WHS Homes, Inc. v. Traditional Living, Inc. & a.

THE STATE OF NEW HAMPSHIRE

SUPREME COURT

In Case No. 2016-0583, WHS Homes, Inc. v. Traditional
Living, Inc. & a., the court on December 21, 2017, issued the
following order:

Having considered the briefs, the record submitted on appeal, and the
oral arguments of the parties, the court concludes that a formal written opinion
is unnecessary in this case. The plaintiff, WHS Homes, Inc. (WHS), appeals
orders of the Superior Court (McNamara, J.) that pursuant to the Asset
Purchase Agreement (APA) entered into by the parties, WHS is obligated to pay
“trade payables” up to $1.7 million, and awarding the defendants, Traditional
Living, Inc. (TLI), Tod H. Schweizer (Schweizer) d/b/a Lyme Investment
Company and d/b/a Lyme Investment Partnership, Nestor, Inc., and SRS
Partners, LLC, attorney’s fees and costs. We affirm.

The pertinent facts follow. TLI, acquired in 1979 by Schweizer,
manufactured log homes. In 2010, Schweizer decided to sell the business.
William H. Silverstein, who owns and operates WHS, offered to buy the
business. Among other proposed terms, Silverstein’s Letter of Intent (LOI)
proposed assuming $1.7 million of TLI’s debt to its vendors. Such debts are
also referred to in the record as “accounts payable,” “trade payables,” and
“vendor payables.”

In January 2011, the parties signed the APA. Although Silverstein’s LOI
promised that his company would pay the trade payables of $1.7 million, the
APA does not include that language. The pertinent section of the APA provides:

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 . . . and not yet used as of the Closing Date. . . .
 The total amount of the Assumed Liabilities shall not exceed One
Million Seven Hundred Thousand Dollars ($1,700,000.00). 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 under section 1.2(a) (the trade
payables category) in the amount of approximately $1.8 million, under section
1.2(b) (the customer contracts category) in the amount of approximately $1.3
million, and under section 1.2(c) (the employee vacation category) in the
amount of approximately $120,000.

The underlying suit between the parties commenced in 2012. Thereafter,
WHS moved for summary judgment on TLI’s claim that WHS had failed to
assume $1.7 million of the trade payables required by section 1.2 of the APA.
WHS argued that it had fulfilled its obligations under the APA by assuming
approximately $2.2 million of TLI’s liabilities, consisting of all of TLI’s customer
contracts and employee vacation time, sections 1.2(b) and (c) of the APA, and
some of TLI’s trade payables, section 1.2(a) of the APA. WHS asserted that the
APA permitted it to choose among the categories listed in section 1.2 at its
discretion. TLI countered that the APA required WHS to assume all $1.7
million of TLI’s trade payables and that this interpretation is consistent with
the parties’ agreement prior to contracting.

The trial court determined that “each party’s interpretation of the APA is
reasonable” and that “the absence of a definition of priority or other clarifying
term relating to WHS’s obligation to assume certain categories of TLI’s liabilities
creates an ambiguity.” Given that TLI had “produced substantial evidence
indicating that the parties . . . intended WHS to assume a large percentage of
trade payables,” the trial court denied WHS’s motion for summary judgment
because there was “a genuine issue of material fact as to the parties’ intent
regarding the priority of ‘Assumed Liabilities’ and WHS’s obligation to assume
those liabilities.”

A four-day bench trial was held in October 2015. The issues at trial
included TLI’s allegation that WHS was responsible for paying $1.7 million in
trade payables pursuant to the APA, but did not do so, and WHS’s allegation
that TLI was liable to WHS for a number of missing assets that were not turned
over at the closing. Relying upon extrinsic evidence, the trial court found that
“the parties intended that WHS pay the trade payables up to $1.7 million prior
to deciding whether to assume any other liabilities.” The court determined that
WHS had paid approximately $933,000, and Schweizer had paid approximately
$456,000, to TLI’s vendors. Therefore, the trial court ordered WHS to
reimburse Schweizer for the $456,000 and to pay approximately $311,000 to

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vendors. The trial court also determined that WHS’s missing assets claim
lacked merit. Subsequently, the court awarded TLI approximately $703,000 in
attorney’s fees and approximately $35,000 in costs. This appeal followed.

On appeal, WHS contends that the trial court erred: (1) by denying its
motion for summary judgment; (2) in determining that extrinsic evidence
demonstrated that the parties intended to prioritize the trade payables; (3) by
not addressing WHS’s claim that it was entitled to reimbursement of liabilities
it assumed in excess of $1.7 million; and (4) in awarding attorney’s fees.

As an initial matter, we decline to address the merits of WHS’s claim that
the trial court erred in denying its motion for summary judgment because WHS
has not briefed “a fundamental preliminary question bearing on the issue:
whether an erroneous trial court order denying summary judgment is
reviewable on appeal where, as here, the case proceeds to the entry of a final
judgment after trial.” O’Malley v. Little, 170 N.H. ___, ___, 169 A.3d 954, 957
(2017). We have never addressed this question and do not do so now. Id. at
___, 169 A.3d at 957.

In reviewing a trial court’s decision rendered after a trial on the merits,
we uphold the trial court’s factual findings and rulings unless they lack
evidentiary support or are legally erroneous. Id. at ___, 169 A.3d at 957. We
do not decide whether we would have ruled differently from the way that the
trial court did, but rather, whether a reasonable person could have reached the
same decision as the trial court reached based upon the same evidence. Id. at
___, 169 A.3d at 957. Thus, we defer to the trial court’s judgment on such
issues as resolving conflicts in the testimony, measuring the credibility of
witnesses, and determining the weight to be given evidence. Id. at ___, 169
A.3d at 957. We review the trial court’s application of the law to the facts de
novo. Id. at ___, 169 A.3d at 957.

The interpretation of a contract presents a question of law, which we
review de novo. In the Matter of Liquidation of Home Ins. Co., 166 N.H. 84, 88
(2014). When interpreting a written agreement, we give the language used by
the parties its reasonable meaning, considering the circumstances and the
context in which the agreement was negotiated, and reading the document as a
whole. Id.

WHS first contends that it was error for the trial court to rely upon
extrinsic evidence because both Schweizer and Silverstein testified at trial that
the APA allowed Silverstein to decide to which of the three categories of
liabilities he would apply the $1.7 million cap. To support this contention,
WHS points to certain of Schweizer’s testimony. The defendants counter that
WHS takes Schweizer’s testimony “out of context and ignores the substantial
testimony where Schweizer persuasively testified that WHS was to pay the
trade payables.” We agree with the defendants.

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 Although, at one point, Schweizer agreed that “it was up to [Silverstein]
to decide which of the categories he could apply the cap to,” Schweizer also
testified that he understood that the offer made by WHS in its LOI — that it
would pay the trade payables up to $1.7 million — was the deal that was
encompassed in the APA. It was for the trial court to resolve this conflict in
Schweizer’s testimony, and we defer to its judgment in so doing. See O’Malley,
170 N.H. at ___, 169 A.3d at 957.

WHS next argues that the trial court erred in ruling that extrinsic
evidence — including the LOI and WHS’s conduct in the months after the
closing — demonstrated that the parties intended to prioritize the trade
payables in section 1.2 of the APA. WHS asserts that relying upon the LOI was
erroneous because Schweizer testified that, upon execution of the APA, the LOI
had no legal effect. The defendants counter that “[i]t is undisputed that
payment of vendors was the predominant consideration in the LOI” and that
the LOI therefore “provides helpful background in the parties’ negotiations.”
According to the defendants, although “the APA language differs from the LOI,
there is no evidence that the parties intended a multi-million dollar change in
the month between the LOI and closing.”

The trial court determined that “the LOI and the circumstances
surrounding the execution of the APA” were relevant to determining the parties’
intent about prioritizing the trade payables in the APA and, “in any event, [did]
not contradict the APA.” The court acknowledged that “as experienced
businessmen, both Schweizer and Silverstein recognized that an LOI cannot
. . . contradict the terms of an integrated agreement.” However, it found that
there was “ample and credible testimony that payment of vendors was the
predominant consideration in the LOI and that the $1.7 million cap was
derived from vendor payables.”

The trial court credited the defendants’ assertion that “the dramatic
change from the LOI, which specifically provided for prioritization of vendor
payables, to the APA, which was silent on the issue, is not evidenced by any
document or e-mail record.” As the court noted, “WHS’s sole evidence of the
change was Silverstein’s testimony that WHS sent a redline document making
the change to TLI, which never commented on it.” WHS did not produce the
redline document, and the court expressly did not credit Silverstein’s
testimony. Thus, contrary to WHS’s position, the record supports that the trial
court did not enforce the LOI, but, rather, properly considered it as evidence of
the parties’ intent.

The trial court also considered the conduct of the parties after the APA
was executed, noting that “[t]here is no surer way to find out what the parties
meant, than to see what they have done.” (Quotation omitted.) See Birch
Broad. v. Capitol Broad. Corp., 161 N.H. 192, 197 (2010) (explaining that the
parties’ intentions at the time of a contract’s formation may be inferred from

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the parties’ actions after the contract was executed). We defer to the factual
findings by the trial court if they are supported by the record and are not
clearly erroneous. Id.

The trial court found that “in the months following the closing, WHS
acted as though it was responsible for vendor payables.” In challenging this
factual finding, WHS argues that the trial court “[o]verlooked or discounted”
certain testimony. However, any conflicts in the evidence were for the trial
court to resolve in the first instance. See O’Malley, 170 N.H. at ___, 169 A.3d
at 957.

The trial court also found, as further evidence that WHS acted as though
it were responsible for trade payables that, in March 2011,

the bookkeeper at WHS was tracking the TLI payables and
prepared a spreadsheet which she referred to as the “paydown
schedule.” In an e-mail to . . . an accountant for WHS, she
requested direction on what to tell vendors, who were all creditors
of TLI. . . . Moreover, in a June 2011 meeting regarding a
customer deposit dispute [the bookkeeper] prepared a document
indicating that WHS believed that any unshipped contract or
canceled contracts do not count against the $1.7 million cap, only
refunded amounts due. This would be consistent with an
agreement that WHS be responsible for prioritizing obligations and
assume TLI’s payables prior to assuming contracts, which in the
unique circumstances of this transaction might not result in any
net out-of-pocket cost.

The trial court reasoned that “[i]t would make no sense for [the bookkeeper] to
prepare such a document if WHS thought there was no obligation to pay down
TLI vendors.” WHS quibbles with the trial court’s reasoning, asserting that, in
fact, the “paydown schedule process . . . reflected Silverstein’s understanding
of section 1.2 of the APA, and Schweizer’s as well.” We conclude that the trial
court’s reasoning does not constitute error.

WHS next argues that the trial court erred by not addressing its claim
“that it was entitled to be reimbursed for having made total payments for the
section 1.2 (a), (b) and (c) liabilities of $2,410,909.16.” WHS asserts that
“[b]ecause [it] was only required to assume liabilities of $1,700,000, it sought to
recover from TLI the difference, $710,909.16.” We disagree with WHS that the
trial court failed to address its claim. Rather, the trial court rejected the
underlying premises of WHS’s claim for reimbursement that: (1) the APA
allowed WHS to choose among the categories listed in section 1.2; (2) the APA
required WHS to pay a total of $1.7 million for all three categories of liabilities,
combined; and (3) WHS fulfilled its contractual obligation because the total
amount of liabilities it assumed exceeded the $1.7 million cap.

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 Finally, WHS argues that “the trial court’s finding that TLI was the
prevailing party, and its award of attorneys’ fees, was clearly erroneous.”
(Capitalization omitted.) “A prevailing party may be awarded attorney’s fees
when that recovery is authorized by statute, an agreement between the parties,
or an established judicial exception to the general rule that precludes recovery
of such fees.” Tulley v. Sheldon, 159 N.H. 269, 272 (2009) (quotation omitted).
We will not overturn a trial court’s award of attorney’s fees unless it is an
unsustainable exercise of discretion. Id. In applying this standard, we are
mindful of the substantial deference given to the trial court’s decision on
attorney’s fees, and we will uphold the decision if the record provides some
support for it. Id.

The trial court ruled that the defendants are entitled to fees pursuant to
the indemnity provision of the APA, section 4.3, which provides that WHS

indemnifies, saves and holds harmless Seller . . . from and against
any and all Losses suffered, sustained, incurred or required to be
paid . . . in connection with or arising out of:

(a) the untruth, inaccuracy or breach of, or the failure to
fulfill, any representation, warranty, agreement, covenant or
statement of Buyer contained in this Agreement . . . ;

(b) the Assumed Liabilities;

(c) the use of the Assets by Buyer or the operation of the
Business by Buyer following the Closing; or

(d) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including reasonable attorneys’ fees)
incident to any of the foregoing or to the enforcement of this
Section 4.3.

According to WHS, the trial court “erred in awarding TLI its full legal
fees, which included fees for the missing assets issue on which TLI prevailed”
because “TLI’s legal expenses for defending the missing assets claim are not
covered by the plain language of section 4.3(d) of the APA.” TLI counters that
section 4.3(c) applies to both “‘the use of the Assets by [WHS] or the operation
of the Business by [WHS] following the Closing’” and that “[s]urely, WHS’s
claim about what assets it needed and expected to run the business ‘arises out
of’ and is ‘connected with’ WHS’[s] use of the Assets or the operation of the
Business.” The trial court agreed with TLI, reasoning that “WHS’s claim about
what equipment it needed and expected to run the business life in the so-called
‘missing equipment claim’ ‘arises out of’ and ‘is connected with’ WHS’s use of
the equipment or operation of the business” by WHS following the closing. The

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plain language of the indemnification clause in the APA supports the trial
court’s determination and, accordingly, WHS has failed to establish that the
trial court’s award of attorney’s fees constituted an unsustainable exercise of
discretion.

Affirmed.

DALIANIS, C.J., and HICKS, LYNN, and HANTZ MARCONI, JJ.,
concurred.

Eileen Fox,
Clerk

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