2006-558, J.G.M.C.J. CORP. v. C.L.A.S.S., INC. & a.

Inc. members of the board of directors of Goodwill Industries of Merrimack Valley,

Steve Larochelle, Bill Dahl, Ray G. Decker, Jr. and Dennis DiZoglio, as (Timothy A. Gudas on the brief) for defendants R. Bruce Westaway, Barry Faye, Jantzen on the brief and orally), and Sulloway & Hollis, P.L.L.C., of Concord Jantzen & Associates, P.C., of Boston, Massachusetts (Christopher M.

Dennis DiZoglio, as members of the board of directors of C.L.A.S.S., Inc. Westaway, Barry Faye, Steve Larochelle, Bill Dahl, Ray G. Decker, Jr. and Aronson on the brief and orally), for defendants C.L.A.S.S., Inc. and R. Bruce The McCormack Firm, LLC, of Boston, Massachusetts (Joseph H.

Cronin on the brief, and Mr. Cronin orally), for the plaintiff. to press. Errors may be reported by E-mail at the following address: Cronin & Bisson, P.C., of Manchester (John F. Bisson and John C.

editorial errors in order that corrections may be made before the opinion goes No. 2006-558 Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any Hillsborough-northern judicial district Readers are requested to notify the Reporter, Supreme Court of New ___________________________

page is: http://www.courts.state.nh.us/supreme. a.m. on the morning of their release. The direct address of the court's home reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00

well as formal revision before publication in the New Hampshire Reports. NOTICE: This opinion is subject to motions for rehearing under Rule 22 as p. 2 Siegel’s retail strategy, approved a motion for CLASS to co-sign store leases, CLASS. Additionally, on June 26, 2002, the CLASS board decided to execute

Siegel apparently left Goodwill and took a position in the retail division at Robert Harris, CLASS’ president, became Goodwill’s chief executive officer. were realigned. Celi became the chief financial officer of both companies, and Goodwill’s president, was dismissed and certain positions at the companies

potential merger. agreement between CLASS and Goodwill, but only outlines the terms of a merger. The Memorandum states that it is not intended to be a binding Memorandum of Understanding summarizing the proposed terms of the

elections, elected the same individuals as directors of each board. Carol Amik, real estate broker to locate a property in Manchester for a new retail store. On June 26, 2002, the boards of Goodwill and CLASS, in separate troubles, it permitted Siegel to pursue his strategy. Siegel, therefore, hired a reservations about the strategy because Goodwill was experiencing financial

the spring of 2002, Siegel began lease negotiations with Sullivan. merger. On June 14, 2002, Goodwill and CLASS executed a non-binding Jr. is the president, secretary, treasurer and sole shareholder of JGMCJ. In retail strategy to the CLASS board, which voted to proceed cautiously with the terms of the proposed merger. On June 10, 2002, Siegel presented Goodwill’s with Siegel on numerous occasions to discuss Goodwill’s finances and the In May or June 2002, Stephen Celi, CLASS’ chief financial officer, met

provides vocational and other services to developmentally disabled individuals. non-profit organization, headquartered in Lawrence, Massachusetts, which stores to the Goodwill board of directors. Although the board expressed their operations to improve Goodwill’s worsening financial position. CLASS is a director of retail operations, presented his strategy to increase the number of Meanwhile, Goodwill approached CLASS about the possibility of merging sought to expand its retail operations. In October 2001, Ted Siegel, Goodwill’s northern Massachusetts and southern New Hampshire. In 2001, Goodwill

Brook Shopping Center in Manchester, owned by JGMCJ. John B. Sullivan, In December 2001, Goodwill’s broker identified a property in the Cohas Valley, Inc. (Goodwill). We affirm. and the members of the board of directors of Goodwill Industries of Merrimack

headquartered in Lowell, Massachusetts, which operates retail stores in The record supports the following: Goodwill is a charitable corporation

the defendants, C.L.A.S.S., Inc. (CLASS), the members of its board of directors, the Trial Court (Abramson, J.) granting the motions for summary judgment of GALWAY, J. The plaintiff, J.G.M.C.J. Corp. (JGMCJ), appeals orders of was dismissed.

p. 3 financial impact of the merger was reevaluated. Also around this time, Siegel the CLASS board voted to place the Articles of Merger in escrow while the generating the level of income Goodwill and CLASS had anticipated. Therefore, reservations about the merger because the Manchester store was not

before the Articles of Merger had been submitted, CLASS developed CLASS as a creditor. president of CLASS. On August 14, 2003, Goodwill filed for bankruptcy, listing resigned as chief executive officer of Goodwill but retained his position as

that did not reflect a merger between Goodwill and any other company. agreement. Although JGMCJ did not include its original writ of summons in CLASS, and their boards of directors, for breach of the August 2002 lease Prior to the bankruptcy filing, JGMCJ began this action against Goodwill,

consolidated financial information he had requested. In December 2002, submit Articles of Merger. Also in November, Sullivan received the the documents were approved. Thereafter, Goodwill and CLASS prepared to two companies each held new elections and elected different members. Harris In March 2003, merger discussions were terminated. The boards of the

had received a Dunn & Bradstreet report for Goodwill, dated July 23, 2002, bound by Harris’ signature on the lease. Prior to signing the lease, Sullivan statements of Goodwill and CLASS, but testified that he believed CLASS was lease was signed, Sullivan had not received the consolidated financial and handled Goodwill’s accounts receivable. among other things, paid Goodwill’s expenses out of Goodwill’s bank account administer Goodwill’s accounts. Pursuant to the Service Agreement, CLASS, documents to the Secretary of State in Massachusetts and, in November 2002, In September or October 2002, Goodwill and CLASS submitted merger

included such provisions in prior leases with other parties. At the time the lease does not contain a third-party guaranty provision, although Sullivan had as president of JGMCJ and Harris as chief executive officer of Goodwill. The Agreement”) under which Goodwill paid CLASS $32,395.00 per month to the Cohas Brook Shopping Center property. The lease was signed by Sullivan On August 15, 2002, JGMCJ and Goodwill executed a 10-year lease for

informed Sullivan that Goodwill and CLASS had merged. CLASS. Also, at some point during the negotiations, Siegel and Harris request, they would provide consolidated financial statements for Goodwill and In July or August 2002, Siegel and Celi informed Sullivan that, at his

In July 2002, Goodwill and CLASS entered into a contract (“Service

August 16, 2002. and authorized the completion of the merger with a proposed closing date of requirements of RSA 293-A:11.06 (a) (1999). “In contrast, a p. 4 statutory merger in New Hampshire, the merging entities must meet the

Goodwill did not complete a

Hampshire law, we assume, without deciding, that it is. To complete a (quotation omitted). statutory requirements for merger of the corporations.” Id. at 640-41 have achieved virtually all of the results of a merger without following the (2003). In such an instance, “successor liability will be imposed if the parties remedy for its outstanding debt.” Bielagus v. EMRE of N.H., 149 N.H. 635, 641 favorable to it, do not support the trial court’s determination that CLASS and personnel, assets, location and stockholders; but leaves its creditors without a assets; continues its operations by maintaining the same management, occurs when a company is completely absorbed into another through a sale of

Because the parties argue that this matter is governed by New in the light most favorable to the non-moving party. thereby imposing successor liability upon CLASS. finder could find that Goodwill and CLASS completed a de facto merger,

JGMCJ first argues that the facts, when viewed in the light most

review the trial court’s application of the law to the facts de novo. Id.

under Goodwill’s lease as Goodwill’s successor in a reveal a genuine issue of material fact, and if the moving party is entitled to Expert Co., 151 N.H. 544, 547 (2004). If our review of the evidence does not

the affidavits and other evidence, and all inferences properly drawn from them, denied. This appeal followed. When reviewing a trial court’s grant of summary judgment, we consider

and (3) the lease should not be enforced against CLASS, regardless of the representations; (2) it had a duty to investigate the truth of the representations; the merger by agents of CLASS: (1) it could not rely upon those and negligent concealment, breach of duties created by a also argues that the court erred in ruling that despite misrepresentations about against CLASS and its board for breach of contract, breach of fiduciary duties misrepresentation and breach of fiduciary duty. Also, JGMCJ brought claims de facto merger. JGMCJ summary judgment when a fact finder could conclude that CLASS is liable On appeal, JGMCJ contends that the trial court erred in granting

which the trial court granted. JGMCJ moved for reconsideration, which was claims, CLASS, its board, and Goodwill’s board, moved for summary judgment, from the remaining claims due to Goodwill’s bankruptcy. On the remaining negligent misrepresentation. JGMCJ’s claim against Goodwill was severed

Goodwill for breach of contract, and claims against its board for negligent the record, the trial court’s orders state that JGMCJ brought a claim against physical location, assets, and general business operations. p. 5 corporation, CLASS, so that there is continuity of management, personnel,

meetings of Goodwill and CLASS, both companies were aware that Goodwill negotiations became employees of CLASS, and, after the June 2002 board operated out of the same location, all employees involved in the lease between Goodwill and CLASS. This fact alone may defeat application of contends that in addition to the companies’ “merged” boards, the two entities

continuation of the enterprise of the seller corporation, Goodwill, by the buyer As noted, the first factor in the Bielagus analysis is whether there is a

sufficient to justify overturning the trial court’s grant of summary judgment. Bielagus analysis, we conclude that JGMCJ has not presented evidence assume for purposes of this opinion that Bielagus applies. Applying the Bielagus. Nonetheless, because the parties’ arguments rely upon Bielagus, we

because there was, as noted by the trial court, no sale or transfer of assets There is some question about the applicability of Bielagus to this case

(quotation omitted). practically possible. there has been a relay-style passing of the baton from one to the other.” Id. bottom-line question is whether each entity has run its own race, or whether commonality or distinctiveness with the corporations.” Id. at 641. “The Id. at 642. Additionally, “The fact-finder may look to other factors indicative of

corporation. continuation of normal business operations of the seller the seller ordinarily necessary for the uninterrupted (4) The purchasing corporation assumes those obligations of operations. personnel, physical location, assets, and general business operations, liquidates, and dissolves as soon as legally and (3) The seller corporation ceases its ordinary business

become a constituent part of the purchasing corporation. by the shareholders of the seller corporation so that they shares of its own stock, this stock ultimately coming to be held purchasing corporation paying for the acquired assets with (2) There is a continuity of shareholders which results from the

corporation, so that there is continuity of management, (1) There is a continuation of the enterprise of the seller

asset sale results in a de facto merger. Id. at 641. The factors are whether: In Bielagus, we adopted a four-factor analysis to determine whether an management and personnel. p. 6 Service Agreement between Goodwill and CLASS that took effect in July 2002 Moreover, JGMCJ’s assertion that CLASS paid Goodwill’s bills ignores the does not mean that CLASS was forced to fund Goodwill’s financial existence.

looking at the results of this transaction, there was virtually no continuity of returned exclusively to CLASS and Siegel had been released. Therefore, Goodwill became a CLASS employee. Furthermore, by March 2003, Harris had financially unstable as of June 2002, the boards’ knowledge of this instability that CLASS was forced to pay Goodwill’s bills. While Goodwill was clearly funds from CLASS. According to JGMCJ, this poor financial condition meant financial obligations, much less take on a new lease, without an infusion of

management of the companies and only one non-management employee of response to this attempted merger. Thus, there was limited overlap in

that Goodwill was in financial difficulty and that it could not meet its current Next, JGMCJ argues that as of June 2002, Goodwill and CLASS knew

members. Thus, there was no continuity of board membership. the companies held new elections in March 2003 and elected different

Otherwise, JGMCJ does not allege that any other person altered employment in and Siegel, a Goodwill employee, accepted a new position with CLASS. CLASS, became executives of Goodwill, one Goodwill executive was dismissed, to this attempted merger. Celi and Harris, who were already executives of The evidence demonstrates that few people altered their employment in relation employees involved in the merger negotiations became employees of CLASS. Next, JGMCJ contends that apart from the board members, all of the

determining that they did not have a common physical location. the results of the transaction, once merger negotiations failed, the boards of operated from the same location, we cannot say that the trial court erred in necessarily demonstrate a continuity of management. Moreover, in looking at presented nothing other than general allegations that CLASS and Goodwill “merge” but merely had common members. Having common members does not separate address in Massachusetts at all relevant times. Because JGMCJ members and selected the same individuals. Therefore, the boards did not 118, 121 (2000). The trial court concluded that each company maintained a expected proof are not enough. See Blagbrough v. Town of Wilton, 145 N.H. opposing summary judgment, mere denials or vague and general allegations of same physical location, it presented no evidence that they actually did so. In was a continuity of management and operations sufficient to satisfy the first Next, although JGMCJ argues that the two companies operated from the

As to the companies’ boards, each entity held its own election for board

Bielagus factor.

infused it with cash. These facts, according to JGMCJ, demonstrate that there was incapable of paying its bills and that it survived only because CLASS issue, we decline to address the argument. p. 7 and the trial court’s order makes no finding of fact or ruling of law on the shareholders. Thus, this factor is irrelevant. Agreement. general allegations are insufficient to oppose summary judgment. due and that the difference creates an issue of material fact. Such vague and

us reveals no indication that this argument was raised before the trial court at 642. As noted by the trial court, neither CLASS nor Goodwill has shares or shareholders from the prior enterprise to the current one. that any such transfers were made pursuant to the terms of the Service that the trial court ever addressed the issue. Thus, because the record before Bielagus, 149 N.H. may have been transferred from CLASS to Goodwill, the evidence demonstrates reference to any documents or other evidence, that there are different amounts The second part of the Bielagus test focuses upon the continuity of claiming approximately $900,000 in unpaid loans. Thus, while some money accounts for loans CLASS may have made to Goodwill. It asserts, without sufficient to meet the first part of the Bielagus analysis. that JGMCJ did not show a continuity of Goodwill’s operations by CLASS For the above reasons, we conclude that the trial court correctly found

not reveal, any place where this allegation was raised with the trial court, nor made to Goodwill. JGMCJ does not point to, and our review of the record does demand. In fact, CLASS is listed as one of Goodwill’s creditors in bankruptcy, February 2003, nor does JGMCJ indicate whether this alleged discrepancy any funds extracted from the Lowell property were used to repay the loans it presents no evidence of how much money Goodwill supposedly owed CLASS in court and is therefore waived, but, if it is not waived, the evidence shows that about the financial dealings of Goodwill and CLASS. JGMCJ, however, of assets. CLASS contends that this allegation was not raised before the trial Service Agreement and that this discrepancy creates a dispute of material fact in order to extract equity that it transferred to CLASS, thus showing a transfer Finally, JGMCJ contends that Goodwill refinanced its building in Lowell

Blagbrough, 145 N.H. at 121.

long as they were documented on a separate general ledger and were due upon Also, the Service Agreement permitted CLASS to make loans to Goodwill so manipulated Goodwill’s money outside the terms of the Service Agreement. CLASS was approximately double what should have been due under the JGMCJ contends that as of February 2003, the amount of the debt due

bills out of Goodwill’s accounts. JGMCJ offers no evidence that CLASS and that required CLASS to manage Goodwill’s accounts and pay Goodwill’s p. 8 Goodwill and CLASS did not complete a conclude that the trial court did not err in determining, as a matter of law, that

companies operating under a proposal to merge. For these reasons, we

submitted articles of merger, which they did not do, they were two separate that the companies maintained distinct corporate identities. obligations. We agree with the trial court that until Goodwill and CLASS operations or liquidated, and CLASS did not assume Goodwill’s business

subjective beliefs of some of the officers and directors may, arguably, commingle funds. No assets changed hands, neither company ceased transferred under the terms of the Service Agreement. Further, while the not to be construed as a commitment to merge. p. 8 Goodwill and CLASS did not We note first that JGMCJ contends that in light of the trial court’s finding that specifically states that the duties assumed by CLASS pursuant to its terms are misrepresentations by agents and officers of CLASS, we address them together. loans the Service Agreement authorized. Moreover, the Service Agreement Because the remaining issues raised by JGMCJ all relate to alleged between them were pursuant to the Service Agreement and the documented be read as binding upon Goodwill and CLASS. The only financial interactions de facto merger.

demonstrates that any funds transferred between Goodwill and CLASS were

document meant to summarize the terms of a prospective merger and is not to The Memorandum of Understanding states that it is only a preliminary

commonality between them. We have already concluded that the evidence required money from CLASS to continue its operations, there are elements of Goodwill thought that the companies had merged, and because Goodwill JGMCJ contends that because the officers and employees of CLASS and to the other, but that each entity ran its own race. supports the conclusion that there was no passing of the baton from one entity of commonality or distinctiveness between the corporations. Id. at 641. existence, and filed for bankruptcy as an independent entity. Thus, this factor Lastly, under Bielagus the fact finder may look to other factors indicative rebounded as a financially independent entity and Goodwill maintained its own own. Thus, this factor also supports the conclusion that there was no merger. possible. contract between them and did not assume any of Goodwill’s obligations as its While CLASS began servicing Goodwill’s accounts, it did so pursuant to a operations. Id. at 642. CLASS never assumed any of Goodwill’s obligations. obligations of the seller necessary to continue the seller’s normal business The final factor is whether the purchasing company assumes the

liquidated or dissolved. In fact, after merger negotiations ceased, CLASS

Id. Here, neither company ever ceased its business operations,

business operations, liquidates, and dissolves as soon as legally and practically The next factor is whether the seller company ceases its ordinary p. 9 Frauds. term of years is a contract to convey an interest in land within the Statute of

person to be charged. RSA 506:2 (1997). An agreement to lease land for a

miscarriage of another, unless the promise is in writing and signed by the

charge any person upon a special promise to answer for the debt, default or him in writing.” RSA 506:1 (1997). Moreover, no action may be brought to writing and signed by the party to be charged, or by some person authorized by

concealment, ignorant of the truth; and (3) a resultant injury. through culpable neglect, induced to rely upon the false representation or or concealment of material facts; (2) a recipient who was intentionally, or

418 (2003). Incorporated into the concept of reasonable reliance is the materially incorrect or misleading. The Cadle Co. v. Bourgeois, 149 N.H. 410, induce Sullivan to sign the lease. should have known that the conduct or representation was either improper, and (2) CLASS’ agents negligently misrepresented the status of the merger to her reliance or at the time of the representation or concealment, knew or unreasonable when the party bringing the estoppel claim, at the time of his or

JGMCJ from enforcing the lease against CLASS. The party asserting estoppel must prove: (1) a knowingly false representation

representations or commitments communicated to another who reasonably action shall be maintained upon a contract for the sale of land unless the Equitable estoppel serves to forbid one to speak against his own act, without regard to the Statute of p. 9 Frauds. The Statute of Frauds provides: “No the companies had merged, the lease ought to be enforced against CLASS

enforced against CLASS because: (1) the doctrine of equitable estoppel applies; As noted, however, JGMCJ contends that the lease still ought to be

Goodwill is responsible under the lease. Thus, the Statute of Frauds bars contain a third-party guaranty provision or state that any entity other than The lease does not mention CLASS, its officers or its agents. Nor does it and is signed by Sullivan on behalf of JGMCJ and Harris on behalf of Goodwill. Here, the lease states that it is a contract between JGMCJ and Goodwill

signing the lease Harris and Siegel may have misrepresented to Sullivan that Byblos Corp. v. Salem Farm Realty Trust, 141 N.H. 726, 729 (1997).

address JGMCJ’s claims as they were presented to the trial court; JGMCJ’s claims alleged negligent misrepresentations only. Therefore, we any claims of fraud or intentional misrepresentation in the trial court. Instead,

JGMCJ argues that because the trial court determined that prior to

misrepresentations as JGMCJ contends on appeal. claims based upon negligent misrepresentations, not knowing

the lease ought to be enforced against CLASS. JGMCJ did not, however, raise agents of CLASS may have knowingly misrepresented the status of the merger, equitable estoppel does not bar the application of the Statute of p. 9 Frauds. p. 10 reasonable. Because JGMCJ’s reliance was not reasonable, the doctrine of

JGMCJ did not exercise due diligence and that its reliance was therefore not cannot say that the trial court erred in determining, as a matter of law, that occurred. In such a case, with a businessman as sophisticated as Sullivan, we upon the unverified statements of Siegel and Harris that the merger had discover whether the merger had been consummated. Sullivan relied solely

with the Massachusetts Secretary of State or undertake any other steps to

the Statute of Frauds. permitted to pursue its negligent misrepresentation claims without regard to

sign the lease on behalf of JGMCJ. Relying upon will act upon it, to exercise reasonable care to verify the truth of his statements that Goodwill had not merged, Sullivan did not verify the status of the merger information to another not having equal knowledge, with the intention that he that did not mention that Goodwill had merged. In spite of this clear indication In Bradstreet report on Goodwill, generated near the time the lease was executed, Maxwell Ice, we stated: “It is the duty of one who volunteers before receiving or reviewing them. He had requested and reviewed a Dunn &

that information. Because they did not do so, JGMCJ argues that it should be act upon it, they ought to have exercised reasonable care to verify the truth of exercise due diligence to support its claim of reasonable reliance. volunteered this information with the intent that JGMCJ and Sullivan rely and 80 N.H. 236 (1921), JGMCJ contends that because Harris and Siegel

Sullivan that the merger had occurred, and in so doing, induced Sullivan to Secondly, JGMCJ contends that Harris and Siegel represented to

of the statements made by the representatives of CLASS. combined financial statements of the two companies, but executed the lease error in the trial court’s ruling that JGMCJ had a duty to investigate the truth whether the merger between CLASS and Goodwill occurred. He had requested undertake due diligence to verify the truth of the matter relied upon, we find no JGMCJ, despite his extensive business experience, took no steps to verify 149 N.H. at 418. Because reasonable reliance requires the relying party to reasonable reliance. We agree. Sullivan, the president and sole shareholder of Bourgeois, either improper, materially incorrect or misleading, or when the party did not claim, knew or should have known that the conduct or representation was above, however, reliance is unreasonable when the party asserting the estoppel the veracity of the representations in order to justify its reliance. As stated JGMCJ argues that it is improper to impose upon it a duty to investigate

JGMCJ did not exercise due diligence, and, therefore, could not demonstrate

The trial court determined that equitable estoppel did not apply because

matter relied upon. Id. requirement that the moving party exercise due diligence to learn the truth of a p. 11 11

misrepresentation claims against CLASS and its board.

BRODERICK, C.J.