Rockwood v. Skf U.S. Inc.

• Decision Date: 17 December 2010
• Docket Number: Civil No. 08–cv–168–JL.
• Citation: 758 F.Supp.2d 44
• Parties: Robert ROCKWOOD and Roxana Marchoskyv.SKF USA INC.
• Court: U.S. District Court — District of New Hampshire

758 F.Supp.2d 44

Robert ROCKWOOD and Roxana Marchosky

v.SKF USA INC.

Civil No. 08–cv–168–JL.

United States District Court, D. New Hampshire.

Dec. 17, 2010.

Donald C. Crandlemire, Steven M. Gordon, Shaheen & Gordon, Concord, NH, William E. Aivalikles, Aivalikles Law Office, Nashua, NH, for Robert Rockwood and Roxana Marchosky.David Richman, Matthew R. Williams, Pepper Hamilton LLP, Philadelphia, PA, Gregory A. Moffett, Peter G. Callaghan, Preti Flaherty Beliveau Pachios PLLP, Concord, NH, for SKF USA Inc.

OPINION AND ORDER

JOSEPH N. LAPLANTE, District Judge.

This bitter dispute over a failed deal to buy a company raises questions about the reach of the promissory estoppel doctrine. The plaintiffs, Robert Rockwood and Roxana Marchosky, claim that the defendant, SKF USA Inc., “through its cumulative words, conduct, and acts of assurance, manifested an intention to purchase” the company they owned, Environamics, Inc. The plaintiffs further allege that they reasonably relied on this “promise” to their detriment—most seriously by guaranteeing a bank loan to Environamics on which it eventually defaulted, resulting in foreclosure, repossession of the company's assets, and the plaintiffs' $5 million personal liability to the bank after SKF ultimately declined to buy the company.

SKF has moved for summary judgment on this claim, arguing that its “words and conduct” never amounted to an enforceable promise to buy Environamics but that, in any event, the plaintiffs could not have reasonably relied on that promise in the face of their written agreement with SKF that gave it the option to buy Environamics, instead of committing it to do so. This court has jurisdiction over this matter between the plaintiffs, New Hampshire citizens, and SKF, a Pennsylvania-based corporation, under 28 U.S.C. § 1331(a)(1) (diversity).

Following oral argument, SKF's motion is granted. Even if the plaintiffs are right that New Hampshire law applies, it does not allow recovery in promissory estoppel where the parties have an enforceable agreement that expressly conflicts with the alleged promise. Here, the option agreement was enforceable and, by its very nature, expressly conflicted with any promise by SKF obligating it to buy Environamics. Furthermore, the plaintiffs could not have reasonably relied on the “words and conduct” allegedly constituting that promise, because nearly all of it occurred before the parties entered into the option agreement, which by its express terms superseded “all prior agreements, conversations, understandings, and negotiations” between the parties. Though the plaintiffs point to one set of statements SKF allegedly made after entering into the agreement—when they say they were told not to worry about guaranteeing the loan, because SKF had committed to buy Environamics—they could not have reasonably relied on that as a promise by SKF to do anything other than to buy the company pursuant to the option agreement. Indeed, that was how they had characterized the very same statements in successfully opposing an earlier summary judgment motion by SKF. But the plaintiffs have since expressly disclaimed that theory, so they cannot avoid summary judgment on their promissory estoppel claim based on these alleged comments. Finally, the plaintiffs' argument that a joint venture existed between SKF and Environamics is incorrect as a matter of law and ultimately irrelevant to their promissory estoppel claim anyway.

I. Applicable legal standard

Summary judgment is appropriate where the “pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c)(2). Under this rule, “[o]nce the moving party avers an absence of evidence to support the non-moving party's case, the non-moving party must offer ‘definite, competent evidence to rebut the motion.’ ” Meuser v. Fed. Express Corp., 564 F.3d 507, 515 (1st Cir.2009) (quoting Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir.1991)).

In ruling on a motion for summary judgment, the “court must scrutinize the record in the light most flattering to the party opposing the motion, indulging all reasonable inferences in that party's favor.” Mulvihill v. Top–Flite Golf Co., 335 F.3d 15, 19 (1st Cir.2003). The following facts are set forth accordingly.

II. BackgroundA. Factual history1. They meet

Rockwood and Marchosky each owned half of the stock of Environamics, a corporation that, until its demise, designed, manufactured, and sold pumps and sealing devices from its headquarters in Hudson, New Hampshire. Rockwood, an engineer by training, has worked in the industry for 35 years, and served as the company's president and chief executive officer; Marchosky, who has more than 30 years' experience as an attorney, served as the company's vice president and general counsel. Among the company's innovations was a system for retrofitting the “power end” of a pump made by any manufacturer with an improved component made by Environamics, enhancing performance and extending product life.

In April 2003, Environamics was in difficult financial straits after defaulting on its obligations to an outside lender, who had secured the appointment of a receiver over the company's affairs until it posted $1.5 million as security for its debt. Fortuitously—or at least it seemed at the time—Environamics happened to get a sales call from SKF, one of its vendors, in September 2003, during which the salesman announced SKF's hopes to develop a power end “that could fit on anybody's pump.” After learning of this, Rockwood called SKF to inform it that Environamics “had already developed and patented” that very technology. A sit-down meeting between the plaintiffs and SKF, including its vice president, Timothy Richards, soon followed. SKF is the United States subsidiary of AB SKF, a Swedish corporation that is the world's largest manufacturer of ball bearings, which are an essential component of industrial pumps.

2. The courtship

Two weeks after the parties met, Richards called Rockwood to tell him that “SKF had decided to move very rapidly toward a possible acquisition of Environamics.” During regular conversations with Rockwood over the next few weeks, Richards “continually expressed that SKF was moving as fast as possible to acquire Environamics.” Then, at meetings in November 2003, the plaintiffs and Richards discussed the structure of the potential deal as well as post-acquisition financial and operational details. In one of the meetings, Richards said that “in view of SKF's planned acquisition, Environamics should cease seeking out and opening new distributorship accounts,” which the company did. Environamics also “held off pursuing other opportunities” for financing in light of “SKF's statements and [its] demonstrated desire to acquire” the company. In early December 2003, in fact, Richards dissuaded Rockwood from pursuing a proposal from Environamics's lender to convert its debt into an equity position, arguing that “SKF had committed to buying Environamics and had no interest in sharing equity with anyone.” Instead, Richards invited Rockwood to submit a “wish list” of his company's cash-flow needs that would allow it to “bridge the gap until the deal could get finalized in January 2004.” In response, Rockwood asked SKF for $250,000 within the next week, and an additional $4 million within the following month, explaining that the parties' agreement to cease “opening stocking distributors ... has eliminated revenues for Environamics during [the] interim period[ ] until we join forces.” SKF immediately provided Environamics with the requested $250,000, which Richards described to Rockwood as ensuring “that Environamics ceased any further conversations with any other potential suitors and to buy time while [SKF] worked out the remainder of the acquisition deal.” Richards also said “he didn't think the $4 million request would be any problem since SKF had committed to buying Environamics.” Rockwood says that in reliance on these statements he “ceased any further discussions with [Environamics's lender] about an equity deal.”

As it turned out, the request for $4 million did present a problem, because SKF's vice president of finance was not “willing to risk more” than $2 million, in the form of a prepayment for products to be supplied by Environamics. In a meeting in mid-December 2003, though, Richards—joined by another SKF executive, Donald Poland—assured Rockwood that the “$2 Million payment was just an initial step in the relationship and that SKF's commitment to buy Environamics had not wavered.” After delivering the bad news about Rockwood's funding request, in fact, Richards repeatedly told him, “don't worry,” “we want Environamics,” and “we are buying Environamics.”

Richards subsequently asked the plaintiffs for certain “items we require to proceed to the next stage of our proposed partnership,” including information on the products comprising the purchase order to be used to generate SKF's $2 million payment to Environamics. When Rockwood asked what products SKF wanted, Richards responded that it did not matter, because the purchase order “was in fact just a method to get needed cash to Environamics in connection with SKF's planned acquisition.” Indeed, after Rockwood provided the requested list of $2 million in Environamics products, they were never delivered to SKF, but remained in the Environamics warehouse. Thus, the plaintiffs say, “SKF was not ‘purchasing’ inventory as it now claims but was channeling funds to Environamics in furtherance of its inevitable acquisition” (footnote omitted). ¹

3. The engagement

Despite how they now say they understood the tenor of their dealings with SKF to that point, on January 14, 2004, the plaintiffs entered into an “Option Agreement” with SKF that, as its title suggests, did not make the...