Case Title: Herbert v. Pico Ski Area Management Co.

Citation: 180 Vt. 141, 2006 VT 74, 908 A.2d 1011

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2006-08-04T00:00:00Z

Document:
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,