500 paid to vendors on its behalf.
II
WHS has also made a claim that assets were missing as a part of the transaction. In section 215(b) of the APA, TLI represented that the acquired assets "constituted all the assets, tangible or intangible necessary to operate the business in a manner operated by seller immediately prior to the closing." There was no list of assets appended to the APA. WHS does not contend that any of the assets which were necessary to operate the business in the manner operated by seller immediately prior to the closing were not produced.
A. Production Assets
WHS's primary claim is that there was production equipment listed on TLI books of account valued at $1,005,600, which was not present at closing. It argues that it is entitled to damages, because in the APA, TLI warranted that "the books of account of seller reflect all . . . of its assets and liabilities required to be reflected therein. Seller maintains its financial statements and its books and records in accordance with generally accepted accounting principles." WHS does not dispute that it was aware that not every item on TLI books was transferred. Silverstein performed no asset inventory prior to closing, made no site visit to two of three plants, and made no valuation of any assets, pre- or post-closing. Less than 30 days from closing, Silverstein submitted a financial statement to a bank in order to obtain a line of credit, asserting that the assets were worth $5 million. Two years later, he submitted a financial statement averring that the assets were valued at $8.1 million.
The testimony at trial established clearly that the vast majority of the claim for production equipment related to the equipment installed in the 1970s and 1980s that had either been removed when TLI installed more modernized and efficient equipment or had simply worn out from use. In support of its claim for damages were missing equipment, WHS called Bob Best, a WHS employee who had worked for many years for TLI, as an expert. Best has no formal education in valuing equipment of the kind used in this business and has never been involved in purchasing or selling such equipment as a broker. Nonetheless, Best claimed expertise in the market for used equipment. The Court finds he is not qualified to act as an expert witness and further finds his testimony incredible.
Best admitted he has no experience in appraising used machinery. He attempted to value equipment by considering what the cost of the equipment was, without considering depreciation or what the value was to WHS at the present time. In some cases, despite the fact that the equipment he was valuing was used industrial equipment, he opined that the equipment was worth much more now than when it was purchased, because the cost of materials was higher now than at the time of purchase. For example, he valued a 10-foot roller, which had been purchased for $18,127 in 1988 and taken out of service in the 1990s, at $33,534. Critically, Best was forced to admit that he knew some of the supposedly missing equipment to be scrapped. Other items were listed on a list of missing equipment produced by TLI as "junked."
Best's theory of damage has no basis in contract law. The Court had issued a pretrial order on a motion in limine ruling that the theory on which WHS purported that it could recover damages based on the value of missing property would not be accepted. In its April 27, 2015 order, the Court stated:
A different rule may exist in tort cases. Restatement (Second) Torts § 911 illustrates the distinction:
(1) As used in this Chapter, value means exchange value or the value to the owner if this is greater than the exchange value.
(2) The exchange value of property or services is the amount of money for which the subject matter could be exchange or procured if there is a market continually resorted to by traders, or if no market exists, the amount that could be obtained in the usual course by finding a purchaser or hire or of similar property or services. The rental value of property is the exchange value of the use of the property.
In its papers, WHS sets forth a constellation of theories under which discretionary damages could be calculated, including a theory that "all of the assets would add value to WHS and were part of the consideration for which WHS committed multiple millions of dollars". For example, WHS's argues that it can recover damages for items such as a 1978 IBM Selectric Correcting Typewriter because the typewriter has continuing value to it. This theory of valuation has no support in the New Hampshire contract law, and will not be accepted by the Court. Damages for a fungible item such as a 1978 typewriter are simply the fair market value of the item. New Hampshire law provides clear standards for award of benefit of the bargain damages in breach of contract cases, and those standards will be applied in this case.(Order, April 27, 2015, at 6 (citations omitted).) Despite this clear Order, Best testified in a number of instances to the value of goods based on the value to WHS, and even included in his exhibit the value of a 1978 IBM Selectric typewriter purchased for $880, which he valued at $500.
On the other hand, TLI produced a capable and competent expert witness named Andy Myrick. Myrick is an associate professor at Vermont Technical College and teaches students about the use of industrial woodworking equipment. He has substantial expertise in buying and selling used woodworking machinery such as the machinery used in TLI's business. Myrick testified persuasively that the assets which TLI claims were missing were worthless, and if anything, TLI saved WHS money by junking the assets. The Court credits Myrick's testimony.
New Hampshire law provides that for a breach of contract, the remedy is to put the injured party in as good a position, as far as money damages can put him, as he would have occupied had the defendant fully performed. Emery v. Caledonia Sand and Gravel, 117 N.H. 441, 446 (1977); see generally Restatement (Second) Contracts § 347. The Court emphasized in Emery that the standard for damages in tort and contract are different; while in a tort case a court's aim is to put the injured party in the position he would have been in had the wrong not been committed, in a contract case, a court's aim is to award a sum of money which is equivalent to the performance of the bargain. Emery, 117 N.H. 441, 447.
In the process of determining the value of goods which are part of a contract, "market prices will always be used if such prices are available." J. Perillo, 11 Corbin on Contracts § 55.3 at 57. In the event that there is no market for the goods:
[o]ther relevant evidence includes expert opinions, original cost less depreciation, reproduction cost less an allowance for depreciation and sales of comparable personalty or realty. Also admissible is the sale price of the property if it was resold to another after the breach. Offers to purchase the property are inadmissible, however, on the grounds that the fabrication of such evidence would be too easy.J. Perillo, Corbin on Contracts § 55.13 at 59-60. Applying these standards to the facts, it is obvious that WHS is not entitled to damages.
Perhaps recognizing the weakness of its claim, WHS argues that the Court should make a finding in its favor because proof of damages is not an element of breach of warranty, and it is therefore entitled to nominal damages. (WHS's Post-Trial Br. 15 (citing Restatement (Second) Contracts § 346(2)).) It apparently seeks such an order so it can be that considered the prevailing party under the APA and thereby recover attorney's fees on this claim.
The Court cannot find that WHS was the prevailing party on this claim. First, there is no value to the "missing equipment" claim because it is a claim based on obvious error by TLI in failing to remove junked or scrapped material from inventory books which had nothing to do with whether or not TLI delivered the assets it was required to deliver pursuant to the APA. There was no list of assets appended to the APA, and it is a matter of common knowledge that in any organization, items taken out of service are sometimes left in inventory. There is no claim that TLI breached any warranty to provide all of the equipment needed to operate the plants. A prudent buyer concerned about the issue would do an audit. Moreover, as pointed out in TLI's memo, as a result of this claim, the litigation was complicated. Although meritless, TLI was required to defend a $1 million claim that required it to depose Best twice and retain an expert to analyze the equipment claim. Despite the fact that the Court rejected its theory of damages in a pretrial order, WHS produced evidence to support it at trial. At least a full day of the 4 day trial was based on the missing equipment claim. Even if WHS were entitled to fees, the Court would set them off based on WHS's obstinate conduct in pursuing this claim.
B. Hanover Assets
The Hanover assets consist of personal items purchased by Schweizer and Pattison and located at their offices in Hanover. The items include carpets, paintings computers and furniture. They were not purchased by TLI but were placed on TLI's books only for insurance purposes. WHS claims these items because the assets were on the Hanover QuickBooks file, which is an accounting system that was not part of TLI's books or managed by TLI's bookkeeper. Nor did the APA reference the Hanover QuickBooks file. WHS claims that it is entitled to everything TLI "tagged" as inventory, but the only testimony regarding the equipment was that they were never tagged with a TLI inventory tag. Therefore, WHS has not proved these claims.
C. Forklift Claim
Like the missing property claim, the forklift claim is primarily based on a theory that a line item in the QuickBooks file for the Hanover office suggested that there should be forklifts at the Hanover office. However, WHS's own witnesses, Prucha and Best, testified that no forklifts were missing. Prucha acknowledged that the QuickBooks file does not necessarily relate to TLI assets. The evidence established that the forklift entry was probably made in error. WHS cannot produce evidence that any particular forklift's existence, location, or condition. The claim therefore cannot succeed.
D. Cash
WHS claims that it is entitled to some $66,000 in cash of TLI. Section 1.1(g) of the APA, however, explicitly provides that cash is not among the assets to be conveyed. Section of the APA also disclose that all contract deposits were used as working capital in the ordinary course of business.
As with the forklift, the missing cash claim is based on the QuickBooks system, which is separate from the TLI books. WHS's claim for $66,468 was added after TLI's accountant added an entry after consulting with Sally Britton. WHS acknowledges the cash at issue was not removed from a TLI account. Rather, it was money Schweizer did not transfer to WHS at closing because the cash was held in a sweep account, which automatically transferred funds from various Schweizer-owned entities, including Nestor, to a primary account. The vast majority of the funds, between $56,000 and $57,000, belonged to Nestor and were not maintained in a separate checking account. WHS employees transferred to cash out of the account soon after closing and nothing was hidden. During this period of time, WHS continued to use Schweizer's signature stamp—without his consent—to write numerous checks. The short delay before removing the cash was the result of error and does not entitle WHS money it never expected to receive.
Nestor was a corporation established by TLI in order to effectuate self-insurance of employees. --------
E. Vehicles
WHS also seeks approximately $47,900 for used vehicles driven by company employees. The undisputed evidence is that these vehicles belonged to P&S leasing, a separate entity controlled by Schweizer's children. They were listed as an asset on TLI's books with a corresponding loan owed to P&S leasing. The loan was disclosed to WHS pre-closing, and WHS chose not to take on that obligation and never made a payment on the loans. It has no claim to the vehicles. P&S leasing is not a party to the APA, and the vehicles were all titled in the name of P&S leasing.
F. Sales Tax
WHS claims that TLI is liable to it for sales tax which will be paid when the contracts with customers are completed. It made a claim for $177,540 after the close of discovery. The timing of the claim alone would be sufficient reason to deny it. However, the testimony at trial was that sales tax is not collected until the final payment is received on a customer contracts and is an additional amount collected from the customer, as confirmed by the standard contract language. To the extent Theresa Prucha testified otherwise, the Court does not credit her testimony. WHS incurred no additional liability for sales tax amounts. As a practical matter, even if it did, given the Court's order on prioritizing payments to vendors, it would have no practical effect. WHS cannot succeed on this claim.
III
TLI has made a number of claims which are not seriously disputed by WHS. Rather, WHS takes the position that its claims exceed TLI's damages, and therefore WHS has no obligation to make payments. In light of the Court's order, finding that WHS cannot succeed on its claims, it is apparent that TLI's claims are enforceable.
A. Real Estate and Insurance
The testimony is undisputed that TLI was billed for insurance premiums in the amount of $4,853 that should have been paid by WHS. TLI was required to pay $7,608 in fees to remove a substance called "Timbor" in a plant. Under the terms of the Briggs Capital retention agreement, Schweizer was required to pay a $20,000 retainer fee which was to be to Silverstein's obligation under APA section 6.1. Schweizer testified credibly that he paid his fee and has not been reimbursed. Schweizer testified he paid an attorney in order to evict Silverstein, but there is a conflict in the testimony and no documentation relating to an eviction. The court does not accept this claim.
B. Vendors
Schweizer paid 3 vendors that WHS should have paid. BC Custom Timber was owed $140,000 and had a lien on the real estate. At Silverstein's request, TLI advanced $100,000 to WHS with the understanding that Silverstein would pay the $40,000. TLI wrote a check to WHS for $100,000 containing a memorandum which states "advance for BC custom liability." However, WHS never paid BC Custom Timber and Schweizer had to pay an additional $126,025.67 resulting in a total payment $226,025.67.
Schweizer paid Devine Millimet, a vendor that had done legal work for TLI, $55,000 and Brockway Smith, whose claim began this litigation, $143,000. WHS and Silverstein are liable for those payments.
C. Promissory Note, and Miscellaneous
WHS does not dispute that it is liable for the balance of the $415,000 promissory note. WHS has paid $15,000 on the note. There is no dispute that WHS has not paid eight months of rent in Montana, Montana property taxes, or utilities under the triple net lease. In addition, TLI has paid $3,040.19 in unemployment taxes properly chargeable to WHS.
D. Attorney's Fees
Under section 4.3 of the APA, the prevailing party in litigation involving the APA is entitled to attorneys' fees. In addition, paragraph 5 of the $430,000 promissory note provides for fees in the event of collection. Under the circumstances of this case, it is clear that TLI is the prevailing party. It is therefore entitled to reasonable attorney's fees, which must be submitted to the Court for approval.
SO ORDERED.
1/15/16
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/
(Emphasis supplied). Courts considering tort cases in which a homeowner's property has been destroyed have been willing to apply flexible standards such as " the actual worth or value of the articles to the owner for use in the condition in which they were at the time of the fire excluding any fanciful or sentimental considerations". Bond v. A.H. Belo, 602 S.W.2d 105, 108 (Tex. App. 1980). See generally DiSpirito v. Bristol Cty. Water Co., 102 R.I. 50, 227 A.2d 782, 784-75 (1967). Such decisions have been criticized because "secondhand goods, like any others, practically always have a market value of their own" but in any event, the analysis applied in such cases is plainly not applicable in dispute over an act set purchase agreement between two sophisticated parties. J. Perillo, 11 Corbin on Contracts § 55.13.