Opinion ID: 3011738
Heading Depth: 4
Heading Rank: 2

Heading: Price terms

Text: The most significant term of the offer to sell concerned the price for USR. If the price offered to Gleason was artificially excessive, this would in all pr obability discourage Gleason's efforts to purchase and would promote Norwest's persistent plan to conclude successfully the package sale of both USR and Boris to Moore. Gleason ar gues that Norwest's $3.5 million price offer was generated improperly because it was an arbitrary proration of Moor e's combined 16 valuation of USR and Boris. He argues that Moore and Norwest padded USR's price and understated Boris's price to obstruct Gleason from acquiring USR and to allow Norwest to package sell its two subsidiaries. Gleason argues that Moore actually paid less than $3.5 million for USR, and paid more than $9.5 million for Boris, resulting in a purchase at terms substantially dif ferent from those offered to Gleason. Gleason produced documentary and expert evidence that: 1) Moore had valued Boris at $10.5 million in July 1996, and reduced its value by $1 million by September 27, 1996; and 2) the $3.5 million price was generated by adding $836,000 of additional and undocumented `synergies.'  Appx. 2905 (expert report of Winston Himsworth). Norwest responds that Gleason never raised his padded pricing argument before the District Court, and that he cannot raise it now for the first time. The ruling on a motion for summary judgment is to be made on the record the parties have actually presented, not on one potentially possible. See Shafer v. Reo Motors, 205 F.2d 685, 688 (3d Cir. 1953). Generally, barring exceptional circumstances, like an intervening change in the law or the lack of representation by an attor ney, this Court does not review issues raised for the first time at the appellate level. See Gardiner v. Virgin Islands W ater & Power Auth., 145 F.3d 635, 646 (3d Cir. 1998) (citing United Parcel Serv. v. Intern. Broth. Local No. 430, 55 F .3d 138, 140 n.5 (3d Cir. 1995)). Although we have discretion to r eview an argument not raised in the trial Court, we ordinarily r efuse to do so. Gleason argues that his submissions between the close of discovery and the District Court's ruling on the motion for summary judgment contained support for the padding argument, and should have been consider ed in response to the motion for summary judgment. Gleason also suggests that the District Court should have inferred or implied the padding argument because of the severe risk of price manipulation in a package deal where part of the package is subject to a right of refusal. On August 29, 1997, nearly a month before the Judge made his first ruling on the motions for summary judgment, Gleason submitted the declaration of W inston E. Himsworth (Himsworth) in support of an expert report 17 concerning USR's proper valuation. In his declaration, Himsworth concluded that a proportionate price for USR could have been no more than $2.6 million, far less than the $3.5 million Norwest offered Gleason. Some courts have held that allocations of price to elements of a package may readily be manipulated to defeat contractual rights of first refusal. See, e.g., Pantry Pride Enters., Inc. v. Stop & Shop Co., 806 F.2d 1227, 1231-32 (4th Cir . 1986); see also Gyurkey v. Babler, 651 P.2d 928 (Idaho 1982) (collecting cases); Hinson v. Roberts, 349 S.E.2d 454 (Ga. 1986). Although the cited cases concern primarily sales of real property and are factually distinguishable from this case, they establish the principle that we find contr olling: allocations of price by interested parties to elements of a package may readily be manipulated to defeat contractual rights to substantially similar price terms. In deciding the motions for summary judgment, the District Court should have scrutinized carefully the financial evidence the parties produced. Himsworth's report, combined with the strong inherent potential for price padding between Norwest and Moore, as exacerbated by Norwest's reliance on an appraisal by a prospective purchaser , placed the padding issue before the District Court. The evidence in the record presents a dispute of material fact concerning whether Norwest and Moor e padded USR's price and valuation. Accordingly, we will r emand for hearing and fact finding on the price terms as they relate to substantial similarity. On remand, the District Court must consider loss, detriment, or injury if Gleason proves that there was this breach of the SP A. His damages, if any, will be a question of fact for the jury. B. Breach of Implied Covenant of Good Faith and Fair Dealing The District Court dismissed this claim, reasoning that Minnesota does not recognize a separate or independent claim for breach of the implied covenant of good faith and fair dealing. In Minnesota, every contract includes an implied covenant of good faith and fair dealing. In re Hennepin County 1986 Recycling Bond Litig., 540 N.W .2d 494, 502 18 (Minn. 1995) (requiring that one party not unjustifiably hinder other party's performance of contract);6 Sterling Capital Advisors, Inc. v. Herzog, 575 N.W . 2d 121, 125 (Minn. App. 1998). One who frustrates the satisfaction of a condition precedent cannot take advantage of that failure. See Tolzman v. Town of Wyoming , No. C1-98-1533, 1999 WL 109604 (Minn. App. 1999). Bad faith is defined as a party's refusal to fulfill some duty or contractual obligation based on an ulterior motive, not an honest mistake regarding one's rights or duties. See Lassen v. First Bank Eden Prairie, 514 N.W.2d 831, 837 (Minn. App. 1994). If a jury finds that the price terms wer e not substantially similar, it could also reasonably find that Norwest hindered Gleason's performance under SPAS 9.2. As discussed above, package pricing provides immense power to manipulate the terms of the proposed transaction and to bloat the offering price for the USR segment to Gleason. Norwest may have abused its power. Norwest argues again that Gleason did not pr eserve this issue for appeal because he failed to raise the ar gument in the District Court. However, Gleason's opposition to Norwest's motion for summary judgment states [f]or the reasons set forth above with respect to Norwest's conduct in breaching SS 9.1 and 9.2 of the SP A, as well as its attempt to cheat Gleason on his Employment Agr eement, significant material factual issues are pr esented with respect to [the implied duty of good faith and fair dealing claim]. But the District Court did not consider any of Gleason's claims under the implied warranty because of its errant conclusion that Minnesota law does not r ecognize such a cause of action. The District Court should be in a position to consider the issue in toto on r emand. C. Fraud The District Court held that Norwest made no material _________________________________________________________________ 6. Hennepin County appears to have implicitly overruled the holding in Wild v. Rarig, 234 N.W. 2d 775, 790 (Minn. 1976), that a claim for breach of contract and breach of the implied covenant of good faith and fair dealing will not be recognized under Minnesota law if both claims arise from the same conduct. 19 misrepresentations to Gleason, and that Gleason suffered no damages because he received all to which he was entitled under the SPA. Gleason argues he suffered damages from fraud because: 1) Norwest did not offer USR to him in December 1995 when it began soliciting bids; 2) Keller knowingly and intentionally lied in r esponse to Gleason's inquiries about whether Boris and USR wer e for sale; and 3) Norwest's alleged intentional material misrepresentations had an adverse ef fect on Gleason's ability to finance an acquisition of USR. Keller and Norwest had no duty to disclose to Gleason that Norwest was negotiating to divest USR and Boris. Norwest's duty under the SPA was limited to of fering USR to Gleason before selling it to someone else at substantially similar terms. Norwest argues that it discharged all of its duties to Gleason by making its two offers, and that regardless, New Jersey law does not r ecognize tort and contract claims based on the same underlying facts. We disagree for reasons set forth below. 1. Concurrent Fraud and Contract Claims No New Jersey Supreme Court case holds that a fraud claim cannot be maintained if based on the same underlying facts as a contract claim. More than ten years ago, we stated that: The question of the continuing validity of fraud claims in cases involving frustrated economic expectations under New Jersey law is very complex and troublesome. The United States District Court for New Jersey unequivocally has held that the New Jersey Supreme Court's reasoning in Spring Motors Distributors, Inc. v. Ford Motor Co., 98 N.J. 555, 489 A.2d 660 (1985), though not explicitly addressing fraud claims, leads . . . to the conclusion that, as between commercial parties New Jersey will not countenance claims for fraud other than fraud in the inducement. Unifoil Corp., 622 F. Supp. at 270-71. Spring Motors held that as among commercial parties . . . contract law, . . . provides the more appropriate system [as compared to tort law] for adjudicating disputes arising 20 from frustrated economic expectations. 489 A.2d at 673. Contrary to this proposition, the New Jersey Superior Court after Spring Motors has upheld fraud claims between commercial parties, see Perth Amboy Iron Works, Inc. v. American Home Assurance Company, 226 N.J. Super. 200, 543 A.2d 1020 (App. Div. 1988), [aff'd 571 A.2d 294 (N.J. 1990)]. No New Jersey court, though, has explicitly considered whether these claims are barred by Spring Motors. Because we determine that plaintiff fails to allege sufficient facts to support its claim of fraud, making summary judgment proper , we decline to wade into this morass. Vanguard Telecom. v. So. New England Tel., 900 F.2d 645, 654 (3d Cir. 1990) (Rosenn, J.). The samemorass exists today. The New Jersey District Courts still hold that fraud claims not extrinsic to underlying contract claims are not maintainable as separate causes of action. See, e.g., Lo Bosco v. Kure Engineering Ltd., 891 F . Supp. 1020, 1033 (D. N.J. 1995). New Jersey state courts have not agr eed with the District Courts' interpretation of Spring Motors. The New Jersey Supreme Court still has not decided the issue. We will avoid predicting New Jersey law by deciding the fraud issue on its merits, as we did in V anguard. 2. Merits Under New Jersey law, legal fraud is a material misrepresentation of a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to his detriment. Jewish Center of Sussex County v. Whale, 86 N.J. 619, 432 A.2d 521, 524 (1981). Deliberate suppression of a material fact that should be disclosed is equivalent to a material misrepresentation (i.e., an affirmative false statement). See Strawn v. Canuso, 140 N.J. 43, 62, 657 A.2d 420 (1995). In other words,[s]ilence, in the face of a duty to disclose, may be a fraudulent concealment. Berman v. Gurwicz, 189 N.J. Super. 89, 93, 458 A.2d 1311 (Ch. Div. 1981), aff'd, 189 N.J. Super. 49, 458 A.2d 1289 (App. Div.), certif. denied, 94 N.J. 549, 468 21 A.2d 197 (1983). The concealed facts must be facts which if known . . . would have prevented [the obligor] from obligating himself, or which materially incr ease his responsibility. Ramapo Bank v. Bechtel , 224 N.J. Super. 191, 198, 539 A.2d 1276 (App. Div. 1988). A party has no duty to disclose information to another party in a business transaction unless a fiduciary relationship exists between them, unless the transaction itself is fiduciary in nature, or unless one party expressly reposes a trust and confidence in the other. Berman, 189 N.J. Super. at 93-94, 458 A.2d 1311. Even if Keller knowingly and intentionally lied in response to Gleason's inquiries about whether Boris and USR were for sale, this cannot be the basis of a fraud claim here. Because Keller and Norwest had no duty to disclose to Gleason negotiations with potential buyers, Keller's failure to disclose pending, amorphic negotiations is not material and, thus, not actionable.7 Furthermore, we note that Keller was bound at that time to remain silent during conversations with Gleason because of a confidentiality understanding between Norwest and Moore. Although Norwest may have breached the SP A by failing to offer Gleason the same price it offer ed to Moore for USR, we will not reverse and remand on the fraud claim. It may have been possible for Gleason to establish fraud by proving that Norwest intentionally misr epresented a material term (price), causing Gleason damage. Gleason's Second Amended and Supplemental Complaint, however , _________________________________________________________________ 7. Of course, we do not say that one may with impunity affirmatively tell material lies in the course of a business transaction because of the lack of an agreement to disclose information to another. Rather, we reason that, in this particular instance, the absence of a duty on Norwest's part to inform Gleason with respect to thir d-party negotiations that might later influence his dormant right of first refusal weakens any notion of materiality. Stated differently, Gleason's fraud claim fails not because Norwest was permitted to lie to him, but because the parties' contractual relationship was such that the purported lie was immaterial to Gleason's eventual exercise -- or failure to exercise -- his right of first refusal. This is a subtle yet important distinction which both r einforces the law of Jewish Center of Sussex County while simultaneously disposing of Gleason's fraud claim. 22 alleges fraud concerning only the misstatements we found insufficient above. Therefore, summary judgment on the fraud claim will be affirmed.