WHITECAP MARKETING, INC. VS. IMS TRADING, CORP. (L-5128-17, BERGEN COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3461-19
WHITECAP MARKETING, INC.,
Plaintiff-Appellant,
v.
IMS TRADING, CORP.,
Defendant,
and
IMS TRADING, LLC, and
CENTRAL GARDEN & PET CO.,
Defendants-Respondents.
Argued October 28, 2021 – Decided December 29, 2021
Before Judges Alvarez and Mitterhoff.
On appeal from the Superior Court of New Jersey, Law
Division, Bergen County, Docket No. L-5128-17.
David O. Marcus argued the cause for appellant
(Shapiro, Croland, Reiser, Apfel & Di Iorio, LLP,
attorneys; David O. Marcus, on the briefs).
Linda G. Harvey argued the cause for respondents
(Greenberg Dauber Epstein & Tucker, PC, attorneys;
Linda G. Harvey and Kathryn B. Hein, on the brief).
PER CURIAM
Plaintiff Whitecap Marketing, Inc. appeals the grant of summary judgment
to defendants IMS Trading LLC (Trading LLC) and Central Garden & Pet
Company (Central). Whitecap does not appeal the earlier dismissal of IMS
Trading Corp., a third defendant. We vacate the grant of summary judgment to
Trading LLC and Central and remand for further proceedings.
Whitecap began providing sales and marketing services to IMS Trading
Corp., a dog chew manufacturer, in 1998. In 2008, the parties agreed in writing
to expand Whitecap's responsibilities to include IMS Trading Corp.'s grocery
store sales. The fee schedule attached to the 2008 agreement specified Whitecap
would be paid a three percent commission, and four percent for two specific
customers. The 2008 fee schedule was amended in 2009, 2010, and 2012 , and
the commissions ranged from three to six percent. The 2012 amendment,
however, set the fees for two specific customers at two percent.
Between 2008 and 2015, IMS Trading Corp.'s annual grocery sales
increased from approximately $200,000 to $12,000,000. On July 13, 20 15,
Whitecap secured a major contract for IMS Trading Corp. with Delhaize, a
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management company for two major grocery store chains, effective through
November 30, 2017.
In 2015, Central, which operated its own dog chew businesses, formed a
subsidiary—Trading LLC—in order to purchase IMS Trading Corp.'s assets.
The asset purchase agreement (APA), signed on April 30, 2015, provided that
Trading LLC would purchase substantially all of IMS Trading Corp.'s corporate
assets, but only certain specified liabilities. Trading LLC assumed the accounts
payable, accrued expenses, and the lease for IMS Trading Corp.'s Wood Ridge
facility, but did not agree to assume IMS Trading Corp.'s contract with
Whitecap. The APA stated that Trading LLC was not "bound by any [of IMS
Trading Corp.'s] agreement[s], contract[s] or other commitment[s]."
The acquisition closed on July 31, 2015. IMS Trading Corp., now known
as BGG Corporation, retained some assets and liabilities and continued making
corporate filings in New York and New Jersey. IMS Trading Corp. also
continued actively defending itself in a class action products liability suit, which
settled in 2019. It remained registered as an active New York corporation as of
September 10, 2019.
Sam Blachorsky, IMS Trading Corp.'s president, testified at his deposition
that after the APA, "there were no assets of [IMS Trading Corp.] other than what
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we put in to pay some bills." He further stated that the company's business
activities only included winding down a lawsuit, and that he planned to then
close it down.
After July 31, 2015, one of Whitecap's owners, David Kofsky, met with
Central's Chief Executive Officer, Glen Axelrod. Kofsky alleges Axelrod said
he "expected to have business as usual[.]" But defendants contend they
explained they were only agreeing to temporarily continue working with
Whitecap until they decided whether to maintain the sales relationship at all. In
August and September, Trading LLC paid Whitecap commission fees in
accordance with the 2008 agreement as amended.
In October 2015, Trading LLC proposed an "amendment" (proposal) to
"their prior agreement" with Whitecap that would reduce commissions for all
customer accounts to two percent and allow either party to terminate the
arrangement with thirty days' written notice. Whitecap counter-proposed an
average fee of three percent, which Trading LLC declined.
Trading LLC moved its headquarters to Neptune and began operating as
a single "business unit" with Central's two other dog chew companies.
Executive officers from Central's other dog chew companies managed Trading
LLC, but, Blachorsky stayed on as Trading LLC's president.
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Trading LLC's operations continued from the Wood Ridge facility
acquired in the APA, while warehouse operations for Trading LLC and Central's
other dog chew companies moved in March 2017 to Monroe Township after
Central completed construction of a new facility. After the acquisition, sixty-
two former IMS Trading Corp. employees—mostly warehouse workers—
continued working for Trading LLC. By June 2019, only eighteen remained,
still mostly warehouse workers. Additionally, most of the IMS Trading Corp.
employees at a facility in Mexico stayed on with Trading LLC. Central's internal
sales staff began handling some of Trading LLC's customer accounts.
Trading LLC personnel informed customers about the APA in writing, by
phone, and in person. Blachorsky assured a Costco representative via email that
there would "be no changes in how IMS operates" despite the sale. A top
executive at Trading LLC circulated an internal memo listing talking points for
explaining the transition to customers that contained the language "[IMS
Trading Corp.] has recently been acquired by [Central.]" Trading LLC initially
told customers it had no plans to discontinue any product lines or raise prices.
However, Trading LLC eventually designed new product packaging, chose some
new vendors, acquired new equipment, and added ten new products to IMS
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Trading Corp.'s old product line. According to Axelrod, "[t]here [wasn't] much
about the business that didn't change, with the exception of the brand name."
Meanwhile, Whitecap continued to market Trading LLC's products, and
Trading LLC paid only two percent commissions for the remainder of their
business relationship. On December 23, 2015, after receiving the October
commission payment, Whitecap wrote to Central to request fees in line with the
amended 2008 agreement and the rates Central paid for August and September.
On February 16, 2016, Whitecap again emailed objecting to the two percent
payments, but continued working with Trading LLC. Whitecap accepted the
payments "without prejudice[,]" retaining its right to seek full payment. In April
2017, Trading LLC terminated its working relationship with Whitecap.
Whitecap alleges Trading LLC underpaid commissions by $285,855
between October 2015 and April 2017. Trading LLC paid no commissions at
all for sales under the Delhaize contract after April 30, 2017.
In a twenty-two-page statement of reasons, the court explained its decision
granting summary judgment to Trading LLC and Central. To summarize, the
judge concluded no reasonable factfinder could view payment of two percent
commissions or termination of the business relationship with thirty days' notice
as a breach of contract. Instead, the court held there was no breach of contract,
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in part because defendants acted in accordance with the terms of the October
2015 proposal. The judge also rejected Whitecap's claim for quantum meruit
damages, opining that Whitecap voluntarily continued to perform services for
Trading LLC for eighteen months despite knowing Trading LLC would pay only
two percent. Thus, she concluded Whitecap could not "establish it had a
reasonable expectation of different compensation for those services."
On appeal, Whitecap raises the following points:
POINT I
THE TRIAL COURT'S AWARD OF SUMMARY
JUDGMENT TO DEFENDANTS [CENTRAL] AND
[TRADING LLC] WAS IMPROPER.
A. The Trial Court Erroneously Found that No Issue
of Fact Exists as to Whether or Not the 2008
Representative Agreement was Breached by the
Defendants.
B. Disputed Issues of Fact Exist as to Whether or not
Defendants Assumed the Contract with Whitecap.
C. Disputed Issues of Fact Exist as to Whether or not
[Trading LLC] is Liable Under the Agreement as the
Successor to IMS [Trading] Corp[.]
D. The Court Erroneously Dismissed the Claim of
Whitecap for Recovery of Commissions that [Trading
LLC] was Obligated to Pay for Services Whitecap
Provided to [Trading LLC] Under the Contract Before
Whitecap's Termination.
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E. The Trial Court Erred in Granting Summary
Judgment Dismissing Whitecap's Claim for Payment of
Commissions for Sales Achieved Under the 2015 and
2017 Delhaize Requirements Contracts[.]
F. The Trial Court Improperly Awarded Summary
Judgment Dismissing [Whitecap's] Quantum Meruit
Claim.
I.
Summary judgment is appropriate when "the pleadings, depositions,
answers to interrogatories and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact challenged and
that the moving party is entitled to a judgment or order as a matter of law." Brill
v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 528-29 (1995) (quoting R. 4:46-
2(c)). Disputed facts "of an insubstantial nature" cannot defeat a summary
judgment motion. Ibid. (quoting Judson v. Peoples Bank & Tr. Co., 17 N.J. 67,
75 (1954)). A genuine issue of material fact exists when "the competent
evidential materials presented, when viewed in the light most favorable to the
non-moving party, are sufficient to permit a rational factfinder to resolve the
alleged disputed issue in favor of the non-moving party." Id. at 540. Appellate
courts review summary judgment rulings de novo. Conley v. Guerrero, 228 N.J.
339, 346 (2017). We conclude a "rational factfinder" could decide defendants
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were obligated to honor the terms of the 2008 agreement under a successor
liability theory and that defendants breached their responsibilities.
A plaintiff suing for breach of contract must prove, among other things,
that the parties entered into a contract. Globe Motor Co. v. Igdalev, 225 N.J.
469, 482 (2016). It is undisputed that Trading LLC never expressly assumed
the 2008 contract. Indeed, they specifically declined to enter into any written
agreement with Whitecap. But, the continuing relationship between the parties
may have created a legally enforceable implied-in-fact contract. See St.
Barnabas Med. Ctr. v. Cnty. of Essex, 111 N.J. 67, 77 (1988); see also Skuse v.
Pfizer, Inc., 244 N.J. 30, 72 (2020) ("[W]ords or conduct can sometimes
manifest assent and create an implied-in-fact contract.").
"Whether the parties acted in a manner sufficient to create implied
contractual terms is a question of fact generally precluding summary judgment."
Troy v. Rutgers, 168 N.J. 354, 366 (2001). Both parties rely on out-of-state law
in support of their respective positions, which can be persuasive although not
binding. See Ehrlich v. Sorokin, 451 N.J. Super. 119, 131 (App. Div. 2017);
Sulcov v. 2100 Linwood Owners, 303 N.J. Super. 13, 30 (App. Div. 1997)
("Absent New Jersey precedent, it is appropriate to look to out-of-state cases for
guidance.").
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Central's assumption of some of IMS Trading Corp.'s liabilities does not
necessarily imply it assumed all of them. But a reasonable factfinder could
conclude Central's business dealings with Whitecap created a contractual
relationship. Whitecap worked at the prior commission rate for two months after
the sale. Whitecap then worked for Trading LLC until April 2017 under protest.
Whitecap further alleges that defendants promised that business would continue
as usual, and that the October 2015 proposal itself suggests the parties had a
prior agreement, since Trading LLC characterized it as an amendment.
Clearly, defendants did not include the 2008 agreement in the APA. But
Whitecap and Trading LLC developed a relationship after the APA closed.
Whitecap, of course, was not a party to the APA. Defendants continued to
operate under the terms of the 2008 agreement for two months, began utilizing
Whitecap's services immediately upon taking control of the assets, and
characterized their October 2015 proposal as an amendment to a prior
agreement. A reasonable factfinder could conclude defendants impliedly
assumed the 2008 agreement.
II.
Generally, "when a company sells its assets to another company, the
acquiring company is not liable for the debts and liabilities of the selling
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company simply because it has succeeded to the ownership of the assets of the
seller." Lefever v. K.P. Hovnanian Enters., 160 N.J. 307, 310 (1999). There are
three relevant exceptions: "(1) the successor expressly or impliedly assumes the
predecessor's liabilities; (2) there is an actual or de facto consolidation or merger
of the seller and the purchaser; [or] (3) the purchasing company is a mere
continuation of the seller[.]" Ibid. As a "necessary predicate to a finding of
successor liability[,]" the successor company must acquire "all or substantially
all" the predecessor's assets. 160 W. Broadway Assocs., LP v. 1 Mem'l Drive,
LLC, 466 N.J. Super. 600, 613 (App. Div. 2021).
A reasonable factfinder could decide that a de facto merger or "mere
continuation" occurred here. The de facto merger and mere continuation
exceptions "tend to overlap," and so "are often treated in unison." Woodrick v.
Jack J. Burke Real Est., 306 N.J. Super. 61, 73 (App. Div. 1997). Courts assess
four factors when determining whether these exceptions apply:
(i) continuity of management, personnel, physical
location, assets, and general business operations; (ii) a
cessation of ordinary business and dissolution of the
predecessor as soon as practically and legally possible;
(iii) assumption by the successor of the liabilities
ordinarily necessary for the uninterrupted continuation
of the business of the predecessor; and (iv) continuity
of ownership/shareholders.
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[160 W. Broadway Assocs., LP, 466 N.J. Super. at
611.]
"Not all of these factors need be present for a de facto merger or
continuation to have occurred." Woodrick, 306 N.J. Super. at 74 (quoting
Luxliner P.L. Exp. Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 73 (3d Cir. 1993)).
Continuation occurs "where the facts show that the intent was for the successor
to assume all the benefits and burdens of the predecessor's business, with the
successor becoming a 'new hat' for the predecessor." Ibid. Further, "a corporate
successor [cannot] avoid liability by simply structuring a cash-for-assets sale [as
opposed to acquiring the entire company]." Id. at 76. But "successor liability
does not impose responsibility based on incidental use of a predecessor's name
or for fostering the continued use of the product." Saez v. S & S Corrugated
Paper Mach. Co., 302 N.J. Super. 545, 554 (App. Div. 1997).
In Woodrick, for example, one real estate agency purchased the assets and
"a significant portion, if not all, of the liabilities necessary for the continuation
of the business" of another. 306 N.J. Super. at 67. The predecessor agency was
left a "shell corporation with no ability to pay debts" and ceased to exist "by
virtue of the transfer[.]" Id. at 76. Nearly all employees began working for the
successor, and one of the predecessor's key executives became an officer of the
successor where he managed the "operations that he sold to" the successor. Id.
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at 76-77. The plaintiff sought to recover from the successor based on an
agreement with the predecessor. Ibid. The court affirmed summary judgment
for the plaintiff, finding a de facto merger and mere continuation because "it
[was] evident from the structure of the deal that it was the intent of [the
successor] to absorb and continue the operation of [the predecessor]." Id. at 76.
Whitecap contends that a genuine question of material fact exists as to
whether the APA was a de facto merger or mere continuation of IMS Trading
Corp. The names of the two companies are similar, Blachorsky became Trading
LLC's president, many IMS Trading Corp. employees stayed on with Trading
LLC, and Trading LLC remained at IMS Trading Corp.'s Wood Ridge facility
for twenty months after the purchase. Furthermore, Central continues to
manufacture the same product lines and sell those same products to many of the
same customers.
In contrast, IMS Trading Corp. is now merely a shell that exists only to
wrap up ongoing litigation. Thus, Whitecap argues, as in Woodrick, defendants
planned to "absorb and continue" IMS Trading Corp.'s operations.
Defendants counter that IMS Trading Corp. still exists and shares no
common ownership. They argue that IMS Trading Corp. is dissimilar and not a
continuation of their current operation because Central's employees took over
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management of Trading LLC, Central incorporated Trading LLC into a single
business unit with its other dog chew companies, only eighteen IMS Trading
Corp. employees remained with Trading LLC as of 2019, defendants
immediately began carrying out plans to build and move to a new facility,
defendants informed customers of the change in ownership, and ultimately
began changing Trading LLC's products and offerings.
IMS Trading Corp. did not continue to operate after selling its assets and
did not compete with defendants in the dog chew business market. There simply
is no evidence in this record that IMS Trading Corp. continued to engage in any
day-to-day business activities—rather, it continued to exist only to resolve a
lawsuit.
These facts and circumstances establish disputes that can only be decided
at trial, not summary judgment. This record simply cannot confirm whether
there was a de facto merger, a mere continuation, or a simple asset purchase.
III.
Whitecap asserts defendants underpaid commission fees and improperly
terminated the business relationship. Clearly, beginning in October 2015, the
parties disagreed about terms. Whitecap consistently objected to the two percent
payments and demanded payment commensurate with the prior 2008 agreement.
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Whitecap also appeals the court's finding that Trading LLC did not breach a
contract when it terminated the relationship, insisting it never accepted the terms
of defendants' October 2015 proposal.
In response, defendants contend that this issue was not raised to the trial
court. However, it is subsumed in Whitecap's breach of contract argument and
is simply a way of parsing out consideration of that question.
Whitecap further contends it is entitled to commissions on the continuing
Delhaize sales because it was a requirements contract, and therefore all sales
were ultimately attributable to Whitecap's efforts. With regard to Delhaize,
Whitecap may be entitled to collect commissions pursuant to the 2008
agreement with IMS Trading Corp. Viewing the facts in the light most favorable
to Whitecap, if a factfinder concluded the parties' ongoing business relationships
were controlled by the 2008 agreement, then that factfinder could also conclude
Whitecap was entitled to post-termination commissions for business it
developed for defendants.
IV.
"Quantum meruit is a form of quasi-contractual recovery and 'rests on the
equitable principle that a person shall not be allowed to enrich himself unjustly
at the expense of another.'" Starkey v. Est. of Nicolaysen, 172 N.J. 60, 68 (2002)
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(quoting Weichert Co. Realtors v. Ryan, 128 N.J. 427, 437 (1992)). "To recover
under a theory of quantum meruit, a plaintiff must establish: '(1) the performance
of services in good faith, (2) the acceptance of the services by the person to
whom they are rendered, (3) an expectation of compensation therefor, and (4)
the reasonable value of the services.'" Ibid. (quoting Longo v. Shore & Reich,
Ltd., 25 F.3d 94, 98 (2d Cir. 1994)).
Whitecap certainly knew defendants never thought Whitecap was entitled
to anything more than two percent commissions. However, defendants
continued working with Whitecap, despite knowing that Whitecap viewed itself
as legally entitled to a higher rate of commission. Whitecap served defendants
in good faith, and defendants accepted those services. The remaining question
is whether the reasonable value of those services was higher or lower than two
percent. A reasonable factfinder could conclude either way. Summary
judgment should not have been granted on this point either.
Any arguments we have not addressed do not warrant discussion in a
written opinion. See R. 2:11-3(e)(1)(E).
Reversed and remanded.
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