Greenberg, et al. v. Barros (Lawyers Weekly No. 09-011-17)
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. Superior Court
CIVIL ACTION
NO. BLS # 17-00002-BLS1
MARK GREENBERG & another1
vs.
MANUEL C. BARROS
MEMORANDUM OF DECISION AND ORDER ON
PLAINTIFFS’MOTION FOR SUMMARY JUDGMENT
Plaintiffs, Mark Greenberg and Michael LaPierre, bring this action requesting this Court to declare that they are the owners of 80% of the member interests of 31 Tozer Road, LLC (“Tozer”). Defendant, Manuel C. Barros (“Barros”), opposes the requested declaration and, by his counterclaims, asks for a declaration that Tozer is prohibited under Federal bankruptcy law from issuing membership interests to Plaintiffs. This matter is before the Court on plaintiffs’ motion for summary. For the reasons set forth below, Plaintiffs’ request for summary judgment is ALLOWED IN PART AND DENIED IN PART.
BACKGROUND
The material facts established by the parties’ Rule 9A statement and supporting materials are as follows.
On December 10, 2010, the parties entered into a Security Purchase Agreement (SPA), a contractual document primarily concerning Plaintiffs’ investment in Barros’s tennis club. The signatories included not only the parties, but also Tozer, which owned and leased the tennis club property, and Bass River Tennis Corporation (“BRTC”), which ran the operation of the tennis club. Barros signed the SPA in his individual capacity and in his capacities as manager of Tozer and president of BRTC. The immediate
1 Michael LaPierre
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effect of the SPA was that the debts owed by BRTC to Plaintiffs were converted into 80% equity interests in BRTC. Immediately before the SPA, Barros owned 100 % of the shares of BRTC. After the SPA became effective, Barros’ shares in BRTC constituted 20 % of the ownership of BRTC.
At the time of the SPA, Barros was the sole member and manager of Tozer. Section 4.1 (e) of the SPA granted “[e]ach Purchaser [a defined term meaning Greenberg, LaPierre and Barros] . . . an option [“the Option”] to purchase, at nominal price of $ 1 for each Purchaser, such equity interests in Tozer LLC, which corresponds to the percentage of ownership (on an outstanding basis) held by the Purchasers in [BRTC] at the time of the exercise of the Option exercisable for a period of ninety (90) days from the date that all Carve Out Liens have been removed.”
The SPA identified three liens existing on Tozer’s real estate that were not released at the time of the SPA. These liens were designated as the “Carve Out Liens.” On November 9, 2016, the Beverly Mortgage, the last of the Carve Out Liens, was removed. After the removal of the last Carve Out Lien, Plaintiffs, on December 22, 2016, exercised the Option given to them in § 4.1 (e) of the SPA. They sent notice to Barros and tendered the $ 1 Option price. At that time, Greenberg owned 47 % and LaPierre owned 33 % of the shares of BRTC. Thus, pursuant to the Option, Plaintiffs claim an 80% equity interest in Tozer.
On November 10, 2016, one day after the last Carve Out Lien was removed, Tozer filed a Chapter 11 petition in the U.S. Bankruptcy Court. Plaintiffs moved to dismiss the case, or in the alternative, for a determination that the automatic stay imposed by 11 U.S.C §362 (a) did not apply to the exercise of the § 4.1 (e) Option.
On December 21, 2016, the Bankruptcy Court ruled that “the automatic stay does not apply to prevent the Purchasers (as defined in the SPA) from exercising their rights under Article IV, Section 4.1 (e) of the SPA.” The Bankruptcy Court concluded that “it is in the best interests of [Tozer] and its creditors to obtain a judicial determination in state court of the Purchasers’ rights under the SPA and the various parties’ equity interests in [Tozer]. Pursuant to 11 U.S.C. Section 305 (a), the Court abstains from interpreting Section 4.1 (e) of the SPA and from determining the parties’ dispute with respect to
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membership interests in [Tozer].” The Bankruptcy Court also denied Plaintiffs motion to dismiss the bankruptcy, holding that Plaintiffs failed to show that the filing of bankruptcy was an abuse of the bankruptcy process. Barros initiated an appeal of the Order of the Bankruptcy Court lifting the automatic stay to the U.S. District Court for the District of Massachusetts. The appeal is pending without decision at this date.
Plaintiffs commenced this action requesting a declaratory judgment to the effect that “they are the rightful owners of 80% of the membership interests of Tozer, and that Greenberg owns 47 % and LaPierre owns 33 %.” Complaint, p. 7. Barros contends that it is Tozer, not him, who must issue member interests to Plaintiffs. Accordingly, he argues that any action by Tozer should be automatically stayed by the pending bankruptcy proceedings and, thus, the ruling by the Bankruptcy Court was error. Barros, in his counterclaim, asserts bankruptcy defenses. Plaintiffs move for summary judgment on their request for a declaration, and the dismissal of Barros’s defenses and counterclaims for declaratory judgment.
ANALYSIS
Summary judgment is appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Mass. R. Civ. P. 56(c); Cassesso v. Commissioner of Corr., 390 Mass. 419, 422 (1983). The moving party bears the burden of affirmatively demonstrating the absence of a triable issue and that the summary judgment record entitles the moving party to judgment as a matter of law. Pederson v. Time, Inc., 404 Mass. 14, 16-17 (1989). Once the moving party establishes the absence of a triable issue, the party opposing the motion must respond with evidence of specific facts establishing the existence of a genuine dispute. Pederson, 404 Mass. at 17. In the present case, there are no disputes of material facts. The parties seek an interpretation of their obligations under the SPA, as a matter of law.
Jurisdiction
Barros raises, as a threshold matter, whether this court has jurisdiction to decide the ownership issue with respect to Tozer while Tozer’s bankruptcy proceeding is pending in the U.S. District Court and Bankruptcy Court. Barros, nevertheless, requests a declaratory judgment in his counterclaims regarding
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the effect of Tozer’s bankruptcy filing on the obligations of the parties under the SPA. The short answer to Barros’s contentions is that the Bankruptcy Court explicitly referred the dispute regarding the parties’ ownership interests in Tozer to the state court. The Bankruptcy Court lifted the automatic stay in order for this court to proceed. Barros must now make his arguments regarding any error in the Bankruptcy Court’s Order to the U.S. District Court. Likewise, Barros must raise the contentions in his counterclaim regarding the effect of Tozer’s bankruptcy in the Federal courts. Meanwhile, this court will proceed to determine the contract issues according to Massachusetts law.
Interpretation of the SPA
The summary judgment record establishes beyond dispute that the conditions precedent to triggering the Option have occurred. The Option has been exercised by Plaintiffs. Accordingly, the only question remaining is how the recognition of Plaintiffs as holding 80 % of the equity interests in Tozer shall be recognized. Barros argues that the SPA does not specify that he “sell” 80 % of the equity interest to Plaintiffs. He assumes, therefore, that Tozer must “issue” membership interests in Tozer to make Plaintiffs’ the holders of 80 %. This semantic construction by Barros fails.
It is well settled that if a contract is unambiguous, its interpretation is a question of law that is appropriate for the court to decide. Fay, Spofford & Thorndike, Inc. v. Mass. Port Authority, 7 Mass. App. Ct. 336, 340 (1979) (questions of interpretation of contract are not contested issues of fact for summary judgment purposes). Also, it is a question of law for this court to determine whether contract terms are ambiguous. Berkowitz v. President & Fellows of Harvard College, 58 Mass. App. Ct. 262, 270 (2003).
Section 4 of the SPA is straightforward and unambiguous. Barros and Tozer “jointly and severally hereby unconditionally agree and covenant” to effect certain acts and to comply with certain obligations. SPA, § 4.1. One of those obligations is set forth under § 4.1 (e). Barros as the sole member and manager of Tozer agreed that upon exercise of the Option the equity interests in Tozer will be 80 % to Plaintiffs and 20 % to himself. Barros obligated himself to effect that ownership agreement, as only he could do as the sole member and manager of Tozer..
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The Operating Agreement for Tozer provides the answer for how Barros must fulfill his promise to honor the exercise of the Option. The Operating Agreement does not provide for the issuance of shares to indicate ownership interests in the LLC. Instead, the Operating Agreement states that “[u]pon admission . . . of a MEMBER, this Agreement (including without limitation Schedule I hereto) and/or the CERTIFICATE shall be amended appropriately to reflect the then existing names and addresses of the MEMBER and MANAGER and their respective Percentage Interests.” Operating Agreement §7.01 (b) (v). In other words, Barros, as the sole member and manager of Tozer, is obligated, as a result of his promise in the SPA, to execute the ministerial steps required by §7.01 (b) (v) to recognize the admission of Greenberg and LaPierre as members. Whether that recognition of membership interests is viewed as a “sale” by Barros or a “transfer” by Barros, is irrelevant. The fact is that Barros agreed to the revision of membership interests upon the exercise of the Option and he must take steps to fulfill his promise.
Plaintiffs are entitled to the declaration they seek. Summary judgment shall issue holding that Plaintiffs are the owners of 80% of the membership interests of Tozer, with Greenberg owning 47 % and LaPierre owning 33 %. Barros will be ordered to amend the Operating Agreement of Tozer to reflect the correct ownership interests.
Attorneys’ Fees
In their motion for summary judgment Plaintiffs seek a declaration that they are entitled to recover reasonable attorneys’ fees and costs pursuant to § 7.6 of the SPA. That section does, in fact, provide for the recovery by plaintiffs from Barros the reasonable attorneys’ fees and costs incurred by Plaintiffs “which arise, result from, or relate to . . . any failure by . . . Barros to perform any covenant or obligation of . . . Barros set forth in the [SPA].” At this stage, however, with Barros’s appeal pending in the U.S. District Court, it is premature to determine the issue of recovery of attorneys’ fees and costs. It may be, as Barros argues, that the U.S. District Court will conclude that the Tozer bankruptcy prevents the recognition of Plaintiffs as members of Tozer as a matter of bankruptcy law. Until the bankruptcy issues are finally resolved, the question of recovery of attorneys’ fees and costs must be held in abeyance.
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CONCLUSION
For the reasons stated above, Plaintiffs’ motion for summary judgment is ALLOWED IN PART AND DENIED IN PART AS FOLLOWS
Summary Judgment is ALLOWED declaring that Plaintiffs are the owners of 80% of the membership interests of Tozer, with Greenberg owning 47 % and LaPierre owning 33 %. Barros is hereby ORDERED to amend the Operating Agreement of Tozer to reflect the correct ownership interests. Summary Judgment is also ALLOWED to dismiss Barros’s Counterclaims. Summary judgment is DENIED, without prejudice, with respect to Plaintiffs’ claim for recovery of attorneys’ fees and costs.
By the Court
September 8, 2017 Edward P. Leibensperger
Justice of the Superior Court