Bros, Co v. Sprafkin ( 1993 )


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  • USCA1 Opinion









    September 27, 1993

    UNITED STATES COURT OF APPEALS
    FOR THE FIRST CIRCUIT


    No. 92-2293

    WHITNEY BROS. CO., ET AL.,
    Plaintiffs, Appellees,

    v.

    DAVID C. SPRAFKIN AND JOAN BARENHOLTZ,
    TRUSTEES OF THE BERNARD M. BARENHOLTZ TRUST, ET AL.,
    Defendants, Appellants.

    ____________________

    ERRATA SHEET


    The opinion of this Court issued on September 9, 1993, is
    amended as follows:

    Page 3, second complete paragraph, line 1, delete
    "defendant" and insert "Bernard Barenholtz's (and defendants')
    attorney, Samuel M."

    Page 3, second complete paragraph, line 2, delete "Bernard"
    and insert "Mr."

    Page 3, last line, substitute "first" for "third."

    Page 13, line 1-2, delete ", one of whom, ironically, was a
    director of Whitney Brothers,".


































    UNITED STATES COURT OF APPEALS
    FOR THE FIRST CIRCUIT
    ____________________

    No. 92-2293

    WHITNEY BROS. CO., ET AL.,

    Plaintiffs, Appellees,

    v.

    DAVID C. SPRAFKIN AND JOAN BARENHOLTZ,
    TRUSTEES OF THE BERNARD M. BARENHOLTZ TRUST, ET AL.

    Defendants, Appellants.

    ____________________

    APPEAL FROM THE UNITED STATES DISTRICT COURT

    FOR THE DISTRICT OF NEW HAMPSHIRE

    [Hon. Norman H. Stahl, U.S. District Judge]
    ___________________

    ____________________

    Before

    Torruella, Cyr and Boudin,

    Circuit Judges.
    ______________

    _____________________

    Richard B. Couser, with whom James P. Bassett, Cordell A.
    __________________ ________________ __________
    Johnston, Orr and Reno, P.A., and Samuel M. Sprafkin, were on
    ________ ___________________ ___________________
    brief for appellants.
    James R. Muirhead, with whom Peter D. Anderson, and McLane,
    _________________ _________________ _______
    Graf, Raulerson & Middleton, Professional Association, were on
    _______________________________________________________
    brief for appellees.



    ____________________

    September 9, 1993
    ____________________


















    TORRUELLA, Circuit Judge. Plaintiffs/appellees are
    ______________

    Whitney Brothers Company ("Whitney Brothers") and Griffin M.

    Stabler, Whitney Brothers' president, chief executive officer and

    director. Defendants/appellants, David C. Sprafkin and Joan

    Barenholtz, are the trustees of the Bernard M. Barenholtz Trust,

    Whitney Brothers' majority shareholder. Plaintiffs sued to

    compel defendants to sell their stock in Whitney Brothers

    pursuant to a written buy/sell contract.

    After two years of litigation, the district court

    ordered the sale at defendants' asking price. In the order, the

    district court also held that: (1) plaintiffs were entitled to

    prepay the promissory note bearing the sale price; (2) interest

    would begin to accrue when plaintiffs execute the note; and (3)

    plaintiffs were entitled to attorneys' fees. Defendants appealed

    only on the issues of prepayment and interest. Plaintiffs

    subsequently moved for attorneys' fees for this appeal. W e

    reverse the district court's judgment with respect to prepayment,

    affirm with respect to the accrual of interest, and deny

    plaintiffs' motion for attorneys' fees on this appeal.

    BACKGROUND
    BACKGROUND
    __________

    Whitney Brothers is a New Hampshire corporation that

    produces wooden learning materials. Bernard Barenholtz acquired

    62.6% of the company's outstanding shares in 1969. Ten years

    later, he transferred these shares to the Bernard M. Barenholtz

    Trust (the "Trust") and named himself and defendant David

    Sprafkin trustees. Plaintiff Griffin Stabler owns 32.7% of the


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    shares, and his son, David Stabler, owns the remaining 4.7%.

    On January 27, 1987, Whitney Brothers, the trustees,

    and Griffin Stabler executed a written buy/sell agreement. Under

    the agreement, Whitney Brothers would buy the Trust's shares

    within ninety days of the death of Bernard Barenholtz and buy

    Griffin Stabler's shares within ninety days of Stabler's death.

    To determine the purchase price, the parties would plug an

    agreed-upon appraisal into a formula to determine the purchase

    price. If the parties could not agree on an appraisal, they

    would each get their own and plug the average into the formula.

    The contract also provided for payment by a promissory note, with

    monthly installments over ten years at 10% interest per annum.

    The agreement did not mention whether prepayment of the note was

    permissible.

    On February 3, 1987, Bernard Barenholtz's (and

    defendants') attorney, Samuel M. Sprafkin wrote a letter (the

    "February 3 letter") advising Mr. Barenholtz that: (1) David

    Stabler, as a shareholder, should consent to the contract; (2)

    the promissory note should be prepayable without penalty; and (3)

    Article 4 of the contract should have an additional provision not

    relevant to this appeal. Plaintiffs contend, and the district

    court found, that after Bernard Barenholtz received the letter,

    the parties orally agreed to the prepayment provision.

    Barenholtz then placed the letter in a file with the written

    contract and David Stabler signed an addendum to the contract

    pursuant to Sprafkin's first suggestion.


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    When Bernard Barenholtz died, on August 5, 1989, his

    daughter, defendant Joan Barenholtz, assumed his trustee

    position. Whitney Bros. Co. v. Sprafkin, No. 90-054-S, at 4 (D.
    _________________ ________

    N.H. filed Sept. 30, 1992). A few days later, plaintiff Stabler

    and defendant Sprafkin discussed the contract's required stock

    sale. Id. One of the parties asked E.F. Greene to update a past
    ___

    appraisal of Whitney Brothers.1 Id. Sprafkin rejected Greene's
    ___

    appraisal; Whitney Brothers accepted it. Id. Relying on
    ___

    Greene's appraisal, Whitney Brothers tendered to defendants a

    prepayable promissory note for $1,178,000 for the stock (the

    "September 1989 Tender").2 Id. at 4-5.
    ___

    Instead of responding immediately, defendants secured a

    significantly higher appraisal from Alfred Schimmel. Id. They
    ___

    then rejected Whitney Brothers' tender by letter, without

    mentioning the note's prepayment clause. When Stabler learned of

    defendants' appraisal, he rejected it as too high.

    Ultimately, plaintiffs sued to compel the transfer of

    the stock. Ten months later, on December 13, 1990, as part of

    their cross-motion for summary judgment, plaintiffs offered to

    tender either $1,349,3433 immediately or, if the court found

    that the agreement did not permit prepayment, that amount over


    ____________________

    1 The parties disagree over who requested the update.

    2 Defendants contend that Stabler made the tender knowing that
    they did not accept Greene's appraisal and planned to obtain one
    of their own.

    3 This was the price calculated under the contract by plugging
    the average of the two appraisals into the formula.

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    ten years at 10% interest (the "December 1990 Tender").

    Defendants again rejected the tender. They now contend that they

    rejected it because: (1) it omitted $145,000 worth of interest

    that had accrued since November 3, 1989, 90 days after the death

    of Bernard Barenholtz; and (2) it was invalid because the first

    option permitted prepayment, and the second option was

    conditioned upon a court judgment that prepayment was prohibited.

    In response to the cross-motions for summary judgment,

    the district court: (1) ordered defendants to sell their stock;

    (2) found that plaintiffs were not entitled to prepay the note;

    and (3) decided to hold a trial on the issue of the stock's

    price. See Whitney Bros. Co. v. Sprafkin, No. 90-54-S (D.N.H.
    ______________________ ________

    filed June 5, 1991).

    After the trial, the court issued an order in which it:

    (1) required plaintiffs to pay $1,349,343 for the stock; (2)

    reconsidered and reversed, sua sponte, its previous order and
    __________

    ruled that plaintiffs could pay for the stock with a prepayable

    promissory note; (3) ruled that interest on the note would begin

    to accrue when it was executed, and not before; and (4) awarded

    attorneys' fees to plaintiffs based on defendants' bad faith

    conduct of the litigation. See Whitney Bros. Co. v. Sprafkin,
    ___ __________________ ________

    No. 90-054-S (D. N.H. filed Sept. 30, 1992). When the court

    entered judgment on the order the following day, the court also

    awarded prejudgment interest pursuant to N.H. Rev. Stat. Ann.

    524:1-b, "if appropriate." Whitney Bros. Co. v. Sprafkin,
    ______________ __________________ ________

    No. 1:90-cv-0054-S (D.N.H. filed Oct. 1, 1992) (emphasis added).


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    Defendants appeal on only two issues: (1) the

    prepayability of the note; and (2) the date from which interest

    accrues. In addition, plaintiffs request attorneys' fees for

    this appeal.

    DISCUSSION
    DISCUSSION
    __________

    I. PREPAYABILITY
    I. PREPAYABILITY

    Article 4 of the buy/sell contract provides:

    The purchase price . . . shall be paid
    ______________
    with a negotiable promissory note which
    _____
    shall provide for the payment of the
    ___________________
    purchase price in 10 years with interest
    at the rate of 10% per annum, principal
    and interest payable in 120 equal,
    consecutive monthly payments.

    (emphasis added). The agreement nowhere mentions prepayment of

    the proposed promissory note.

    At trial, the district court conditionally allowed

    evidence of a subsequent oral agreement permitting prepayment of

    the note. Ultimately, the court admitted the evidence, finding

    that it was not precluded by the parol evidence rule. In the

    same ruling, the court found that the parties indeed entered the

    alleged oral agreement.

    The court erred in finding the asserted oral agreement

    binding on the parties. Article 5 of the written buy/sell

    contract prohibits the parties from orally altering or amending

    the written contract.4 Under N.H. Rev. Stat. Ann. 382-A:2-

    ____________________

    4 Article 5 provides:

    This agreement may be altered, amended or
    terminated by a writing signed by all of
    the shareholders except David G. Stabler,

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    209(2), "[a] signed agreement which excludes modification or

    rescission except by a signed writing cannot be otherwise

    modified or rescinded. . . ." While an attempted modification

    can constitute a waiver, that waiver can be retracted absent "a

    material change of position in reliance on that waiver." N.H.

    Rev. Stat. Ann. 382-A: 2-209(4) and (5). Here, plaintiffs

    allege no alteration of their position in reliance on a

    prepayment provision. Thus, we can find no binding waiver of


    ____________________

    and the Corporation.

    Although the Article does not state in mandatory terms that
    alterations must be in writing, defendants argue that since
    ____
    agreements may always be altered by a writing signed by the
    parties, the Article must have been intended to exclude oral
    modifications. While we do not foreclose other purposes of this
    clause, we agree that the purport of the provision is to require
    that alterations be in writing.

    In addition, plaintiffs never countered defendants' argument
    that the Article precludes oral alterations and amendments to the
    contract. In response to this argument, plaintiffs, apparently
    characterizing the clause as an integration clause, argued that:
    (1) such a clause did not mandate a finding that the contract was
    totally integrated; (2) the contract was not a total integration;
    (3) the February 3 letter "contemplated an extra-contractual
    understanding about a term of the agreement," rather than a
    variation; and (4) therefore, since the court found an
    independent agreement, the court could find the note was
    prepayable. This argument ignores defendants' assertion that the
    clause prohibits oral alterations of the contract.

    At oral argument, when questioned about the prohibition,
    plaintiffs' counsel simply argued that the oral agreement was not
    a modification because the contract did not mention prepayment.
    Counsel did state that Article 5 "supposedly" precludes oral
    __________
    modification, suggesting a possible disagreement on that
    interpretation. However, since defendants raised Article 5 at
    the trial level, see Defendants' Objections to Plaintiffs' Cross-
    ___ ____________________________________________
    Motion for Summary Judgment at 11; Defendants' Post Trial Brief
    ___________________________ _____________________________
    at 44-45, and on appeal, Appellants' Brief at 17-19, 21 n.7, we
    _________________
    construe plaintiffs' failure to argue that the Article does not
    prohibit oral alteration as a concession that it does.

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    Article 5 by defendants.5 Plaintiffs contend that since the

    written contract says nothing about prepayment, a subsequent

    agreement to allow prepayment does not constitute an alteration

    or amendment under Article 5. Rather, they argue that the

    agreement was independent of the written contract. Apparently,

    the district court agreed. Although the court did not explicitly

    address Article 5, it did conclude that a prepayment provision

    "does not, by its terms, vary or contradict the terms of the

    Agreement. . . ." Whitney Bros. Co., No. 90-054-S (Sept. 30,
    __________________

    1992), at 13.6

    We review this determination de novo as it centers
    _______

    around the interpretation of the language of the written

    contract. See In Re SPM Mfg. Corp., 984 F.2d 1305, 1311 (1st
    ___ _____________________

    Cir. 1993) (de novo review of bankruptcy court's interpretation
    _______

    of unambiguous contract); Hermes Automation Technology, Inc. v.
    ___________________________________

    Hyundai Elec. Ind., 915 F.2d 739, 745 (1st Cir. 1990)
    ____________________

    (interpretation of plain language of release agreement was

    question of law warranting de novo review).
    _______

    On review, we find that the district court erred in its




    ____________________

    5 We apply 2-209 by analogy. Although that section does not
    apply to the sale of securities, the purpose behind the rule --
    "to protect against false allegations of oral modifications" --
    equally applies to these contracts. See 2-209, comment 3.
    ___

    6 This finding reversed the district court's first order which
    found that "[t]he prepayment term is inconsistent with the plain
    meaning of the Agreement, which clearly provides for payment over
    a period of years." Whitney Bros. Co,, No. 90-54-S (June 5,
    _________________
    1991), at 16-17.

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    determination.7 The written buy/sell contract provision

    regarding payment expressly contemplates payment over ten years

    at 10% interest. If plaintiffs prepay the note, they will avoid

    paying the 10% interest and thereby deviate from an express

    provision of the contract. Moreover, 10% interest over ten years

    amounts to a significant percentage of the contract price. Since

    prepayment would substantially alter the parties' financial

    positions under the contract, an agreement to permit prepayment

    constitutes an alteration under Article 5.

    Furthermore, although the New Hampshire Supreme Court

    has never encountered this precise issue, recent holdings from

    that court support our conclusion. In DeCato Brothers, Inc. v.
    ______________________

    Westinghouse Credit Corp., 529 A.2d 952, 956 (N.H. 1987), the
    __________________________

    court stated, "generally, absent manifest injustice, an

    instrument is payable in full according to its tenor, and the

    maker has no right to prepay in the absence of an express

    provision providing for prepayment." Later, in Patterson v.
    _________

    Tirollo, 133 581 A.2d 74, 77 (N.H. 1990) (quoting Fuller
    _______ ______

    Enterprises v. Manchester Sav. Bank, 152 A.2d 179, 181 (N.H.
    ___________ _____________________

    1959)), the court reaffirmed that "the law is clear in New

    Hampshire that negotiable instruments are 'payable at the time

    fixed therein,' and in the absence of an express provision that a

    mortgagor is entitled to prepay his or her note, the mortgagor

    has no legal rightto pay the debt inadvance of the maturitydate."

    ____________________

    7 We note that our analysis would not change under a more
    deferential standard of review as we find that the court clearly
    erred in this determination.

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    Although these cases involve actual promissory notes,

    rather than agreements to make promissory notes, by finding

    prepayment precluded in the absence of a specific provision

    authorizing it, the New Hampshire Supreme Court demonstrated a

    belief that prepayment significantly alters the rights of the

    parties involved.

    Finally, plaintiffs' last-ditch argument, that

    Sprafkin's February 3 letter constitutes a sufficient writing,

    needs little deliberation.8 Sprafkin wrote the letter to

    Barenholtz. Thus, it cannot be construed, as plaintiffs propose,

    as a written offer which plaintiffs were entitled to accept

    orally.

    Because Article 5 of the contract precludes plaintiffs'

    asserted oral agreement, the district court erred in finding the

    note prepayable.9

    II. INTEREST
    II. INTEREST

    Defendants next assign error to the district court's


    ____________________

    8 Plaintiffs did not make this argument in response to
    defendants' Article 5 argument. They made the argument as a
    response to defendants' invocation of the statute of frauds.
    However, we address the issue to alleviate any doubts that the
    argument might have assisted them against the Article 5
    prohibition.

    9 Plaintiffs stress on appeal the district court's finding that
    the parties formed the oral agreement after executing the written
    _____
    contract, and they have not challenged this finding.
    Additionally, they specifically argued to this court that "the
    evidence Plaintiffs offered was to prove a subsequent agreement .
    __________
    . ." (Plaintiffs-Appellees' Brief at 29). Thus, we need not
    address defendants' alternative arguments that the oral agreement
    could not bind them if it had been formed before or at the time
    of the written contract.

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    determination that interest will not accrue until plaintiffs

    execute the promissory note. They offer two principal arguments

    to support this proposition.

    First, defendants find their entitlement to prejudgment

    interest in N.H. Rev. Stat. Ann. 524:1-b (1992). Under that

    section, when a party wins pecuniary damages, he is entitled to

    prejudgment interest on the award. Defendants argue that by

    finding the stock's purchase price to be that advocated by

    defendants, the court granted them pecuniary damages. Defendants

    were not awarded pecuniary damages, however. Rather, plaintiffs

    were awarded specific performance of the contract at the price

    that the court found stipulated in their cross-motion for summary

    judgment. In its second order, the district court reconsidered

    its summary judgment ruling and determined that since plaintiffs

    offered to pay defendants' advocated price at the time, the court

    should have ordered the sale at that price. Thus, the court

    granted plaintiffs' cross-motion for summary judgment to the

    extent that it sought to compel defendants to sell the stock at

    defendants' price. See Whitney Bros. Co., No. 90-054-S (Sept.
    ___ __________________

    30, 1992), at 10-11. Indeed, the court specifically referred to

    plaintiffs as "prevailing parties." Id. at 19.10 Thus,
    ___

    524:1-b provides no basis for awarding defendants prejudgment


    ____________________

    10 In light of the court's conclusion that the appraisal used to
    calculate defendants' advocated price lacked factual foundation,
    see Whitney Bros. Co., No. 90-054-S (Sept. 30, 1992), at 21, the
    ___ _________________
    court's statement that "the price of the securities . . . is
    $1,349,343" does not convince us that the court believed that to
    be the price contemplated by the contract.

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    interest.11

    Second, defendants argue that plaintiffs owe them

    interest under the written contract, beginning November 3, 1989,

    90 days after the death of Bernard Barenholtz. The theory is

    that plaintiffs never made a valid tender within the required 90

    days, and therefore defendants deserve the interest that accrued

    from that date. See Lancaster Development Corp. v. Kattar, 262
    ___ ___________________________ ______

    A.2d 278, 280-81 (N.H. 1970) (where plaintiff was ready, willing

    and able to perform, and defendant made faulty tender, plaintiff

    was not responsible for interest accruing from the contracted

    date of sale). Specifically, defendants claim that plaintiffs'

    September 1989 tender was invalid because: (1) the note was

    $170,000 less than the defendants' advocated purchase price; and

    (2) the note contained a prepayment provision.

    We cannot conclude that defendants are entitled to

    interest under the agreement based on the September 1989 tender.

    With respect to the purchase price, defendants failed to tell

    plaintiffs their requested price within the prescribed ninety

    days. Moreover, the district court specifically determined that

    the appraisal on which their price was based was so lacking in

    ____________________

    11 Defendants' assertion that the court's judgment which ordered
    "prejudgment interest pursuant to NH RSA 524:1-b, if appropriate
    ______________
    . . . " (emphasis added) was a judgment for interest in their
    favor that had to be appealed by plaintiff, lacks merit. As the
    court's opinion did not indicate a belief that it was awarding
    defendants damages by granting plaintiffs' cross-motion for
    summary judgment, we cannot construe the court's reference to the
    statute as an award of interest for defendants. Moreover, the
    award specifically ordered prejudgment interest only if
    appropriate. As we explained above, such interest would be
    inappropriate here.

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    factual foundation that it should not have even been admitted at

    trial. That plaintiffs later acquiesced to defendants' price in

    order to end this disturbing litigation does not require a

    finding that they were wrong to make their initial offer at the

    time they made it.

    Similarly, although we found that plaintiffs were not

    entitled to prepay the note, we are not convinced that the

    prepayment provision of the September 1989 tender rendered the

    tender faulty at the time it was made. The record reveals no

    evidence that defendants complained of the prepayment clause

    before June 29, 1990, nine months after the tender. They cannot

    now claim that the prepayment provision in the September 1989

    tender stalled the sale. Cf. Elliott v. Dew, 212 S.E.2d 421
    ___ _______ ___

    (S.C. 1975) (if defect in tender not objected to when tender is

    made, cannot use defect to prevent performance of contract).

    Moreover, defendants, consistently complained that

    Whitney Brothers could not afford the purchase. (The district

    court later found that the evidence amply supported a finding to

    the contrary). Yet, at the same time, defendants demanded what

    the district court found to be a trumped-up price. This suggests

    that defendants were attempting to hamper the sale that the

    contract required. Thus, even assuming plaintiffs' tender was

    somehow faulty, as defendants were not willing to perform at the

    time, they are not entitled to interest. Cf. Platsis v.
    ___ _______

    Diafokeris, 511 A.2d 535 (Md. App. 1986) (faulty tender does not
    __________

    trigger accrual of interest if clear that only excessive amount


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    would be accepted).

    Finally, as defendants were not entitled to interest

    beginning November 3, their refusal to accept the December 1990

    tender because it failed to include such interest precludes the

    accrual of interest from that time. In addition, defendants'

    parenthetical argument that the December 1990 tender was faulty

    because it was conditional also fails. When the district court

    determined that prepayment was prohibited, the tender became

    unconditional. Yet, defendants still refused to accept it

    without interest running from November 3. Again, defendants were

    at no time willing to perform. Accordingly, we affirm the

    district court's decision that interest should begin to accrue

    when the note is executed.

    III. ATTORNEYS' FEES
    III. ATTORNEYS' FEES

    As defendants won their appeal with respect to

    prepayment, plaintiffs are not entitled to attorneys' fees for

    that issue. In addition, although defendants' arguments with

    respect to interest were unconvincing, we do not find that they

    went "against the overwhelming weight of precedent," that

    defendants "could set forth no facts to support [their]

    position," or that "there simply was no legitimate basis for

    pursuing an appeal." See Kowalski v. Gagne, 914 F.2d 299, 309
    ___ ________ _____

    (1st Cir. 1990). Accordingly, we deny plaintiffs' motion for

    attorneys' fees.

    Finally, plaintiffs request a finding that if we affirm

    the district court's judgment, defendants may not appeal their


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    motion under Fed. R. Civ. P. 59(e) to alter the judgment with

    respect to fees. Plaintiffs cite no cases that would justify

    such a finding. Thus, we decline to make such a finding or

    otherwise consider the issue of the award of attorneys' fees by

    the district court.

    Affirmed in part; reversed in part. Motion for
    _______________________________________________________

    attorneys' fees in this court denied.
    ____________________________________








































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