Mullins v. Corcoran, et al. (Lawyers Weekly No. 12-019-17)
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
NO. 2014-02302 BLS1
JOSEPH R. MULLINS
vs.
JOSEPH E. CORCORAN and GARY A. JENNISON
MEMORANDUM OF DECISION AND ORDER ON
THE PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
The court borrows the following introduction from one of the many other summary judgment decisions that it has written in connection with the numerous litigations that these parties have filed against one another. “Beginning in the early 1970s, the plaintiff Joseph R. Mullins and the defendants Joseph E. Corcoran and Gary A. Jennison, through many different manner of business entities, operated a very successful real estate business. In 1987, they entered into an agreement to separate, to the extent possible, Mullins interests from those of Corcoran and Jennison (the 1987 Agreement). However, many of their ventures were apparently not susceptible to separation and continued in joint ownership. This case involves entities of that nature. Since 2001, from this court’s perspective, it appears that the principal business of these individuals and their related businesses has been to sue one another. This is, at least, the fifth such case.” The instant case is now before the court on Mullins’ motion for summary judgment.
In another summary judgment decision the court provided the following description of the parties’ prior business arrangements and their 1987 Agreement, which is also equally applicable to this dispute:
“From the early 1970s until 1987, Corcoran, Mullins, and Jennison operated a successful
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real estate business that involved the development and management of multi-unit affordable or mixed-income housing, as well as other real estate projects. For the most part, each project was owned by a limited partnership of which Corcoran, Mullins, Jennison, Inc. (CMJ) was the general partner. Other related entities (collectively with CMJ, the Companies) contracted to provide services to the projects, including construction, management and other related services. 1 Corcoran, Mullins, and Jennison were the sole shareholders of the Companies, owning, respectiviely, 60%, 20% and 20% of the shares of each.
“In 1987, after Mullins expressed his desire to leave the business, the three of them, with the assistance of counsel, negotiated the separation and going-forward Agreement.2 Pursuant to its terms, ownership of some of the projects was transferred to Corcoran and Jennison (or entities jointly owned by them) and others to Mullins (or entities owned by him), but ownership of many projects remained as it had been, i.e., jointly owned by all three through limited partnerships of which CMJ was the general partner. These projects would continue to be serviced by the related Companies, also jointly owned by Corcoran, Jennison and Mullins, in the manner described above.
“The 1987 Agreement begins with three whereas clauses, the last two of which provide:
WHEREAS the parties wish to preserve and continue the business of Corcoran, Mullins, Jennison, Inc. (“CMJ”) with respect to those endeavors listed on the schedule attached hereto . . . and to preserve and continue the businesses of CMJ Management Company, Inc. (“CMJ Management”), CMJ Builders, Inc. (“CMJ Builders”), CMJ Construction Corp. (“CMJ Construction”), CMJ Equipment Corp. (“CMJ Equipment”), CMJ Peninsula Construction, Inc. (“Peninsula”) and Bay Pines Development Company, Inc. (“Bay Pines”) (together with CMJ, the “Companies”) with respect to those endeavors listed on the schedules attached hereto . . . and
1 The related entities included: CMJ Management Company, Inc., CMJ Builders, Inc., CMJ Construction Corp., CMJ Equipment Corp., CMJ Peninsula Construction, Inc., and Bay Pines Development Company, Inc.
2 The agreement was simply titled “Agreement.”
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WHEREAS the parties wish to conduct other aspects of their business separately hereafter, and accordingly wish to withdraw from joint sponsorship, management and/or ownership [of] the projects listed on the attached schedules respectively entitled “Cor-Jen Projects,” “C&J Entities” and “JRM Projects.”
“Consistent with the latter Whereas clause, Sections 1(a)-(f) of the Agreement describe the mechanism by which ownership interests in the projects that will no longer be jointly owned will be transferred, service contracts for those projects that will be assigned to Corcoran and Jennison owned entities (the C&J Entities and Cor-Jen ) or Mullins owned entities (JRM), as the case may be, and the liabilities associated with each project born by the parties (or the corresponding entities) that now own the projects. . . .
“Consistent with the first Whereas clause quoted above, Section 1(g) provides that: “The individuals will retain their present stock ownership interests in the Companies. The business operations and conduct of the Companies will henceforth be governed by the provisions of this Agreement.” Section 3 and 4 then proceed to describe how, going forward, the CMJ Projects, i.e., the projects as to which ownership will be preserved among the three parties as it existed at the time of the 1987 Agreement, will operate and the Companies will be managed.
“More specifically, Section 3 states that CMJ Management will continue to manage the CMJ Projects and CMJ Construction, CMJ Builders, and Peninsula will continue to be the contractors to them. Furthermore, the “terms and conditions” of these “arrangements shall be those presently in effect, and no change in such terms shall be effected without consent of all the parties hereto.” This section goes on to state that “[a]ll business dealings of and among any one or more of” the parties to the agreement, the Companies (other than CMJ Equipment), Cor-Jen, the C&J Entities, and JRM “shall be conducted in scrupulous good faith according to good
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established business practices . . . . It is the intent of this Agreement that each of the parties hereto be entitled to enjoy all the economic benefits of the Companies pro rata, in accordance with their present stock ownership, and in accordance with the provisions of Section 4(3) [sic] and 4(4) [sic].” 3 (Emphasis in original). Lastly, Section 3 prohibits CMJ, CMJ Builders, CMJ Construction, or Bay Pines from entering into any new ventures “without the unanimous consent of the parties hereto.”
“Section 4(a), echoing Section 1(g), provides that: “Stock ownership of the individuals in the Companies shall be maintained in the current proportions and no issue or redemption of stock or other capital event shall be effected in any of the Companies without the unanimous consent of all of the parties hereto.” Subsection (b) further provides that: “None of the Companies will . . . guaranty the obligations of any one or more of the parties hereto, JRM, Cor-Jen or any other entity.”
This litigation involves one of the CMJ Projects—the Cobble Hill Apartments.
FACTUAL BACKGROUND OF THIS LITIGATION
The following summary of relevant facts, which are material to the pending motion for summary judgment, are taken from the parties’ 142 page, 350 paragraph Statement of Undisputed Material Facts, the vast majority of which are actually disputed by one side or the other. The court has attempted to distill from this dense pleading the facts necessary to consider the motion, viewed in the light most favorable to Corcoran and Jennison, the non-moving parties.
3 The Agreement does not contain a Section 4(3) or 4(4) but it is evident that the reference should be read as Sections 4(c) and 4(d), which deal with the calculation and distribution of profits from the Companies among Corcoran, Jennison, and Mullins.
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The Cobble Hill Apartments are located in Sommerville. This property was owned by a Massachusetts limited partnership, Cobble Hill Apartments Company, LLP (CHAC), and CMJ was the general partner of CHAC. When the 1987 Agreement was executed, this property had a 224 unit apartment building on its east side and a convenience store and a few other small retail businesses on its west side. In 2003, Corcoran, Jennison and Mullins agreed to form Cobble Hill Center LLC (CH Center), a limited liability company the sole member of which is Cobble Hill Trust; the beneficiaries of that trust, through another intermediary entity, are Corcoran, Jennison, and Mullins, in their traditional 60/20/20 percent arrangement. CH Center is managed by CMJ. Simultaneous with the formation of CH Center, CHAC created a separate parcel encompassing the west side of the property and leased it to CH Center for 99 years with an option to purchase for a nominal payment. The purpose of this transaction was to facilitate the development of this west side parcel with a new building.
Starting some time thereafter steps were undertaken to develop the leased parcel and modest costs were incurred to that end. Beginning in 2009, Corcoran’s son, Joseph J. Corcoran (Joseph) undertook the task of leading this project and development activities accelerated. Mullins was generally aware of the development work and the direction that the project was taking. While Joseph was apparently reporting to his father and Jennison on his development efforts, Mullins was kept generally informed of this work and the costs being incurred on a periodic basis. Mullins did not receive nor did he ask to receive all of the detailed reports that Joseph or others involved in the development prepared, nor was he denied any information that he requested. By the first half of 2012, Mullins was aware of the project plan, which was to be a new apartment building with 160 units and ground floor retail; the development budget was $ 36
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to $ 38 million. Mullins was generally supportive of the approach to developing the west side parcel.
On July 17, 2012, Mullins and his son attended a CMJ quarterly meeting at which the Sommerville project was discussed in some detail. Although there is some evidence that Mullins had some internal concerns about the project which he shared with his son, he did not express them at the meeting. To the contrary, he suggested to Joseph that a local attorney be hired to facilitate the permitting process and move the project along.
By February, 2013, Mullins was aware that the project was going to require a $ 1 million to $ 1.5 million capital call, and expressed no opposition to the project moving forward. In the summer of 2013, Mullins was told that it was anticipated that construction would begin in 2014, and again he expressed no objection.
In a letter dated September 20, 2013, Mullins first stated that he had not consented to the Coble Hill Center development project and that certain development expenses should not be incurred without his consent. He did, however, consent shortly thereafter to a refinancing of the Cobble Hill Apartments, a necessary part of the project because a substantial part of the proceeds of the refinancing were to be applied to development expenses. As part of that refinancing, Cobble Hill Center exercised its option to purchase the west side parcel.
In December 2013, Joseph sent Corcoran, Jennison, and Mullins a comprehensive package of materials, approximately 250 pages in length, which included, among other things, a project timeline, financial analysis, cost analysis and project drawings (the December package). These materials disclosed, apparently for the first time, that Joseph was to receive a 10% ownership interest in Cobble Hill Center, deducted ratably from Corcoran’s, Jennison’s, and Mullins’ equity, with the result that Mullins’ interest would be reduced to 18%. On January 10,
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2014, Mullins responded to his receipt of the December package, by asking for additional information. On February 28, 2014, Mullins sent Corcoran and Jennison a seven page letter explaining why he would not consent to the project moving forward. In March, Mullins wrote another letter in which he suggested alternative transactions for the west side parcel. This was the first time that he expressed to Corcoran or Joseph his preference for a different development approach. In March and May, 2014, it was reported (although it may already have been understood) that CMJ would have to guarantee the proposed construction loan needed to finance development. Mullins wrote to Corcoran and Jennings reminding them that the 1987 Agreement prohibited CMJ from guaranteeing loans of other entitiies (without the consent of all three parties).
Mullins filed this law suit in July, 2014. This appears to have had the effect of stopping all development activity. Subsequent efforts to resolve the impasse by selling the property, agreeing to an alternative transaction, or buying one another’s interest in CH Center have all failed.
THE CLAIMS
In his complaint, Mullins asserts two claims. Count I alleges a breach of contract, i.e., the 1987 Agreement. He asserts that the 1987 Agreement was breached by (i) development efforts that were undertaken on Cobble Hill Center without his consent; (ii) spending CMJ funds on this effort without his consent; (iii) refusing to stop the Project (presumably before this action was filed); and (iv) refusing to meet with Mullins. Count II alleges a breach of fiduciary duty. It is based on essentially the same contentions as the breach of contract claim.
Corcoran and Jennings each separately answered Mullin’s complaint and asserted counterclaims against him. Both of their counterclaims are also pleaded in two counts and also
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allege claims of breach of contract and breach of fiduciary duty. These counterclaims, in effect, assert that Mullins’ conduct breached the 1987 Agreement because his business dealings with Corcoran and Jennings, as described above, have not been “conducted in scrupulous good faith according to good established business practices . . . . [and as a result inconsistent with] the intent of this Agreement that each of the parties hereto be entitled to enjoy all the economic benefits of the Companies pro rata.” The claims of breach of fiduciary duty are based on essentially the same alleged conduct.
In his motion for summary judgment, Mullins requests that judgment enter in his favor on his claims and dismissing the counterclaims.
DISCUSSION
The standards to be applied in determining whether summary judgement may enter in favor of a party asserting a claim are well known to the litigants and need not be set out here. The court will address each of acts alleged to establish, as a matter of law, a breach of contract or a breach of fiduciary duty.
The Guaranty of the Construction Loan
Mullins asserts that the guarantee of the construction loan necessary to build the Cobble Hill Center project would violate the provisions of the 1987 Agreement which prohibit one of the CMJ companies from guaranteeing the obligations of another company. The problem with this assertion, which cuts across many of Mullins’ claims of breach of contract, is that no such guaranty was executed. A guaranty of the construction loan was proposed, but the project stopped, no construction financing was finalized, and therefore there was nothing to guaranty. It
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certainly was not a breach of contract to propose such a guarantee, which clearly could have been provided by CMJ if Corcoran, Jennings, and Mullins had agreed.
Indeed, the summary judgment record contains evidence that many, if not all, of the earlier CMJ development projects required guaranties of some manner during construction. In many instances these were personal guarantees of each of the parties, which would appear to be riskier for the individuals than a guaranty provided by a business entity. In fact, the court will take judicial notice of the fact that most major construction projects of the kind contemplated here cannot be undertaken with non-recourse debt during the construction phase of the project. It is clear that, under the 1987 Agreement, CMJ could not guaranty a CH Center loan without the unanimous agreement of the three parties to the 1987 Agreement. Nonetheless, it is possible that, under certain circumstances, if one party led the other two to believe that a development project was approved so that substantial time and effort was expended to bring it to the point of financing, and then refused to execute any kind of loan guarantee without justification, causing the project to founder, he might have breached that contract provision that requires all three parties to conduct the business of the companies that they own jointly “in scrupulous good faith according to good established business practices.”
For present purposes it is enough to note, that no guaranty was provided and therefore this provision of the 1987 Agreement was not breached.
The Ownership Interest of the Parties in CH Center
The court has no difficulty finding that although Cobble Hill Center was not a CMJ project identified in the schedule to the 1987 Agreement, it was carved out of CHAC, which was such a project, with an express understanding by all of Corcoran, Jennings, and Mullins that the opportunity to develop the west side of the property was another CMJ project, subject to the
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applicable provisions of the 1987 Agreement. Accordingly, Mullins 20% interest in that project could not be reduced to 18% without his express agreement. There is nothing in the summary judgment record that establishes a business practice that the person who leads a development project will always receive a 10% equity interest in that project such that Mullins could be deemed to have agreed to give 2% of his interest to Corcorcan’s son.
However, suggesting that Mullins give Joseph his alloquat share of a 10% interest in the project is not a breach of contract, and, once again, Joseph was never granted that interest. There is no indication in the summary judgment record that this project could not have moved forward if that part of the project development plan was eliminated, because Mullins would have agreed to the rest of the proposal. A request that Mullins transfer some of his equity to Joseph is not a breach of contract. Mullins was entitled to reject that part of the development proposal, as he did.
The Obligation to Act in Scrupulous Good Faith
With respect to this somewhat amorphous provision of the 1987 Agreement, it is sufficient to say that many disputed questions of fact exist regarding whether one or all of the parties acted in scrupulous good faith toward the others. For example, there are questions of fact as to whether Corcoran and Jennings plowed ahead with the project knowing that Mullins harbored reservations about the proposed plan, incurring expenses that Mullins had not agreed to fund; and also questions of fact concerning whether Mullins consciously led Corcoran and Jennings to believe that he was on board with the development plan while harboring an undisclosed intent to refuse to provide his consent at the last moment in order to achieve some advantage to which he would not otherwise be entitled, or simply to inflict loss or frustration as
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part of the parties’ decade long feud. These disputed questions of fact cannot be resolved by summary judgment.
Unconsented to New Ventures
The 1987 Agreement does prohibit CMJ from “enter[ing] into any new ventures without the unanimous consent of the parties.” Here, there is at the very least a factual dispute regarding Mullins’ consent to move forward with the development of the west side of the Cobble Hill Apartment property. Clearly, Mullins participated in the formation of a new entity in 2003 for the purpose of developing this land with a new building and the creation of a separate west side parcel to enable it. He also participated in a number of meetings in which the status of the project and the capital call necessary to move it forward was discussed. He made suggestions concerning how to accomplish the development. Unquestionably, disputed issues of fact exist concerning his consent to the development project—when it began and when it ended.
Whether expenses were incurred after February, 2014, when Mullins expressly stated that he did not consent to the project, that might constitute damages to CH Center4, also involves disputed questions of fact. It may be that such expenses that were incurred were necessary to preserve the economic benefit of the several years of development activity that had gone on up to that date. Moreover, it is possible that a finder of fact could conclude that Mullins’ express reasons for withholding his consent to the development in February, 2014 were prevarication and not genuine, thereby constituting a breach of the contractual obligation requiring that Mullins conduct himself in scrupulous good faith according to good established business practices. It may well be that Mullins reasons for withholding consent were held in good faith and first expressed in February, 2014 because that is when he first had sufficient information to perform a
4 It might be that such damages would be damages to CH Center and therefore have to be asserted in a derivative claim.
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thorough review of the proposal. However, on the record before it, the court cannot make that factual finding as a matter of law.
Providing Management Reports
While Mullins may not have received all of the memoranda and documents generated as part of the project, as noted above, he (or his staff) appears to have been periodically informed of all material issues in the development path. Undoubtedly, Mullins and his staff were aware the a project of this scope would generate a great deal more paper than Mullins was receiving; however, the summary judgment record does not contain any evidence that Mullins requested additional information until January, 2014, after he received the comprehensive project report. The court cannot say as a matter of law that, as it relates to the Cobble Hill Center project, Corcoran and Jennings breached an obligation under the 1987 Agreement to provide him with reports.5
Damages
As questions of fact exist with respect to whether there has been a breach of contract, there are clearly questions of fact concerning whether any breach has caused Mullins (or CH Center) damages.
Breach of Fiduciary Duty
Unquestionably, Corcoran, Jennison, and Mullins, as owners of closely held businesses owed one another fiduciary duties of utmost good faith and fair dealing. In this case, as well as in the other litigations in which these parties have sued one another, the obvious enmity between
5 The 1987 Agreement states that “Mullins shall be furnished forthwith with copies of all reporst prepared for management of the Companies, . . .” “Reports” is further defined to include financial statements, projections, feasibility reports and clearly includes important reports necessary to follow significant developments. It is not clear that in this context “reports” means every informational memorandum generated with respect to a particular development project.
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them makes this fiduciary obligation difficult to fulfill. The court’s review of the record suggests that both sides have been obstinate in refusing any consensual resolution of this dispute, other than the one he proposes. Under the circumstances, the court cannot say as a matter of law that any party, or all of the parties, have breached this obligation. Summary judgment cannot enter on either party’s breach of fiduciary duty claim.
Corcoran’s and Jennison’s Breach of Contract Claim
For the reasons explained above, the court also cannot rule as a matter of law, that Corcoran’s and Jennison’s breach of contract claim fails.
ORDER
For the foregoing reasons, Mullins’ motion for summary judgment is DENIED. The clerk shall schedule this case for a final pre-trial conference. A trial date will be scheduled at that conference.
____________________
Mitchell H. Kaplan
Justice of the Superior Court
Dated: January 31, 2017.