On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-4374-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lisa, Reisner and Alvarez.
This appeal involves a commercial dispute between Penobscot McCrum, L.L.C. (McCrum), which bought the assets of Penobscot Frozen Foods, Inc. (Penobscot) at a foreclosure sale, and Alliance Shippers, Inc. (Alliance), the intermodal shipping company that transported Penobscot's and McCrum's products. McCrum appeals from trial court orders dated November 1, 2006, February 16, 2007 and April 3, 2007. Alliance cross-appeals from the November 1, 2006 and April 3, 2007 orders.
In brief summary, McCrum contends that the trial court erred in awarding Alliance approximately $43,000 in damages based on quantum meruit. McCrum also contends the court should not have stricken its offer of judgment. In its cross-appeal, Alliance, invoking claims of successor liability and fraudulent transfer, contends that McCrum was entirely liable for Penobscot's debts to Alliance totaling over $200,000. Alliance argues that the trial court should have applied New Jersey law rather than Maine law, and that regardless of which state's law applies, it is at least entitled to additional damages for unjust enrichment. We reject the parties' contentions on the appeal and the cross-appeal and affirm.
This case involves a Maine-based business, Penobscot, that obtained a business loan in Maine from a Maine bank, Key Corporate Capital, Inc. (Key). After Penobscot defaulted on the loan, Key foreclosed on Penobscot's assets which had been pledged as security for the loan. Although McCrum and Key had had some previous discussions about McCrum purchasing the Penobscot business, Key eventually had the assets sold at public auction. In connection with the foreclosure, Key arranged with Tranzon Auction Properties, an independent professional auctioneering firm with offices in Portland, Maine, to sell the collateral, at auctions held in Belfast, Maine and Washburn, Maine. McCrum produced an affidavit from Key's attorney, who had handled the foreclosure and arranged for the auction sale, attesting that "[t]he foreclosure sale was done at arm's length" and that "Key Corporate's sole objective was to maximize the value of the Key Collateral in order to satisfy Penobscot's obligations" under the defaulted loan. McCrum also produced legally competent, undisputed evidence that Tranzon was an independent auction firm having no affiliation with Key, McCrum or Alliance. Although Tranzon widely advertised the auctions and responded to inquiries from fifteen potential buyers, only two bidders participated in the auction at Washburn and one bidder participated in the Belfast auction. McCrum was the successful bidder at both auctions,*fn1 paying a total of $1.8 million. Under Maine law, a bona fide arms-length purchaser of corporate assets is not liable for the debts of the purchased corporation.
After the foreclosure sale, McCrum essentially continued the potato-processing business, using the same facilities and the same employees as Penobscot. Because McCrum purchased Penobscot's receivables, among other assets, it had the right to collect from Penobscot's customers for products delivered before as well as after the foreclosure sale.
Alliance is a New Jersey-based shipping company which had pre-existing contracts with Penobscot to transport its potato products all over the country. Before the foreclosure action was filed, while the foreclosure was proceeding, and after McCrum bought the assets, Alliance was providing shipping services, transporting the potato products to various locations throughout the United States. McCrum bought Penobscot's assets at auction on April 29, 2004, but did not give Alliance contemporaneous notice of the purchase. Meanwhile, Alliance was transporting potato products produced at the Penobscot factory now owned by McCrum and for which McCrum would eventually bill Penobscot's customers.
It is undisputed that Penobscot did not require its customers to pay directly for shipping services but rather built those transportation costs into its own bills to the customers. Moreover, as a condition of its contract with Penobscot, Alliance was required to provide Penobscot with invoices for its services and bills of lading signed by the customers. Those documents were due when Alliance's deliveries were complete, and they were then used to create Penobscot's bills to its customers. While each Alliance pick-up of potato products from the factory generally resulted in several "stops" or deliveries to customers throughout the country, Alliance would not get paid for any of its services until it provided one invoice for all the deliveries resulting from that pick-up, plus a bill of lading for each separate delivery.
McCrum continued the practice, billing the customers for products delivered by Alliance and including at least some portion of the charges for Alliance's services in those bills. However, while Alliance produced McCrum's bills at the trial, Alliance did not produce proof as to how much McCrum actually charged its customers for transportation, which was not itemized separately on the bills.
When McCrum refused to pay all of Alliance's outstanding bills to Penobscot for transportation services, totaling approximately $250,000, Alliance sued McCrum, as well as other parties, to collect the debt.*fn2 Judge Waugh, then the Presiding Judge of Chancery, General Equity, held that Maine law applied to Alliance's lawsuit.
In an oral opinion placed on the record on August 4, 2006, Judge Waugh reasoned that under the governmental interest test set forth in Veazey v. Doremus, 103 N.J. 244, 247-48 (1986), and Fu v. Fu, 160 N.J. 108, 118 (1999), Maine had a greater interest than New Jersey had in applying its law of successor liability to the Maine foreclosure sale. He reasoned that accepting Alliance's position would mean that "arising out of the same [foreclosure] sale transaction you could have many different results depending upon whether you apply the law of one state . . . or another. If you consistently apply the law of the state where [the sale] took place . . . at least it's going to be a uniform application of law." In a later opinion placed on the record on October 6, 2006, the judge also noted: "The only contact with New Jersey is that Alliance happens to be located in New Jersey. This is not a . . . transaction that . . . took place in New Jersey."
Further, in the October 6 opinion, Judge Waugh noted the parties' apparent agreement that Alliance was entitled to payment for "any transactions that began after the sale of . . . Penobscot's assets at a foreclosure sale that took place on April 29, 2004 . . . and . . . any shipments that were in transit at the time of the sale on April 29, 2004." In an order dated November 1, 2006, the judge granted summary judgment to Alliance "on the contract claims relating to shipments in transit at the time of the April, 2004 auction sale and for shipments originating after the April 29, 2004 auction sale."
The judge then addressed "the shipments that were complete as of the date of the sale on April 29, 2004."*fn3 With respect to those shipments, he held that Alliance was entitled to collect from McCrum, under a theory of unjust enrichment, the lesser of the amounts Alliance charged Penobscot for transporting those shipments or the amount McCrum actually billed its customers for the transportation. The basis for the limit on the amount to be recovered was evidence that Penobscot did not necessarily charge its customers the exact amount Alliance charged Penobscot for delivery, but frequently imposed a smaller charge.
In the same opinion, Judge Waugh also granted summary judgment dismissing Alliance's fraud claims, concluding that there was no proof that the foreclosure sale was anything but a bona fide arm's length transaction:
[I]t's clear to me that although there were discussions between the bank and the new Penobscot purchasers, that this was a sale that cannot be described as collusive. The . . . sale was duly advertised and an auction took place, or a bidding procedure took place. There was only one active bidder, and that was the parties that I referred to as new Penobscot [McCrum]. There is no suggestion . . . in the record, that anything took place ...