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Meunier, et al. v. Market Strategies, Inc. (Lawyers Weekly No. 12-072-17)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT.
1684CV01546-BLS2
1684CV03592-BLS2
____________________
JOHN J. MEUNIER, CHRISTY M. WHITE, and the JOHN J. MEUNIER 2012 IRREVOCABLE TRUST
v.
MARKET STRATEGIES, INC.
____and____
MARKET STRATEGIES, INC.
v.
COGENT RESEARCH HOLDINGS LLC
____________________
MEMORANDUM AND ORDER ON MARKET STRATEGIES, INC.’S MOTION FOR SUMMARY JUDGMENT
John Meunier, Christy White, and the John J. Meunier 2012 Irrevocable Trust (the “Trust”) claim that Market Strategies, Inc. (“MSI”) breached its contractual obligations to make certain payments to Cogent Research Holdings LLC (which the parties refer to as “Holdco”). They also claim that after signing the contract at issue MSI misrepresented its willingness and ability to pay what it owes and thereby committed deceptive acts in violation of G.L. c. 93A. Finally, Meunier and White seek declaratory judgment regarding the enforceability of certain non-competition, non-solicitation, and confidentiality agreements. MSI has moved for summary judgment.
The Court will grant summary judgment in MSI’s favor on the contract claim because Plaintiffs are not intended beneficiaries of MSI’s payment obligations to Holdco as a matter of law. It will also allow MSI’s motion with respect to the declaratory judgment claim because any dispute regarding enforceability of the non-competition or non-solicitation agreements is moot and Plaintiffs lack standing to challenge the confidentiality agreement on the ground that MSI committed a material breach of contract by not paying Holdco. However, the Court will deny the summary judgment motion with respect to the misrepresentation and c. 93A claims because they are independent from the contract claim.
1. Undisputed Factual Background. These actions arise from the May 2013 sale of Cogent Research LLC to MSI. At the time of the transaction, Meunier, White,
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and the Trust were the sole owners of Cogent Research. They agreed to sell Cogent Research to MSI in exchange for an “Initial Payment” of $ 8.0 million, a “Delayed Payment” of $ 2.0 million, and a “Contingent Payment” of roughly $ 3.15 million that was due after MSI received additional audited financial statements of Cogent Research. Meunier and White also agreed to work for MSI for three years and entered into a non-competition, non-solicitation, and confidentiality agreement.
Meunier, White, and the Trust created Holdco in connection with this transaction. They are the sole owners of Holdco. They transferred ownership of Cogent Research to Holdco, which in turn sold Cogent Research to MSI. The parties’ purchase agreement provides that MSI was required to pay an Initial Payment, Delayed Payment, and Contingent Payment to Holdco. MSI does not have any contractual obligation to make any of these payments to Meunier, White, or the Trust.
Although the parties’ purchase agreement provides that MSI was to make the Deferred and Contingent Payments to Holdco no later than April 30, 2016, a separate subordination agreement executed at the same time modifies those terms. The parties to the subordination agreement were Holdco, MSI, and an administrative agent representing Senior Lenders of MSI. Meunier and White signed this contract on behalf of Holdco. The subordination agreement provides in § 2.1 that the obligations of MSI to make the Delayed and Contingent Payments “shall be subordinate and subject in right and time of payment … to the prior Payment in Full of all Senior Debt” held by the Senior Lenders. It provides in § 2.3 that, so long as Senior Debt is outstanding, MSI shall not make and Holdco shall not accept payment of any part of the Deferred and Contingent Payments if doing so would cause MSI to default under the Senior Credit Agreement.1 And it provides in § 2.4(a) that Holdco shall not sue
1 In its prior decision dated February 23, 2017, the Court construed § 2.3 as providing that MSI shall not make and Holdco shall not accept payment of any part of the Deferred and Contingent Payments until the Senior Lenders are paid in full. The Court understood the clause barring payments that would cause a default as limiting payments to Holdco that would otherwise be permitted under § 2.2 if MSI were involved in a bankruptcy or similar proceeding. In their summary judgment memoranda, however, both sides say that § 2.3 permits MSI to make Deferred or Contingent Payments at any time—even if Senior Debt is still unpaid—so long as doing so does not breach any obligation owed to the Senior Lenders. The Court accepts the parties’ shared construction of their own contract.
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MSI or take any other action to enforce MSI’s payment obligations under the purchase agreement until the Senior Debt is paid in full.
2. Contract Claim. To date, MSI has not paid any part of the $ 5.15 million in Deferred and Contingent payments that it owes to Holdco. Plaintiffs claim that this constitutes a breach of the purchase agreement. Meunier, White, and the Trust all sued MSI in their own names, purporting to assert their own rights as intended third-party beneficiaries of MSI’s contractual promise to pay Holdco these amounts.
MSI contends that it is entitled to summary judgment on this claim because Plaintiffs have no standing to raise it. (On the merits, MSI contends that it is required or at least permitted to withhold these payments under the subordination agreement. It does not seek summary judgment on that ground.)
2.1. Legal Background — Intended Beneficiaries and Contract Interpretation. The purchase agreement provides (in § 9.09) that it “will be governed by and construed and enforced in accordance with” Massachusetts law.
“Under Massachusetts law, only intended beneficiaries, not incidental beneficiaries, can enforce a contract.” See Harvard Law School Coalition for Civil Rights v. President and Fellows of Harvard College, 413 Mass. 66, 71 (1992). “One need not be a beneficiary of every provision of the contract in order to be an intended beneficiary with enforceable rights; it is enough to be the intended beneficiary of the promise one is seeking to enforce.” The James Family Charitable Foundation v. State Street Bank and Trust Co., 80 Mass. App. Ct. 720, 725 (2011). An intended third-party beneficiary “stands in the shoes” of, and thus has no greater rights than, the contracting party whose rights the beneficiary seeks to enforce. Rae v. Air-Speed, Inc., 386 Mass. 187, 196 (1982), quoting Restatement (Second) of Contracts § 309 (1981); accord Campione v. Wilson, 422 Mass. 185, 194 (1996).
Plaintiffs would have standing to enforce MSI’s promises to pay Holdco only if the purchase agreement expressly or implicitly conveyed a “clear and definite” intent that Plaintiffs have the right to enforce those promises. See James Family Charitable Foundation, supra, at 724-725, quoting Lakew v. Massachusetts Bay Transp. Auth., 65 Mass. App. Ct. 794, 798 (2006), and Anderson v. Fox Hill Village Homeowners Corp., 424 Mass. 365, 366-367 (1997). “[T]he language and circumstances of the
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contract” determine whether the contracting parties intended that Plaintiffs would have the right to sue MSI for not paying amounts it owes to Holdco. Anderson, supra, at 367.
If written contracts are unambiguous, as they are here, a court “may determine whether” someone who was not a direct party to a particular promise “was an intended beneficiary as a matter of law.” James Family Charitable Foundation, 80 Mass. App. Ct. at 725. This follows from the general rule that “[i]f a contract … is unambiguous, its interpretation is a question of law that is appropriate for a judge to decide on summary judgment.” Seaco Ins. Co. v. Barbosa, 435 Mass. 772, 779 (2002). “Whether a contract is ambiguous is also a question of law.” Eigerman v. Putnam Investments, Inc., 450 Mass. 281, 287 (2007).
Although the parties disagree sharply as to whether the purchase agreement expressly or implicitly indicates that Plaintiffs are intended beneficiaries with the right to enforce MSI’s payment obligations, that does not mean that the contract is unclear. “[A]mbiguity is not created simply because a controversy exists between parties, each favoring an interpretation contrary to the other’s.” Indus Partners, LLC v. Intelligroup, Inc., 77 Mass. App. Ct. 793, 795 (2010) (affirming summary judgment based on contract interpretation), quoting Jefferson Ins. Co. v. Holyoke, 23 Mass. App. Ct. 472, 475 (1987).
Plaintiffs are mistaken in asserting that the parties’ dispute regarding their contractual intent is a factual question, and that the issue can only be decided at trial and after considering Plaintiffs’ subjective understanding that they would be able to enforce MSI’s payment obligations. Since the parties’ contracts are unambiguous, parol or extrinsic evidence regarding the parties’ intent is inadmissible. See, e.g., General Convention of New Jerusalem in the United States of America, Inc. v. MacKenzie, 449 Mass. 832, 835 (2007); Herson v. New Boston Garden Corp., 40 Mass. App. Ct. 779, 792 (1996). But even if parol evidence could be considered, Plaintiffs’ uncommunicated subjective intent would still be irrelevant. The meaning and effect of a contract “is not to be determined by the secret thought or unexpressed intent of any of the parties, but is to be determined by the intent as expressed by words and acts of all the parties in the light of the circumstances.” Tudor Press v. Univ. Distrib.
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Co., 292 Mass. 339, 341 (1935). In other words, “contracts rest on objectively expressed manifestations of intent,” and cannot be altered by “subjective and unexpressed expectations” of one party or side. Beatty v. NP Corp., 31 Mass. App. Ct. 606, 612 (1991). Thus, the terms of a written contract—and not a party’s subjective motives, desires, or intent—“determine whether performance under the contract would necessarily and directly benefit” a third-party and thus make them an intended beneficiary with the right to enforce the contract. Lonsdale v. Chesterfield, 662 P.2d 385, 390 (Wash. 1983) (en banc); accord James Family Charitable Foundation, 80 Mass. App. Ct. at 725.
2.2. Construing the Contracts. The Court concludes that the contract documents are unambiguous and that they do not contain any clear or definite expression that Plaintiffs have any right to enforce MSI’s payment obligations.
The purchase agreement provides (in § 2.05) that MSI is required to pay the Delayed and Contingent Payments to Holdco, the seller of Cogent Research. No provision requires MSI to make those payments to any of the Plaintiffs, or gives Plaintiffs any right to compel MSI to make the payments to Holdco.
Plaintiffs’ assertion that the purchase agreement expressly makes them intended third-party beneficiaries with the right to enforce MSI’s obligations to pay Holdco is without merit. Plaintiffs point to § 9.07 of the purchase agreement, which provides in relevant part that “[t]his Agreement will not confer any rights or remedies upon any Person … other than the Parties and their respective successors and permitted assigns[.]”This provision means what it says and nothing more: no person or entity that is not a party to the purchase agreement has any right to enforce and may not seek any remedies for a breach of this contract. Although each of the Plaintiffs is a party to the purchase agreement, § 9.07 does not state that all of the contracting parties are intended beneficiaries of all of the contract provisions. Nor does § 9.07 resolve the matter against Plaintiffs, as MSI contends. This provision does not say that the contracting parties have no right to enforce obligations that are not owed to them directly. The heading to this section (“No Third Party Beneficiaries”) does not matter, because § 9.03 provides that “[t]he headings contained in this Agreement are included for purposes of convenience only, and will not affect the
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meaning or interpretation of this agreement.” In sum, § 9.07 does not expressly resolve the issue one way or the other.
The fact that Meunier, White, and the Trust are the sole owners of Holdco, and therefore will directly benefit if and when MSI pays Holdco the Deferred and Contingent Payment amounts, is not enough to show that Plaintiffs are intended beneficiaries of the promise to make those payments to Holdco. See The James Family Charitable Foundation, 80 Mass. App. Ct. at 724 (intent to give third-party benefit of performance is not enough to make them intended beneficiary with right to enforce performance). Whenever someone contracts to pay money to a closely held company they know that the owners of the company will benefit from that payment. Typically, however, members or shareholders who wish to enforce a contractual obligation owed to a close corporation must bring a derivative action on behalf of the business; they do not automatically have any right to sue in their own names merely because they will benefit if the duty to the corporation is carried out. See, e.g., Pagounis v. Pendleton, 52 Mass. App. Ct. 270, 275 (2001).
The structure of MSI’s purchase and Holdco’s sale of Cogent Holdings indicates that the parties did not intend for Plaintiffs to be able to compel MSI to pay any part of the Deferred or Contingent Payments or seek damages if it failed to do so. If MSI had promised Holdco that it would make payments directly to Meunier, White, and the Trust, then Plaintiffs would have been intended beneficiaries of that promise. See Choate, Hall & Stewart v. SCA Services, Inc., 378 Mass. 535, 546 (1979). But since MSI instead promised to make payments to Holdco, with the understanding and expectation that the economic benefit of those payments would indirectly flow through to its members, Plaintiffs are merely incidental beneficiaries with no right to enforce those contract provisions. Id. at 547 & n.21;2 accord, e.g., Spring Valley IV Joint Venture v. Nebraska State Bank of Omaha, 690 N.W.2d 778, 782-783 (Neb.
2 The SJC quotes with approval the following example from the Restatement of Contracts: “B promises A to pay whatever debts A may incur in a certain undertaking. A incurs in the undertaking debts to C, D and E. If the promise is interpreted as a promise that B will pay C, D and E, they are intended beneficiaries . . . ; if the money is to be paid to A in order that he may be provided with money to pay C, D and E, they are at most incidental beneficiaries.” Id., quoting draft version of what became Restatement (Second) of Contracts § 302, Illustration 3 (1981).
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2005) (where bank had contractual obligation to disburse loan funds to individual borrower, who had disclosed that purpose was to invest in specific partnerships, the partnerships “were at most incidental beneficiaries of the loan agreements and … lack[ed] any enforceable property rights to the loan proceeds”).
As the United States Court of Appeals for the First Circuit has explained, “Massachusetts courts steadfastly have refused to accord intended beneficiary status under a contract whose terms, interpreted in the particular transactional setting, do not provide for the benefits of performance to flow directly to the third party.” Public Service Co. of New Hampshire v. Hudson Light and Power Dept., 938 F.3d 338, 343 (1st Cir. 1991) (holding that, where PSNH agree to repurchase electricity from Massachusetts Municipal Wholesale Electric Company, with understanding that local municipal power companies would benefit from PSNH’s payments to MMWEC, power companies were not intended beneficiaries and had no right to enforce contract) (applying Massachusetts law). Massachusetts is consistent with other jurisdictions in confining intended beneficiary status to people and entities that have a right directly to receive benefits from performance of a contractual promise. See, e.g., Choate, Hall, 378 Mass. at 547 n.21 (citing cases); Public Service, 938 F.2d at 343 n.12 (citing cases); Lonsdale, 662 P.2d at 390 (under Washington law, third-party is intended beneficiary only where “the contract necessarily and directly benefits the third person”) (quoting Vikingstad v. Baggott, 282 P.2d 824, 826 (1955).
Not only is there nothing in the purchase agreement to suggest that Plaintiffs are third-party beneficiaries of MSI’s obligations to pay Holdco, but in addition the subordination agreement confirms that the parties had no clear intent to give Plaintiffs any right to enforce those obligations.
Since the purchase agreement and subordination agreement were closely related and part of a single transaction, the Court must read them together and consider that circumstance in construing any part of either document. See Chelsea Indus., Inc. v. Florence, 358 Mass. 50, 55-56 (1970); Chase Commercial Corp. v. Owen, 32 Mass. App. Ct. 248, 250 (1992). The Court must construe the parties’ contracts in a manner that will give them “effect as … rational business instrument[s] and in a manner which will carry out the intent of the parties.” Robert and Ardis James
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Foundation v. Meyers, 474 Mass. 181, 188 (2016), quoting Starr v. Fordham, 420 Mass. 178, 192 (1995). And “the parties’ intent ‘must be gathered from a fair construction of the contract[s] as a whole and not by special emphasis upon any one part.’ ” Kingstown Corp. v. Black Cat Cranberry Corp., 65 Mass. App. Ct. 154, 158 (2005), quoting Ucello v. Cosentino, 354 Mass. 48, 51 (1968), and Crimmins & Peirce Co. v. Kidder Peabody Acceptance Corp., 282 Mass. 367, 375 (1933).
Plaintiffs’ claim that they are intended beneficiaries of MSI’s payment obligations cannot be squared with the terms of the subordination agreement. That contract, as explained above, provides that MSI’s obligations to pay Holdco under the purchase agreement are subordinate to MSI’s pre-existing obligations to repay its Senior Lenders. The subordination agreement also contained a covenant not to sue. It provides that Holdco “shall not … take any Enforcement Action with respect to” the Deferred and Contingent Payment obligations of MSI “without the prior written consent” of the administrative agent representing the Senior Lenders. The phrase “Enforcement Action” is defined to include bringing a lawsuit, or initiating or participating with others in a lawsuit, to collect all or any part of the Deferred or Contingent Payment amounts. The covenant that Holdco will not sue to enforce MSI’s payment obligations would have little meaning if Plaintiffs could circumvent it at any time by suing MSI in their own names rather than on behalf of Holdco.
For all of these reasons, MSI is entitled to summary judgment in its favor on the contract claim.3
3. Claims for Misrepresentation and Violation of G.L. c. 93A. In Counts II and III of their amended complaint, Plaintiffs claim that they relied to their detriment on false representations by MSI that it was willing and able to pay all amounts it owes
3 Plaintiffs made a request under Mass. R. Civ. P. 56(f) for more time to conduct discovery. But they have not shown that the additional discovery they seek would be relevant to the issue of whether Plaintiffs have standing to enforce MSI’s payment obligation under the purchase agreement. It would therefore be inappropriate to delay resolution of this part of the summary judgment motion to await further discovery. See Commonwealth v. Fall River Motor Sales, Inc., 409 Mass. 302, 308 (1991) (“One common reason for the denial of a continuance [under Rule 56(f)] is the irrelevance of further discovery to the issue being adjudicated in summary judgment.”).
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to Holdco by the due date specified in the purchase agreement. These are not fraud in the inducement claims, as the alleged misrepresentations occurred after the contracts were signed.
MSI argues that if Plaintiffs lack standing to assert their claim for breach of contract, as the Court ruled above, then they also lack standing to bring suit under G.L. c. 93A or for intentional or negligent misrepresentation.
This argument is without merit. The c. 93A and misrepresentation claims do not depend upon and are not derivative of Plaintiffs’ failed claim for breach of contract. Plaintiffs have mustered evidence sufficient to support their claims for misrepresentation. If they can prove that MSI committed a fraud or a deceptive act in violation of c. 93A by misrepresenting its willingness and ability to pay Holdco what it is owed, MSI cannot avoid liability under these theories on the ground that the subordination agreement still absolves it of any current obligation to pay Holdco. The Court will deny the summary judgment motion with respect to these two claims.
4. Declaratory Judgment Claim. Finally, Count IV of the complaint seeks a declaratory judgment regarding the enforceability of the non-compete, non-solicitation, and confidentiality provisions that Meunier and White agreed to as part of the purchase agreement. Plaintiffs did not directly oppose the summary judgment motion with respect to the declaratory judgment claim.
This claim is moot with respect to the non-competition and non-solicitation provisions because they expired by their terms on May 23, 2017, which was four years after the parties executed the purchase agreement. With respect to their duty not to disclose confidential information, Plaintiffs claimed that this provision was unenforceable because MSI had breached its obligation to pay all amounts owed to Holdco. Since Plaintiffs have no standing to enforce those contractual obligations, they also lack standing to seek declaratory judgment as a remedy for such a brief.
In sum, given that there is no longer any actual controversy about the part of this claim that is moot and Plaintiffs lack standing to press the rest of the claim, it would not be appropriate to declare the rights of the parties and MSI is instead entitled to summary judgment dismissing this claim. See Alliance, AFSME/SEUI, AFL-CIO, v. Commonwealth, 425 Mass. 534, 537-539 (1997) (in absence of actual
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controversy between the parties, claim for declaratory relief under G.L. c. 231A must be dismissed); City of Revere v. Massachusetts Gaming Comm’n, 476 Mass. 591, 607-608 (2017) (affirming dismissal of declaratory judgment claim for lack of standing); Manufacturing Imp. Corp. v. Georgia Pacific Corp., 362 Mass 398, 400-401 (1972) (affirming dismissal of declaratory judgment claim regarding rights under contract, because plaintiff alleged no facts under which it would be entitled to recover from defendant for breach of contract).
ORDER
Market Strategies, Inc.’s motion for summary judgment is ALLOWED IN PART with respect to the claims against it for breach of contract and declaratory judgment, which shall be dismissed with prejudice when final judgment enters in these consolidated actions, and DENIED IN PART with respect to the claims against it for violating G.L. c. 93A and for intentional or negligent misrepresentation.
June 12, 2017
___________________________
Kenneth W. Salinger
Justice of the Superior Court

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Posted by Stephen Sandberg - June 15, 2017 at 5:37 pm

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Meunier, et al. v. Market Strategies, Inc. (Lawyers Weekly No. 12-016-17)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT.
1684CV01546-BLS2
1684CV03592-BLS2
____________________
JOHN J. MEUNIER, CHRISTY M. WHITE, and the JOHN J. MEUNIER 2012 IRREVOCABLE TRUST
v.
MARKET STRATEGIES, INC.
____and____
MARKET STRATEGIES, INC.
v.
COGENT RESEARCH HOLDINGS LLC
____________________
MEMORANDUM AND ORDER ALLOWING MOTION TO DISMISS CLAIM AGAINST COGENT RESEARCH HOLDINGS, LLC
Market Strategies, Inc. (“MSI”) claims that Cogent Research Holdings LLC (which the parties refer to as “Holdco”) is liable for breaching a covenant not to sue not because Holdco itself filed a lawsuit, but instead because the three members of Holdco sued MSI in their individual capacities. The two lawsuits have been consolidated. The Court will ALLOW Holdco’s motion to dismiss the one claim against it because MSI has not alleged facts plausibly suggesting that Holdco can be held liable for breach of contract.
1. Factual Background. These consolidated actions arise from the May 2013 sale of Cogent Research LLC to MSI. At the time of the transaction, John Meunier, Christy White, and the John J. Meunier 2012 Irrevocable Trust were the sole owners of Cogent Research. They agreed to sell Cogent Research to MSI in exchange for an “Initial Payment” of $ 8.0 million, a “Delayed Payment” of $ 2.0 million, and a “Contingent Payment” of roughly $ 3.14 million that was due after MSI received additional audited financial statements of Cogent Research. Meunier and White also agreed to work for MSI for three years and entered into a non-competition agreement.
Meunier, White, and the irrevocable trust created Holdco in connection with this transaction. They transferred ownership of Cogent Research to Holdco, which in turn was the entity that actually sold Cogent Research to MSI. The parties’ purchase agreement provides that MSI was required to pay the Initial Payment, Delayed
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Payment, and Contingent Payment to Holdco. MSI does not have any contractual obligation to make any of these payments to Meunier, White, or the irrevocable trust.
Although the parties’ purchase agreement provides that MSI was to make the Deferred Payment and Contingent Payment to Holdco no later than April 30, 2016, a separate subordination agreement executed at the same time modifies those terms. The parties to the subordination agreement were Holdco, MSI, and an administrative agent representing Senior Lenders of MSI. Meunier and White signed this contract on behalf of Holdco. The subordination agreement provides that the obligations of MSI to make the Delayed and Contingent Payments “shall be subordinate and subject in right and time of payment … to the prior Payment in Full of all Senior Debt” held by the Senior Lenders. It further provides that MSI shall not make and Holdco shall not accept payment of any part of the Deferred and Contingent Payments until the Senior Lenders are paid in full. It also provides that the subordination agreement trumps any conflicting provisions in the purchase agreement and any other agreements pertaining to the Deferred and Contingent Payments.
The subordination agreement also contained a covenant not to sue. It provides that Holdco “shall not … take any Enforcement Action with respect to” the Deferred Payment and Contingent Payment obligations of MSI “without the prior written consent” of the administrative agent representing the Senior Lenders. The phrase “Enforcement Action” is defined to include bringing a lawsuit, or initiating or participating with others in a lawsuit, to collect all or any part of the Deferred Payment or Contingent Payment amounts.
In May 2016 Meunier, White, and the irrevocable trust all sued MSI in their own names, purporting to assert their own rights under the purchase agreement rather than rights belonging to Holdco. In their complaint, Meunier, White, and the trust allege they are third-party beneficiaries under the purchase agreement governing the sale of Cogent Research to MSI. They claim, among other things, that MSI breached the purchase agreement by failing to make the Deferred Payment and Contingent Payment by April 1, 2016. Meunier, White, and the trust sought a preliminary injunction against MSI, but that motion was denied in October 2016.
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MSI responded to the first lawsuit by suing Holdco for breaching the covenant not to sue that Holdco entered into as part of the subordination agreement. This is the claim that Holdco now moves to dismiss. The two actions were consolidated for all purposes in January 2017.
2. Legal Analysis. MSIC’s complaint does not allege facts plausibly suggesting that Holdco is liable for breaching its covenant not to sue with respect to MSI’s Deferred Payment and Contingent Payment obligations. Cf. Lopez v. Commonwealth, 463 Mass. 696, 701 (2012) (to survive a motion to dismiss under Mass. R. Civ. P. 12(b)(6), a complaint or counterclaim must allege facts that, if true, would “plausibly suggest[] … an entitlement to relief”) (quoting Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)).
The Court must apply New York law in construing the covenant not to sue because another term in the subordination agreement says that the contract “shall be governed by and shall be construed and enforced in accordance with the internal laws of the State of New York[.]”
The lawsuit by Meunier, White, and the irrevocable trust does not violate the subordination agreement. The plain language of the covenant not to sue bars Holdco, not its individual members, from filing suit to compel MSI to make the Deferred and Contingent payments. MSI does not allege that Holdco itself has ever filed a lawsuit or taken any other enforcement action in violation of its covenant not to sue. Neither the subordination agreement nor the purchase agreement contain a covenant barring Meunier, White, and the irrevocable trust from bringing suit in an attempt to compel MSI to pay over the Deferred Payment and Contingent Payment amounts to Holdco. Presumably it never occurred to MSI that it needed such a covenant, since the purchase agreement specifies that those payments are owed to Holdco, and not to the individual owners and members of Holdco. Nonetheless, the only covenant not to sue binds Holdco but not Meunier, White, or the trust. The Court may not construe the parties’ written contract to “add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.” Bailey v. Fish & Neave, 8 N.Y.3d 523, 528, 868 N.E.2d 956, 959 (N.Y. 2007),
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quoting Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 764 N.E.2d 958, 961 (N.Y. 2001).
MSI cannot create a viable claim for breach of contract merely by making the conclusory and incorrect assertion that Holdco breached the covenant not to sue. The interpretation of the parties’ unambiguous written contracts “is a question of law” that the court may resolve when deciding whether a party has asserted a viable contract claim. See, e.g., Eigerman v. Putnam Investments, Inc., 450 Mass. 281, 287 (2007) (affirming dismissal of complaint for failure to state a viable claim for breach of contract); accord Bailey, 8 N.Y.3d at 528, 868 N.E.2d at 959 (applying New York law). Similarly, whether language used in a contract “is ambiguous is also a question of law for the court.” Berkowitz v. President & Fellows of Harvard College, 58 Mass. App. Ct. 262, 270, rev. denied, 440 Mass. 1101 (2003) (ordering dismissal of complaint for failure to state a viable claim for breach of contract); accord Bailey, supra. Where the material provisions of a contract are unambiguous, as they are here, a court “cannot accept the bare assertion in the plaintiff’s complaint” that the opposing party violated the contract, when that assertion is based on a misreading of the contract. Eigerman, supra; accord Flomenbaum v. Commonwealth, 451 Mass. 740, 751-752 & n.12 (2008) (granting motion to dismiss contract claim because plain language of contract made clear that Commonwealth could terminate chief medical examiner before completion of full five year term).
MSI argues with some force that the subordination agreement must be read in conjunction with the purchase agreement, and that Meunier, White, and the irrevocable trust have no right under the purchase agreement to compel MSI to make the contested payments to Holdco. The first of these points is certainly correct; the two contracts were executed together and the subordination agreement specifies that it will govern whenever its provisions conflict with the purchase agreement. The second of these points may also be correct. If so then MSI may have a simple and complete defense to the claims asserted in the first lawsuit by Meunier, White, and the trust: since the purchase agreement specifies that MSI owes the Deferred and Contingent Payments only to Holdco, and Holdco executed a subordination agreement providing that those payments cannot and need not be made until MSI
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has paid off its senior lenders, it is not at all clear that Meunier, White, and the trust have any legal right to sue MSI on the ground that it has not made these payments to Holdco.
But these arguments have nothing to do with the pending motion to dismiss, which challenges the legal viability of MSI’s breach of contract claim against Holdco. Given the plain language of the covenant not to sue, which applies only to Holdco and not to its individual members, the facts alleged in the complaint fail to state a viable claim for relief against Holdco. Whether MSI is entitled to judgment in its favor on the claims asserted against it by Meunier, White, and the irrevocable trust is a question for another day.
Under New York law, the facts alleged by MSI do not plausibly suggest any sufficient basis to pierce the corporate veil in reverse and impose liability on Holdco for actions taken by its members in their individual capacities. (Although MSI does not expressly invoke the theory of reverse veil piercing, it does seek to impose liability on Holdco for actions taken by its members in their individual capacities.)
New York law allows courts to act on “reverse” piercing claims, “disregard the corporate form,” and hold the corporation liable based on misconduct by its owners “whenever necessary to prevent fraud or achieve equity.” State v. Easton, 647 N.Y.S.2d 904, 909 (N.Y. App. Div. 1995) (denying motion to dismiss action seeking to hold corporations liable for $ 7.5 million Medicaid fraud judgment against their president), quoting Walkovszky v. Carlton, 18 N.Y.2d 414, 417, 223 N.E.2d 6, 7 (N.Y. 1966). “As with conventional veil-piercing claims, in a reverse veil-piercing claim, the plaintiff must allege (1) that the owner exercised complete domination over the corporation with respect to the transaction at issue; and (2) that such domination was used to commit a fraud or wrong that injured the party seeking to pierce the veil.” Liberty Synergistics, Inc. v. Microflo, Ltd., 50 F.Supp.3d 267, 297 (E.D.N.Y. 2014), quoting JSC Foreign Economic Ass’n Technostroyexport v. International Dvpt. and Trade Svcs., Inc., 295 F.Supp.2d 366, 379 (S.D.N.Y. 2003); accord Easton, supra, at 910. “While complete domination of the corporation is the key to piercing the corporate veil, especially when the owners use the corporation as a mere device to further their personal rather than the corporate business, such domination, standing
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alone, is not enough; some showing of a wrongful or unjust act toward plaintiff is required.” Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d 135, 141–142, 623 N.E.2d 1157, 1161 (N.Y. 1993).
The facts alleged by MSI easily satisfy the pleading requirements for the first prong of this test, but do not plausibly suggest that MSI can satisfy the second prong. The allegation that Holdco’s members filed the kind of law suit that Holdco is barred by contract from bringing itself cannot justify reverse-piercing the corporate veil. Under New York law, “a simple breach of contract, without more, does not constitute a fraud or wrong warranting the piercing of the corporate veil.” Skanska USA Bldg. Inc. v. Atl. Yards B2 Owner, LLC, 146 A.D.3d 1, 40 N.Y.S.3d 46, 54 (N.Y. App. Div. 2016), quoting Bonacasa Realty Co., LLC v. Salvatore, 109 A.D.3d 946, 947, 972 N.Y.S.2d 84 (N.Y. App. Div. 2013); contrast Liberty Synergistics, supra, at 299 (allegation of malicious prosecution “satisfies the second prong for veil-piercing”). Here, MSI does not even claim that Meunier, White, or the trust committed a breach of contract themselves by bringing the first lawsuit. And it does not allege facts plausibly suggesting that they committed any other wrongful act that would justify imposing liability on Holdco for their conduct.
ORDER
The motion by Cogent Research Holdings LLC to dismiss the breach of contract claim against it is ALLOWED. No separate and final judgment shall enter at this time. Whenever final judgment enters in these consolidated cases, it shall dismiss the claim against Cogent Research Holdings LLC with prejudice.
February 23, 2017
___________________________
Kenneth W. Salinger
Justice of the Superior Court

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Posted by Stephen Sandberg - March 1, 2017 at 9:24 pm

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PHOTOS: SoWa Open Market Brightens South End on Father’s Day

Visitors shop around the SoWa Open Market artisan section, one of three lots of the SoWa market. The market, located at 460 Harrison Ave in the South End, is open 10 a.m. to 4p.m. every Sunday from May to Oct.

Filling up three separate lots in the South End, the SoWa Open Market packed the south part of the neighorhood this past Father’s Day, Sun. June 16.

Complete with a farmers’ market, artisans market and food trucks, the SoWa Open Market is celebrating 10 years this season. 

The market is open every 10 a.m. to 4 p.m. every Sunday from May through October. It is located at 460 Harrison Ave, Boston MA.

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South End Patch

Posted by Stephen Sandberg - June 18, 2013 at 12:17 pm

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South End Weekends: Claremont Flea Market and Street Fair

Posted by Stephen Sandberg - June 1, 2013 at 9:56 am

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SoWa Market, Art Walk Kick off on Sunday

The birds are chirping, the sun is out, and if that weren’t enough, the spring is about to get that much sweeter in the South End with the opening weekend of the SoWa open market and the annual SoWa Art Walk kicking off this Sunday.

The SoWa Open Market is promising to be even bigger and better this year, in its several venues: the open air market with a farmers’ market, a vintage market and its food trucks. Organizers say there will be more than 100 vendors at the crafts market, 70 vendors at the farmers market and 40 food trucks this year.

You can see a list of all the food trucks here

The farmer’s market is located at 500 Harrison Avenue and features produce from local farmers and specialty food vendors. The open market, at 460 Harrison Ave. features work by local artists and crafters who sell unique gift items like jewelry, clothing, toys, pottery and more. The third part of the market is a large, year-round vintage market that features furniture and clothing. The vintage market is open every Sunday from 10 a.m. to 4 p.m., not just during the summer. And for those with a hankering for a freshly cooked meal, there’s the food truck area in the Trolly Building at 540 Harrison Ave. 

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Posted by Stephen Sandberg - May 4, 2013 at 10:40 am

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South End Weekends: SoWa Vintage Market, Poetry Competition

Posted by Stephen Sandberg - March 1, 2013 at 9:28 pm

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