Forms, Inc. v. American Standard, Inc.

• Decision Date: 23 August 1982
• Docket Number: Civ. A. No. 81-4933.
• Citation: 546 F. Supp. 314
• Parties: FORMS, INC. v. AMERICAN STANDARD, INC.
• Court: U.S. District Court — Eastern District of Pennsylvania

546 F. Supp. 314

FORMS, INC. v. AMERICAN STANDARD, INC.

Civ. A. No. 81-4933.

United States District Court, E. D. Pennsylvania.

August 23, 1982.

Jay Barsky, Sharlyn Cohen, Philadelphia, Pa., for plaintiff.

Steven L. Friedman and Daniel F. Ryan, III, Philadelphia, Pa., for defendant.

MEMORANDUM

NEWCOMER, District Judge.

Before me are cross-motions for summary judgment. Plaintiff Forms, Inc. ("Forms") by its owner Laurence Weiss, has brought this action alleging in four counts fraudulent misrepresentation in the sale of Forms to Weiss by the defendant American Standard, Inc. ("American Standard"). In Count I ("Inventory Revaluation Claim"), the plaintiff alleges that the defendant fraudulently failed to disclose the post-closing adjustment of Forms' inventory. Plaintiff in Count II ("Computer Documents Claim") alleges that the American Standard fraudulently misstated in the post-closing adjustment the nature and amount of an outstanding claim by a company called Computer Documents against Forms. In Count III plaintiff alleges that the defendant fraudulently misrepresented to Weiss that all accounts receivable on the closing balance sheet were collectible in full ("Account Receivable Claim"). Forms alleges in Count IV ("David Kercher Claim") that it was fraudulently induced to exempt David Kercher, the General Manager of Forms when it was owned by American Standard, from the employment restriction clause of the agreement of sale ("Agreement"). The defendant seeks summary judgment on all four courts; plaintiff seeks summary judgment on counts II and IV. For the reasons set forth below, I will grant the defendant's motion for summary judgment on the first four substantive counts, as well as Count V (Breach of Contract) and Count VI (Punitive Damages), and enter judgment for the defendant.

I. The Facts

The record in this case is somewhat complicated and it deserves an extended recitation. The undisputed facts, drawn from the opposing briefs and the depositions, are as follows.

Laurence Weiss, C.P.A., learned in the summer of 1979 that American Standard was interested in selling the assets of an unincorporated division in its Business Forms Group, known as Forms Inc. Weiss entered into negotiations that continued throughout the summer and fall with James Sears, Vice President of Corporate Development for American Standard, and James Sinclair, then President of American Standard's Business Forms Group. Weiss offered to purchase Forms for book value plus $500,000 on December 3, 1979 (Exhibit "D", Defendant's Motion for Summary Judgment). Three weeks later, on December 26, 1979, Weiss made a second offer of book value plus $600,000 and American Standard agreed to negotiate solely with Weiss (Exhibit "E", Defendant's Motion for Summary Judgment). Eight draft agreements were made between January 1980 and March 12, 1980, the date the final agreement was executed.

On November 12, 1979 James Sinclair wrote a letter to David Kercher in which Sinclair promised that Kercher would remain with Forms until it was sold, and further provided that should Kercher leave Forms at the sale, American Standard would keep him on the payroll for up to one year or such earlier time as Kercher was able to locate employment elsewhere (Exhibit "C", Plaintiff's Motion for Summary Judgment). Kercher, in a letter dated January 14, 1980, sought similar assurances from Gerald Tonges, who had replaced Sinclair as President of the Business Forms Group (Exhibit "D", Plaintiff's Motion for Summary Judgment). Two days later Tonges confirmed the offer in a letter to Kercher (Exhibit "E", Plaintiff's Motion for Summary Judgment). Laurence Weiss sent a letter to Kercher on February 7, 1980 outlining Kercher's compensation package should he remain with Forms (Exhibit "G", Defendant's Motion for Summary Judgment). This was followed by a conversation in which Weiss offered a higher base salary (Deposition of Weiss April 19, 1982, at 111). Kercher did not tell Weiss what he planned to do after the settlement. Sometime in mid-February Weiss called Kercher and asked permission to speak with a particular Forms salesman. Kercher thought this improper and refused, but Weiss contacted the salesman anyway (Deposition of Kercher, at 155-157A). On February 19, 1980 a side letter to the Agreement was drafted by American Standard exempting Kercher from the employment restriction that prohibited American Standard from offering employment to any Forms employees at or above their salary for one year after the settlement (paragraph 10(a)(ii) of the Agreement). The side letter appeared in several drafts and was signed by Weiss at the closing on March 12, 1980 (Exhibit "N", Defendant's Motion for Summary Judgment).

The sale of Forms to Laurence Weiss was consummated on March 12, 1980. There is conflicting evidence about who informed whom of the Computer Documents claim. Charles Gordon, counsel for American Standard, said that he was informed by Weiss (Deposition of Gordon, at 57-58). Weiss recalls being informed at the closing by Gordon or by an unnamed third person (Deposition of Weiss, April 30, 1982 at 62-63). A side letter written by Weiss and executed as part of the Agreement stated that American Standard informed Forms of the claim (Exhibit "V", Plaintiff's Response to Defendant's Motion for Summary Judgment). The account executive who handled the claim for Forms, Thomas Reeve, stated that he discussed the claim several times with Kercher and told him that it was in excess of $31,000. (Affidavit of Reeve, Plaintiff's Response to Defendant's Motion for Summary Judgment). Kercher recalls discussing the dollar amount of the claim with Gordon before the closing but did not mention the figure in his deposition (Deposition of Kercher, at 134). Kercher stated, in a February 25, 1980 memorandum to James Sears that he believed the potential liability to be approximately $25,000.00 (Exhibit "P", Plaintiff's Motion for Summary Judgment). Gordon also recalled that amount as the figure discussed in his conversation with Kercher (Deposition of Gordon, at 57-58). Gordon next spoke to Kercher about the Computer Documents claim on the closing date. Gordon stated that Weiss mentioned the figure of $22,205 and that he then called Kercher to corroborate the figure (Deposition of Gordon at 57-58). American Standard agreed to assume liability for claims up to $22,205 in a side letter that became part 1 of the agreement (Exhibit "J", Defendant's Motion for Summary Judgment).¹

On the afternoon of the settlement Kercher sent a letter of resignation to Weiss, stating his intention to remain with Forms until at least April 30th (Exhibit "F", Plaintiff's Motion for Summary Judgment). Kercher's decision to leave Forms was apparently based on his belief, grounded in his experience with Mr. Weiss in the weeks before the closing, that he could not work effectively with Weiss (Deposition of Kercher, at 157-158). Later the same day Kercher sent a letter to Gerald Tonges of the Business Forms Group of American Standard informing Tonges of his resignation and invoking American Standard's one-year employment commitment (Exhibit "G", Plaintiff's Motion for Summary Judgment). Kercher did not tell Weiss before the closing that he planned to stay with Forms (Deposition of Weiss, April 19, 1982, at 115), nor was Kercher offered a specific position with American Standard (Deposition of Kercher, at 154), nor did Kercher reveal to anyone at American Standard his intention to leave Forms (Deposition of Kercher, at 68-72). The next day, March 13, American Standard transferred Kercher to its Business Forms Group with the proposed status of Assistant General Manager, retroactively effective as of March 10, 1980 (Exhibit "J", Plaintiff's Motion for Summary Judgment).

Several times after the closing, Kercher discussed a transfer to another division of American Standard with Gerald Tonges, and from April 2-8 Kercher travelled to Dallas, Texas to inspect a facility newly acquired by American Standard (Deposition of Kercher at 88-89). Because Kercher was frequently absent or late for work, he was fired by Weiss on April 11th, with an effective date of April 2nd. (Deposition of Weiss, at 143-146; Exhibit "H", Plaintiff's Motion for Summary Judgment). In mid-April Kercher was offered and accepted a job as President and General Manager of American Standard's Woehrmyer Business Forms in Denver, Colorado. He assumed his new position in late April (Deposition of Kercher, at 87-97).

Weiss and American Standard provided in the Agreement that their respective accountants would meet within 60 days of the closing to negotiate any post-closing adjustments. (Agreement, Paragraph 4(d), Exhibit "L", Defendant's Motion for Summary Judgment). The provision also included a procedure in which any unresolved disputes between the accounting firms would be submitted to a third independent accounting firm whose decision would be binding. On July 27, 1980 Forms' accountants (Coopers and Lybrand) submitted a list of post-closing adjustments to American Standard's accountants (Arthur Young) (Exhibit "P", Defendant's Motion for Summary Judgment). The accountants met on July 21, 1980 and resolved some disagreements, but left unresolved Forms' claims for inventory revaluation, additional credits on the Computer Documents account, and compensation for uncollectable accounts receivable (Counts I, II, and III of this suit). On February 4, 1981 Jay Barsky, attorney for Forms, wrote a letter to Charles Gordon, attorney for American Standard, in which he characterized the claims as part of the post-closing adjustment but suggested that the matter be resolved by the lawyers (Exhibit "R", Defendant's Motion for Summary Judgment). The issues were not resolved and Forms filed this suit on December 2, 1981.

II. Procedural Posture

Plaintiff Forms states four counts of fraudulent misrepresentation, a fifth count for breach of contract based on...