Technology v . Moore CV-02-146-M 07/19/02 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Technology Planning Int’l., LLC RBP Holdings, Ltd., and Dover Technologies, Ltd., Plaintiffs
v. Civil N o . 02-146-SM Opinion N o . 2002 DNH 138 Moore North America, Inc. and Raymond Hartman, Defendants
O R D E R
On January 3 0 , 2002, representatives of Moore North America,
Inc. (“Moore”) and Technology Planning International, LLC (“TPI”)
executed a letter of understanding (the “Letter Agreement”) which
“set forth certain non-binding understandings and certain binding
agreements between [TPI] and [Moore] with respect to [TPI’s]
possible acquisition of [Moore’s] Document Automation Systems
contract manufacturing business located in Dover, New Hampshire.”
Letter Agreement, Exhibit 1 to plaintiffs’ complaint, at 1 . It
was signed by Sean Sullivan, in his capacity as Senior Vice
President of Moore, and Richard Piller, in his capacity as
President of TPI. According to TPI, after conducting some due diligence, it
discovered that the Document Automation Systems business (the
“Company”) was not as profitable as it had been led to believe,
sales in the pipeline were off historical levels, and the sales
staff was not accepting new orders from customers. Subsequently,
negotiations between the parties deteriorated and they have yet
to execute a purchase and sale agreement (though neither party
has given the other written notice of its intent to terminate the
Letter Agreement and, according to TPI, Moore has yet to return
its $10,000 deposit).
TPI, along with RBP Holdings, Ltd., and Dover Technologies,
Ltd., describe this suit as one seeking “specific performance of
their contract rights pursuant to a letter agreement dated
January 30th, 2002, as extended, o r , in the alternative, . . .
damages from Defendants under various theories of tort and
contract law.” Complaint, at para. 6. They seek “either
equitable relief, in the form of specific performance, or
monetary damages,” id., and have sued both Moore and Raymond
Hartman, Moore’s Senior Vice President in charge of the Company.
Moore moves to dismiss all claims against i t , saying TPI’s
2 complaint fails to set forth viable causes of action. TPI
objects.
Standard of Review
When ruling on a motion to dismiss under Fed. R. Civ. P.
12(b)(6), the court must “accept as true the well-pleaded factual
allegations of the complaint, draw all reasonable inferences
therefrom in the plaintiff’s favor and determine whether the
complaint, so read, sets forth facts sufficient to justify
recovery on any cognizable theory.” Martin v . Applied Cellular
Tech., Inc., 284 F.3d 1 , 6 (1st Cir. 2002). Dismissal is
appropriate only if “it clearly appears, according to the facts
alleged, that the plaintiff cannot recover on any viable theory.”
Langadinos v . American Airlines, Inc., 199 F.3d 6 8 , 69 (1st Cir.
2000). See also Gorski v . N.H. Dept. of Corrections, 290 F.3d
466, 472 (1st Cir. 2002) (“The issue presently before u s ,
however, is not what the plaintiff is required ultimately to
prove in order to prevail on her claim, but rather what she is
required to plead in order to be permitted to develop her case
for eventual adjudication on the merits.”) (emphasis in
original).
3 Background
Crediting the allegations set forth in the complaint as
true, and viewing them in the light most favorable to TPI, the
pertinent facts appear as follows.
In November of 2001, defendant Hartman approached TPI’s
president, Richard Piller, to see if TPI would be interested in
purchasing the Company. After reviewing some financial documents
and meeting with various representatives of the Company, TPI
expressed an interest in acquiring i t . By letter dated January
1 4 , 2002, Piller, in his capacity as president of T P I , contacted
Moore with the following proposal: “At this point in time we are
willing to make an offer to purchase the entire Dover operations
as represented by you for a fair market price of US $3.5 million.
Please consider this to be in effect our letter of intent. We
are prepared to forward a check in the amount of $10,000 to bind
the deal.” Exhibit 7 to plaintiffs’ complaint. Approximately
two weeks later, on January 3 0 , 2002, representatives of Moore
and TPI executed the Letter Agreement.
4 The Letter Agreement is divided into two sections. The
first, captioned “Nonbinding Provisions,” addresses the following
five areas: (1) the “Basic Transaction,” by which TPI “would
acquire or accept assignment of . . . substantially all of the
assets of the Company.” Id., at 1 ; (2) the proposed purchase
price of $3.5 Million, less TPI’s deposit of $10,000; (3) TPI’s
due diligence; (4) the intention of the parties to promptly begin
negotiating the terms of a written purchase and sale agreement;
and (5) the customary terms and conditions to which the purchase
and sale agreement, if executed, would be subject. The Letter
Agreement specifically provides that the parties understand and
intend that the non-binding provisions:
are not intended to create or constitute any legally binding obligation between the Prospective Buyer and the Prospective Seller, and neither Prospective Buyer nor the Prospective Seller shall have any liability to the other party with respect to the Non-binding Provisions until a fully integrated, definitive purchase and sale agreement, and other related documents are prepared, authorized, executed and delivered by and between all parties.
Id. at 1 . See also id. at 3 .
5 The second section of the Letter Agreement is captioned
“Binding Provisions,” and provides, among other things, the
following: (1) the non-binding provisions of the Letter Agreement
are not enforceable by or against either of the parties; (2)
Moore shall provide TPI with complete access to the Company’s
facilities, books, and records and shall cooperate fully with
TPI’s due diligence investigation of the Company; (3) each party
shall be responsible for, and shall bear, its own costs and
expenses incurred in connection with the proposed purchase and
sale of the Company; (4) the means by which the binding
provisions set forth in the Letter Agreement may be terminated;
and (5) a standstill period, during which Moore agreed not to
enter into any discussions with third parties concerning the sale
of the Company.
According to TPI, it expended nearly $300,000 in conducting
its due diligence investigation of the Company and says it was
led to believe that it was purchasing a “going concern.” The
proposed purchase price referenced in the Letter Agreement is
$3.5 Million. In addition to the Letter Agreement, TPI says the
parties also negotiated an oral “collateral agreement,” pursuant
6 to which TPI would pay an additional $1.7 Million “to absorb off
balance sheet liability . . . for an Employee Severance package,
. . . thus yielding a purchase price of $5.2 Million for the
going concern together with the underlying real estate.”
Complaint at para. 1 7 .
In early January, 2002 (apparently before the parties
executed the Letter Agreement), TPI says it received financial
statements that showed the Company had historically generated
approximately $2 Million in sales each month, with a “positive
cash flow” of approximately $2 Million each year. Complaint at
para. 4 1 . It does not dispute the accuracy of those statements.
During the course of its due diligence, however, TPI says it
discovered that Company executives had instructed the sales staff
“not to push for new sales.” Id. at para. 4 4 . It says it also
learned that “business booked for March, April, May and June
. . . was falling short of forecast.” Id. at para. 4 9 .
Notwithstanding the fact that its due diligence revealed
issues that caused it substantial concern, TPI says it “continued
to diligently pursue the acquisition of the [Company] as a going
7 concern, making sales calls and during the week of March 18th
booking in excess of $1 Million in new business [on behalf of the
Company].” Id. at para. 5 2 . In March of 2002, however, TPI says
it “became clear that [Moore] ha[d] no present intention to
complete the sale of the business as a going concern as
originally agreed.” Id. at para. 54. 1 This suit followed.
1 While TPI’s complaint repeatedly alleges that Moore sought to impede its ability to purchase the Company as a “going concern,” it is not entirely clear what TPI means when it uses that phrase. The phrase suggests that TPI would purchase the land and buildings on which the Company operated, as well as the machines it used in production, computers, office equipment, software licenses, pending sales, accounts receivable, etc. Nothing in the Complaint, however, suggests that Moore ever proposed to sell anything less than a “going concern.” To the extent TPI uses that phrase to mean an operating business, actively employing people, making products, and taking new sales orders, Moore has represented (and TPI does not seem to dispute) that, at least as of March, 2002 (when TPI filed this suit), the Company remained in business and continued to accept new orders. See Defendant’s motion to dismiss (document no. 6 ) at 11 (“On the face of the pleadings, it is obvious that [the Company] was in fact a ‘going concern’ and accepted new orders for business. Plaintiffs do not allege that the facility has closed, and to this day it continues in active operation. Indeed, Plaintiffs allege that as of March 1 8 , they had ‘continued to pursue the acquisition of the [Company] as a going concern’ and made sales calls ‘booking in excess of $1 million in new business.’”) (quoting plaintiff’s complaint at para. 5 2 ) .
8 Discussion
I. Count I - Specific Performance.
In count 1 of its complaint, TPI seeks “specific
performance” of the Letter Agreement, the “collateral agreement”
governing its proposed purchase of the $1.7 Million off balance
sheet liability for an Employee Severance package, and other
“oral agreements and representations.” See Plaintiffs’ objection
at 1 0 . TPI claims it can successfully prove the existence of
those other oral agreements through the introduction of parole
evidence. Consequently, it says it is entitled to a judgment
ordering “the corporate defendant to make good on its initial
promise to deliver at closing a going concern with monthly sales
volume of $2 Million and positive annual cash flow of $2
Million,” complaint at para. 5 5 , notwithstanding the fact that it
acknowledges that the Company will not (and apparently can not)
continue to perform at those historical levels.
There are several problems with TPI’s claim for specific
performance. Independent of issues involving the introduction of
parole evidence, and looking beyond the hurdles imposed by the
statute of frauds, TPI’s complaint fails to identify an
9 enforceable contractual agreement that might lend itself to a
judicial order compelling Moore to sell the Company on the terms
sought by TPI. First, contrary to TPI’s suggestion, neither the
Letter Agreement nor the so-called “collateral agreement”
concerning the employee severance package obligates Moore “to
deliver at closing a going concern with monthly sales volume of
$2 Million and positive annual cash flow of $2 Million.”
Complaint at para. 5 5 . As TPI appears to concede, those numbers
represent an accurate picture of the Company’s past performance.
Nothing referenced in the complaint, however, suggests that Moore
guaranteed that the Company would continue to perform at (or
above) that level.
More importantly, perhaps, the non-binding provisions of the
Letter Agreement clearly and unequivocally state that they are
intended merely to evidence the parties’ future intention to
negotiate the terms of, and ultimately enter into, a binding
purchase and sale agreement. S o , for example, the first sentence
of the Letter Agreement makes reference to TPI’s “possible
acquisition” of the Company. Neither the Letter Agreement nor
the so-called “collateral agreement,” as described by TPI,
10 suggests that it represents a final meeting of the minds between
the parties as to the terms and conditions under which Moore
would convey to TPI the Company, its assets, and liabilities.
TPI is mistaken in asserting that the Letter Agreement,
either standing alone or when read in conjunction with the
alleged collateral agreement(s), constitutes a binding and
enforceable contract for the sale of the Company. TPI’s
confusion on this issue is perhaps best illustrated in its
objection to Moore’s motion to dismiss, in which it says:
At its most elementary level, in order to be enforceable an agreement requires consideration. TPI tendered consideration to [Moore], [Moore] accepted that consideration and has yet to return the consideration to TPI. As such, on the most fundamental level, a contract exists between the parties for the sale of the [Company] by [Moore] to TPI since consideration was tendered by the buyer, accepted by the seller and i s , as of this writing, retained by the seller.
Plaintiffs’ objection at 2-3 (emphasis supplied). See also
Complaint at para. 38 (“Plaintiff TPI and Defendant MNA entered
into a Letter Agreement by which TPI agreed to purchase defendant
MNA’s Document Automation Systems . . . for $3.5 million.).”
(emphasis supplied). TPI’s interpretation of the legal
11 significance of the facts alleged in the complaint i s , however,
incorrect; while aspects of the Letter Agreement may constitute
an enforceable contract, it is not a binding purchase and sale
agreement. To the contrary, the Letter Agreement unambiguously
expresses the parties’ understanding that it is merely a
statement of their intention to conduct further negotiations and
allow TPI the opportunity to pursue its due diligence
investigation, with a view toward entering into a (written)
binding purchase and sale agreement at some point in the future.
Even if certain aspects of the Letter Agreement (i.e., the
“Binding Provisions”) lent themselves to the remedy of specific
performance, that remedy would not include that which TPI seeks -
an order compelling Moore to sell the Company subject to the
terms described by TPI.
Finally, TPI’s complaint fails to allege that Sean Sullivan
was duly authorized by Moore to enter into a binding purchase and
sale agreement relating to the Company, its assets, and
liabilities. Typically, in the corporate setting, one would
expect to see a resolution from the board of directors
authorizing (or, at a minimum, ratifying) such conduct on behalf
12 of one of its employees. Here, there is no allegation of such
action by the board or any other entity that might be required to
give its approval to Sullivan’s efforts to obligate Moore to sell
the Company. Consequently, even if the terms of the Letter
Agreement were sufficiently specific to lend themselves to the
equitable remedy of specific performance (which they are n o t ) ,
nothing in the complaint suggests that the Letter Agreement is
binding on Moore as a “purchase and sale agreement.” See, e.g.,
Shakra v . Benedictine Sisters of Bedford, 131 N.H. 417, 421-22
(1989) (“In this case, the court properly concluded that it was
impossible to order specific performance because there was no
valid contract in existence to be enforced . . . [since] M r .
Simonis did not have actual or apparent authority to contract for
the sale of church property.”); Ashuelot Paper C o . v . Ryll, 109
N.H. 573, 575 (1969) (“[N]either in the agreed facts nor in the
offer of proof does it appear that the defendants authorized Paul
Ryll ‘by writing’ to sign a memorandum on their behalf. Our
statute of frauds is not satisfied by a memorandum signed by an
agent unless the agent was authorized to sign ‘by writing.’”).
13 II. Count 4 - Negligent Misrepresentation.
In count 4 of its complaint, TPI alleges that Moore
negligently represented the extent (and value) of the assets it
proposed to sell to TPI. Consequently, it seeks “$282,289, . . .
exclusive of interest and costs, expended performing Plaintiffs’
due diligence on the acquisition of the [Company].” Complaint at
para. 8 2 . In support of that claim, TPI alleges that:
The documents provided to the Plaintiffs showed a going concern with monthly volume of approximately $2 million and positive annual cash flow of $2 million.
Statements were made to Plaintiffs’ representative that Plaintiffs were buying a going concern and that the business was accepting orders for equipment in the ordinary course.
After repeated inquiries and in depth due diligence during which Plaintiffs uncovered Complaint Exhibit 3 [entitled, “DAS 2000 Strategy Document”], Plaintiffs discovered that the business was not being run as a going concern and that orders were not being accepted in the ordinary course.
Complaint at paras. 78-80 (citations omitted) (emphasis supplied). 2
2 Neither the complaint nor the attached affidavit of Richard Piller explains the significance, from TPI’s perspective, of Exhibit 3 to the complaint, the “DAS 2000 Strategy Document.” And, its relevance to TPI’s case is not self-evident.
14 Under New Hampshire common law, “[t]he essential elements of
negligent misrepresentation are a negligent misrepresentation by
the defendant of a material fact and justifiable reliance by the
plaintiff.” Ingaharro v . Blanchette, 122 N.H. 5 4 , 57 (1982)
(citing Tober’s Inc. v . Portsmouth Housing Auth., 116 N.H. 660,
663 (1976)). Importantly, however, “mere proof of breach of
promise, whether or not the promise is a contractual term, will
not support an action for misrepresentation. Otherwise every
contract action would automatically acquire a tandem count in
tort, and the tort claim would render nugatory any contractual
limitation on liability.” Hydraform Prods. Corp. v . American
Steel & Alum. Corp., 127 N.H. 187, 200 (1985) (citations
omitted).
TPI’s negligent misrepresentation claim is based upon its
assertion that substantial due diligence revealed that the
Company was not as valuable as Moore had led it to believe. And,
a fair reading of the complaint suggests that TPI claims it was
misled into conducting expensive due diligence that it otherwise
would not have undertaken. Although not expressly stated, TPI
implicitly suggests that, had it not received such allegedly
15 false information from Moore at the outset, it never would have
entertained thoughts of purchasing the Company and, therefore,
never would have undertaken costly and time-consuming due
diligence. S o , notwithstanding its contractual obligation, as
expressed in the Letter Agreement, to assume all expenses
incurred in connection with the possible acquisition of the
Company, TPI seeks damages in the amount of all sums expended
during the course of its due diligence.
Parenthetically, the court notes that TPI acknowledges that
at least some of those costs were incurred after it says it
discovered the Company was less valuable than had been
represented - a fact that would undermine any claim that TPI’s
continued reliance on the alleged misrepresentations was
“reasonable” and “justified”. It probably also bears noting that
TPI does not claim that the Letter Agreement is void or otherwise
unenforceable; it does not, for example, allege fraud in the
inducement. To the contrary, it says the Letter Agreement is
fully binding on both parties and actually seeks “specific
performance” of that contract. Consequently, Moore suggests that
the express (and binding) provisions of the Letter Agreement
16 preclude TPI from obtaining reimbursement for any sums expended
during the course of TPI’s due diligence.
As the relevant facts of this case are more fully developed,
that or similar arguments may prove to be winning ones. See,
e.g., Silver Hill Station Ltd. Pship. v . HSA/Wexford Bancgroup,
LLC, 158 F. Supp. 2d 631, 642-43 (D. Md. 2001) (holding that
express provisions in a loan agreement to the effect that no
communications from lender to buyer constituted a commitment by
lender to make the requested loan prevented borrower from
prevailing on its negligent misrepresentation claim, in which it
said that lender’s agent assured it that loan would be approved).
At this stage, however, given the substantial burden imposed upon
Moore, see generally Gorski, supra, the court is constrained to
conclude that TPI’s negligent misrepresentation claim is barely
sufficient to withstand Moore’s motion to dismiss. I f , as TPI’s
complaint suggests, prior to the parties’ execution of the Letter
Agreement, Moore represented that the Company was accepting, and
would continue to accept, orders in the ordinary course, and if
TPI justifiably relied on that representation in deciding to
engage in due diligence, and if it subsequently turned out that
17 the Dover sales staff was specifically directed not to accept new
orders and, in fact, “orders were not being accepted in the
ordinary course,” complaint at para. 8 0 , TPI may have a viable claim for negligent misrepresentation.3
III. Count 5 - Violations of the Consumer Protection Act.
The New Hampshire Consumer Protection Act prohibits “any
unfair method of competition or any unfair or deceptive act or
practice in the conduct of any trade or commerce within this
state.” N.H. Rev. Stat. Ann. (“RSA”) 358-A:2. While the New
Hampshire Supreme Court has observed that it is impossible to
“establish a fixed definition of unfair or deceptive acts,”
Barrows v . Boles, 141 N.H. 382, 390 (1996) (citation omitted), it
has concluded that, to be actionable under the statute, a
defendant’s conduct must “attain a level of rascality that would
raise an eyebrow of someone inured to the rough and tumble of the
3 Of course, it is entirely unclear why executives of the Company would instruct the Dover sales force to stop accepting incoming orders, as alleged in the complaint. Regardless of whether Moore intended to sell the Company or retain i t , it is difficult to imagine why it would ever be motivated to sabotage or otherwise undermine the Company’s future sales and, in the process, substantially diminish its value. As to that point, TPI’s complaint is silent. But, perhaps with the benefit of some discovery, TPI will be better able to develop its theory.
18 world of commerce.” Hobin v . Coldwell Banker Residential
Affiliates, Inc., 144 N.H. 626, 635 (2000). An ordinary breach
of contract claim, however, “does not present an occasion for the
remedies under the Consumer Protection Act.” Barrows, 141 N.H.
at 390.
TPI’s complaint alleges that Moore led it to believe that:
provided the parties could agree of the terms and conditions of
the sale, the Company would be sold to TPI as a “going concern,”
complaint at para. 5 5 ; reports provided to TPI in January showed
that the Company had historically generated approximately $2
million each month in sales, with approximately $2 million in
annual net income, id. at para. 4 1 ; in February, through its due
diligence investigation, TPI learned that the Company’s sales
staff was not aggressively pursuing new sales, id. at para. 4 4 ;
and “near the end of February,” TPI learned that “business booked
in March, April, May, and June . . . was falling short of
forecasts,” id. at 1 7 . In fact, says T P I , defendant Hartman
specifically instructed “sales personnel not to pursue sales,”
complaint at para. 6 9 , thereby causing the substantial decrease
in the Company’s sales volume.
19 In support of its Consumer Protection Act claim, TPI says
that:
[T]he corporate defendant, [Moore], through numerous officers and agents, including Hartman, the individual defendant, utilized unfair or deceptive acts or practices in the conduct of trade or commerce within the state of New Hampshire by enticing Plaintiffs to purchase the [Company] for $3.5 million and assume responsibility for the $1.7 million Employee Severance package with knowledge that the entity that would be transacted at closing would be a mere shadow of the company advertised for sale[,] with a mere fraction of the sales volume and insufficient business to sustain the remaining work force of 80 +/- employees.
Complaint at para. 8 6 . TPI’s Consumer Protection Act claim i s ,
however, undermined by the very allegations set forth in the
complaint. TPI acknowledges that, consistent with the terms of
the Letter Agreement, Moore provided it with full and open access
to the Company, its employees, and its books. Based upon TPI’s
conversations with those employees and its review of the
Company’s books, it apparently concluded that the Company was no
longer generating revenue sufficient to warrant the originally
contemplated $3.5 million sale price.
TPI does not allege that Moore breached the terms of the
Letter Agreement by denying it meaningful access to the Company,
20 its employees, or its books. Nor does it allege that Moore
provided it with falsified statements of income, booked sales, or
projected sales. At most, TPI’s complaint might be read to
suggest that Moore’s initial representations concerning the
Company’s prospective value were overstated (a point TPI
acknowledges it discovered through materials freely provided to
it by Moore and the Company).
Even when viewed in the light most favorable to T P I , the
complaint fails, as a matter of law, to state a viable claim
under New Hampshire’s Consumer Protection Act. At the very most,
Moore’s initial representations concerning the future value of
the Company might be viewed as “puffing.” Importantly, however,
TPI acknowledges that it obtained an accurate view of the
Company’s future prospects and its current value through
documents freely provided by Moore, prior to executing any
binding purchase and sale agreement for the Company.
Consequently, the conduct in which Moore allegedly engaged i s , at
the very worst, well “within the rough edges” of commercial
negotiations. Barrows, 141 N.H. at 390. Based upon the
allegations set forth in the complaint, Moore cannot be said to
21 have engaged in any conduct that was unfair or deceptive to the
point that it “attain[ed] a level of rascality that would raise
an eyebrow of someone inured to the rough and tumble of the world
of commerce.” Id.
IV. The Status of RBP Holdings and Dover Technologies.
Because neither Dover Technologies nor RBP Holdings was a
party to the Letter Agreement, it is unclear how they have
standing to bring this action o r , even if they have standing,
that they have asserted viable claims against Moore.
Accordingly, Moore moves to dismiss all claims advanced by those
plaintiffs.
In response, TPI says, “Plaintiffs RBP Holdings, Ltd. and
Dover Technologies, Ltd. were included as Plaintiffs in the
matter before the court in recognition of Fed. R. Civ. P. 19(a),
[as] persons to be joined if feasible.” Plaintiffs’ objection at
4. Although TPI acknowledges that “RBP and Dover Tech are not
expected to have independent claims,” it says “the evolution of
the original transaction between [Moore] and TPI was such that
the latter versions of the definitive agreement negotiated
22 between the parties were between [Moore] and RBP[,] with Dover
Tech being the entity which would operate the [Company] once
acquired.” Id. (emphasis supplied). Plainly, more is necessary
to demonstrate standing. Moreover, even viewing the complaint
charitably, it simply fails to state any viable claim(s) on
behalf of RBP or Dover Tech against Moore.
Conclusion
For the foregoing reasons, TPI’s complaint fails, as a
matter of law, to state viable claims against Moore for specific
performance or for relief under the New Hampshire Consumer
Protection Act. Its negligent misrepresentation claim, however,
is minimally sufficient to survive a motion to dismiss.
Accordingly, defendant Moore’s motion to dismiss (document n o . 6 )
is granted in part and denied in part. It is granted insofar as
it seeks dismissal of counts 1 and 5 . In all other respects,
however, it is denied.
Additionally, because neither RBP Holdings, Ltd. nor Dover
Technologies, Ltd. has demonstrated that it is has viable claims
against Moore (or, as TPI suggests, that it is a proper party
23 under Fed. R. Civ. P. 19(a)), all claims asserted by those
entities against Moore are dismissed.
SO ORDERED.
Steven J. McAuliffe United States District Judge
July 1 9 , 2002
cc: William M. Richmond, Esq. Theresa D. O’Toole, Esq. Daniel P. Luker, Esq. Arpiar G. Saunders, Jr., Esq.