Herbert v. Pico Ski Area Management Co.

Herbert v. Pico Ski Area Management Co. (2004-526); 180 Vt. 141; 908 A.2d 1011

2006 VT 74

[Filed 04-Aug-2006]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2006 VT 74

                                No. 2004-526


  Harold and Edith Herbert                       Supreme Court

                                                 On Appeal from
       v.                                        Chittenden Superior Court


  Pico Ski Area Management Company and           January Term, 2006
  American Skiing Company, Inc. 
  2006 VT 74 Vermont Public Service 
  Corporation, Intervenor)

  Matthew I. Katz, J.

  Mary P. Kehoe and Christina A. Jensen of Lisman, Webster, Kirkpatrick &
    Leckerling, P.C., Burlington, for Plaintiffs-Appellants.

  Allan R. Keyes and James B. Anderson of Ryan, Smith & Carbine, Ltd.,
    Rutland, for  Intervenor-Appellee.  


  PRESENT:  Skoglund and Burgess, JJ., and Pearson, Supr. J., 
            Allen, C.J. (Ret.), Gibson, J. (Ret.), Specially Assigned

       ¶  1.  SKOGLUND, J.   This case concerns the ultimate disposition of
  escrowed funds set aside at the closing on the sale of the Pico Mountain
  Ski Area.  In its summary judgment ruling, the superior court awarded the
  escrowed funds to Central Vermont Public Service Corporation (CVPS), which
  was permitted to intervene in the case.  On appeal, plaintiffs Harold and
  Edith Herbert contend that CVPS was not a third-party beneficiary of the
  disputed transaction and that they are entitled to the funds.  We affirm
  the superior court's judgment.
   
       ¶  2.   The Herberts operated Pico Mountain Ski Area under a series
  of successive corporate entities.  CVPS supplied the electricity to the ski
  area.  In July 1996, Pico Mountain, Inc. filed a Chapter 7 bankruptcy
  petition in the United States Bankruptcy Court for the District of Vermont,
  listing no significant assets and substantial unsecured debts, including a
  $214,802 debt for electricity owed to CVPS.  While the bankruptcy case was
  pending, the Herberts sold the ski area's assets to American Ski Company,
  Inc. (ASC).  The terms of the sale were set forth in a purchase-and-sale
  agreement dated October 16, 1996.  One provision of the agreement entitled
  ASC to reduce the purchase price dollar for dollar by amounts needed to
  satisfy any liabilities identified as of the date of closing.  Another
  subsection of the same provision required ASC to establish an escrow
  account containing funds for discharging liabilities already identified in
  a schedule attached to the parties' agreement.  That schedule did not list
  the $214,802 debt owed to CVPS, but the debt was listed in a closing
  statement signed by the parties, and ASC withheld in escrow $214,802 from
  the purchase price at the December 9, 1996 closing.
   
       ¶  3.  In January 1997, CVPS filed a timely proof of claim in the
  bankruptcy proceeding for $226,480, later amended to $286,480.  During the
  course of that proceeding, the trustee for Pico Mountain, Inc. entered into
  a settlement agreement with the Herberts concerning causes of action
  against the Herberts personally for alleged breaches of their fiduciary
  duty towards the debtor, Pico Mountain, Inc.  The settlement agreement
  required the Herberts to pay $120,000, roughly thirty percent of the
  allowed unsecured claims against Pico Mountain, Inc., in exchange for
  immunity from liability to creditors for their relationship with the
  debtor.  In May 1997, the trustee asked the bankruptcy court to approve the
  settlement and enjoin the creditors from bringing any actions against the
  Herberts based on a derivative liability theory.  CVPS was served with a
  summons and complaint, but never entered an appearance.  The bankruptcy
  court approved the settlement and issued a permanent injunction in October
  1997.  Judgment by default was entered against CVPS in December 1997, after
  which CVPS received a dividend of $96,081 representing its share of the
  bankruptcy court's distribution to unsecured creditors. (FN1)

       ¶  4.  Following termination of the bankruptcy proceeding, the
  Herberts asked ASC to release the escrowed funds.  ASC refused, and in
  September 2000 the Herberts filed an action against ASC seeking declaratory
  relief and an order requiring ASC to pay them all of the escrowed funds. 
  ASC made no claim to the funds, but instead filed a motion asking that CVPS
  be joined as an interpleader to the action.  In February 2002, CVPS moved
  to intervene, claiming that it was entitled to the entirety of the escrowed
  funds.  CVPS also filed a motion asking the bankruptcy court to reopen its
  proceeding and provide relief from its permanent injunction.  In response
  to CVPS's motion, the bankruptcy court determined that its injunction did
  not bar CVPS from intervening in the state court action initiated by the
  Herberts, as long as CVPS took no action against funds determined by the
  state court to be solely the property of the Herberts.
   
       ¶  5.  Following the bankruptcy court's ruling, CVPS and the
  Herberts filed cross-motions for summary judgment in the superior court
  proceeding.  In response to the motions, the superior court allowed CVPS to
  intervene and granted its motion for summary judgment, ruling that the
  parties to the purchase-and-sale agreement contemplated that the escrowed
  funds would cover the debt owed to CVPS as of the date of closing.  In so
  ruling, the superior court concluded that the bankruptcy court's injunction
  did not dissolve the underlying debt that was to be paid through the
  escrowed funds, legal title to which never passed to the Herberts because
  they had failed to pay the CVPS bill that the funds were meant to cover,
  and thus had failed to satisfy the primary escrow condition.

       ¶  6.  The Herberts raise four arguments on appeal, none of which is
  ultimately persuasive.  We find no merit to their first argument, which is
  that the superior court erred by refusing to adjudicate their right to
  ownership of the escrowed funds.  In discussing the scope of the bankruptcy
  injunction and whether to allow CVPS to intervene in the Herberts' action
  against ASC, the superior court concluded that by allowing CVPS to
  intervene in the state court action, the bankruptcy court necessarily
  implied that the escrowed funds did not legally belong to the Herberts. 
  That is not correct because the bankruptcy court expressly deferred to the
  superior court to determine who owned the funds.  Nevertheless, in the main
  section of its decision discussing the terms of the purchase-and-sale
  agreement, the superior court plainly and unequivocally concluded that the
  Herberts never obtained ownership of the escrowed funds because they failed
  to pay the CVPS debt that was due at closing.  According to the court,
  because the Herberts failed to satisfy the condition of the escrow, they
  could not establish ownership of the funds.  As the court summarized:

    [T]he Herberts' sole claim of ownership here is an equitable
    title, contingent on the satisfaction of CVPS's electrical bill. 
    We are persuaded that this contingent right does not create a
    right of ownership in the Herberts and leaves the escrow fund
    outside of their control and ownership and, therefore, outside the
    protection of the bankruptcy court's injunction.

  In short, the superior court did adjudicate the Herberts' right to the
  escrowed funds.
   
       ¶  7.  Along the same lines, the Herberts argue that the superior
  court erred by relying on the doctrine of res judicata to support its
  refusal to consider their ownership of the escrowed funds.  Once again, the
  Herberts misconstrue the superior court's decision.  As stated above,
  although the superior court mistakenly opined that the bankruptcy court's
  decision to allow CVPS to intervene in the state court action was
  tantamount to a finding that the escrowed funds did not belong to the
  Herberts, later in its decision the court explicitly rejected in detail the
  Herberts' claims to ownership of those funds.  After noting that the
  bankruptcy court did not foreclose CVPS from seeking payment of its
  electricity bill directly from ASC as long as the Herberts did not own the
  escrowed funds, the superior court determined that the Herberts never
  obtained ownership rights over the funds because they failed to satisfy the
  condition of the escrow.  This determination is completely consistent with
  the bankruptcy court's conclusion that its injunction did not prevent CVPS
  from obtaining the escrowed funds directly from ASC as long as the state
  court ruled that the Herberts did not legally own the funds.  Thus, we
  reject the Herberts' second argument because, like the first one, it is
  based on the faulty premise that the superior refused to consider their
  right of ownership to the escrowed funds.
   
       ¶  8.  Next, the Herberts argue that CVPS is barred by the doctrine
  of res judicata from asserting any claim against them.  The Herberts assert
  that CVPS is essentially attempting to collect a debt from them personally
  by piercing the corporate veil of Pico Mountain, Inc.  According to the
  Herberts, CVPS had a full and fair opportunity to litigate this "alter ego"
  theory in the bankruptcy proceeding, but failed to do so, and thus is now
  precluded from doing so in state court.  This argument appears to be
  without merit because CVPS is seeking the escrowed funds from ASC, not from
  the Herberts.  In any event, we will not consider the argument because it
  was not timely raised before the superior court.  See Lane v. Town of
  Grafton, 166 Vt. 148, 153, 689 A.2d 455, 457 (1997) ("Failure to raise a
  reason why summary judgment should not be granted at the trial level
  precludes raising it on appeal.").

       ¶  9.  Lastly, the Herberts argue that the superior court erred in
  awarding CVPS the escrowed funds because the utility was not a third-party
  beneficiary to the purchase-and-sale agreement.  According to the Herberts,
  the language of the agreement does not evince an intent by the contracting
  parties to benefit CVPS.  In support of this argument, the Herberts point
  out that the CVPS debt was not listed in the initial schedule of debts
  attached to the agreement itself.  They also note that the agreement gave
  them the right to "resolve" any liens and encumbrances, and that they did
  so with respect to the CVPS debt through the bankruptcy proceeding.  The
  Herberts further contend that, to the extent the agreement is ambiguous,
  the intent of the parties was a disputed question of material fact that
  should have precluded the superior court from deciding the case on summary
  judgment.

       ¶  10.  We find no error in the superior court's award of summary
  judgment to CVPS based on the language of the agreement, which provides in
  relevant part:

      4.02   Purchase Price Adjustment.

      (a)   The Purchase Price payable to Sellers shall be reduced on a
    dollar-for-dollar basis by the amount necessary to deliver free,
    clear and unencumbered title to all Purchased Assets.  Initially,
    the adjustment will be made by deducting such amounts from cash
    payable at Closing to reflect amounts paid, incurred or required
    to discharge all liens and encumbrances, and satisfy all
    liabilities that have been identified as of the Closing Date which
    could mature or otherwise be perfected into or result in the
    establishment of a lien or encumbrance upon, or a claim to or
    against any of the Purchased Assets, or a claim against Buyer as
    the owner of the Purchased Assets.

      . . . .

      (c)  Buyer agrees to establish at Closing, and maintain in a
    segregated account, an escrow to fund the liens, encumbrances and
    other liabilities identified in Schedule 4.02.  Sellers shall be
    afforded an opportunity to resolve any and all disputes with
    respect to the liens, encumbrances and other liabilities
    identified in Schedule 4.02; provided, however, that Buyer
    reserves the right to apply the escrowed proceeds to pay such
    claims and receive a discharge of any such liens, encumbrances or
    other liabilities at any time, and in any manner, Buyer deems
    appropriate, in Buyer's sole discretion, in order to preserve and
    protect its property interest in the Purchased assets.  Sellers
    may not act for or on behalf of Buyer in attempting to resolve
    such disputes or claims, but rather shall contest, dispute or
    resolve such claims at Sellers' sole cost and expense and in
    Sellers' name.  Nothing set forth herein shall in any way prevent,
    prohibit or restrict Buyer from taking any action, or refraining
    from any action, Buyer deems necessary or appropriate to defend,
    protect or advance its interests with respect to such claims,
    whether or not consistent with Sellers' position as to such
    matters.

      . . . .

      4.05   Adjustment for Utilities.

      Sellers shall cause all meters for electricity, gas, water, sewer
    and other utility usage related to the Purchased Assets to be read
    on the Closing Date, and Sellers shall pay all charges for all
    charges for such utilities which have accrued on or prior to the
    Closing Date.  If the utility companies are unable or refuse to
    read the meters on the Closing Date, all charges for such
    utilities to the extent unpaid shall be prorated and adjusted as
    of the Closing Date based on the most recent bills therefor.  The
    Sellers shall provide notice to the Buyer within three (3) days
    before the Closing Date setting forth (i) whether utility meters
    will be read as of the Closing Date and (ii) a copy of the most
    recent bill for any utility charges which are to be prorated and
    adjusted as of the Closing Date.  If the meters cannot be read as
    of the Closing Date and, therefore, the most recent bill is used
    to prorate and adjust as of the Closing Date, then to the extent
    that the amount of such prior bill proves to be more or less than
    the actual charges for the period in question, a further
    adjustment shall be made after the Closing Date as soon as the
    actual charges for such utilities are available, which Buyer shall
    have read as soon as possible after the Closing Date.  Sellers'
    and Buyer's obligation to make such post-Closing Date adjustments
    for utilities shall survive the Closing.  Sellers' obligations
    hereunder not funded separately by Sellers at Closing shall be
    deducted from cash payable to Sellers at Closing.

  (Emphasis added).

       ¶  11.  As the superior court found, the above provisions indicate
  that the contracting parties intended to reduce the purchase price by the
  amount of all outstanding debts still due at the closing and to assure that
  any unsatisfied debts would be covered by funds placed in escrow at the
  closing.  Although the $214,802 CVPS debt was not listed in the schedule
  attached to the agreement, it was expressly listed in the closing statement
  as a 4.02 reservation held by ASC.  Further, that precise amount of money,
  $214,802, was placed in escrow at the closing pursuant to the above
  provisions.  Plainly, ASC reserved those funds from the purchase price to
  pay the CVPS debt.
        
       ¶  12.  Under the agreement, the escrowed funds were to be released to
  the Herberts only in the event that they resolved the CVPS debt to ASC's
  complete satisfaction.  Obviously, ASC would not be "satisfied" until the
  CVPS debt was paid in full so that CVPS could make no claim against them. 
  Because this never occurred and the bankruptcy injunction did not preclude
  CVPS from seeking the funds directly from ASC as the titleholder to those
  funds, (Fn2) the Herberts had no legal right to the funds under the plain
  language of the agreement.  See Vt. Real Estate Comm'n v. Martin, 132 Vt.
  309, 315, 318 A.2d 670, 674 (1974) (lessee owned security deposit held in
  escrow until conditions of escrow provision were violated and dollar value
  of ascertained damages entitled lessor to recover any part of deposit); see
  also United States v. Santee Sioux Tribe of Neb., 254 F.3d 728, 735 (8th
  Cir. 2001) ("Under Nebraska law, legal title remains in the grantor when
  funds are placed in escrow."); Knoll v. Butler, 675 A.2d 1308, 1312 (Pa.
  Commw. Ct. 1996) ("The depositor is usually the buyer who, nevertheless,
  retains title to the escrowed money until the performance of certain
  conditions or happenings of specific events (the escrow conditions).");
  Restatement (Second) of Contracts § 103 cmt. b (1981) ("Where the owner of
  property delivers in escrow the property . . . ,  the title to the property
  does not pass until the condition has occurred . . . .").  Accordingly, the
  superior court did not err in concluding that the Herberts did not own the
  escrowed funds.

       ¶  13.  Nor did the superior court err in considering the closing
  statement when interpreting the purchase-and-sale agreement.  Although the
  terms of a contract may not be contradicted by evidence of a prior
  agreement or contemporaneous oral agreement, such terms may be explained or
  supplemented "by evidence of consistent additional terms."  See 9A V.S.A. §
  2-202(b).  Moreover, we have recognized that the plain meaning of an
  agreement cannot exist in a vacuum without any consideration of "the
  circumstances surrounding the making of the agreement as well as the
  object, nature and subject matter of the writing."  Isbrandtsen v. N.
  Branch Corp., 150 Vt. 575, 579, 556 A.2d 81, 84 (1988).
   
       ¶  14.  Here, the plain language of the agreement indicated that the
  parties anticipated a period of due diligence leading to the closing, at
  which time an escrow account would be established to pay for any unresolved
  liabilities to ASC's complete satisfaction.  Thus, the closing statement
  was an integral part of the purchase-and-sale agreement and supported the
  court's determination (notwithstanding the absence of the CVPS debt in the
  schedule attached to the agreement itself) that the parties intended the
  funds placed in escrow at the closing to cover the CVPS debt, particularly
  given that the amount of the escrowed funds matched the debt precisely. 
  Indeed, the terms of the agreement and the circumstances at closing fully
  support the superior court's conclusion that, by placing $214,802 in escrow
  at the closing, the parties intended to assure that the CVPS debt would be
  completely resolved to ASC's satisfaction as contemplated under the
  agreement.  The Herberts failed to present any disputed material facts that
  bring into doubt this intent, and thus the superior court did not err in
  granting summary judgment to CVPS based on the terms of the agreement.

       ¶  15.  In effect, the agreement created a third-party-beneficiary
  relationship that provided the basis for ASC to pay the escrowed funds to
  CVPS under the discretionary authority given to ASC by 4.02(c).  As a
  practical matter, CVPS was an intended beneficiary of the purchase-and-sale
  agreement in that the Herberts agreed to a reduced purchase price to allow
  ASC to pay off in full the debt owed to CVPS if the Herberts did not do so. 
  See Restatement (Second) of Contracts § 302(1) (1981) ("[A] beneficiary of
  a promise is an intended beneficiary if recognition of a right to
  performance in the beneficiary is appropriate to effectuate the intention
  of the parties and either (a) the performance of the promise will satisfy
  an obligation of the promisee to pay money to the beneficiary; or (b) the
  circumstances indicate that the promisee intends to give the beneficiary
  the benefit of the promised performance."); Morrisville Lumber Co. v.
  Okcuoglu, 148 Vt. 180, 184, 531 A.2d 887, 890 (1987) ("Whether or not a
  party is a third-party beneficiary is based on the intention of the
  original contracting parties.").  Indeed, the promise to pay off another's
  debt may make a creditor an intended third-party beneficiary even if the
  duty of the promisee is unenforceable by reason of discharge in bankruptcy. 
  Restatement (Second) of Contracts § 302 cmt. b (1981).
   
       ¶  16.  Finally, the superior court did not err in granting ASC's
  motion to join CVPS in the Herberts' action to protect ASC's own interest
  under the agreement-which was to pay off outstanding debts connected with
  the ski area, including the CVPS debt, so as to eliminate any potential
  liability to CVPS or other creditors.  Allowing CVPS to intervene was
  consistent with the bankruptcy court's ruling that its injunction did not
  preclude CVPS from intervening in the superior court action and seeking
  reimbursement for the CVPS debt as long as the superior court found that
  the Herberts did not own the escrowed funds.  Because we concur with the
  superior court's determination that the Herberts did not legally own the
  escrowed funds and were not absolutely entitled to those funds under the
  plain meaning of the purchase-and-sale agreement, we conclude that the
  court did not err in directing payment of the escrowed funds entirely to
  CVPS.

   
       Affirmed.



                                       FOR THE COURT:


                                       _______________________________________
                                       Associate Justice



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                                  Footnotes


FN1.  In this appeal, the Herberts contend that the superior court erred by
  awarding the entire $214,802 in escrowed funds to CVPS; however, they have
  never argued in the alternative, either in this Court or the superior
  court, that even if the escrowed funds were properly awarded to CVPS, the
  court should have set off from that sum CVPS's $96,081 bankruptcy
  distribution to prevent CVPS from obtaining a windfall or "double recovery"
  on its utility bill.  The Herberts have instead consistently pursued an
  "all or nothing" approach to the issue of who is entitled to the escrowed
  funds as a matter of law and the applicable contract language.  For the
  reasons discussed herein, CVPS has the better legal claim, even if the
  Herberts might have asserted some basis for an equitable set-off.  Because
  the Herberts make no such argument, we do not address this issue.

FN2.  Although the bankruptcy distribution of $96,081 may have legally
  "resolved" the CVPS debt vis-a-vis the Herberts and Pico Mountain, Inc., it
  did not resolve the debt to ASC's satisfaction so long as the possibility
  existed that CVPS could still seek the balance from ASC.  Thus, the escrow
  condition was never fully satisfied by the Herberts, and ASC retained its
  discretionary right to "apply the escrowed proceeds" pursuant to 4.02(c) of
  the agreement.