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Bar News - November 18, 2015

Supreme Court At-a-Glance

October 2015

Constitutional Law

State v. Patrick Eschenbrenner
No. 2014-0116
Oct. 27, 2015

  • Whether the defendant’s constitutional rights to due process and counsel under the state and federal constitutions were violated

The defendant argued that the trial court violated his rights to due process and counsel when, in the absence of manifest need, he was required to wear a stun belt during his trial. He asserts that the trial court erred when it concluded that the threat that the defendant may commit suicide during the trial justified the use of the belt.

The NH Supreme Court found that the trial judge is vested with the discretion to determine the use of restraints during a trial. The defendant has the right to appear in court free of any restraints but may be restrained if there is reason to believe that he may pose a threat or a disruption to the proceedings. However, when required, restraints must be as unobtrusive as possible. Additionally, the stun belts should be used as rarely as possible and when used, the trial court has a continuing responsibility during the trial to assess whether the use of such restraint has the effect of denying the defendant a fair trial. Furthermore, the trial court may consider the defendant’s behavior in and out of court to determine whether the use of restraints is necessary.

After considering the record, the Court was satisfied that the trial court gave close scrutiny to the issue and that the court sustainably exercised its discretion when it found a manifest need for the defendant to be restrained by a stun belt during his trial.

Joseph A. Foster, attorney general and Stephen D. Fuller, senior assistant attorney general, (on the brief and orally), for the State. Christopher M. Johnson, chief appellate defender (on the brief and orally), for the defendant.

Consumer Law

State v. The Mandatory Poster Agency Inc.
No. 2014-0686
Oct. 14, 2015

  • Whether 27 indictments alleging felony-level criminal violations of the New Hampshire Consumer Protection Act by the defendant were defective because the state alleged that the defendant acted with the mental state “knowingly” and not “purposely”

The defendant is a Michigan company that assists corporations in complying with corporate business conduct regulations. Using a Concord, NH, address, the company mailed solicitations to potential customers. Sales from these solicitations totaled $12,625.

The grand jury indictments encompassed three sets of nine felony charges stemming from the defendant’s allegedly deceptive use of the Concord address. One set alleged that the defendant’s use of the address was designed to deceive the recipient into the assumption that the solicitation was sent by a governmental agency. All indictments alleged that between February and March 2013, the defendant “knowingly” violated various provisions of the CPA. The trial court ruled that the indictments were defective because they alleged that the defendant acted “knowingly” and not “purposefully.”

Pursuant to RSA 358-A:2, criminal penalties can be imposed for the use of any unfair method of competition or other unfair deceptive act or practice in the conduct of any trade or commerce within the state. The statutes does not, however, specify the mental state that the state must prove in order to obtain a criminal conviction for a violation of the CPA. However, RSA 626:2 distinguishes between the mental states “knowingly” and “purposely.”

The Court found that even though the statute gives no indication of the culpable mental state, legislative history, the statutory scheme of the statute, and the common law origins of the law could be informative. While the legislative history was uninformative, the Court found that even though the intent was to protect consumers, it did not follow that the legislature intended a knowing mental state to apply to criminal prosecutions under the CPA.

Next, the Court found that because a criminal conviction under the CPA would expose the defendant to an award of at least twice the amount of actual damages in a subsequent private civil action, the legislature could not have intended such severe and multiple penalties for an act committed with the lesser mental state of “knowingly.” Furthermore the statutory scheme itself did not lead the Court to the conclusion that the statute should lead to such a harsh result. Therefore, in order to secure a criminal conviction under RSA 358-A:6, I, the state must prove that a defendant acted in the mental state of “purposely.”

Joseph A. Foster, attorney general with Jesse O’Neil (on the brief and orally) for the State. Edward J. Sackman, Bernstein Shur, for the defendant.

State v. Samuel Pennock
No. 2014-0112 and 2014-0743
Oct. 27, 2015

  • Whether the trial court’s denial of the defendant’s motion to vacate his sentence and order a new trial was in error
  • Whether the defendant’s conviction on felony simple assault charges should be overturned

The defendant first argued that the trial court erred by admitting substantively the pretrial statements of the victim under the excited utterance exception to the hearsay rule.

The NH Supreme Court found that whether testimony is admitted under the rule is for the trial court to decide. Upon consideration of the record, the Court found that the trial court had not unsustainably exercised its discretion. The court further found that to the extent that the trial court erred by admitting the victim’s written statement under the exception, any error was harmless beyond a reasonable doubt (the victim’s written statement was cumulative of her excited utterances).

The defendant next asserted that the trial court erred in finding sufficient evidence to prove that he did not act in self-defense. Based on the record, the Court could not find that it was unreasonable for the jury to resolve the victim’s conflicting testimony and pretrial statements in favor of the state. Nor could the Court find that no reasonable trier of fact could have found beyond a reasonable doubt that the defendant did not act in self-defense. Therefore, Court ruled that the trial court did not err by denying the defendant’s motion to dismiss the simple assault charge.

The defendant further contended that the charge brought against him should have been a class A misdemeanor, not a class B felony, and therefore the trial court erred by not vacating his sentence when petitioned.

The Court found that the second criterion of the plain error rule was not met; the error is plain if it was or should have been obvious in the sense that the governing law was clearly settled to the contrary. The Court found that the trial court’s error was neither clear nor unequivocally obvious because it is a case of first impression.

Joseph A. Foster, attorney general and Nicholas Cort, assistant attorney general (on the brief and orally), for the State. Stephanie Hausman, deputy chief appellate defender (on the brief and orally), for the defendant.

Regulatory Law

STIHL, Inc. v. State
No. 2014-0619
Oct. 27, 2015

  • Whether STIHL, a company that manufactures and sells handheld power and non-power tools, is subject to RSA 357-C

The state argued that the terms “forestry equipment” and “yard and garden equipment” unambiguously included products made by the plaintiff. STIHL counters that reading the term “equipment” within the definition of the term “motor vehicle” and within the context of the statute as a whole, shows that handheld tools are not included within the plain meaning of “equipment.”

The Court found that the definitions of “motor vehicle” and “motor vehicle dealer” were ambiguous in the statute. After reviewing the legislative history and the statue as a whole, the Court found that, in order to avoid absurd results, the types of equipment that are “motor vehicles” under the statute must be limited to motor vehicle-like products or attachments, accessories, or repair parts for motor vehicle-like products.

RSA 357-C is only intended to regulate those manufactures that produce equipment and related accessories that are analogous to automobiles, in that they have engines, wheels and transmissions. Therefore, the plaintiff does not fall under the statute.

James C. Wheat (orally), Wadleigh, Starr, and Peters, Pierre A. Chabot (on the brief), James H. Walsh and Bethany G Lukitsch (on the brief), McGuire Woods, for the plaintiff. Joseph A. Foster, attorney general, and Francis C. Fredericks, assistant attorney general (on the brief and orally), for the defendant.

Corporate Law

Celestica, LLC v. Communications Acquisitions Corporation
No. 2014-0465
Oct. 14, 2015

  • Whether the defendant was obligated to pay the balance of a judgment that the plaintiff had obtained against another business, the assets of which the defendant had purchased at a public auction. Specifically, was there a de facto merger when the defendant purchased the assets of the now defunct company, Whaleback Systems Corporation (Whaleback)

Whaleback provided telecommunications services and was funded by a group of venture capital firms as well as through a series of secured loans. Three primary shareholders of Whaleback, Ascent, Egan and Castile, provided loans that were subordinate to Horizon Technology Funding Company. When Whaleback defaulted on its loan to Horizon, Castile and Egan proposed to Horizon that they create a new company and purchase Whaleback’s assets from Horizon. In the letter of intent, Castile and Egan agreed to fund Whaleback’s operations until closing; however, they would have first right of refusal at the auction.

At the auction, Castile and Egan were the only bidders for Whaleback’s assets and Communications Acquisitions Corp. (CAC), acquired all of Whaleback’s assets, free of all liabilities. A new CEO was put into place, and the new company honored some of the debts owed by Whaleback to existing vendors in order that uninterrupted service be provided to its customers. Whaleback was not formally dissolved at the time because of the lack of funds, but was dissolved at a later date.

Under the de factor merger exception, successor liability will be imposed if the parties achieved virtually all the results of a merger without following the statutory requirements for merger of the corporations. There are four non-exclusive factors to consider when determining whether a purported sale of assets is in fact a de facto merger. Of the four, the factor that tips the scale in favor of finding a merger is continuity of ownership, usually in the form of an exchange of stock for assets.

The first factor is whether there is a continuation of the enterprise of the seller corporation so that there is a continuity of management, personnel, location, assets and general business operations. The Court found that this factor did not weigh in favor of the plaintiff. Within 14 months of the sale, virtually the entire management team was replaced. Castile and Egan held only two of six seats before the sale and after sale, held three of four seats giving them control of the board. Therefore, Castile and Egan controlled both the board and held equity ownership after the sale, which they did not have before the sale.

Furthermore, only half of the former employees of Whaleback were retained in their positions, and employee stock options in Whaleback were cancelled, with new stock options granted in CAC. A new CEO was brought in, and the location of the business was moved from Portsmouth and Bedford, Mass., to new locations in Boston and Virginia. Finally, operations were upgraded with new equipment and technology, with Castile and Egan investing additional equity in order to implement a new business model.

The second factor, continuity of shareholders, did not weigh in favor of the plaintiffs, even though Castile and Egan were shareholders in both companies. Prior to the closing, they owned about 41 percent of the stock in Whaleback, and after closing, they owned 100 percent of the stock in CAC. Therefore, they went from being the smallest institutional shareholders to outright majority shareholders. Importantly, the majority shareholder in Whaleback, Ascent, now had no equity interest in CAC, nor did 15 other investors in Whaleback.

The trial court found that the third factor, whether the seller corporation ceased its ordinary business operations, liquidated and dissolved as soon as legally possible, seemed to support successor liability on its face, because Whaleback did not functionally cease to operate after the sale. However, the trial court found that good will and an existing customer base were valuable assets that would have been lost if operations had ceased at the time of sale.

The Court affirmed the trial court’s decision and found that inherent in an asset transfer is the right to operate the business, to which the assets are suited; corporations purchase assets to use them, and to do otherwise would constitute waste.

The fourth factor, whether the purchasing corporation assumes those obligations of the seller ordinarily necessary for the uninterrupted continuation of normal operations of the seller corporation, weighed against successor liability. The trial court found that CAC assumed only those liabilities deemed necessary to ensure the continued operation of the company and good will of customers. Additionally, the trial court found that CAC had not assumed non-essential debt, such as those to insiders. Because Castile and Egan had lost millions of dollars in secured debt, the Court agreed with the trial court that this factor did not weigh in favor of a de facto merger.

Finally, looking at other factors, the Court found that the purchase was the product of arms-length negotiations, which resulted in adequate consideration being paid for the assets. The auction was widely advertised and was sold at a price $100,000 more than originally proposed by Castile and Egan to buy Whaleback’s assets. Therefore, there was ample support for the trial court’s conclusion to not impose successor liability.

Michele E. Kenney, Pierce Atwood, for the plaintiff. Andru H. Volinsky, Bernstein Shur, and Talesha L. Canyon (on the brief and orally) for the defendant.

Criminal Law

State v. James F. Houghton
No. 2014-0362
Oct. 14, 2015
Affirmed in part and reversed in part

  • Whether evidence was sufficient to prove beyond a reasonable doubt that 15 of the charges involved depictions of individuals under the age of 18 and whether one of the charges involved a depiction of sexually explicit conduct.

Three police officers from Henniker executed a search warrant at the defendant’s residence and seized a laptop computer belonging to the defendant, James Houghton. Houghton was indicted on 23 charges of possession of child pornography. The state introduced 23 images and videos into evidence. The Court assumed, without deciding, that the images were circumstantial evidence of the age of the individuals depicted because the state did not refute the defense’s position that the State did in fact rely solely on circumstantial evidence to prove the age of the individuals.

RSA 649-A:3, I(a) states that no person will knowingly possess any visual representation of a child engaging in sexually explicit conduct. The law defines “child” as any person under the age of 18 and does not require the state to produce evidence other than the images themselves to prove that the pornography depicts real and not virtual individuals.

The Court concluded that in three of the 15 exhibits in question, the photographic evidence was insufficient to conclude beyond a reasonable doubt that the individuals were under 18. The individual in one of the pictures had undergone puberty and one had been highly pixilated and therefore little could be discerned from the picture to indicate age. In the third exhibit, the individual was sufficiently visible so that a rational trier of fact could in fact determine that the individual was under 18. Therefore, the conviction based on the former two exhibits was reversed while the conviction based on the latter exhibit was affirmed.

Because the defendant did not preserve his sufficiency challenge, the Court conducted a plain error analysis on appeal. First, the Court found that five of the remaining 12 exhibits were of sufficient size and resolution to allow the Court to conclude that they depicted underage individuals. Therefore, the convictions based on those five exhibits was affirmed.

The remainder the exhibits, seven in total, were found not to be sufficient to find that the individuals were under the age of 18 beyond a reasonable doubt. Each exhibit had at least one attribute, either extreme image pixilation or the depiction of an individual with mature physical development, which would not allow a trier of fact to find that the individuals were under the age of 18 beyond a reasonable doubt.

The Court concluded that because the evidence was insufficient to prove the age of the individual, it was plain error to submit charges based on the images to the jury. Furthermore, the error affected the defendant’s substantial rights and to have allowed the conviction to stand would have seriously affected the fairness and integrity of the judicial proceedings. Therefore, the convictions based on the seven exhibits were reversed.

Joseph A. Foster, attorney general and Elizabeth C. Woodcock, assistant attorney general (on the brief and orally) for the State. Thomas Barnard, senior appellate defender of Concord, for the defendant.

Tort Law

State v. Exxon Mobile Corporation
No. 2013-0591 and No. 2013-0668 October 2, 2015
Affirmed in part and reversed in part

  • Whether a jury verdict holding Exxon Mobile Corporation liable for groundwater contamination was proper
  • Whether the trial court erred in imposing a trust upon the damages award (cross-appeal by the state)

Pursuant to the 1990 amendment to the Federal Clean Air Act, New Hampshire opted to participate in Reformulated Gasoline Program (RFG) to improve air quality in southern New Hampshire. Gasoline with MTBE, an oxygenator that was later found to be hazardous to groundwater, was sold throughout the state.

In 2004, the NH Legislature banned the use of MTBE gasoline in the state. In 2003, New Hampshire sued several gasoline suppliers, refiners and chemical manufactures seeking damages for groundwater contamination allegedly caused by MTBE. The case went to trial in 2013 on three causes of action: negligence, strict liability – design defect, and strict liability – failure to warn. The jury awarded about $236 million in damages, and the trial court imposed a trust on about $195 million of the damages award.

Several issues were appealed by Exxon.

First, Exxon argues that the suit should have been dismissed on the grounds of separation of powers and due process. The Court found preserved the defendant’s separation of powers argument. The Court agreed with the trial court that there was no indication of a legislative intent to preclude the damages sought by the State. Therefore, Exxon’s separation of powers argument was rejected.

Second, the trial court found that because Exxon did not assert that the state expressly waived its right to sue for harm from MBTE, Exxon could only proceed under an implied waiver theory. The trial court found there were genuine issues of disputed fact regarding the state’s knowledge, Exxon’s knowledge and the timing of that knowledge. Exxon argued that it was unfairly prejudiced when the trial court instructed the jury on waiver in its preliminary instructions.

The Court found that assuming that there was enough evidence for Exxon’s implied waiver defense to go to the jury, any error was harmless given the jury’s finding that the state did not commit misconduct that contributed to its harm.

Next, Exxon argued that the state’s claims were preempted by the Federal Clean Air Act. The trial court rejected that argument. The NH Supreme Court found that Exxon did not point to any part of the Clean Air Act that supports a conclusion that a choice among oxygenated options was a significant objective of the federal law.

Exxon’s proposed jury instruction asked whether prohibiting the use of MTBE in gasoline during the period at issue would have resulted in delays and increased costs to the expansion of the federal RFG program. The Court found that this position had been rejected as a matter of law and that the state’s claims were not pre-empted by federal law. Therefore, the trial court did not err in refusing Exxon’s proposed jury instruction.

The trial court rejected Exxon’s motion that the state failed to establish that it departed from the applicable standard of care simply by marketing MTBE. The trial court found that even though the state did not present evidence regarding the care exercised by other manufacturers in the industry, the state could still show that Exxon’s actions were unreasonable.

The trial court also rejected Exxon’s argument that it could not have foreseen all manners of the state’s alleged harm. The Court found that the record contained sufficient evidence to support a finding that Exxon breached the standard of care by acting unreasonably under the circumstances.

The trial court rejected Exxon’s argument that it had a duty to warn the state as sovereign rather than the end user of the dangerousness of MBTE. The trial court concluded that the state was an end user of the gasoline. The Court agreed that as trustee of the state’s water, the state could bring suit to protect those waters from contamination.

Next, Exxon argued that market share liability was not an acceptable theory of recovery. The trial court found that a specific site-by-site approach was unfeasible and unnecessary and that market share liability was a more reasoned approach to the case. The Court agreed with the trial court, finding that applying market share liability was justified in this case.

Exxon then argued that it was unfairly prejudiced in its ability to present its defense under RSA 507:7-e and DeBenedetto. The trial court found that Exxon did not demonstrate that a non-party knew or should have known the nature of MTBE, thereby allowing apportioning liability to be considered. However, the trial court allowed it nonetheless. The Supreme Court was not persuaded that Exxon was denied an opportunity to apportion fault to third parties.

Exxon next argued that the state’s future and unknown site impacts were not ripe for review. The Court stated that although it had not adopted a formal test for ripeness, because the harm from MTBE had already occurred, the claims for future testing and treatment were fit for judicial determination.

Finally, the state’s cross-appeal from the trial court’s order imposing a trust on most of the damages award was reversed. The Court disagreed with the trial court that the fact that the State was allowed to proceed under parens patriae standing authorized the imposition of a trust over the money damages awarded. The Court refused to deviate from the conventional lump-sum damages award that is common law remedy for a tort law cause of action.

Joseph A. Foster, attorney general, K. Allen Brooks, senior assistant attorney general (on the brief and orally), David C. Frederick and Brendan J. Crimmins (on the brief, and Mr. Frederick orally), Kellogg, Huber, Hansen, Todd, Evans & Figel of Washington D.C., Matthew F. Pawa and Benjamin A. Krass (on the brief), Pawa Law Group of Newton Centre Ma., for the State.

Bruce W. Felmly and Patrick H. Taylor (on the brief), McLane, Graf, Raulerson & Middleton, of Manchester, Bruce W. Felmly and Patrick H. Taylor (on the brief), Bancroft, of Washington, D.C., Paul D. Clement (on the brief and orally), and Theodore E. Tsekerides on the brief , Weil, Gotshal & Manges, of New York, New York, for the defendants.

Aranosian Oil Co., Inc. et al. v. State
No. 2014-0553
Oct. 27, 2015

  • Whether denial of the plaintiff’s petition for declaratory judgement and equitable relief against the respondent should be upheld

The petitioners argued that the trial court erred in ruling that they lacked standing to seek reimbursement of their Oil Discharge, Disposal and Cleanup (ODD) Fund fees from the Exxon settlement funds. Petitioners also argued that the trial court erred in ruling that their equitable claims were barred under sovereign immunity.

The plaintiffs sought equitable relief based on the principles of unjust enrichment and equitable subrogation, claiming that the state’s diversion of settlement funds recovered through the MBTE litigation constitutes an unconstitutional taking, and that ODD Fund fees kept by the state had become unconstitutional taxes.

The NH Supreme Court found that the ODD Fund fees are not rendered unconstitutional taxes as a result of the Exxon litigation. The Court also found that absent a successful constitutional challenge, the plaintiffs’ claims for reimbursement of the ODD Fund fees based on equitable subrogation and unjust enrichment were barred by sovereign immunity.

Finally, the Court found that the plain error rule was not met when a case presents a question of first impression and thus the petitioners’ argument that the failure to reimburse OOD Fund fees was an unconstitutional taking, was not subject to the plain meaning rule.

James J. Bianco Jr. (on the brief and orally), Bianco Professional Association, and Christina A. Ferrari (on the brief) and Anna Goulet Zimmerman (on the brief), for the petitioners. Joseph A. Foster, attorney general, and K. Allen Brooks, senior assistant attorney general, (on the brief and orally), for the respondent.

Supreme Court Rule 42(9) requires all NH admitted attorneys to notify the Bar Association of any address change, home or office.

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