Posts tagged "Trust"

Rockland Trust Company v. Langone (Lawyers Weekly No. 10-098-17)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

SJC-12129

ROCKLAND TRUST COMPANY  vs.  ROBERT J. LANGONE.

Suffolk.     February 7, 2017. – June 1, 2017.

Present:  Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ.

Supreme Judicial Court, Superintendence of inferior courts.  Practice, Civil, Counterclaim and cross-claim, Motion to dismiss.  District Court, Jurisdiction, One-trial system.

Civil action commenced in the Supreme Judicial Court for the county of Suffolk on January 6, 2016.

The case was considered by Spina, J.

read more

Posted by Stephen Sandberg - June 2, 2017 at 7:38 am

Categories: News   Tags: , , , , , ,

Western Investment LLC v. Deutsche Multi-Market Income Trust, et al. (Lawyers Weekly No. 12-009-17)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
No. 2016-3082 BLS 1
WESTERN INVESTMENT LLC
vs.
DEUTSCHE MULTI-MARKET INCOME TRUST, DEUTSCHE STRATEGIC INCOME
TRUST and the individual trustees thereof1
MEMORANDUM AND ORDER ON DEFENDANTS’ MOTION TO DISMISS
This case presents a paradoxical claim by a shareholder against the trustees of two
companies for strictly adhering to the plain provisions of the companies’ by-laws with respect to
the election of board members. Plaintiff, Western Investment LLC, alleges that the application by
the trustees of a duly adopted by-law, in existence for seven years, was a breach of fiduciary duty.
For the reasons described below, Western’s complaint fails to state a valid claim. Defendants’
motion to dismiss must be granted.
BACKGROUND
The following facts are taken from the complaint, supplemented by documents referred to
in the complaint such as the declarations of trust and the by-laws of the two defendant
companies.2
1 Kenneth C. Froewiss, John W. Ballantine, Henry P. Becton, Jr., Dawn-Marie Driscoll,
Keith R. Fox, Paul K. Freemen, Richard J. Herring, William McClayton, Rebecca W. Rimel,
William N. Searcy, Jr., Jean Gleason Stromberg
2 Upon a motion to dismiss, the court is entitled to consider materials not appended to the
complaint, but referenced or relied upon in the complaint. See Harhen v. Brown, 431 Mass. 838,
1
Western is a long-time shareholder in two closed-end investment funds, defendants
Duetsche Multi-Market Income Trust (“KMM”) and Duetsche Strategic Income Trust (“KST”).
Western purchased shares in KMM in 1997 and in KST in 2002. Western brings this action to
challenge the action of the trustees of the trusts in connection with the September 30, 2016, vote
of shareholders for the election of trustees.
KMM and KST are organized as Massachusetts business trusts. They are governed by
declarations of trust and by-laws that for all purposes relevant to this litigation are substantively
identical. The eleven individual defendants are trustees of the two trusts. They constitute the
board of trustees of both KMM and KST. The boards are divided into three classes of trustees.
Each class is elected for a three year term and the elections are staggered so that only one class of
trustees is up for election per year. In 2016, four seats on the board were up for election.
In the 2016 election, Western nominated a slate of four individuals to run against four
incumbent members of the board. With respect to both KMM and KST, the Western nominees
obtained more votes than the incumbent trustees. For the KMM election, in which 11.97 million,
or 53.47% of the 22.39 million outstanding shares were present and voting, the Western
nominees each obtained the vote of approximately 6.2 million shares, while the incumbents
received the vote of approximately 5.2 million shares. For the KST election, in which 2.37
million, or 54.39% of the 4.35 million outstanding shares were present and voting, the Western
nominees each obtained the vote of approximately 1.4 million shares, while the incumbents
received the vote of approximately 845,000 shares. Stated another way, the Western nominees
839-840 (2000), citing Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996);
Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 45 n.4 (2004).
2
received the vote of approximately 28% of the outstanding shares of KMM and approximately
32% of the outstanding shares of KST. Because, however, the number of votes cast for either the
Western nominees or the incumbents did not constitute a majority of the total outstanding shares,
the boards of both trusts determined that the election did not produce a winner of the contested
seats. As a result, pursuant to a by-law requiring that an incumbent trustee remain in office until
the election of a successor, the incumbent trustees, who lost the plurality vote, remain in office.
In connection with the 2016 elections, Western notified the trustees that it intended to
nominate candidates for the four seats up for election and to present a shareholder proposal
recommending that the boards be declassified. The trusts and Western then conducted a proxy
contest in which each side solicited proxies from shareholders. In the proxy materials, the
shareholders were expressly informed that a majority of the shares outstanding and entitled to
vote was required to elect a member of the board of trustees.
The declarations of trust expressly authorize the trustees to adopt by-laws “not
inconsistent with the Declarations” and to amend or repeal by-laws relating to the rights or
powers of the shareholders. Declarations, Art. IV, § 2. In addition, the declarations state that
“[e]xcept when a larger vote is required by any provisions of . . . the By-Laws, the vote of a
majority of the Shares or Notes entitled to vote on a matter shall decide the matter and the vote of
a plurality of the Shares or Notes entitled to vote shall elect a Trustee.” Declarations, Art. V, § 3
(emphasis added). The declarations also provide that an incumbent trustee remains in office
“until the election and qualification of his successor, if any, elected at such meeting . . . .”
Declarations, Art. IV, § 1 (c).
In 2009, the trustees adopted § 2.11 of the by-laws for each trust entitled “Majority
3
Voting for the Election of Trustees.” The section states, in full, that “A majority of the Shares
outstanding and entitled to vote on the matter shall elect a Trustee. A Trustee may be but need
not be a Shareholder.” This is referred to by Western in its complaint as the “majority of
outstanding” by-law. It is the application of this by-law to the 2016 election that Western alleges
was a breach of fiduciary duty by the trustees.
Western did not challenge the adoption of the majority of outstanding by-law when it was
adopted in 2009 or, apparently, when it was applied in annual elections in 2010, 2011, 2012,
2013, 2014 and 2015. Western alleges, however, that 2016 was the first election of trustees that
was contested. Western points out that in uncontested elections a rule of the New York Stock
Exchange allows brokers to cast votes for their clients, such that obtaining a vote of the majority
of outstanding is feasible to attain. But in a contested election, Western avers, brokers may not,
pursuant to New York Stock Exchange rules, vote the shares of their clients. As a result, Western
says a vote of the majority of outstanding in a contested election is “nearly impossible” to
achieve because of the difficulty of obtaining proxies. Complaint, ¶s 4, 32. Thus, Western claims
that “[a]pplication of the ‘majority of outstanding’ bylaw to contested elections discriminates
only against the election of shareholder nominees.” Complaint, ¶ 31. Further, the application by
the trustees of the majority of outstanding by-law to a contested election is alleged to be a
“blatant and improper entrenchment.” Complaint, ¶ 5.
By letter dated September 27, 2016, Western communicated a demand to the boards. The
letter demanded that the boards not apply the majority of outstanding by-law to the 2016 election
and threatened that if the boards refused to comply with the demand then the individual trustees
would be in breach of their fiduciary duties. The boards did not reply to the demand before the
4
September 30, 2016, annual meeting. The annual meeting vote results were certified by the
inspector of elections on October 4, 2016. The boards effectively rejected the demand by failing
to seat the Western nominees. On October 5, 2016, Western commenced this action.
Western’s complaint asserts five counts. The principal claim (Count 1) is that the
defendant trustees breached a fiduciary duty of loyalty to the trusts and to the shareholders by
applying the majority of outstanding by-law. In Count 2, Western alleges that applying the bylaw
violates an implied duty of good faith and fair dealing inherent in the declarations and bylaws.
Count 3 avers that the majority of outstanding by-law is “unconscionable as applied to a
contested election for trustees.” Complaint, ¶ 55. Count 4 asserts that the trustees’ conduct is a
violation “of the 40 Act.” Complaint, ¶ 62. Count 5 does not assert a cause of action but, instead,
requests injunctive relief by an order declaring that the majority of outstanding by-law “cannot be
applied to the contested election at the 2016 annual meeting of shareholders.” Complaint, ¶ 66.
Defendants move to dismiss all counts for failure to state a claim.
DISCUSSION
A motion to dismiss for failure to state a claim upon which relief may be granted under
Mass. R. Civ. P. 12(b)(6) permits “prompt resolution of a case where the allegations in the
complaint clearly demonstrate that the plaintiff’s claim is legally insufficient.” Harvard Crimson,
Inc. v. President & Fellows of Harvard Coll., 445 Mass. 745, 748 (2006). To survive a motion
to dismiss, a complaint must set forth the basis for the plaintiff’s entitlement to relief with “more
than labels and conclusions.” Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). At the pleading stage, Mass. R. Civ. P.
12(b)(6) requires that the complaint set forth “factual ‘allegations plausibly suggesting (not
5
merely consistent with)’ an entitlement to relief . . . .” Id., quoting Bell Atl. Corp., 550 U.S. at
557. The court must, however, accept as true the allegations of the complaint and draw every
reasonable inference in favor of the plaintiff. Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674,
676 (2011). In the case at bar, the facts regarding the 2016 election of trustees and the authentic
documents that provide for the governance of the trusts are not disputed.
“The directors of a corporation stand in fiduciary relationship to the corporation. They
owe to the corporation both a duty of care and . . . a paramount duty of loyalty.” Demoulas v.
Demoulas Super Markets, Inc., 424 Mass. 501, 528 (1997)(citation omitted). Massachusetts
business trusts, like KMM and KST, may operate in a similar fashion to a corporation so that
they are considered as a corporation for purposes of analyzing applicable law. Brigade Leveraged
Capital Structures Fund Ltd. v. PIMCO Income Strategy Fund, 466 Mass. 368, 369 n. 4 (2013).
That principle appears to be accepted by both sides of this dispute. As with a corporation, the
declaration of trust (articles of organization) and by-laws of a Massachusetts business trust are a
contract between the shareholders and the corporation. Id. at 373.
Breach of Implied Covenant of Good Faith and Fair Dealing
For purposes of analysis, I find it helpful to examine first Western’s claim (Count 2) that
defendants breached an implied covenant of good faith and fair dealing. Such a claim must rest
upon an argument that defendants interfered with the shareholders’ reasonable expectations
under the governance documents that constituted the contract between the trusts and their
shareholders. Uno Restaurants, Inc. v. Boston Kenmore Realty Corporation, 441 Mass. 376, 385
(2004)(“the purpose of the covenant is to guarantee that the parties remain faithful to the
intended and agreed expectations of the parties in their performance”).
6
Here, the facts alleged in the complaint establish that the application of the majority of
outstanding by-law is exactly what both Western and the trusts expected to occur in the 2016
election. The shareholders were informed by the proxy material that the majority of outstanding
vote would be the quantum of vote needed to elect a trustee. Knowing that, a shareholder could
elect whether to cast a vote for the Western nominees, or continue with the incumbent trustees by
either voting for them or not voting at all. Western cannot contend otherwise nor does it even
attempt to assert a claim of breach of contract. Instead, it relies on a claim of breach of the
implied covenant. There can be no claim of breach of the implied covenant when the
performance of the contract was in accordance with the unambiguous terms of the contract.
Chokel v. Genzyme Corp., 449 Mass. 272, 276 (2007) (the implied covenant is only as broad as
the contract itself). In fact, an interference with shareholders’ reasonable expectations would
have occurred if the board of trustees had not followed the unambiguous terms of the contract;
namely, the application of the majority of outstanding by-law combined with the “hold-over”
provisions in the declarations. Because the vote for election of trustees occurred in strict
compliance with the declarations and by-laws, the claim for breach of an implied covenant of
good faith and fair dealing fails. Brigade, 466 Mass. at 374 (when the words of a contract are
clear they must be construed in their usual and ordinary sense).3
Breach of Fiduciary Duty
Western’s breach of fiduciary duty claim (Count 1) raises the question of whether such a
3 In Brigade, the Court found that the terms of a business trust’s by-laws with respect to
when a vote of the shareholders must occur was ambiguous. As a result, the ambiguity was
resolved in favor of protecting the shareholders’ right to vote for trustees. Brigade, 466 Mass. at
379.
7
claim may exist when the acts complained of by the trustees were in accordance with the contract
(the governance documents) existing between the trusts and Western.
A director of a corporation must act in good faith, with reasonable care and in a manner
the director reasonably believes to be in the best interests of the corporation.4 G. L. c. 156D,
§ 8.30 (a). A director is not liable for any action taken as a director, or any failure to take any
action, if he performed his duties in compliance with that standard. Id. at § 8.30 (c). “The
business judgment rule still exists to protect a director against liability arising from secondguessing
by the courts.” Id. at Comment 1. Halebian v. Berv, 457 Mass. 620, 627 n.11
(2010)(“The business judgment rule protects directors and officers from liability for conduct they
have taken in good faith, with the care that a person in a like position would reasonably believe
appropriate in similar circumstances, and in a manner the director or officer reasonably believes
to be in the best interests of the corporation”). Under the business judgment rule, there is “a
presumption that in making a business decision the directors of a corporation acted on an
informed basis, in good faith and in the honest belief that the action taken was in the best
interests of the company.” MAZ Partners LP v. Shear, 2016 WL 4574640 *5 (U.S.D.C., D.
Mass. 2016)(quoting Aronson v. Lewis, 473 A. 2d 805, 812 (Del. 1984), overruled on other
grounds by Brehm v. Eisner, 746 A. 2d 244 (Del. 2000). The burden is on the party challenging
the decision to establish facts rebutting the presumption. Id. Finally, in this case, a challenge to
the exercise of business judgment of the trustees is also explicitly limited by the declarations: “A
4 Western asserts its claim for breach of fiduciary duty both as a direct claim and a claim
brought derivatively on behalf of the trusts. Whether there is a cognizable direct claim, and
whether Western has properly pleaded a derivative claim, are issues that I need not decide
because of my conclusion that the complaint fails to allege sufficient facts to state a claim.
8
Trustee shall be liable only for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or law.” Declarations, Art.
VII, § 3.5
The “decision” Western complains of is the board’s application of the majority of
outstanding by-law to a contested election of trustees. There is no claim of dishonesty, selfdealing,
willful misfeasance, bad faith6 or gross negligence by any of the defendant trustees.
Western’s only allegation boils down to an assertion that the board should have ignored the terms
of the by-law, or should have changed the by-law by amendment, to allow election by plurality
when there is a contested election. To not do so, Western contends, was an act to entrench the
incumbent trustees.
Western does not allege that the majority of outstanding by-law is illegal, ultra vires, or,
on its face, a provision that interferes with a shareholder’s exercise of its franchise. The
5 Western asserts that defendants are not entitled to any presumption of regularity or
business judgment rule because the trustees were “interested” in preserving their seats on the
boards. This argument ignores the fact that only four seats were up for election in 2016, so that
the majority of the trustees were not so interested. Moreover, the Supreme Judicial Court adopted
the definition of “interested” from the Principles of Corporate Governance promulgated by the
American Law Institute. An “interested” director is one who is a party to a transaction with the
corporation or who has a material pecuniary interest in a corporate decision “other than usual and
customary directors’ fees and benefits.” Harhen v. Brown, 431 Mass. 838, 843 n. 5 (2000).
Western does not allege such a pecuniary interest.
6 Western uses the words “bad faith” in its complaint with respect to the decision by the
trustees to apply the majority of outstanding by-law. Use of the words, as a conclusion, is not
enough. Western much allege facts showing bad faith. The concept of bad faith “imports a
dishonest purpose or some moral obliquity. It implies conscious doing of wrong. It means a
breach of a known duty through some motive of interest or ill will. It partakes of the nature of
fraud.” Spiegel v. Beacon Participations, Inc., 297 Mass. 398, 416 (1937). Such facts are not
alleged.
9
complaint does not seek a declaration that the by-law is invalid or that it be voided.7 Western
cites no legal authority to support a conclusion that a court should invalidate the by-law. Instead,
the only claim is that the trustees should not have applied the by-law in a contested election.
In these circumstances, it is entirely anomalous to suggest that a trustee acting in
accordance with the governing documents of the organization could be breaching a fiduciary
duty. Almost by definition, the trustee is acting in the best interests of the company when he
complies with the governing by-laws. At minimum, the presumption of regularity and the
exercise of business judgment on behalf of the company is enhanced when the act at issue is to
follow the by-laws. In the face of that strong presumption, Western fails to plead sufficient facts
to invite a court’s inquiry into the decision of the boards of trustees to adhere to the by-laws.
Western advances the case of Blasius Industries, Inc. v. Atlas Corporation, 564 A. 2d 651
(De. Ch. 1988) in support of an argument that, even if the trustees acted in good faith, the court
should allow the case to proceed and require the trustees to show a “compelling basis” for their
application of the majority of outstanding by-law. In Blasius, the court held that the deferential
business judgment rule does not apply to board action taken for the primary purpose of
interfering with a stockholder’s vote, even if taken advisedly and in good faith. Id. at 659.
I find that Blasius is inapposite to this case for a number of reasons. First, it represents
Delaware law that has not been adopted in Massachusetts. See Keros v. Massachusetts Mutual
Life Insurance Company, 958 F. Supp. 2d 306, 314 n. 6 (D. Mass. 2013)(“Blasius has not been
7Defendants argue that if Western had asserted a claim to declare the majority of
outstanding by-law void as a breach of fiduciary duty in adopting it, such a claim would be
barred by the applicable statute of limitations (three years). I do not reach this issue because
Western does not seek to attack the 2009 adoption of the by-law.
10
adopted by any federal or state court in Massachusetts.”; challenge to board’s application of
voting rules dismissed). Second, the Blasius conclusion that a corporation’s board must
demonstrate a “compelling justification” for board-adopted measures that may frustrate a
shareholder vote was specifically rejected by the Delaware Supreme Court in City of Westland
Police & Fire Retirement System v. Axcelis Technologies, Inc., 1 A. 3d 281, 289 (Del.
2010)(rejecting the Blasius standard for review of board’s decision exercised in accordance with
governing policy). Third, Blasius involved an immediate challenge to a board acting to add new
seats to the board in an effort to interfere with a stockholder vote for board members. Blasius did
not involve the application of an existing by-law to the quantum of vote required to elect a board
member.
In sum, Western’s claim of breach of fiduciary duty is unsupported by the facts in the
complaint. The claim must be dismissed.
Unconscionable as Applied
Count 3 of Western’s complaint alleges that the majority of outstanding by-law is
unconscionable as applied to a contested election. This claim fails for the same reasons that the
claim for breach of the implied covenant of good faith and fair dealing fails. The majority of
outstanding by-law is part of the contract between the trusts and the shareholders. The test for
whether a contract provision is unconscionable “is to be made at the time the contract was
made.” Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 291 (1980). Western did not then and does
not now claim that the by-law is unconscionable on its face. A claim of “unconscionable as
applied” simply does not lie. Moreover, unconscionability is considered when a contract
provision imposes “oppression and unfair surprise” on a party. Waters v. Min Ltd. 412 Mass. 64,
11
68 (1992). Western cannot allege unfair surprise concerning whether the majority of outstanding
by-law would be applied to the 2016 election. This count fails to state a claim.8
CONCLUSION
For the reasons stated above, defendants’ motion to dismiss the complaint is
ALLOWED.
By the Court
Edward P. Leibensperger
Justice of the Superior Court
Date: February 3, 2017
8 Count 4 of the Complaint is labeled “violation of the 40 act and Declaration of Trust on
Behalf of the Funds.” The allegations are a re-hash of the allegations made in the other counts. In
its opposition to the motion to dismiss, Western fails to even address this count. Thus, the count
shall be dismissed.
12

read more

Posted by Stephen Sandberg - February 15, 2017 at 3:12 am

Categories: News   Tags: , , , , , , , ,

Western Investment LLC v. Deutsche Multi-Market Income Trust, et al. (Lawyers Weekly No. 12-009-17)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
No. 2016-3082 BLS 1
WESTERN INVESTMENT LLC
vs.
DEUTSCHE MULTI-MARKET INCOME TRUST, DEUTSCHE STRATEGIC INCOME
TRUST and the individual trustees thereof1
MEMORANDUM AND ORDER ON DEFENDANTS’ MOTION TO DISMISS
This case presents a paradoxical claim by a shareholder against the trustees of two
companies for strictly adhering to the plain provisions of the companies’ by-laws with respect to
the election of board members. Plaintiff, Western Investment LLC, alleges that the application by
the trustees of a duly adopted by-law, in existence for seven years, was a breach of fiduciary duty.
For the reasons described below, Western’s complaint fails to state a valid claim. Defendants’
motion to dismiss must be granted.
BACKGROUND
The following facts are taken from the complaint, supplemented by documents referred to
in the complaint such as the declarations of trust and the by-laws of the two defendant
companies.2
1 Kenneth C. Froewiss, John W. Ballantine, Henry P. Becton, Jr., Dawn-Marie Driscoll,
Keith R. Fox, Paul K. Freemen, Richard J. Herring, William McClayton, Rebecca W. Rimel,
William N. Searcy, Jr., Jean Gleason Stromberg
2 Upon a motion to dismiss, the court is entitled to consider materials not appended to the
complaint, but referenced or relied upon in the complaint. See Harhen v. Brown, 431 Mass. 838,
1
Western is a long-time shareholder in two closed-end investment funds, defendants
Duetsche Multi-Market Income Trust (“KMM”) and Duetsche Strategic Income Trust (“KST”).
Western purchased shares in KMM in 1997 and in KST in 2002. Western brings this action to
challenge the action of the trustees of the trusts in connection with the September 30, 2016, vote
of shareholders for the election of trustees.
KMM and KST are organized as Massachusetts business trusts. They are governed by
declarations of trust and by-laws that for all purposes relevant to this litigation are substantively
identical. The eleven individual defendants are trustees of the two trusts. They constitute the
board of trustees of both KMM and KST. The boards are divided into three classes of trustees.
Each class is elected for a three year term and the elections are staggered so that only one class of
trustees is up for election per year. In 2016, four seats on the board were up for election.
In the 2016 election, Western nominated a slate of four individuals to run against four
incumbent members of the board. With respect to both KMM and KST, the Western nominees
obtained more votes than the incumbent trustees. For the KMM election, in which 11.97 million,
or 53.47% of the 22.39 million outstanding shares were present and voting, the Western
nominees each obtained the vote of approximately 6.2 million shares, while the incumbents
received the vote of approximately 5.2 million shares. For the KST election, in which 2.37
million, or 54.39% of the 4.35 million outstanding shares were present and voting, the Western
nominees each obtained the vote of approximately 1.4 million shares, while the incumbents
received the vote of approximately 845,000 shares. Stated another way, the Western nominees
839-840 (2000), citing Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996);
Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 45 n.4 (2004).
2
received the vote of approximately 28% of the outstanding shares of KMM and approximately
32% of the outstanding shares of KST. Because, however, the number of votes cast for either the
Western nominees or the incumbents did not constitute a majority of the total outstanding shares,
the boards of both trusts determined that the election did not produce a winner of the contested
seats. As a result, pursuant to a by-law requiring that an incumbent trustee remain in office until
the election of a successor, the incumbent trustees, who lost the plurality vote, remain in office.
In connection with the 2016 elections, Western notified the trustees that it intended to
nominate candidates for the four seats up for election and to present a shareholder proposal
recommending that the boards be declassified. The trusts and Western then conducted a proxy
contest in which each side solicited proxies from shareholders. In the proxy materials, the
shareholders were expressly informed that a majority of the shares outstanding and entitled to
vote was required to elect a member of the board of trustees.
The declarations of trust expressly authorize the trustees to adopt by-laws “not
inconsistent with the Declarations” and to amend or repeal by-laws relating to the rights or
powers of the shareholders. Declarations, Art. IV, § 2. In addition, the declarations state that
“[e]xcept when a larger vote is required by any provisions of . . . the By-Laws, the vote of a
majority of the Shares or Notes entitled to vote on a matter shall decide the matter and the vote of
a plurality of the Shares or Notes entitled to vote shall elect a Trustee.” Declarations, Art. V, § 3
(emphasis added). The declarations also provide that an incumbent trustee remains in office
“until the election and qualification of his successor, if any, elected at such meeting . . . .”
Declarations, Art. IV, § 1 (c).
In 2009, the trustees adopted § 2.11 of the by-laws for each trust entitled “Majority
3
Voting for the Election of Trustees.” The section states, in full, that “A majority of the Shares
outstanding and entitled to vote on the matter shall elect a Trustee. A Trustee may be but need
not be a Shareholder.” This is referred to by Western in its complaint as the “majority of
outstanding” by-law. It is the application of this by-law to the 2016 election that Western alleges
was a breach of fiduciary duty by the trustees.
Western did not challenge the adoption of the majority of outstanding by-law when it was
adopted in 2009 or, apparently, when it was applied in annual elections in 2010, 2011, 2012,
2013, 2014 and 2015. Western alleges, however, that 2016 was the first election of trustees that
was contested. Western points out that in uncontested elections a rule of the New York Stock
Exchange allows brokers to cast votes for their clients, such that obtaining a vote of the majority
of outstanding is feasible to attain. But in a contested election, Western avers, brokers may not,
pursuant to New York Stock Exchange rules, vote the shares of their clients. As a result, Western
says a vote of the majority of outstanding in a contested election is “nearly impossible” to
achieve because of the difficulty of obtaining proxies. Complaint, ¶s 4, 32. Thus, Western claims
that “[a]pplication of the ‘majority of outstanding’ bylaw to contested elections discriminates
only against the election of shareholder nominees.” Complaint, ¶ 31. Further, the application by
the trustees of the majority of outstanding by-law to a contested election is alleged to be a
“blatant and improper entrenchment.” Complaint, ¶ 5.
By letter dated September 27, 2016, Western communicated a demand to the boards. The
letter demanded that the boards not apply the majority of outstanding by-law to the 2016 election
and threatened that if the boards refused to comply with the demand then the individual trustees
would be in breach of their fiduciary duties. The boards did not reply to the demand before the
4
September 30, 2016, annual meeting. The annual meeting vote results were certified by the
inspector of elections on October 4, 2016. The boards effectively rejected the demand by failing
to seat the Western nominees. On October 5, 2016, Western commenced this action.
Western’s complaint asserts five counts. The principal claim (Count 1) is that the
defendant trustees breached a fiduciary duty of loyalty to the trusts and to the shareholders by
applying the majority of outstanding by-law. In Count 2, Western alleges that applying the bylaw
violates an implied duty of good faith and fair dealing inherent in the declarations and bylaws.
Count 3 avers that the majority of outstanding by-law is “unconscionable as applied to a
contested election for trustees.” Complaint, ¶ 55. Count 4 asserts that the trustees’ conduct is a
violation “of the 40 Act.” Complaint, ¶ 62. Count 5 does not assert a cause of action but, instead,
requests injunctive relief by an order declaring that the majority of outstanding by-law “cannot be
applied to the contested election at the 2016 annual meeting of shareholders.” Complaint, ¶ 66.
Defendants move to dismiss all counts for failure to state a claim.
DISCUSSION
A motion to dismiss for failure to state a claim upon which relief may be granted under
Mass. R. Civ. P. 12(b)(6) permits “prompt resolution of a case where the allegations in the
complaint clearly demonstrate that the plaintiff’s claim is legally insufficient.” Harvard Crimson,
Inc. v. President & Fellows of Harvard Coll., 445 Mass. 745, 748 (2006). To survive a motion
to dismiss, a complaint must set forth the basis for the plaintiff’s entitlement to relief with “more
than labels and conclusions.” Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). At the pleading stage, Mass. R. Civ. P.
12(b)(6) requires that the complaint set forth “factual ‘allegations plausibly suggesting (not
5
merely consistent with)’ an entitlement to relief . . . .” Id., quoting Bell Atl. Corp., 550 U.S. at
557. The court must, however, accept as true the allegations of the complaint and draw every
reasonable inference in favor of the plaintiff. Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674,
676 (2011). In the case at bar, the facts regarding the 2016 election of trustees and the authentic
documents that provide for the governance of the trusts are not disputed.
“The directors of a corporation stand in fiduciary relationship to the corporation. They
owe to the corporation both a duty of care and . . . a paramount duty of loyalty.” Demoulas v.
Demoulas Super Markets, Inc., 424 Mass. 501, 528 (1997)(citation omitted). Massachusetts
business trusts, like KMM and KST, may operate in a similar fashion to a corporation so that
they are considered as a corporation for purposes of analyzing applicable law. Brigade Leveraged
Capital Structures Fund Ltd. v. PIMCO Income Strategy Fund, 466 Mass. 368, 369 n. 4 (2013).
That principle appears to be accepted by both sides of this dispute. As with a corporation, the
declaration of trust (articles of organization) and by-laws of a Massachusetts business trust are a
contract between the shareholders and the corporation. Id. at 373.
Breach of Implied Covenant of Good Faith and Fair Dealing
For purposes of analysis, I find it helpful to examine first Western’s claim (Count 2) that
defendants breached an implied covenant of good faith and fair dealing. Such a claim must rest
upon an argument that defendants interfered with the shareholders’ reasonable expectations
under the governance documents that constituted the contract between the trusts and their
shareholders. Uno Restaurants, Inc. v. Boston Kenmore Realty Corporation, 441 Mass. 376, 385
(2004)(“the purpose of the covenant is to guarantee that the parties remain faithful to the
intended and agreed expectations of the parties in their performance”).
6
Here, the facts alleged in the complaint establish that the application of the majority of
outstanding by-law is exactly what both Western and the trusts expected to occur in the 2016
election. The shareholders were informed by the proxy material that the majority of outstanding
vote would be the quantum of vote needed to elect a trustee. Knowing that, a shareholder could
elect whether to cast a vote for the Western nominees, or continue with the incumbent trustees by
either voting for them or not voting at all. Western cannot contend otherwise nor does it even
attempt to assert a claim of breach of contract. Instead, it relies on a claim of breach of the
implied covenant. There can be no claim of breach of the implied covenant when the
performance of the contract was in accordance with the unambiguous terms of the contract.
Chokel v. Genzyme Corp., 449 Mass. 272, 276 (2007) (the implied covenant is only as broad as
the contract itself). In fact, an interference with shareholders’ reasonable expectations would
have occurred if the board of trustees had not followed the unambiguous terms of the contract;
namely, the application of the majority of outstanding by-law combined with the “hold-over”
provisions in the declarations. Because the vote for election of trustees occurred in strict
compliance with the declarations and by-laws, the claim for breach of an implied covenant of
good faith and fair dealing fails. Brigade, 466 Mass. at 374 (when the words of a contract are
clear they must be construed in their usual and ordinary sense).3
Breach of Fiduciary Duty
Western’s breach of fiduciary duty claim (Count 1) raises the question of whether such a
3 In Brigade, the Court found that the terms of a business trust’s by-laws with respect to
when a vote of the shareholders must occur was ambiguous. As a result, the ambiguity was
resolved in favor of protecting the shareholders’ right to vote for trustees. Brigade, 466 Mass. at
379.
7
claim may exist when the acts complained of by the trustees were in accordance with the contract
(the governance documents) existing between the trusts and Western.
A director of a corporation must act in good faith, with reasonable care and in a manner
the director reasonably believes to be in the best interests of the corporation.4 G. L. c. 156D,
§ 8.30 (a). A director is not liable for any action taken as a director, or any failure to take any
action, if he performed his duties in compliance with that standard. Id. at § 8.30 (c). “The
business judgment rule still exists to protect a director against liability arising from secondguessing
by the courts.” Id. at Comment 1. Halebian v. Berv, 457 Mass. 620, 627 n.11
(2010)(“The business judgment rule protects directors and officers from liability for conduct they
have taken in good faith, with the care that a person in a like position would reasonably believe
appropriate in similar circumstances, and in a manner the director or officer reasonably believes
to be in the best interests of the corporation”). Under the business judgment rule, there is “a
presumption that in making a business decision the directors of a corporation acted on an
informed basis, in good faith and in the honest belief that the action taken was in the best
interests of the company.” MAZ Partners LP v. Shear, 2016 WL 4574640 *5 (U.S.D.C., D.
Mass. 2016)(quoting Aronson v. Lewis, 473 A. 2d 805, 812 (Del. 1984), overruled on other
grounds by Brehm v. Eisner, 746 A. 2d 244 (Del. 2000). The burden is on the party challenging
the decision to establish facts rebutting the presumption. Id. Finally, in this case, a challenge to
the exercise of business judgment of the trustees is also explicitly limited by the declarations: “A
4 Western asserts its claim for breach of fiduciary duty both as a direct claim and a claim
brought derivatively on behalf of the trusts. Whether there is a cognizable direct claim, and
whether Western has properly pleaded a derivative claim, are issues that I need not decide
because of my conclusion that the complaint fails to allege sufficient facts to state a claim.
8
Trustee shall be liable only for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or law.” Declarations, Art.
VII, § 3.5
The “decision” Western complains of is the board’s application of the majority of
outstanding by-law to a contested election of trustees. There is no claim of dishonesty, selfdealing,
willful misfeasance, bad faith6 or gross negligence by any of the defendant trustees.
Western’s only allegation boils down to an assertion that the board should have ignored the terms
of the by-law, or should have changed the by-law by amendment, to allow election by plurality
when there is a contested election. To not do so, Western contends, was an act to entrench the
incumbent trustees.
Western does not allege that the majority of outstanding by-law is illegal, ultra vires, or,
on its face, a provision that interferes with a shareholder’s exercise of its franchise. The
5 Western asserts that defendants are not entitled to any presumption of regularity or
business judgment rule because the trustees were “interested” in preserving their seats on the
boards. This argument ignores the fact that only four seats were up for election in 2016, so that
the majority of the trustees were not so interested. Moreover, the Supreme Judicial Court adopted
the definition of “interested” from the Principles of Corporate Governance promulgated by the
American Law Institute. An “interested” director is one who is a party to a transaction with the
corporation or who has a material pecuniary interest in a corporate decision “other than usual and
customary directors’ fees and benefits.” Harhen v. Brown, 431 Mass. 838, 843 n. 5 (2000).
Western does not allege such a pecuniary interest.
6 Western uses the words “bad faith” in its complaint with respect to the decision by the
trustees to apply the majority of outstanding by-law. Use of the words, as a conclusion, is not
enough. Western much allege facts showing bad faith. The concept of bad faith “imports a
dishonest purpose or some moral obliquity. It implies conscious doing of wrong. It means a
breach of a known duty through some motive of interest or ill will. It partakes of the nature of
fraud.” Spiegel v. Beacon Participations, Inc., 297 Mass. 398, 416 (1937). Such facts are not
alleged.
9
complaint does not seek a declaration that the by-law is invalid or that it be voided.7 Western
cites no legal authority to support a conclusion that a court should invalidate the by-law. Instead,
the only claim is that the trustees should not have applied the by-law in a contested election.
In these circumstances, it is entirely anomalous to suggest that a trustee acting in
accordance with the governing documents of the organization could be breaching a fiduciary
duty. Almost by definition, the trustee is acting in the best interests of the company when he
complies with the governing by-laws. At minimum, the presumption of regularity and the
exercise of business judgment on behalf of the company is enhanced when the act at issue is to
follow the by-laws. In the face of that strong presumption, Western fails to plead sufficient facts
to invite a court’s inquiry into the decision of the boards of trustees to adhere to the by-laws.
Western advances the case of Blasius Industries, Inc. v. Atlas Corporation, 564 A. 2d 651
(De. Ch. 1988) in support of an argument that, even if the trustees acted in good faith, the court
should allow the case to proceed and require the trustees to show a “compelling basis” for their
application of the majority of outstanding by-law. In Blasius, the court held that the deferential
business judgment rule does not apply to board action taken for the primary purpose of
interfering with a stockholder’s vote, even if taken advisedly and in good faith. Id. at 659.
I find that Blasius is inapposite to this case for a number of reasons. First, it represents
Delaware law that has not been adopted in Massachusetts. See Keros v. Massachusetts Mutual
Life Insurance Company, 958 F. Supp. 2d 306, 314 n. 6 (D. Mass. 2013)(“Blasius has not been
7Defendants argue that if Western had asserted a claim to declare the majority of
outstanding by-law void as a breach of fiduciary duty in adopting it, such a claim would be
barred by the applicable statute of limitations (three years). I do not reach this issue because
Western does not seek to attack the 2009 adoption of the by-law.
10
adopted by any federal or state court in Massachusetts.”; challenge to board’s application of
voting rules dismissed). Second, the Blasius conclusion that a corporation’s board must
demonstrate a “compelling justification” for board-adopted measures that may frustrate a
shareholder vote was specifically rejected by the Delaware Supreme Court in City of Westland
Police & Fire Retirement System v. Axcelis Technologies, Inc., 1 A. 3d 281, 289 (Del.
2010)(rejecting the Blasius standard for review of board’s decision exercised in accordance with
governing policy). Third, Blasius involved an immediate challenge to a board acting to add new
seats to the board in an effort to interfere with a stockholder vote for board members. Blasius did
not involve the application of an existing by-law to the quantum of vote required to elect a board
member.
In sum, Western’s claim of breach of fiduciary duty is unsupported by the facts in the
complaint. The claim must be dismissed.
Unconscionable as Applied
Count 3 of Western’s complaint alleges that the majority of outstanding by-law is
unconscionable as applied to a contested election. This claim fails for the same reasons that the
claim for breach of the implied covenant of good faith and fair dealing fails. The majority of
outstanding by-law is part of the contract between the trusts and the shareholders. The test for
whether a contract provision is unconscionable “is to be made at the time the contract was
made.” Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 291 (1980). Western did not then and does
not now claim that the by-law is unconscionable on its face. A claim of “unconscionable as
applied” simply does not lie. Moreover, unconscionability is considered when a contract
provision imposes “oppression and unfair surprise” on a party. Waters v. Min Ltd. 412 Mass. 64,
11
68 (1992). Western cannot allege unfair surprise concerning whether the majority of outstanding
by-law would be applied to the 2016 election. This count fails to state a claim.8
CONCLUSION
For the reasons stated above, defendants’ motion to dismiss the complaint is
ALLOWED.
By the Court
Edward P. Leibensperger
Justice of the Superior Court
Date: February 3, 2017
8 Count 4 of the Complaint is labeled “violation of the 40 act and Declaration of Trust on
Behalf of the Funds.” The allegations are a re-hash of the allegations made in the other counts. In
its opposition to the motion to dismiss, Western fails to even address this count. Thus, the count
shall be dismissed.
12

read more

Posted by Stephen Sandberg - February 13, 2017 at 10:35 pm

Categories: News   Tags: , , , , , , , ,

Turra v. Deutsche Bank Trust Company Americas, trustee, et al. (Lawyers Weekly No. 10-020-17)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

SJC-12075

SANDRO TURRA  vs.  DEUTSCHE BANK TRUST COMPANY AMERICAS, trustee,[1] & another.[2]

January 30, 2017.

Mortgage, Foreclosure.  Notice, Foreclosure of mortgage.  Real Property, Mortgage.

The plaintiff, Sandro Turra, commenced this action against Deutsche Bank Trust Company Americas, as trustee for RALI 2007QS7, care of GMAC Mortgage, LLC (Deutsche Bank), seeking a declaration that Deutsche Bank’s foreclosure of the mortgage on his home was invalid and seeking to quiet title to the property.  A judge in the Superior Court allowed Deutsche Bank’s motion to dismiss the complaint, and Turra appealed.[3]  The appeal raises a single issue:  whether a foreclosing mortgagee’s failure to comply with G. L. c. 244, § 15A, by failing to send the postforeclosure notices required by the statute, renders the foreclosure void.  We conclude, as did the trial court judge, that it does not, and we therefore affirm.

read more

Posted by Stephen Sandberg - January 30, 2017 at 6:41 pm

Categories: News   Tags: , , , , , , , , ,

Wildlands Trust of Southeastern Massachusetts, Inc., et al. v. Cedar Hill Retreat Center, Inc., et al. (Lawyers Weekly No. 12-174-16)

-1-
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
SUCV2016-01432-BLS2
WILDLANDS TRUST OF SOUTHEASTERN MASSACHUSETTS, INC. &
JOHN AND CYNTHIA REED FOUNDATION,
Plaintiffs
vs.
CEDAR HILL RETREAT CENTER, INC. &
BALLOU CHANNING DISTRICT UNITARIAN UNIVERSALIST ASSOCIATION, INC.,
Defendants
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANTS’ MOTIONS TO DISMISS
This is an action seeking to enforce a Conservation Restriction imposed on real property located in Duxbury, Massachusetts (the Premises). Plaintiffs are the Wildlands Trust of Southeastern Massachusetts, Inc. (Wildlands Trust) and the John and Cynthia Reed Foundation (the Foundation). Plaintiffs allege that the current owner of the land, defendant Cedar Hill Retreat Center, Inc. (Cedar Hill), is engaging in commercial activities in violation of the Conservation Restriction. Also named as a defendant is the Ballou Channing District Unitarian Universalist Association, Inc. (Ballou Channing), the original owner of the land and the Grantor of the Conservation Restriction. Plaintiffs allege that the Foundation made a $ 3 million gift to Ballou Channing in exchange for Ballou Channing’s agreement to create the Conservation Restriction and to use the Foundation’s donation to preserve the Premises in conformity with that restriction (the “Gift Agreement”).
The case is now before this Court on the defendants’ motions to dismiss pursuant to Mass. R. Civ. P. 12(b) (1) and Mass. R. Civ. P. 12(b)(6). Ballou Channing moves to dismiss all
-2-
counts asserted against it; Cedar Hill moves to dismiss some but not all of the counts against it. The motions raise difficult questions, some of which would benefit from discovery and cannot be decided at this early stages in the case. Still, there are certain claims that are not supported by the facts alleged in the Complaint or the applicable law, and which must therefore be dismissed, for reasons set forth below.
BACKGROUND
The Complaint contains the following allegations which, for purposes of these motions, are assumed to be true. The Foundation is a private charitable foundation created by John and Cynthia Reed. The Reeds are abutters to the Premises, which consists of 12.23 acres of land. Ballou Channing is a nonprofit religious corporation organized pursuant to Chapter 180 of the General Laws. Ballou Channing acquired the Premises in 1980 through a Deed of Gift that imposed certain restrictions on its use. Located on the Premises are a building and improvements that have historically been known as the Cedar Hill Retreat Center. Ballou Channing would periodically permit the center to be used by its member congregations.
In 2007, the Reeds learned that the restrictions imposed on the Premises through the Deed of Gift were to expire within the next couple of years. Thee Reeds wished to preserve the Premises in conformity with those original restrictions; negotiations with Ballou Channing ensued. Ultimately, the Foundation and Ballou Channing entered into what the Complaint calls the “Gift Agreement,” whereby the Foundation would make a contribution of $ 3million in return for the creation of a Conservation Restriction. It was understood between the parties that the $ 3 million donation would alleviate the need to engage in any commercial activities on the Premises and cover what was anticipated to be Ballou Channing’s “annual operating expenses” in maintaining it. Ballou Channing had represented to the Foundation that those expenses were
-3-
about $ 100,000 to $ 150,000 per year. There is no allegation in the Complaint that the Gift Agreement was reduced to writing.
The Conservation Restriction was reduced to writing and is attached to the Complaint as Exhibit A. It is dated October 17, 2008 and was recorded with the Plymouth County Registry of Deeds. Ballou Channing is named as the Grantor in the Conservation Restriction; the Grantee was the plaintiff Wildlands Trust, a non-profit organization dedicated to conservation and preservation of land in Southeastern Massachusetts. The stated purpose of the Conservation Restriction is to preserve the Premises “in its predominately natural, scenic wooded and open space condition” and to prohibit any use of the Premises not in conformity with that purpose. Section III of the Conservation Restriction sets forth what uses are prohibited and what are permitted. Section VIII (entitled “Assignability”) makes it clear that the burden the Conservation Restriction imposes “shall run with the Premises in perpetuity” and “shall be enforceable against Grantor and the successors, licensees and assigns of the Grantor holding any interest in the Premises.” In January 2009, Ballou Channing created Cedar Hill, a 501(c) (3) organization, to own and operate the Premises. Ballou Channing transferred the Premises to Cedar Hill by a Quit Claim Deed which specifically references the Conservation Restriction. The Quit Claim Deed also states that the Premises are subject to an easement that granted each congregation that is a member of Ballou Channing the right to use the Premises so long as that use does not violate any term of the Conservation Restriction. The Quit Claim Deed is attached to the Complaint as Exhibit B. It was recorded with the Plymouth County Registry of Deeds on December 31, 2009.
Neither the Quit Claim Deed nor the Conservation Restriction mention the Foundation’s $ 3 million gift. The plaintiffs contend, however, that the parties intended that the money would
-4-
be transferred over to any subsequent owner of the premises so as to maintain the land in conformity with the limitations on its use. Ballou Channing knew this, but when it conveyed the Premises to Cedar Hill, Ballou Channing kept $ 1.6 million of the $ 3 million gift for itself and only conveyed $ 1.4 million to Cedar Hill.
Cedar Hill used a portion of the $ 1.4 million to renovate a structure on the Premises and proceeded to use the building as a rental property, advertising its availability to the public for overnight stays at a fee. In collecting fees for this use and permitting activities on the Premises such as food preparation, alcohol consumption, weekend family reunions, and other social uses, Cedar Hill has (according to the Complaint) violated the terms of the Conservation Restriction. The Complaint alleges that Ballou Channing is aware of Cedar Hill’s violations and has refused to take steps to end them. The Complaint does not allege that Ballou Channing has through the use of its easement itself violated the Conservation Restriction.
DISCUSSION
The standard that this Court applies to the instant motions is well established. This Court is required to accept as true the allegations contained in the Complaint, drawing all inferences in favor of the plaintiff. This deference to the nonmoving party, however, is not unbounded. To withstand a motion to dismiss under Mass. R. Civ. P. 12(b) (6), the Complaint must contain “allegations plausibly suggesting (not merely consistent with) an entitlement to relief . . . .” Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-557 (2007). Although a Complaint need not set forth detailed factual allegations, a plaintiff is required to present more than labels and conclusions and must raise a right to relief “above the speculative level.” Id.
-5-
The Complaint in the instant case alleges the following counts, each of them brought by both plaintiffs and asserted against both defendants: breach of the Gift Agreement (Count I); breach of the Conservation Restriction (Count II); promissory estoppel (Count III); unjust enrichment (Count IV); breach of Chapter 93A (Count V). Ballou Channing’s Motion targets all five counts, whereas Cedar Hill seeks to dismiss all counts except for Count II. Because there is substantial overlap in the arguments that each defendant makes, this Court’s discussion will focus on each count rather than divide the discussion up between the two motions.
A. Breach of the Gift Agreement (Count I)
According to the Complaint (as read in the light most favorable to the plaintiffs), the Foundation entered into an agreement with Ballou Channing whereby Ballou Channing would create the Conservation Restriction and would use a $ 3 million donation by the Foundation to maintain the land so as “to preserve the ecological and aesthetic condition of the Premises in perpetuity.” Although Ballou Channing did indeed create the Conservation Restriction, it did not use the $ 3 million donation as promised, instead creating a separate entity (Cedar Hill) to hold title to the land and keeping at least $ 1.6 million of the donated funds to use for its own purposes unrelated to conserving the Premises. This Court concludes that, notwithstanding Ballou Channing’s numerous arguments to the contrary, this does state a claim against Balllou Channing. It does not state a claim as to Cedar Hill, however, who is not alleged to be a party to the Gift Agreement and cannot be sued on the theory that it was a third party beneficiary. By way of explanation, this Court addresses each of the arguments made by the defendants as to why this claim should be dismissed.
-6-
1. Standing
Both defendants contend that the plaintiffs do not have standing to bring this claim which arises from the allegations that Ballou Channing failed to use the Foundation’s $ 3 million donation as promised. In support, plaintiffs rely on G.L.c. 12 §8, which states that the Attorney General “shall enforce the due application of funds given or appropriated to public charities within the commonwealth and prevent the breaches of trust in the administration thereof.” That statute has been interpreted to bar individual plaintiffs from challenging the manner in which a charitable institution has managed or used its money. See e.g. Garland v. Beverly Hospital Corp., 48 Mass.App.Ct. 914 (1999) (plaintiff who had donated funds to defendant hospital had no standing to claim that defendant misused funds); Weaver v. Wood, 425 Mass. 279 (1997) (individual members of Christian Science church had no standing to contest decision of the defendant to expand its publishing activities into electronic media and use church funds in connection therewith); Dillaway v. Bulton, 256 Mass. 568 (1926) (trustees under a will that bequeathed money to defendant had no standing to bring claim that money was being used contrary to the purposes set forth in the will itself); Judkins v. Hyannis Public Library Association, 302 Mass. 425 (1939) (same). In each of those cases, the appellate courts held that only the Attorney General can bring an action alleging the misuse of charitable assets. The courts reasoned that G.L.c. 12 §8 conferred exclusive power on the Attorney General to represent those who assert a beneficial interest in a charity. “It has not left it to individuals to assume this duty, or even to the court to select a person for its performance.” Weaver v. Wood, 425 Mass. at xx.
The Supreme Judicial Court has recognized an exception to this rule, however, where the individual plaintiff asserts a special interest distinct from the more general public interest
-7-
protected by the Attorney General. That exception was most clearly defined by the Supreme Judicial Court in Maffei v. Roman Catholic Archbishop of Boston, 449 Mass. 235 (2007), which arose from the defendant’s decision to close a church in Wellesley. The plaintiffs there were members of a family that had provided land on which the church was built. The land had been given to the defendant on the specific condition that it be used as the site of a church. Joining in the case as a co-plaintiff was a parishioner who had given money to the defendant based on its representation that it would use the money for that same purpose. Although the SJC ultimately agreed with the lower court that the case had to be dismissed because it challenged decisions protected by the First Amendment, it nevertheless concluded that all of the plaintiffs did have standing. It reasoned that the plaintiffs’ claims were “readily distinguishable from those of the general class of parishioner-beneficiaries” in that each of the plaintiffs had made contributions to the defendant – land in one case and money in another – which they would not have made had they known that the defendant would close the church. “These claims are personal, specific and exist apart from any broader community interest in keeping [the church] open.” 449 Mass. at 245.
In the instant case the Complaint (read generously) alleges that the Foundation made the $ 3 million donation for the specific purpose of maintaining the Premises in a certain way. Ballou Channing breached that agreement by failing to use the donation as promised. Had the Foundation known that Ballou Channing would keep a large portion of that money for itself to use for purposes unrelated to conserving the land, that donation would not have been made. The Foundation thus has a specific interest that is unique to it and distinct from the interests of the public or of Ballou Channing’s congregation members. That is enough in this Court’s view to confer the Foundation with standing. If the funds were intended for Wildland Trust, then it can
-8-
join with the Foundation as a plaintiff in asserting a claim against Ballou Channing for breach of the Gift Agreement, provided that sufficient facts surface in the course of discovery to show that it was the intended (as opposed to incidental) third party beneficiary of the Gift Agreement.1
This Court does not reach the same conclusion on Count I insofar as it is asserted against defendant Cedar Hill, however. Cedar Hill was not a party to the Gift Agreement. It therefore made no promises that could be breached. That it is bound by the Conservation Restriction as a result of purchasing the land does not mean that it was obligated to spend money it received from Ballou Channing in any particular way. Although plaintiffs contend that Cedar Hill is properly named as a party because it was a third party beneficiary of the Gift Agreement, they rely on case law that permits a person who is the intended beneficiary of a contract entered into by others to maintain an action where he or she has been deprived of that benefit. See James Family Charitable Foundation v. State Bank and Trust Co., 80 Mass.App.Ct. 720, 724-725 (2011) (discussing intended beneficiary theory as set forth in Restatement (Second) Contracts 302-315.) Here, the plaintiffs attempt to use that doctrine to bring Cedar Hill in as a defendant. This Court sees no legal basis for such a claim and accordingly orders that Count I be dismissed as to Cedar Hill.
2. Statute of Frauds
Even if the plaintiffs have standing, the Foundation contends Count I must be dismissed because the Complaint contains no allegation that the Gift Agreement was in writing so that it does not comply with the Statute of Frauds. G.L.c. 259 1. That statute requires a writing, signed by the party to be charged, if the contract cannot be performed in one year. Here, the
1 This issue should be revisited by way of a motion for summary judgment when more details about the Gift Agreement have been revealed. In contrast to an intended beneficiary, an incidental beneficiary obtains no right to enforce a contract. Restatement (Second) contracts 315.To determine whether a beneficiary is intended, rather than merely incidental, the court must look to the intent of the parties, taking into account the language of the contract and the circumstances surrounding its formation. See James Family Charitable Foundation v. State Street bank and Trust co., 80 Mass.App.Ct. 720 (2011) and cases cited therein.
-9-
Complaint alleges that the $ 3 million donation was to be used to preserve the land in “perpetuity;” the Gift Agreement could not be performed within one year so that the Statute of Frauds does indeed apply. The question is whether it is appropriate at this early stage in the case to dismiss Count I on this basis. This Court concludes that it is not.
In so concluding, however, this Court is not persuaded that the writing necessary to satisfy the Statute of Frauds is the Conservation Restriction, as plaintiffs seem to suggest. Ballou Channing, in compliance with its promise to the Foundation, did create the Conservation Restriction; the breach of the Gift Agreement consisted of the manner in which Ballou Channing used the $ 3 million donation. The Conservation Restriction makes no mention of that donation much less that any amount of money was earmarked for use in connection with it. In opposing Cedar Hill’s Motion, the plaintiffs maintain that discovery will indeed turned up documents sufficient to satisfy the Statute of Frauds and that they should at least be given an opportunity to conduct that discovery, particularly since the Gift Agreement as described in the Complaint was “extensively negotiated” over a period of months. Whether they will be successful or not can be tested by way of a motion for summary judgment.
Chapter 93A
Cedar Hill argues that the Chapter 93A claim in Count V should be dismissed because the plaintiffs have not alleged that Cedar Hill was a party to any transaction with either plaintiff and because Cedar Hill was not involved in trade or commerce with the plaintiffs. In their Complaint, the plaintiffs allege that, in contravention of its 501(c) (3) tax exempt status, Cedar Hill has and continues to operate a commercial, revenue-generating enterprise on the Premises
-10-
and that its conduct in knowingly using a portion of the Foundation’s $ 3 million gift for unintended uses in conjunction with its refusal to comply with the Conservation Restriction is conduct that comes within the purview of Chapter 93A. This Court disagrees.
Under G.L. c. 93A, “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.” G.L. c. 93A, § 2(a). Consumer plaintiffs may bring a 93A claim provided they first make a pursuit demand on the defendant. No demand letter is necessary under G.L. c. 93A, § 11 but then that section applies only to those plaintiffs who are themselves engaged in trade or commerce. Because there is nothing to indicate that plaintiffs made any pre-suit demand as required by G.L.c. 93A 9, this Court must assume that the plaintiffs are bringing their Chapter 93A claim under Section 11.2 There are no facts in the Complaint, however, to suggest that Wildlands Trust or the Foundation were engaged in the conduct of any trade or commerce.
In determining whether a party is engaged in trade or commerce, this Court may consider the character of the party, the nature of a transaction, the activities engaged in by the party, and also whether the transaction was motivated by business or personal reasons. Begelfer v. Najarian, 381 Mass. 177, 191 (1980). ). As described in the Complaint, the Foundation is a private charitable foundation and that Wildlands Trust is a non-profit organization dedicated to conserving land and preserving the natural heritage of Southeastern Massachusetts. There are no facts in the Complaint to suggest that the Foundation or Wildlands Trust have conducted any trade or commerce. Accordingly, the 93A claim must be dismissed.
2 Nothing in the Complaint, including Exhibit C, a letter from the plaintiffs to the defendants dated February 26, 2016 (entitled “Cedar Hill Conservation Restriction” and authored by sophisticated legal counsel), suggests that the plaintiffs sent the defendants a Chapter 93A demand letter. See G.L. c. 93A, § 9(3) (“At least thirty days prior to the filing of any such action, a written demand for relief, identifying the claimant and reasonably describing the unfair or deceptive act or practice relied upon and the injury suffered, shall be mailed or delivered to any prospective respondent”). Notably, the plaintiffs never referenced Chapter 93A or described specific “unfair or deceptive” acts or practices in the February 26, 2016 letter.
-11-
Ballou Channing’s Motion to Dismiss
Ballou Channing separately moves to dismiss Counts I through V of the plaintiffs’ Complaint pursuant to Mass. R. Civ. P. 12(b)(6). Ballou Channing’s arguments in support of its motion are similar to some of the arguments Cedar Hill raised, and are resolved in line with the court’s reasoning as explained above, with the following offered by way of brief explanation.
First, Ballou Channing claims that both plaintiffs, Wildlands Trust and the Foundation, have no standing to bring Counts I (breach of contract related to the gift agreement), III (promissory estoppel), and IV (unjust enrichment) and that those claims must be dismissed.3 Like Cedar Hill, Ballou Channing , argues that the Attorney General has the exclusive authority to enforce the proper application of funds by a public charity and that the plaintiffs’ claims in this action do not fall under certain limited exceptions to this general rule. See Ballou Channing’s Memorandum at 5-6. As discussed above, this Court concludes that, taking the allegations in the the Compalint as true, the plaintiffs have a personal and specific interest in this dispute against both defendants so as to have standing to pursue their claims, at least at this juncture. Indeed, Ballou Channing appears to concde as much in fottnote 3 of it memorandum; whether the personal nature of that interest and the use fot eFoudnation fundt to prtect that interest violates the INternanl Revuenue Code is (ate least for the purposes of standing) irrelevant.
Second, Ballou Channing argues that Counts I (breach of contract related to the Gift Agreement), III (promissory estoppel), and IV (unjust enrichment), should be dismissed because the claims are barred by the Statute of Frauds. Ballou Channing argues that the Conservation Restriction does not address Ballou Channing’s use of the $ 3 million donation and that no
3 Cedar Hill argues that only the Foundation lacks standing to bring its claims in this action.
-12-
writing memorializes the purported Gift Agreement, which Ballou Channing states was never documented by a writing. AS explained above, discovery is necessary to determine wheehr that is indeed true,, howeve.r
Third, Ballou Channing moves to dismiss Count II (breach of contract related to the Conservation Restriction) on the grounds that it cannot be compelled to comply with the Conservation Restriction because it no longer owns the land, having transferred the Premises to Cedar Hill. The Compalint alleges, hwoever, that Ballou Channing is bound by the terms of the Conservation Restriction and remains obligated to ensure that it is complied with. Palintiffs also ntoed that Ballou Channing maintains an easement interest in the Premises, reinforcing this ongoing obligation of compliance. They contend that Ballou Channing’s failure to enforce the terms of the Conservation Restriction and enter into mediation to potentially resolve the instant disputes are in breach of these obligations.
This Court declines to dismiss Count II against Ballou Channing at this time. Ballou Channing is the “Grantor” of the Conservation Restriction, which is attached to the Complaint as Exhibit A. The Conservation Restriction states that, “The burdens of this Conservation Restriction shall run with the Premises in perpetuity, and shall be enforceable against Grantor and the successors, licensees and assigns of Grantor holding any interest in the Premises.” Conservation Restriction at Section VII.A. The dispute resolution provision of the Conservation Restriction also specifically requires the parties (Grantor and Grantee) to “participate in at least three hours of mediation” if prior negotiations of any disputes are unsuccessful; Ballou Channing is the named Grantor of the Conservation Restriction. Whether Count II should be dismissed against Ballou Channing cannot be resolved without a more developed factual record regarding
-13-
Ballou Channing’s actions or inactions thus far related to the instant dispute. Accordingly, Ballou Channing’s request to dismiss Count II is denied.
Finally, Ballou Channing moves to dismiss Count V, a claim under Chapter 93A, arguing that it was not acting in a business context or conducting any trade or commerce such that Chapter 93A should apply to it in this action. This Court agrees. As discussed above, this Court concludes that the plaintiffs’ Chapter 93A claim in Count V is based on G.L. c. 93A, § 11 because there are no factual allegations in the Complaint suggesting that the plaintiffs sent the defendants a Chapter 93A demand letter, which is required under G.L. c. 93A, § 9(3). Section 11 requires the plaintiffs to be engaged in the conduct of trade or commerce, and as discussed above, there are no facts in the Complaint to suggest that Wildlands Trust or the Foundation were engaged in the conduct of any trade or commerce. As a consequence, Count V must also be dismissed as to Ballou Channing.
-14-
CONCLUSION AND ORDER
For all of the foregoing reasons, Defendant Cedar Hill Retreat Center, Inc.’s Motion to Dismiss is ALLOWED as to Count V (violation of Chapter 93A) and is otherwise DENIED, and Defendant Ballou Channing District Unitarian Universalist Association, Inc.’s Motion to Dismiss is ALLOWED as to Count V (violation of Chapter 93A) and is otherwise DENIED.
______________________________
Janet L. Sanders
Justice of the Superior Court
Dated: December 12, 2016

read more

Posted by Stephen Sandberg - December 31, 2016 at 8:49 am

Categories: News   Tags: , , , , , , , , , , ,

Parkview Electronics Trust, LLC v. Conservation Commission of Winchester (Lawyers Weekly No. 11-006-16)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

13-P-276                                        Appeals Court

PARKVIEW ELECTRONICS TRUST, LLC  vs.  CONSERVATION COMMISSION OF WINCHESTER.

No. 13-P-276.

Middlesex.     November 6, 2014. – January 12, 2016.

Present:  Trainor, Agnes, & Maldonado, JJ.

Municipal Corporations, Conservation commission, By-laws and ordinances.  Wetlands Protection Act.  Department of Environmental Protection.  Jurisdiction, Administrative matter.  Zoning, By-law, Wetlands.

Civil action commenced in the Superior Court Department on June 25, 2004.

read more

Posted by Stephen Sandberg - January 12, 2016 at 6:20 pm

Categories: News   Tags: , , , , , , , ,

Beacon Towers Condominium Trust v. Alex (Lawyers Weekly No. 10-005-16)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

SJC-11880

BEACON TOWERS CONDOMINIUM TRUST  vs.  GEORGE ALEX.

Suffolk.     October 5, 2015. – January 7, 2016.

Present:  Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, & Hines, JJ.

Arbitration, Attorney’s fees.

Civil action commenced in the Superior Court Department on November 14, 2013.

The case was heard by Frances A. McIntyre, J.

The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.

J. Mark Dickison (Ryan A. Ciporkin with him) for the defendant.

read more

Posted by Stephen Sandberg - January 7, 2016 at 4:41 pm

Categories: News   Tags: , , , , , , ,

Erickson v. Clancy Realty Trust, et al. (Lawyers Weekly No. 11-003-16)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

15-P-50                                         Appeals Court

ROBERT J. ERICKSON  vs.  CLANCY REALTY TRUST & others.[1]

No. 15-P-50.

Barnstable.     November 12, 2015. – January 6, 2016.

Present:  Cohen, Grainger, & Wolohojian, JJ.

Way, Public:  discontinuance.  Estoppel.

Civil action commenced in the Superior Court Department on March 5, 2010.

The case was heard by Christopher J. Muse, J.

James B. Stinson for the plaintiff.

read more

Posted by Stephen Sandberg - January 7, 2016 at 2:23 am

Categories: News   Tags: , , , , , ,

Lumbermens Mutual Casualty Company v. Workers’ Compensation Trust Fund (Lawyers Weekly No. 11-128-15)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

13-P-1982                                       Appeals Court

LUMBERMENS MUTUAL CASUALTY COMPANY  vs.  WORKERS’ COMPENSATION TRUST FUND.

No. 13-P-1982

Suffolk.     June 2, 2015. – September 3, 2015.

Present:  Vuono, Grainger, & Blake, JJ.

Workers’ Compensation Act, Reimbursement of insurer.  Insurance, Insolvency of insurer.  Administrative Law, Primary jurisdiction, Exhaustion of remedies, Agency’s interpretation of statute.

Civil action commenced in the Superior Court Department on May 21, 2013.

read more

Posted by Stephen Sandberg - September 4, 2015 at 7:46 am

Categories: News   Tags: , , , , , , , , , ,

The Home Insurance Company v. Workers’ Compensation Trust Fund (Lawyers Weekly No. 11-127-15)

Posted by Stephen Sandberg - September 4, 2015 at 4:12 am

Categories: News   Tags: , , , , , , , , ,

Next Page »