Opinion ID: 803329
Heading Depth: 2
Heading Rank: 3

Heading: Wells Fargo Loan

Text: After the parties signed the Option and Buy-Sell Agreements, SKF paid Environamics $2 million, which Environamics used to pay off the loan to Pioneer. Pursuant to the Buy-Sell Agreement, Environamics officially terminated its relationships with all of its distributors. SKF effectively took control of shipping and marketing for Environamics products, the SKF brand name appeared on Environamics's products and marketing materials, and SKF provided the manufacturer's warranty on Environamics's products. Environamics required additional financing to keep up its day-to-day operations. Initially, Richards and SKF attempted to obtain the necessary financing for Environamics. On February 27, 2004, Richards sent a letter to DSI Investment Banking Services (the DSI Letter) in which he stated: [t]he value of SKF's corporate commitment to [the Environamics venture] is estimated to exceed $10 million over the next year to fifteen months. In March of 2004, however, Richards informed Rockwood that SKF would not be in a position to provide additional financing and that Appellants themselves would need to obtain the necessary financing. SKF -5- insisted, however, that Environamics obtain loans, rather than selling shares of stock, because SKF did not want any other entity to own Environamics shares. After Appellants initially were unable to find a lender, Richards telephoned a contact at a Massachusetts branch of Wells Fargo and asked his contact to speak with Appellants about obtaining a loan. After Wells Fargo twice denied financing, Richards gave Rockwood a letter dated March 5, 2004 (the March 5, 2004 Letter) that Rockwood was to give to Wells Fargo in support of a loan application. This letter, written on SKF letterhead, outlined the resources and assets [SKF] [had] committed to [its] recently negotiated joint venture with Environamics. The letter stated, inter alia, that the value of SKF's corporate commitment to this venture is estimated to exceed $10 [million] over the next year to fifteen months. In analyzing the risk of a loan to Appellants, Wells Fargo noted that there was no guarantee that SKF would buy Environamics; specifically, Wells Fargo recognized that if the $10 million sales target in the Buy-Sell Agreement was not met, SKF might not exercise its option. Ultimately, Wells Fargo agreed to extend a $3,000,000 line of credit to Environamics, but only if Appellants personally guaranteed the loan. Appellants were hesitant to personally guarantee the loan, and they expressed this concern to Richards. Appellants claim that in three separate conversations in or around April of -6- 2004, Richards assured them that SKF would buy Environamics. As discussed below, exactly what Richards said is the subject of considerable confusion. After these conversations, Appellants agreed to personally guarantee the Wells Fargo loan. D. Breakdown of Relations Between Environamics and SKF By October of 2004, it became clear that the SKF/Environamics venture would not meet the $10 million sales target under the Buy-Sell Agreement. Appellants blamed this shortfall on SKF's failure to make sufficient effort to sell Environamics products, while SKF blamed it on weaker than expected market demand. At this point, SKF informed Appellants that it would not proceed with an acquisition under the Option Agreement. SKF claimed, however, that it had not cancelled the Option Agreement, and invoked its obligation to negotiate an extension to the option period. In addition, SKF offered to purchase Environamics on new terms, including a royalty for Appellants and a smaller up-front payment than the $9 million specified in the Option Agreement. Appellants rejected SKF's new offer in January of 2005. In addition, Rockwood told Richards that as far as the Appellants were concerned, the Option Agreement no longer exist[ed]. The parties continued to negotiate a possible acquisition by SKF throughout the next few months, during which time Rockwood repeatedly expressed Appellants' view that the Option Agreement was -7- no longer applicable. By the end of 2005, negotiations had broken down completely. In the spring of 2007, Wells Fargo declared Environamics to be in default on its loan. Environamics filed for bankruptcy protection in the Bankruptcy Court for the District of New Hampshire. In September of 2007, the Bankruptcy Court awarded control of Environamics to Wells Fargo. Appellants are now responsible for roughly $5 million in personal guarantees on the Wells Fargo loan. E. Procedural History In March of 2008, Appellants filed a 29-count complaint against SKF in the state court of New Hampshire. Appellants were initially represented by Marchosky, who is an attorney. SKF removed the action to the U.S. District Court for the District of New Hampshire. Appellants filed a First Amended Complaint and later a Second Amended Complaint. The Second Amended Complaint included a promissory estoppel claim, the thrust of which was that Appellants took out the Wells Fargo loan in reliance on two promises by SKF: (1) that SKF would exercise its option under the terms of the Option Agreement; and (2) that SKF would expend $10 million on its Environamics sales effort and put numerous sales people in the field. The Second Amended Complaint also included breach of contract claims and claims under New Hampshire's unfair trade practices statute. -8- On July 31, 2009, SKF filed a motion for summary judgment (the First Summary Judgment Motion). SKF argued, inter alia, that (1) there was no evidence of a promise by SKF to buy Environamics or to invest $10 million in the sales effort; (2) the alleged promises were unenforceable as a matter of law due to lack of specificity; and (3) Appellants could not have reasonably relied on the promises due to the lack of specificity and to the existence of written agreements covering the same subject matter. At a hearing on SKF's motion, the district court instructed the Appellants to file affidavits stating the time, place, and specific content of SKF's alleged promises. On November 2, 2009, Appellants both submitted affidavits (the First Summary Judgment Affidavits). These Affidavits described, among other things, the three telephone conversations with Richards that took place in or around April of 2004. According to Appellants, during these conversations, Richards told Appellants that: (1) they should not worry about taking out the Wells Fargo loan because SKF was buying their stock in Environamics under the Option Agreement; (2) SKF was going to exercise its option under the Option Agreement and buy the company; and (3) the president of SKF's service division, Don Poland, had confirmed . . . SKF would buy the company under the Option Agreement. The Affidavits also stated that Richards told Appellants on multiple occasions that SKF would invest $10 million in the effort to sell Environamics products. On November 3, 2009, -9- the district court denied SKF's First Summary Judgment Motion in a one-line order, stating that [f]acts material to the resolution of the motion remain in dispute. In July of 2010, Appellants, through new counsel, moved for leave to file a Third Amended Complaint in order to set forth a more detailed and thorough factual basis for their promissory estoppel claim. Appellants claimed that their new allegations were tied to the larger and more general promise, 'Don't worry, we are buying your company.' SKF objected to the proposed amendment as untimely, since discovery had already closed and the summary judgment deadline had already passed. SKF also argued that Appellants were judicially estopped from claiming a more general promise to buy Environamics because, in response to SKF's First Summary Judgment Motion, Appellants had characterized SKF's promise as a promise to buy Environamics on the terms of the Option Agreement. In response to SKF's objection, Appellants pledged that if they were allowed to amend their complaint, they would not pursue claims for breach of contract or that specifically arise in connection with the Option Agreement (emphasis added). Appellants also proposed that SKF be allowed to file a renewed summary judgment motion to challenge the new promissory estoppel theory. The district court granted Appellants' motion to amend in a written order on August 24, 2010. The court rejected SKF's judicial estoppel argument because it found that [i]t is not -10- logically impossible that SKF could have engaged in certain conduct toward the [Appellants] that caused them to believe it was buying their company under the Option Agreement, and other conduct toward the [Appellants] that caused them to believe SKF was buying their company on some other terms. However, as Appellants had suggested, the court permitted SKF to file a renewed summary judgment motion to challenge the new promissory estoppel theory. In addition, in a footnote, the court held that the promissory estoppel claim in the Third Amended Complaint no longer relies on SKF's alleged commitment to expend $10 million in a sales campaign for Environamics products . . . . Appellants did not object to any aspect of the district court's ruling. SKF filed its new motion for summary judgment (Second Summary Judgment Motion) on September 8, 2010. In support of their opposition to this motion, Rockwood and Marchosky again submitted affidavits (the Second Summary Judgment Affidavits). Both of these affidavits mentioned the phone calls with Richards in April of 2004. However, unlike the First Summary Judgment Affidavits, which stated that Richards promised that SKF would buy Environamics under the Option Agreement, the Second Summary Judgment Affidavits simply stated that Richards said that SKF had committed to buying Environamics. The Second Summary Judgment Affidavits gave no indication that the Option Agreement was discussed at all during the April 2004 calls. -11- The district court granted SKF's motion on December 17, 2010. See Rockwood v. SKF USA Inc., 758 F. Supp. 2d 44 (D.N.H. 2010). The court accepted, for present purposes, Appellants' claim that New Hampshire law applied to the case. Id. at 56. The court noted that in support of their motion for leave to file their Third Amended Complaint, Appellants had waived their theory that SKF promised to buy Environamics under the Option Agreement. Id. at 57. Thus, the court focused on Appellants' new theory, which was that SKF had promised to buy Environamics on some other, unspecified terms. The court held that under New Hampshire law, Appellants could not have relied on any promises expressed in SKF's words or conduct prior to the signing of the Option Agreement because any promises were superseded by the Option Agreement itself. Id. at 59-61. The court then addressed the Appellants' reliance on statements and conduct by SKF that occurred after the execution of the Option Agreement. First, the court considered Richards's alleged assurances during the April 2004 calls that SKF would buy Environamics. The court noted that the Appellants' Second Summary Judgment Affidavits advanced a different characterization of Richards's statements during the April 2004 calls than that offered in the First Summary Judgment Affidavits. The First Summary Judgment Affidavits claimed that Richards said that SKF would buy Environamics under the terms of the Option Agreement, while the Second Summary Judgment -12- Affidavits stated that Richards simply said SKF would buy Environamics, without specifying the terms. Since Appellants had relied on their earlier characterization of Richards's statements in order to defeat SKF's First Summary Judgment Motion, the court held that Appellants were judicially estopped from now claiming that Richards had conveyed a more general promise. Id. at 61-63. The court further held that even if judicial estoppel did not apply, Appellants could not rely on the contradiction between the First and Second Summary Judgment Affidavits in order to create a triable issue of fact regarding what Richards said. See id. at 63 ('[A] party opposing summary judgment may not manufacture a dispute of fact by contradicting his earlier sworn testimony without a satisfactory explanation of why the testimony has changed.' (quoting Abreu-Guzmán v. Ford, 241 F.3d 69, 74 (1st Cir. 2001))). Finally, the court held that Appellants could not reasonably have interpreted Richards's statements as anything other than a promise to buy Environamics under the Option Agreement, a theory that Appellants had waived. Id. at 63-64. The district court also rejected Appellants' argument that there was a triable issue of fact regarding whether SKF's business conduct manifested a promise to buy Environamics. Appellants contended that SKF usurp[ed] Environamics by using SKF sales personnel to sell Environamics products and by identifying Environamics products as SKF products in marketing materials. -13- However, the district court noted that the Buy-Sell Agreement contemplated exactly this type of relationship between SKF and Environamics. Id. at 64. Furthermore, the court noted that the Option Agreement was in place when SKF began selling Environamics products pursuant to the Buy-Sell Agreement. Therefore, the court held that even if Appellants could reasonably have interpreted SKF's conduct as conveying a promise, they could only have interpreted the promise as a promise to buy the company under the Option Agreement. However, the Appellants had waived this theory of the case when they filed their Third Amended Complaint. Id. at 64-65. The district court entered judgment in SKF's favor on December 21, 2010. This appeal followed.