Herbert v. Pico Ski Area, No. S1268-00 CnC (Katz, J., June 8, 2004) 

[The text of this Vermont trial court opinion is unofficial. It has been 

reformatted from the original. The accuracy of the text and the 

accompanying data included in the Vermont trial court opinion database is 

not guaranteed.] 

STATE OF VERMONT 

Chittenden County, ss.: 

HERBERT 

v. 

PICO SKI AREA 

ENTRY 

 This is a third-party beneficiary case, with an overlay of bankruptcy 

injunctions and successor-liability. Plaintiffs Herberts ran Pico Mountain 

Ski Area under a series of successive corporate entities. Electricity was 

supplied to them throughout by Central Vermont Public Service, CVPS. 

Eventually, the Herberts sold Pico to Defendant American Skiing, under 
elaborate contracts which provided among other things for a $214,802.79 

escrow to cover possible “liens, encumbrances or other claims.” CVPS, 

which had billed Pico in the amount of $214,802.79, now seeks these funds 

to cover bills incurred during the Herberts’ operation of Pico. The Herberts 

oppose CVPS’s entry into this case and assert their ownership over the 

escrow monies. We reject the Herberts’ claims based on three areas: res 

judicata, CVPS’ third-party beneficiary status, and the Herberts’ lack of 

ownership in the escrow fund. We note that while each of these lines of 

reasoning overlap, they also provide independent bases for our conclusion. 

V.R.C.P. 19. Joinder & V.R.C.P. 24. Intervention

 Plaintiffs Herberts initiated this suit to compel defendant American 

Skiing to release an escrow fund totaling $214,802.79 to them. CVPS has 

made a Rule 24(a) motion to intervene. V.R.C.P. 24. American Skiing in 

turn has moved to join CVPS as a party because of CVPS’s potential right 

to the money. V.R.C.P. 19(a). American Skiing argues that while it is 

merely a stakeholder of the money, without a decision that is binding on 

both the Herberts and CVPS, it might be open to future litigation and 

inconsistent judgments concerning their duty to execute the escrow fund. 

We find that this concern satisfies American Skiing’s burden of persuasion, 

advancing a cogent argument as to why CVPS should be joined to the 

present litigation. Grassy Brook Village, Inc. v. Richard D. Blazej, Inc., 

140 Vt. 477, 481–82 (1981). The Herberts’ main concern—that joinder 

would violate the Bankruptcy Court’s injunction—has been answered by 

that court’s entry granting CVPS leave to intervene in this case. (CVPS’s 

Am. Mot. for Summ. J., at exs. A, B, Jan. 23, 2003.) That decision clarified 

that the injunction, which the Herberts claim and CVPS acknowledges, did 

not end the debt owed to CVPS, or their right to collect it from others, but 

rather CVPS’s right to collect from the Herberts themselves. Id. at ex. A. 
Despite the Herberts’ arguments to the contrary, the Bankruptcy Court held 

that the previous injunction did not prevent CVPS from pursuing this 

escrow fund so long as 1) it has a right to the escrow fund and 2) the funds 

are not owned by the Herberts. Id. 

 To the extent that the Herberts have re-argued the injunction to us, 

we reject their claims as res judicata. Lamb v. Geovjian, 165 Vt. 375, 379–

80 (1996). When CVPS sought a declaratory judgment from the 

Bankruptcy Court concerning the scope of its injunction, the Herberts 

opposed and asserted their claim to immunity from any suit. (Herberts’ 

Opp’n to CVPS Mot. to Determine Scope of Inj. & Cross Mot. for 

Determination that Bankr. Inj. Prohibits CVPS from Gaining Access to the 

Herberts’ Funds Held in Escrow, Jul. 16, 2002.) Thus, the Bankruptcy 

Court considered whether or not this present case was a violation of the 

injunction, and by extension the immunity it granted to the Herberts. 

Notwithstanding its somewhat equivocal language about who owns the 

escrow fund, the Bankruptcy Court’s decision implicitly rejects the 

Herberts’ claim of ownership. (CVPS’s Am. Mot. for Summ. J., at exs. A, 

Jan. 23, 2003.) Immunity, after all, means freedom not only from adverse 

judgments but from further litigation entirely. Right or wrong, by refusing 

to grant such immunity the Bankruptcy Court has ruled the escrow funds 

outside the realm of the Herberts’ immunity. The sole decision remaining 

for us, then, is whether CVPS or another party has a right to this money. 

To argue that the fund is the Herberts’ property would challenge the 

Bankruptcy Court’s interpretation as to the scope of its prior injunction and 

would amount to a collateral attack on this issue. See Trahan v. Trahan, 

2003 VT 100, at ¶ 11 (re-litigation of issues covered by family court order 

was an impermissible collateral attack). In other words, by allowing the 

intervention of CVPS and refusing to grant immunity, the Bankruptcy 

Court found that the escrow fund did not belong to the Herberts. 
 While this is not the only basis for our decision, as we will discuss 

below, we conclude the Bankruptcy Court’s decision is preclusive on this 

matter. Therefore, in the interest of avoiding inconsistent judgments, we 

will adhere to that decision that the escrow fund does not fall under the 

Herbert’s sphere of immunity and by implication lies outside their control 

and ownership. We also order CVPS joined as a party to the present case. 

 

Contract for Sale of Pico Mountain

 CVPS makes a detailed argument suggesting that the Herberts 

“stripped” their successor corporate entities of assets, while continuing to 

run up electric bills which were never paid. So when they sold their rights 

to Pico, there were no means of paying off the unsecured trade creditors. 

Nevertheless, both American Skiing and the Herberts seem to have been 

aware that those creditors might not view things with quite the same 

sangfroid. So the contract they reached contains two key provisions: 

¶ 4.02 Purchase Price Adjustment

(a) The Purchase Price payable to [Herberts] 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 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 Buyer within three 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. 

(Pl. Opp’n to CVPS’s Am. Mot. for Summ. J., at ex. B, Dec. 8, 2003.) 

 After reaching these contract terms, the parties determined to escrow 

the amount of $214,802.79, as shown on the “Closing Statement” executed 

by the parties December 9, 1996, the date on which American Skiing 

purchased the Pico assets. (CVPS’s Am. Mot. for Summ. J., at ex. H, Jan. 

23, 2003.) This sum is listed under “Section 4.02(c) Reservations,” an 

obvious reference to the previously cited contract provisions. $214,802.79 

happens to be the amount of the bill presented by CVPS. (See Pl. Opp’n to 

CVPS’s Am. Mot. for Summ. J., at ex. D, Dec. 8, 2003.) 

 Here, the Herberts argue that there was a “proration duty” under 

4.05, which was their only duty. Proration, however, exists only in the 

event that the utilities could not read their respective meters and was a 

short-term means of setting aside money for the payment of utility bills. 

The record before us does not even permit the suggestion that the 

precondition for proration ever occurred—an inability or refusal to read the 

meters. 

 On the other hand, certain legal conclusions seem inescapable from 

the quoted provisions 4.02 and 4.05. First, this was an integrated contract, 
drafted with great care, between sophisticated parties each represented by 

counsel. See Restatement (Second) of Contracts § 209 (1981); 17A Am. 

Jur. 2d Contracts § 396 (discussing integrated contracts and its effect on 

interpretation). Second, American Skiing transparently determined that it 

expected the electricity bill of its predecessor to be paid as of the Closing 

Date. It may be argued about whether American Skiing actually would 

have suffered successor liability, or whether CVPS had any right to impose 

a lien. Either proposition may be argued. But neither proposition need be 

decided. 

 This is a contract case, and the contract of these parties must be 

interpreted and applied, so that the objectively expressed contractual intent 

will govern. Restatement (Second) of Contracts § 212 cmt. a (1981). 

American Skiing was buying Pico; it did not intend to buy lawsuits. Even 

ill-founded lawsuits, which it might eventually win. Cf. 3 S. Williston & R. 

Lord, A Treatise on the Law of Contracts § 7:45, at 701 (4th ed., 1992) 

(“Forbearance to prosecute or defend a suit or other action which has been 

or may be instituted is generally held sufficient consideration without 

inquiring whether the suit or the defense would have been successful or 

not.”). Moreover, in entering on the Pico premises, American Skiing 

obviously understood that it would be opening an account with the only 

supplier of electricity, CVPS, and reasonably wanted to do so under 

favorable terms. American Skiing did not want to deal with a utility which 

had just been burned for almost a quarter million dollars, and therefore 

announced to the successor ski operator that it wanted some huge deposit, 

in order to open the new account. How much better to be dealing with 

some CVPS manager on the basis of a paid bill, or at least one secured by 

escrowed funds, required by American Skiing’s contract. Although 

American Skiing’s particular intent, at the time, may not be part of the 

record, its purposes are easily divined from the contractual language and 
are clear and not at all surprising in the context of everyday business. 

Isbrandtsen v. North Branch Corp., 150 Vt. 575, 578 (1988). Courts 

interpreting contracts need not naively blind themselves to the reality of 

commerce. Id. (citing Restatement (Second) of Contracts § 212 cmt. b 

(1981)). 

Third-Party Beneficiary Status 

 

 From the contract and the closing statement, it is plain that a certain 

amount of the money was escrowed at the closing to cover outstanding 

debts whose creditors might have a perfected interest, lien, or claim against 

American Skiing. CVPS’s bill for electricity was one of those debts listed. 

As we have discussed, it was in American Skiing’s interest to include 

CVPS because any claims by CVPS, regardless of their validity, would 

have been an unwanted hassle to American Skiing and had the potential to 

harm its on-going business relationship with CVPS. It was the intent of 

American Skiing and the Herberts, then, to provide a pay off, or benefit, to 

parties such as CVPS, who were creditors of the Herberts. In other words, 

CVPS and other creditors listed under the ¶ 4.02 closing sheet were thirdparty beneficiaries to the contract because they were the intended recipients 

of escrow funds necessary to satisfy the Herbert’s debt. Morrisville 

Lumber Co. v. Okcuoglu, 148 Vt. 180, 184 (1987) (parties’ contemplated 

satisfaction of a debt to another is the essence of a third-party beneficiary 

contract). This is acknowledged implicitly by American Skiing when it 

notes that “[i]n the absence of the bankruptcy proceeding there would be no 

question that the money could be turned over to CVPS.” (Def. Resp. to 

CVPS’s Am. Mot. for Summ. J., at 2, Jul. 1, 2003.) (notwithstanding prior 

blanket assertions by American Skiing to the contrary). 

 The question raised by the Herberts is whether CVPS still has a 
claim to this escrow money since the Bankruptcy Court’s 1997 Injunction 

has ended any liability of the Herberts. According to them, CVPS has 

neither claim nor right to this money because the injunction extinguished 

the debt and blocks CVPS from going after any of the Herbert’s assets. 

The problem with this argument, however, is that it is premised on two 

conceptual fallacies. First, the debt that the Herberts and their companies 

once carried prior to bankruptcy has not been dissolved by the bankruptcy 

injunction. As the Bankruptcy Court made clear in its order allowing 

CVPS to intervene in this case, the injunction has only barred CVPS from 

ever seeking payment from the Herberts, personally. (CVPS’s Am. Mot. 

for Summ. J., at ex. A, Jan. 23, 2003.) The debt owed to CVPS’s still 

remains. Thus, CVPS is still free to pursue this claim against other parties 

or other sources. See 11 U.S.C. § 524(e) (outlining the effects of a 

discharge from a bankruptcy); Terwilliger v. Terwilliger, 206 F.3d 240, 247 

(2d Cir. 2000) (noting that a barnkruptcy injunction works as an affirmative 

defense only for the party it covers); see also Adamson v. Dodge, 174 Vt. 

311, 315–16 (2002) (noting that former spouse that had her name on the 

other’s credit card account was liable for the debt following his bankruptcy 

and subsequent injunctive protection). Conceptually, CVPS’s debt from 

the electricity supplied to Pico remains, and it has a right to pursue any 

asset outside of the Herberts’ protected sphere. 

 The second concept that the Herberts rely upon concerns the 

ownership of the escrow account. According to them, they own the escrow 

account so that even if CVPS could still pursue its debt, it could not touch 

the escrow because it is their asset. This mischaracterizes the nature of the 

escrow account and the type of action CVPS is pursuing. Ownership over 

an escrow fund is contingent on fulfilling the conditions of escrow. In re 

Mushroom Transportation, Co., 282 B.R. 805, 817 (E.D. Pa. 2002). Legal 

title to the res of the escrow, whether property or money, does not pass 
from the grantor to the grantee until the condition of the escrow has been 

satisfied. 28 Am. Jur. 2d Escrow § 17. The grantees in this case are the 

Herberts who have a contingent right to any remaining escrow funds after 

the CVPS debt has been satisfied. The question of whether this contingent 

right is enough to establish ownership has been addressed by jurisdictions 

in other contexts. See H. Warren., Who Must Bear Loss Resulting from 

Defaults or Peculations of Escrow Holder, 15 A.L.R. 2d 870 (1951, Supp. 

2004) (citing to cases that ownership and risk of loss do not shift to grantee 

until after the conditions for the escrow are met). Most have held that 

ownership does not pass until the condition of the escrow is met or fails. 

Id. In particular, bankruptcy courts have considered escrow funds to be 

outside the bankruptcy estate. While the focus in such situations has been 

primarily on debtor–grantors who contribute to an escrow prior to 

bankruptcy, the courts have, short of fraud, refused to include the escrow 

contributions in the estate because even though the debtor holds legal title, 

it is contingent on whether the conditions of the escrow are met. P. Mears, 

Can a Bankruptcy Trump an Escrow?: A Primer on Enforceability, 6–Oct. 

Bus. L. Today 40, 42 (1996); see also T. Byrne, Escrows and Bankruptcy, 

48 Bus. L. 761 (1993). Hence, the 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. (Cf. CVPS’s Am. Mot. for Summ. J., at exs. 

A, B, Jan. 23, 2003.) 

 As the third-party beneficiary of the escrow fund provisions in the 

sale contract, CVPS has the best claim on the escrow funds and is eligible 

to claim them. In essence, the nature of CVPS’s claim is for the money in 
escrow alone. It is not a claim against the Herberts or their estate. It is 

rather essentially an in rem claim against a discrete fund, presumably 

including the interest it has earned. CVPS will not receive, nor does it 

seek, a personal judgment against the Herberts, but a declaration that the 

stakeholder must pay over the res. In this respect, our conclusion that 

CVPS has a right to the escrow funds has nothing to do with the law of 

bankruptcy or the judgments of the Bankruptcy Court. It is instead a simple 

contract interpretation, which establishes third-party beneficiary CVPS’s 

right to funds that were segregated through contract. 

 Based on the foregoing, CVPS’s motion to intervene and motion for 

summary judgment are granted. 

 

 Dated at Burlington, Vermont________________, 2004. 

 ________________________ 

 Judge