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Bar Journal - December 1, 2003

Lex Loci: A Survey of New Hampshire Supreme Court Decisions

By:

Probably a good start for a review of the recent decisions of our New Hampshire Supreme Court is to start at a beginning. When is a lawsuit commenced, or in the quaint words of the statute of limitations (RSA 508:4), when is an action "brought"? That was the issue before the Court in Donnelly v. Eastman, opinion issued June 30, 2003. It appeared in this case that an inexperienced attorney, prior to the expiration of the three year statute of limitations, completed and executed a writ seeking recovery for tort injuries incurred by his client, the plaintiff, but the writ was not served on the defendant or filed in court until after the expiration of the statute. Under the old rule,1 an action was deemed to be commenced when the writ was completed and signed by the attorney with the intent to serve it on the defendant, but new Superior Court Rule 2, which became effective September 1, 2001, states that "an action shall be deemed commenced on the date of service of the writ, or the date of entry of the writ, whichever event occurs first." The defendant moved to dismiss the plaintiff's action but the superior court judge invoked the newly broadened language of the Preface to the Superior Court Rules which allows a court to waive the application of any of the court rules "[a]s good cause appears and as justice may require." The trial court ruled that since the defendant was not hurt because he already had knowledge of the plaintiff's claim and because the plaintiff's failure to comply with the rule was due to her attorney's inexperience or mistake, justice required waiver of the rule.

This reasoning was rejected by a unanimous Supreme Court which held that the new rule "establishes a bright-line test in contrast to the former common law rule" and under "this approach, writs may be entered with the court either prior to service of process or after service of process." The Court pointed out that even "under the previous common law rule, we strictly adhered to deadlines when assessing compliance with the statute of limitations" and concluded that

In this case, the trial court found that the failure to properly bring the claim was attributable to inexperience and mistake of counsel. Attorneys are responsible for knowing the content of the court rules applicable to their action....Rule 2 was adopted in order to establish a bright-line rule for determining when an action is commenced for purposes of the statute of limitations. We conclude that under the circumstances of this case, neither good cause nor justice supports waiver of Rule 2. Therefore, it was error for the trial court to deny the defendant's motion to dismiss.

Hopefully, the attorney has malpractice insurance from which the plaintiff tort victim can recover her damages.

The issue of the retroactive effect of New Hampshire Supreme Court decisions which announce a new rule of law was before the Court in two unrelated cases, with the Court announcing a new rule concerning the retroactive effect of such significant decisions. Ireland v. Worcester Insurance Company, opinion issued July 1, 2003, and Lee James Enterprises, Inc. v. Northumberland, opinion issued August 1, 2003. The author will treat the two cases as one since they both dealt with the retroactive effect issue, although on completely different facts. In Northumberland, the Court reviewed the historical background of the issue, stating that

[a]t common law, appellate decisions were all presumptively retroactive because, by stating what the law is, the court really stated what the law always was...we have recognized, however, that retroactive application of judicial decisions at times can cause harsh results, when, consistent with the doctrine of stare decisis, parties have relied upon a prior rule of law....Therefore, we have applied our decisions prospectively whenever we thought justice would be better served by doing so.

The Court in Ireland established a new rule concerning the retrospective or prospective effect of the adoption of a new rule of law that the Court would follow in future cases. The Court rejected "selective prospectivity" because, in the words of the U.S. Supreme Court,2 "by picking and choosing from among similarly situated claimants those who will receive the benefit of a new rule..., selective prospectivity 'breaches the principle that litigants in similar situations should be treated the same'....'[t]he applicability of rules of law is not to be switched on and off according to individual hardship.'" So, the New Hampshire Court reverted back to the traditional common law rule in most cases, but took care to point out that it reserved the right to state that in a future case a new rule will have only prospective effect or that in the context of a civil case or controversy that "the old rule shall apply to conduct occurring before the issuance of the decision announcing the new rule." However, once a rule has been applied retroactively, "the rule must be applied retroactively to all cases thereafter." The application of the Court's new rule can be confusing. In Ireland, the Court used its new formulation to reject the injured plaintiff's arguments that the rule of the Matarese Case3 which established a new rule of law should be selectively prospectively applied and, rather, ruled that the Matarese Rule would apply retroactively to all cases. In Northumberland, the Court did not apply its new Thomas Tool Services4 rule retroactively to all cases since when it announced the new rule, the Court had specifically addressed the retroactive application of its ruling by providing for no retroactive application except as to cases pending on the date of its opinion. Thus, the Court in Northumberland, in effect, applied the Thomas Tool rule prospectively as it had already said in the Thomas Tool case it would:

If our decision in Thomas Tool had been silent as to whether the rule of law we announced should apply retroactively, then Ireland would here apply, and we would hold today that our decision on the merits in Thomas Tool applies retroactively. Our decision in Thomas Tool, however, is not silent because we specifically considered the retroactivity issue and determined that we would apply our holding selectively. While our decision in Ireland would foreclose us from making such a choice in a civil case today, it does not overrule those cases in which we previously decided that a new rule of law should apply selectively. Nor does the plaintiff persuade us that we should overrule those cases today.

A case of first impression in New Hampshire, The Norwood Group, Inc. v. Phillips, opinion issued July 24, 2003, involved a hoary, law school favorite, "piercing the corporate veil." The precise issue in this case was whether an equitable petition to pierce the corporate veil was subject to the 20-year statute of limitations applying to judgments (RSA 508:5) rather than the normal three-year limitations statute. The Court, deferring to cases on this issue in other jurisdictions, held that where a claim against a corporation had been reduced to judgment as here, the plaintiffs (who were the holders of an uncollected promissory note from a defunct corporation), could pursue their equitable claim that the corporation's veil should be pierced because of the alleged fraud of the parties in transferring assets out of the defendant corporate maker of the promissory note, leaving a worthless shell. The Court rejected both public policy arguments and arguments based on a New Hampshire constitutional right to equal protection and ruled that the plaintiff note holders were entitled to pursue their equitable petition in equity to pierce the corporate veil many years after the note was executed and many years after the alleged fraudulent action which left the defendant promissor an empty corporate shell, but within 20 years of the date that the plaintiffs had timely reduced the note to a judgment against the corporation. The Court held that "the plaintiffs may proceed upon their petition to pierce the corporate veil with respect to enforcing the judgment entered in the first litigation and may assert that piercing the corporate veil is warranted because the defendants promoted an injustice or fraud against them."

A companion case to the Norwood Group Case, Bielagus v. Emre of New Hampshire Corp., opinion issued July 1, 2003, was another attempt by the same note holders to collect the plaintiff's judgment on the promissory note against another set of defendants, namely, those corporations that had purchased the assets of the now defunct corporation allegedly left a worthless shell by the alleged machinations of the corporate maker of the promissory note in question. This case involved issues not previously confronted by the New Hampshire Supreme Court and led to the Court's making new law on the broadly stated issue of "successor liability." The Court acknowledged "the general rule of commercial law that a corporation purchasing the assets of another corporation is not liable for the seller's debts." However, the Court pointed out that there were judicially recognized exceptions to the rule, the four most common being: (1) when the purchasing corporation expressly or impliedly agrees to assume the obligations of the selling corporation; (2) when the asset transfer amounts to a de facto merger of the two corporations; (3) when the purchasing corporation becomes a 'mere continuation' of the selling corporation; and (4) when the transaction is fraudulent because its only purpose is to evade corporate liability."

The Court addressed only the de facto merger exception and the "mere continuation" exception which might be applicable in the case and adopted the reasoning of the federal district court of New Hampshire in Kleen Laundry I.5 On the de facto merger exception issue, the Court found that the exception did not apply in this case because the facts did not meet the four non-exclusive factors cited in Kleen Laundry I, particularly the "required continuity of ownership factor" which is usually the factor that "tips the scale in favor of finding a de facto merger." The Court held that although there was evidence of some continuity in the successor corporation's operations in the seller's same physical location, management, personnel and assets, "there [was] no continuity of shareholders, nor any evidence of payment of the acquired assets with the defendant's stock."

On the mere continuation exception issue, the Court again used the several factors of Kleen Laundry I as a guide and held that the "continuity of enterprise" exception should not be applied in this case mainly because three distinct entities existed after the sale of the maker's real estate assets, each owned by different shareholders. These "three separate entities with different owners preclude successor liability from being imposed under the 'mere continuation' exception as a matter of law." This case is a very important one and deserves more attention than the author can give it in this column and, therefore, he recommends it as must reading for all business attorneys.

Conservation Law Foundation v. New Hampshire Wetlands Council, opinion issued September 12, 2003, is a significant setback for the preservation of New Hampshire wetlands and a triumph for the New Hampshire Department of Transportation (DOT). The New Hampshire trial court had vacated the New Hampshire Department of Environmental Services' (DES) approval of the DOT's application for a wetlands permit in order to construct a "trumpet" traffic interchange at the junction of Route 9, 10, 12 and 101 in Keene. The majority of the split Supreme Court very narrowly interpreted the New Hampshire Administrative Rules relating to projects affecting wetlands, reversed the trial court, and granted the application requested by the DOT. A major issue was whether or not the DOT failed to document "vernal and seasonal pools" in the area of the proposed trumpet interchange. "Vernal and seasonal pools are temporary bodies of water that provide many species a predator-free environment in which to reproduce." The trial court had taken a broad view of the applicable rule, holding that the use of the term "including" was sufficient to require the DOT to document vernal and seasonal pools in the area to be developed, even though vernal and seasonal pools were not specifically mentioned in the list of factors which must be considered before a proposed project can be undertaken. The majority of the Court, speaking through Justice Nadeau, ruled that "the term 'including'...limits the items intended to be covered by the rule to those of the same type as the items specifically listed," citing to a prior case in which it had interpreted the phrase "including but not limited to" to be a limiting phrase!! This reasoning seems to be contrary to common sense and is the type of lawyer talk that drives lay people crazy. Justice Duggan, in a sole dissent, concluded that the Supreme Court was far too narrow in its interpretation of the applicable rule and would rely instead upon the broadly stated purpose of RSA 482-A [Fill and Dredge in Wetlands] which states that the statute is designed to protect wetlands from despoliation because such despoliation will effect the value of such areas as "sources of nutrients for finfish, crustacean, shellfish and wildlife of significant value" and will damage or destroy "habitats and reproduction areas for plants, fish and wildlife of importance." RSA 482-A:1. Thus Justice Duggan would uphold the trial court's broad interpretation of the wetlands regulation in question. It appears to the author that the majority of the Court failed to defer to the trial court's careful and extended analysis of the case and its many findings of fact and rulings of law, something that the dissent stressed:

More fundamentally, the rulings here were hardly an afterthought. The court obviously went through the requests carefully and individually. The court specifically identified those which were granted, denied or neither granted nor denied. Indeed, the superior court judge took the time to redraft two of the requests. Given the superior court's extensive attention to the rulings, it is wholly artificial to conclude that, because the court stated that its decision was based on the 'above reasons,' the court's rulings on the requests were a meaningless exercise and that we are free to ignore them. The court's rulings constitute a separate, independent basis to affirm the superior court's order.

The contentious area of the law relating to the validity or non-validity of prenuptial agreements was before the Supreme Court in In Re Estate of Hollett,6 opinion issued September 26, 2003. This was a case in which the author's firm was on the losing side, contending on behalf of the deceased husband that the prenuptial agreement executed by his client prior to his marriage was valid. The lower court agreed, but the Supreme Court reversed that finding, putting much weight on the fact that the agreement was signed immediately prior to the wedding, indeed, on the very morning of the wedding. The Court agreed that it had earlier, in Yannalfo,7 "rejected a per se invalidation of agreements signed immediately before the wedding" but the Court held that the detailed type of agreement involved here and the circumstances of the parties were such that "a complicated and important agreement will require more time for negotiation and reflection" than the agreement in Yannalfo, where a prenuptial agreement was held valid even though it had been signed only a day or two before the wedding.

In a case receiving widespread publicity in New Hampshire, JTR Colebrook, Inc. v. Town of Colebrook, opinion issued August 19, 2003, the Supreme Court held that a municipal ordinance of the town prohibiting smoking in restaurants was invalid because it was preempted by the State Indoor Smoking Act, RSA 155:64 :77. The ordinance was challenged by a restaurant in the town. The Supreme Court found that the State Indoor Smoking Act [widely considered to be a very weak law] constituted a comprehensive and detailed statutory scheme that regulated smoking in restaurants and, thus, preempted municipal action on the subject. The town tried every which way to find a basis for the enactment of its ordinance in the various general powers given to municipalities to pass ordinances relating to "sanitation" or "public health" or "NUISANCES; TOILETS; DRAINS; EXPECTORATION; RUBBISH AND WASTE" but its arguments went "up in a puff of smoke," so to speak. The Court ended by ruling that "[b]ecause the State indoor smoking law constitutes a comprehensive and detailed statutory scheme, and because we hold that there is no statutory provision permitting additional municipal regulation of smoking in restaurants, we conclude that the State law preempts the town ordinance." It's an interesting side light to this case that after the decision was announced, two restaurants in the town which had gone to non-smoking status as a result of the passage of the ordinance indicated that they would continue to be non-smoking since customers seemed to prefer it that way after all.

The poem, "Trees," by Joyce Kilmer, ridiculed in college English classes as being treacly and banal, was brought to the author's mind by the Court's recent decision, Berliner v. Clukay, opinion issued September 30, 2003. The case involved a jury verdict awarding the plaintiff approximately $650,000 in damages for the unlawful harvesting of over 5,000 trees from his property. There were two major issues involved, i.e., the correct multiplier to be used under RSA 227-J:8, which establishes the statutory damages for improper tree cutting and, second, the proper damage guidelines for the setting of additional compensatory loss of use damages. A unanimous Supreme Court upheld the trial court's denial of the defendant's motion to set aside the verdict. On the issue of the correct multiplier [RSA 227-J:8, II provides a sliding scale of 3 to not more than 10 times the market value of each tree cut], the Court held that it was not improper for the trial court to allow the jury to set the proper multiplier [the jury chose 8.5] depending upon the evidence presented to the jury. On the second issue, the jury's loss of use award [$360,000 of the total $650,000 verdict], the trial court had instructed the jury, without objection by the defendant, that the proper measure of compensatory damages in such circumstances takes into account "the loss of use of land suffered by the plaintiff." In the Supreme Court, the defendant argued strenuously that this instruction allowed the plaintiff to simply testify, as he did in effect, that the trees were very beautiful, that he was dismayed by their removal and that he missed them very much. The Supreme Court upheld the trial court's jury instruction on this issue because the defendant never pursued his challenge to the loss of use claim. A truer devotee of Joyce Kilmer than the plaintiff can hardly be found:

Trees

I think that I shall never see
   A Poem lovely as a tree.

A tree whose hungry mouth is prest
   Against the earth's sweet flowing breast;

A tree that looks at God all day,
   And lifts her leafy arms to pray;

A tree that may in Summer wear
   A nest of robins in her hair;

Upon whose bosom snow has lain;
   Who intimately lives with rain.

Poems are made by fools like me,
   But only God can make a tree.

Endnotes

  1. DeSaulnier v. Manchester School District, 140 N.H. 336 (1995).
  2. James B. Beam Distilling Co. v. Georgia, 501 U.S. 529 (1991).
  3. 147 N.H. 396 (2002).
  4. 145 N.H. 218 (2000).
  5. 817 F. Supp. 225 (D. NH. 1993).
  6. The author's firm represented a party to the action and, therefore, the author's views may be colored.
  7. 147 N.H. 597 (2002).

The Author

 

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