Opinion
NO. 2012-CV-00037
02-12-2015
Brockway Smith, Inc. v. WH Silverstein, Inc. and Traditional Living Inc. Traditional Living, Inc. v. WHS Homes, Inc.
ORDER
This case is a breach of contract dispute between Traditional Living Inc. ("TLI") and WHS Homes, Inc. ("WHS") involving an asset purchase agreement ("APA") and several leases executed by the parties. WHS filed a Motion for Summary Judgment alleging that under the APA, WHS was permitted to choose among $1.7 million of liabilities owed by TLI which it would assume as part of the purchase and that "Assumed Liabilities" under the APA included executory contracts which TLI had entered into. The Court denied the Motion for Summary Judgment in an order dated June 13, 2013, finding that the APA was ambiguous in defining "Assumed Liabilities". Now, based on deposition testimony of the 100% shareholder of TLI, Tod Schweizer ("Scweizer"), WHS renews its Motion. For the reasons stated in this Order, the Motion is DENIED.
TLI has also filed Motions seeking sanctions and other remedies for what it alleges are discovery abuse. From the responsive pleadings it appears that some of the disputes have been resolved. The Clerk shall schedule a prompt hearing on the Motions, which may be by teleconference if the parties wish. Prior to the teleconference, the parties shall meet and confer and provide the Court with a written submission outlining what disputes remain to be resolved.
I
The prior summary judgment motion can be succinctly summarized. Section 1.2 of the APA executed by the parties provides, in relevant part:
1.2 Assumption of Liabilities. At the Closing, Buyer will assume only the following liabilities ("the Assumed Liabilities"):(WHS's Renewed Mot. Summ. J. Ex. 1 at 2 (emphasis in original)). At the time of the closing, according to WHS, liabilities existed in certain categories: 1.2(a) Trade Payables $1,831,032.07; 1.2(b) Customer Contracts $1,270,789.28; and 1.2(c) Employee Vacation Time $119,840.61. (WHS's Mot. Summ. J. 3).
(a) Liabilities reflected on the balance sheet (and schedules) of Seller attached as Exhibit A hereto (the "Closing Balance Sheet");
(b) Liabilities of Seller under the Assumed Contracts, including warranty issues, but excluding any obligations for pre-Closing default or breach by Seller for which Seller shall remain liable; and
(c) Liabilities of Seller for vacation time accrued by the Seller Employees (as defined in Section 2.12) and not yet used as of the Closing Date, but only to the extent such amounts are set forth on Schedule 2.13(a).
The total amount of the Assumed Liabilities shall not exceed One Million Seven Hundred Thousand Dollars ($1,700,000). Buyer expressly shall not assume, or be responsible for, any other liabilities or obligations of Seller or Stockholder, whether actual or contingent, matured or unmatured, known or unknown, and whether arising out of occurrences prior to, at or after the Closing (the "Excluded Liabilities").
WHS maintains that it fulfilled its obligations under the APA when it assumed $2,208,449.57 of liabilities—some $500,000 more than it was required to pay. Specifically, WHS asserts that it:
[A]ssumed all of the existing TLI customer contracts (Item 1.2 (b)), and all of the employee vacation time (Item 1.2 (c)). It selectively assumed and paid trade payables, according to whether the relationship would be useful in WHS' ongoing business or the deliverables from the vendor were necessary to complete a TLI project which WHS had committed to complete.(WHS's Mot. Summ. J. TLI Cross-cl. 6).
TLI objected to WHS's initial Motion for Summary Judgment on two grounds. First, TLI argued that the parties understood that liabilities under the APA related to trade payables, and not customer contracts. It also argued that the deposits on customer contracts that WHS assumed should not count toward the $1.7 million cap on "Assumed Liabilities" because those deposits may never be refunded and would likely turn into revenue as contracts were fulfilled.
Second, TLI argued that the term "Assumed Liabilities" is ambiguous because: (1) the balance sheet referred to in Section 1.2(a) was not attached to the APA and WHS submitted two different documents purporting to be the balance sheet; and (2) the term "liability" could refer to an "accounting liability, a legal liability, or a common sense understanding of the term." (Surreply to Mot. Summ. J. 3). WHS, on the other hand, argues that the term "Assumed Liabilities" is not ambiguous because: (1) the two different balance sheets are consistent; and (2) the term "Assumed Liabilities" has a definite and precise meaning under the APA and according to relevant accounting authority.
In June, 2013, after considering all the facts and circumstances surrounding the contract and the language of the contract, the Court found that the term "Assumed Liabilities" was ambiguous, and therefore found that there was a genuine issue of material fact which precluded summary judgment for WHS. (Order, June 13, 2013 at 6- 11). WHS's Renewed Motion for Summary Judgment is based entirely on the October 28, 2014 deposition of Schweizer, the 100% shareholder of TLI, in which he stated that under the APA he understood that it was up to WHS to decide which of the categories of liabilities, including the customer contracts, he could apply the assumption of liabilities provision of the APA to. (Renewed Mot. Summ. J. 3). In other words, WHS takes the position that Schweizer's testimony was an admission that the customer contracts are "Assumed Liabilities" under the APA and that there is therefore no genuine issue of material fact, so that it is entitled to summary judgment.
TLI objects and points out that during the same deposition, Schweizer testified that non-refunded customer deposits were not considered liabilities because they would be eventually converted to cash. (Obj. to Renewed Mot. Summ. J. 5 (citing Schweitzer deposition at 62:5-14)). Moreover, Schweizer amended his deposition to make it clear that his answer indicating that WHS could determine what categories of liabilities the 1.7 million credit could be applied to was "focus[ed] on the vendor liabilities". (Obj. to Mot. for Summ. Judg. 5-6).
WHS argues that the Court should not consider the change to the deposition, because "unlike FRCP 30(e) (1) (B) which allows "changes in substance" through the subsequent review, Superior Court Rule 26(f) only allows errors to be noted and specifically prohibits changes or alterations". (Reply to Obj. to Renewed Mot. Summ. J. 3). The Court disagrees.
II
Federal law regarding substantive changes to depositions is not pristine. FRCP 30(e) (1) (B), by its terms, seems to allow substantive changes in all circumstances. But the rule has not been interpreted in that way. Analysis of law under the federal rule is helpful in considering Superior Court Rule 26(f), which has not been subject to judicial gloss.
FRCP 30(e) (1) (B) provides in relevant part:
(e) Review by the Witness; Changes.
(1) Review; Statement of Changes. On request by the deponent or a party before the deposition is completed, the deponent must be allowed 30 days after being notified by the officer that the transcript or recording is available in which:
(A) to review the transcript or recording; and
(B) If there are changes in form or substance, to sign a statement listing the changes and the reasons for making them.
A
Despite the apparently clear language of the rule, there is a split of authority with respect to the substantive changes that may be allowed. A few courts follow the much cited decision in Greenway v. Int'l Paper Co., 144 F.R.D. 322, 325 (W.D. La. 1992):
The purpose of rule 30(e) is obvious. Should the reporter make a substantive error, i.e., he reported "yes" but I said "no," or a formal error, i.e., he reported the name to be "Lawrence Smith" but the proper name is "Laurence Smith," then corrections by the deponent would be in order. The Rule cannot be interpreted to allow one to alter what was said under oath. If that were the case, one could merely answer the questions with no thought at all then return home and plan artful responses. Depositions differ from interrogatories in that regard. A deposition is not a take home examination.
This approach appears to be taken by the Sixth Circuit and many lower Fourth Circuit courts. See, e.g., Trout v. v. FirstEnergy Gen. Corp., .3.39 Fed. Appx. 560, 565-66 (6th Cir. 2009); E.I. DuPont de Nemours v. Kolon Industries, Inc. , 277 F.R.D. 286, 297 (E.D. Va. 2011). However, Greenway is a minority view. See 8A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & RICHARD L. MARCUS, FEDERAL PRACTICE AND PROCEDURE § 2118 (3d ed. 2010).
It appears that the majority view permits a deponent to change deposition testimony so that the fact and extent of the change are treated as subjects for impeachment that may affect a witness's credibility. See Poole v. Gorthon Lines AB, 908 F.Supp.2d 778, 786 (W.D.La. 2012); E.E.O.C. v. Skansa USA Building, Inc., 278 F.R.D. 407 (W.D. Tenn. 2012) (collecting cases); Devon Energy Corp. v. Westacott, 2011 WL 1157334 at *4-5 (S.D. Tex. Mar. 24, 2011). Such courts reason that a witness cannot be forced to testify falsely at trial so allowing the witness to alter or his or her testimony gives the opposing party opportunity to reopen the deposition so that the revised answers may be followed up on and the reasons for the correction explored. Glenwood Farms, Inc. v. Ivey, 229 F.R.D. 34, 35 (D. Me. 2005). At least the First, Second, and Ninth Circuits take this sort of a flexible approach to substantive changes. See, e.g., Pina v. The Children's Place, 740 F.3d 785, 792 (1st Cir. 2014); Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 103 (2d Cir. 1997); Hambleton Bros. Lumber Co. v. Balkin Enterprises, Inc., 397 F.3d 1217, 1225 (9th Cir. 2005). The Third, Seventh, and Tenth Circuits follow a so-called "sham affidavit approach," allowing the deponent to change his deposition from what he said to what he meant if the change does not directly contradict the original testimony, but holding that a change of substance which actually contradicts the transcript is impermissible unless it can plausibly be represented as the collection of an error in transcription, such as dropping a "not." See, e.g., EBC, Inc. v. Clark Bldg. Sys., Inc., 618 F.3d 253, 268 (3d Cir. 2010); Thorn v. Sundstrand Aerospace Corp., 207 F.3d 383, 389 (7th Cir. 2000); Burns v. Board of County Comm'rs, 330 F. 3d 1275, 1282 (10th Cir. 2003).
This is the approach utilized by most federal courts when a witness provides an affidavit supposedly contradicting his deposition testimony in order to defeat summary judgment.
Lower First Circuit courts have developed a significant body of law to determine when revisions materially alter the answers such as to require the deposition to be reopened. See generally Pina v. The Children's Place, 740 F.3d 785, 792 (1st Cir. 2014); Tingley Sys. Inc. v. CSC Consulting, Inc. f/k/a CSC Partners, Inc., 152 F. Supp.2d 95, 120 (D. Mass. 2001); Glenwood Farms v. Ivey, 229 F.R.D. 34, 35 (D. Me. 2005). Of course, courts recognize that the timing of changes may result in undue expense and cause unfairness to a party. Management tools other than, or in addition to, reopening the deposition are available to federal trial courts dealing with potential discovery abuse, including sanctions, attorneys' fees and issue preclusion. See generally E.E.O.C. v. Skanska USA Building, Inc., 278 F.R.D. at 410-11 (collecting cases involving the exercise of discretion by federal district courts).
B
Superior Court Rule 26(f) simply provides:
No deposition, as transcribed, shall be changed or altered, but any alleged errors may be set forth in a separate document attached to the original and copies.
As noted, there are no reported cases interpreting this Rule or its predecessors. However, there is little reason to believe that Rule 26(f) by its terms would bar substantive changes in a deposition.
The Rule specifically allows the correction of erroneous testimony. It does not state that the error must be that of the court reporter. Plainly, for example, a corporate designee's testimony that no employment manual exists, when in fact it does, would be error. To fail to correct this testimony would make the deposition erroneous, as well as seriously affect the truth finding process. There is no rule or practice that suggests that a witness' testimony at any deposition prohibits a witness from testifying otherwise at trial; indeed, a witness cannot be required to commit perjury. But obviously the prior answer can be used for impeachment.
The case law surrounding FRCP 30(e) (B) (1) is helpful in considering how Rule 26(f) should be interpreted. Certainly, in some circumstances, allowing substantive amendment to depositions where there is no good-faith basis for the change could be prohibited. But in the ordinary course, allowing substantive changes to deposition prior to trial eliminates the likelihood of deviations from the original deposition, thus reducing the likelihood of surprise at trial. Poole v. Gorthon Lines AB, 908 F.Supp.2d 778, 786 (W.D. La. 2012) (citing Lugtig v. Thomas, 89 F.R.D. 639, 641 (N.D. Ill. 1981)). The Superior Court's broad authority to control discovery gives it the ability to remedy unfairness when a witness makes substantive changes to a deposition by reopening a deposition, perhaps at the expense of the party that submits the corrected deposition, awarding fees, or imposing other sanctions, up to and including evidence or issue preclusion or full or partial judgment in favor of the injured party in an appropriate case. Super. Ct. R. 21(d). But there is no reason to provide WHS with any remedies in this case.
III
Schweizer did not assert in the changes to the deposition a position inconsistent with the position he had taken prior to that time, any prior summary judgment motion and in fact, in other parts of the deposition. TLI always took the position that "Assumed Liabilities" did not include existing customer contracts. Schweizer's modification of his testimony that he understood that it was up to WHS to decide which of the categories of liabilities WHS could apply the 1.7 million credit to, by adding language that the $1.7 million credit was "focus[d] on the vendor liabilities" is not akin to creating an "sham affidavit", changing or providing testimony simply to defeat summary judgment. Rather, it is an assertion of the position taken consistently by TLI throughout the litigation.
The corrections in Schweizer' s deposition may be considered by the Court in considering the Renewed Motion for Summary Judgment. There is no basis to strike the correction to deposition testimony or reopen discovery. Based upon all the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits filed, there is a genuine issue of material fact and, the Renewed Motion for Summary Judgment must be DENIED. RSA 491-8-a. SO ORDERED. 2/12/15
DATE
s/ Richard B. McNamara
Richard B. McNamara,
Presiding Justice
RBM/