Rockwood v. SKF USA Inc.

• Decision Date: 28 June 2012
• Docket Number: No. 11–1105.,11–1105.
• Parties: Robert ROCKWOOD and Roxana Marchosky, Plaintiffs, Appellants, v. SKF USA INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

687 F.3d 1

Robert ROCKWOOD and Roxana Marchosky, Plaintiffs, Appellants,

v.SKF USA INC., Defendant, Appellee.

No. 11–1105.

United States Court of Appeals,First Circuit.

Heard Dec. 6, 2011.

Decided June 28, 2012.

Christopher R. Pudelski, with whom Law Offices of Christopher R. Pudelski, was on brief for appellants.

David Richman, with whom Matthew Williams, Pepper Hamilton LLP, Peter G. Callaghan, and Preti Flaherty Beliveau & Pachios, PLLP, were on brief for appellee.

Before LYNCH, Chief Judge, TORRUELLA and SELYA, Circuit Judges.

TORRUELLA, Circuit Judge.

Plaintiffs–Appellants Robert Rockwood (“Rockwood”) and Roxana Marchosky (“Marchosky”) (collectively, “Appellants”) appeal the district court's grant of summary judgment to Defendant–Appellee SKF USA Inc. (“SKF”). Appellants allege that they agreed to personally guarantee certain loans in reliance on promises by SKF to invest in a joint business venture and to purchase Appellants' company. When SKF failed to deliver on these alleged promises, Appellants were left with millions of dollars in repayment obligations. Appellants sued SKF on a promissory estoppel theory, but the district court rejected their claim and granted summary judgment to SKF. After careful consideration, we affirm.

I. BackgroundA. Appellants and SKF Meet

We recount the facts in the light most favorable to the Appellants, who were the non-moving party below. See Agusty–Reyes v. Dep't of Educ., 601 F.3d 45, 48 (1st Cir.2010).

Appellants were the co-founders and sole shareholders of Environamics, Inc. (“Environamics”), a Delaware corporation based in New Hampshire. Until its failure, described infra, Environamics designed, manufactured, and sold pumps and sealing devices for various applications. In April of 2003, after defaulting on a commercial loan, Environamics was left with a $1.5 million debt to Pioneer Capital (“Pioneer”). During the fall of 2003, Environamics solicited potential investors and/or purchasers in order to raise money to satisfy its debt to Pioneer. In addition, Environamics and Pioneer discussed converting some of Environamics's debt to Pioneer into an equity position for Pioneer.

In September of 2003, however, a savior appeared—or so it seemed. SKF ¹ learned that Environamics had developed and patented a “universal power frame,” a device that SKF had been trying to develop for some time. Appellants met with Timothy Richards (“Richards”), vice president of SKF, to discuss a possible relationship between SKF and Environamics. Two weeks after this meeting, Richards called Rockwood and told him that “SKF had decided to move very rapidly toward a possible acquisition of Environamics.” During conversations over the next few weeks, Richards repeatedly expressed SKF's interest in acquiring Environamics.

During this period, Environamics began to share confidential business information with SKF. In addition, Richards told Appellants that in view of SKF's planned acquisition, Environamics should cease seeking out new distribution channels for its products. Appellants complied with this request. Appellants also ceased looking for other opportunities for financing to pay off the debt to Pioneer.

B. Agreements Between Appellants and SKF

On January 14, 2004, Appellants entered into an “Option Agreement” with SKF. The Option Agreement gave SKF “an irrevocable option to purchase all, but not less than all, of the outstanding shares of [s]tock” in Environamics. The parties also executed a “Buy–Sell Agreement” that made SKF the “exclusive marketer and reseller” of Environamics's pumps and related products; the Buy–Sell Agreement also made Environamics the exclusive supplier of such products to SKF.

SKF's option to buy Environamics was to last for fifteen months. In addition, the Option Agreement called for the parties to try in good faith to negotiate a nine-month extension if SKF could not reach a target of selling $10 million of Environamics products annually under the Buy–Sell Agreement. The Option Agreement had an “exercise price” of $9 million, to be adjusted for Environamics's outstanding debt and any remaining obligations between SKF and Environamics. SKF was also to pay Appellants a royalty of ten percent of SKF's gross profits on sales of Environamics products for a seven-year period.

The Option Agreement contained a clause stating that it, combined with the Buy–Sell Agreement, “constitutes the entire agreement and supersedes all prior agreements, conversations, understandings and negotiations, both written and oral, between the parties with respect to the subject matter hereof.” The Option Agreement also provided that it was governed by Pennsylvania law “without regard to the laws that are applicable under conflicts of laws principles.” The Buy–Sell Agreement contained a similar choice-of-law clause.

C. Wells Fargo Loan

After the parties signed the Option and Buy–Sell Agreements, SKF paid Environamics $2 million, which Environamics used to pay off the loan to Pioneer. Pursuant to the Buy–Sell Agreement, Environamics officially terminated its relationships with all of its distributors. SKF effectively took control of shipping and marketing for Environamics products, the SKF brand name appeared on Environamics's products and marketing materials, and SKF provided the manufacturer's warranty on Environamics's products.

Environamics required additional financing to keep up its day-to-day operations. Initially, Richards and SKF attempted to obtain the necessary financing for Environamics. On February 27, 2004, Richards sent a letter to DSI Investment Banking Services (the “DSI Letter”) in which he stated: “[t]he value of SKF's corporate commitment to [the Environamics venture] is estimated to exceed $10 million over the next year to fifteen months.” In March of 2004, however, Richards informed Rockwood that SKF would not be in a position to provide additional financing and that Appellants themselves would need to obtain the necessary financing. SKF insisted, however, that Environamics obtain loans, rather than selling shares of stock, because SKF did not want any other entity to own Environamics shares.

After Appellants initially were unable to find a lender, Richards telephoned a contactat a Massachusetts branch of Wells Fargo and asked his contact to speak with Appellants about obtaining a loan. After Wells Fargo twice denied financing, Richards gave Rockwood a letter dated March 5, 2004 (the “March 5, 2004 Letter”) that Rockwood was to give to Wells Fargo in support of a loan application. This letter, written on SKF letterhead, outlined the “resources and assets [SKF] [had] committed to [its] recently negotiated joint venture with Environamics.” The letter stated, inter alia, that “the value of SKF's corporate commitment to this venture is estimated to exceed $10 [million] over the next year to fifteen months.” In analyzing the risk of a loan to Appellants, Wells Fargo noted that there was no guarantee that SKF would buy Environamics; specifically, Wells Fargo recognized that if the $10 million sales target in the Buy–Sell Agreement was not met, SKF might not exercise its option. Ultimately, Wells Fargo agreed to extend a $3,000,000 line of credit to Environamics, but only if Appellants personally guaranteed the loan.

Appellants were hesitant to personally guarantee the loan, and they expressed this concern to Richards. Appellants claim that in three separate conversations in or around April of 2004, Richards assured them that SKF would buy Environamics. As discussed below, exactly what Richards said is the subject of considerable confusion. After these conversations, Appellants agreed to personally guarantee the Wells Fargo loan.

D. Breakdown of Relations Between Environamics and SKF

By October of 2004, it became clear that the SKF/Environamics venture would not meet the $10 million sales target under the Buy–Sell Agreement. Appellants blamed this shortfall on SKF's failure to make sufficient effort to sell Environamics products, while SKF blamed it on weaker than expected market demand. At this point, SKF informed Appellants that it would not proceed with an acquisition under the Option Agreement. SKF claimed, however, that it had not cancelled the Option Agreement, and invoked its obligation to negotiate an extension to the option period. In addition, SKF offered to purchase Environamics on new terms, including a royalty for Appellants and a smaller up-front payment than the $9 million specified in the Option Agreement.

Appellants rejected SKF's new offer in January of 2005. In addition, Rockwood told Richards that as far as the Appellants were concerned, the Option Agreement “no longer exist[ed].” The parties continued to negotiate a possible acquisition by SKF throughout the next few months, during which time Rockwood repeatedly expressed Appellants' view that the Option Agreement was no longer applicable. By the end of 2005, negotiations had broken down completely.

In the spring of 2007, Wells Fargo declared Environamics to be in default on its loan. Environamics filed for bankruptcy protection in the Bankruptcy Court for the District of New Hampshire. In September of 2007, the Bankruptcy Court awarded control of Environamics to Wells Fargo. Appellants are now responsible for roughly $5 million in personal guarantees on the Wells Fargo loan.

E. Procedural History

In March of 2008, Appellants filed a 29–count complaint against SKF in the state court of New Hampshire. Appellants were initially represented by Marchosky, who is an attorney. SKF removed the action to the U.S. District Court for the District of New Hampshire. Appellants filed a First Amended Complaint and later a Second Amended Complaint. The SecondAmended Complaint included a promissory estoppel claim, the thrust of which was that Appellants took out the Wells Fargo loan in reliance on two promises by SKF: (1) that SKF would “exercise its option under the terms of the Option Agreement”; and (2) that...