WHS Homes, Inc. v. Traditional Living, Inc., 011516 NHSUP, 2012-CV-0037
|Opinion Judge:||RICHARD B. MCNAMARA, PRESIDING JUSTICE.|
|Party Name:||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|
|Case Date:||January 15, 2016|
|Court:||Superior Court of New Hampshire|
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.
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"):
(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").
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.
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...
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