Opinion
19-P-209
04-03-2020
Mark GREENBERG & another v. Manuel C. BARROS.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The defendant, Manuel C. Barros, incorporated the Bass River Tennis Corporation (Bass River) in 2007. Bass River operated on property in Beverly owned by a related entity, 31 Tozer LLC (Tozer). Barros initially owned one hundred percent of both entities. In the ensuing years, the plaintiffs Mark Greenberg and Michael LaPierre loaned Bass River significant funds to keep it afloat. Pursuant to a securities purchase agreement (SPA) that the plaintiffs entered into with Barros, Bass River, and Tozer in 2010, the plaintiffs eventually converted the debts owed to them into equity interests in Bass River that collectively amounted to eighty percent of the corporation. The SPA also gave the plaintiffs an option to acquire a pro rata share of Tozer, and it is the exercise of that option that is the subject of this appeal.
At Barros's direction, Tozer filed for bankruptcy in 2016. As Barros openly has acknowledged, this was done in an effort to try to block the plaintiffs from exercising their option to acquire eighty percent of Tozer. The plaintiffs intervened in the bankruptcy action and sought to have it dismissed or, in the alternative, to have the exercise of their option exempted from the automatic stay. The Bankruptcy Court judge entered an order that stated that "the automatic stay does not apply to prevent the [plaintiffs] from exercising their rights under Article IV, Section 4.1(e) of the SPA." That order also directed the parties to "obtain a judicial determination in [S]tate court of the [petitioners'] rights under the SPA and the various parties' equity interests in [Tozer]." The judge suspended all proceedings in the bankruptcy case pending the outcome of the contemplated State court case. Barros appealed the Bankruptcy Court judge's order to Federal District Court, which eventually affirmed it.
Meanwhile, as contemplated by the Bankruptcy Court order, the plaintiffs filed the current action in Superior Court to resolve the parties' respective ownership interests in Tozer in accordance with the terms of the SPA. On cross motions for summary judgment, a Superior Court judge ruled in the plaintiffs' favor and issued a judgment that, in pertinent part, stated as follow: "[P]laintiffs are the owners of [eighty percent] of the membership interests of Tozer, with Greenberg owning [forty-seven percent] and Pierre owning [thirty-three percent]. Barros is hereby ORDERED to amend the [o]perating [a]greement of Tozer to reflect the correct ownership interests." On Barros's appeal of that judgment, we affirm.
As Barros points out, the plaintiffs' acquisition of eighty percent of Tozer theoretically could be accomplished through one of two routes. The first pathway would be to have Barros transfer eighty percent of his existing interest in Tozer to the plaintiffs. The second pathway would involve Tozer's issuing certificates of membership interest, documents which indisputably do not currently exist. Under the second pathway, Barros would receive twenty percent of the certificates (to memorialize the twenty percent interest that he would retain) and the rest would go to the plaintiffs. According to Barros, the judge effectively chose the first pathway and this was error. Specifically, he maintains on various grounds that although the SPA does not specify which pathway should be followed, a close reading of the SPA indicates that the second pathway must have been intended. He further argues that this erroneous choice had major consequences, because if the plaintiffs' acquisition of the agreed-upon eighty percent required action by Tozer (the issuance of new certificates of membership interest), this would have implicated Tozer's bankruptcy rights, and it thereby would have allowed Tozer a basis to shed its obligations under the SPA.
Including, notably, any certificate issued by Tozer to reflect Barros's original one hundred percent interest.
For example, Barros argues that because the option provision in the SPA employs the term "purchaser" and the SPA generally defines that term to include him, then it necessarily follows that Tozer is a "seller" of the interests to be acquired, with the eighty percent coming from it, not transferred directly from Barros to the plaintiffs.
There are at least three independent flaws in this argument. First, Barros's premise that the Superior Court judgment he appealed resolved which pathway to follow is not accurate. The judgment did not order Barros to transfer eighty percent of his existing interest in Tozer; it simply resolved the respective ownership interests that resulted from the plaintiffs' exercise of their option under the SPA (the question left open by the Bankruptcy Court).
The plaintiffs additionally argue that Barros failed to preserve his arguments in Superior Court. We pass over that issue. We also do not reach the plaintiffs' claim that Barros has no standing to assert Tozer's bankruptcy rights.
Second, the bankruptcy implications of the parties' dispute were for the Bankruptcy Court to address. Having heard the same arguments that Barros is making now, the Bankruptcy Court judge decided to leave resolution of who owned what share of Tozer to the State courts. Barros's avenue of redress was to appeal the Bankruptcy Court judge's having left this issue to State courts. Barros pursued such an appeal, but lost.
Finally, Barros is unable to demonstrate how the choice between the two specific pathways makes any substantive difference. Putting aside the de minimus question of what happens to the one dollar paid by each of the plaintiffs to exercise their option to acquire eighty percent of Tozer, the two pathways for the plaintiffs to effectuate their acquiring those interests are mathematically equivalent. Under both scenarios, Barros would end up with twenty percent and the plaintiffs eighty percent, and neither Tozer's capitalization nor its obligations to third parties would change. In other words, under the circumstances presented, Barros has not demonstrated how Tozer itself had any interest in who owns its equity; rather, that is a dispute solely between the plaintiffs and Barros. In the current litigation between the plaintiffs and Barros about their respective shares, any dispute about which specific pathway to follow is simply not material. The judge did not err in granting summary judgment in the plaintiff's favor or in issuing the relief included in the judgment. See G. L. c. 231A, § 5. See also Essex Co. v. Goldman, 357 Mass. 427, 434 (1970).
We additionally note that Barros's suggestion that the issuance of ownership interests in Tozer to the plaintiffs somehow would dilute Tozer's capital and interfere with Tozer's ability to raise new capital from third parties was addressed and rejected by the Federal District Court.
In addition, we uphold the judge's award of $144,413 in attorney's fees and $3,108.04 in costs. Under the express terms of § 7.6 of the SPA, Barros agreed to hold the plaintiffs harmless against losses, including court costs and reasonable attorney's fees, arising from "any failure by ... Barros to perform any covenant or obligation ... Barros set forth in the [SPA]." Thus, under the express terms of the SPA, the parties agreed to fee shifting if the plaintiffs were compelled to pursue litigation to enforce the SPA. The judge was correct to conclude that legal expenses incurred by the plaintiffs in contesting Barros's efforts to block them from exercising their option to purchase eighty percent of Tozer falls well within this language. As the plaintiffs aptly put it in their brief, their attorney's fees here were for work done "in response to Barros's admitted attempt to thwart plaintiffs' exercise of a right that he granted to him."
The existence of § 7.5 does not create an ambiguity about this issue. Read in context, that section (entitled "expenses") plainly was intended to signify that each party to the SPA was to bear its own expenses and legal fees in drafting and executing the terms of the SPA. See Downer & Co., LLC v. STI Holding, Inc., 76 Mass. App. Ct. 786, 792 (2010) (contractual language should not be read in isolation because "meaning and ambiguity are creatures of context").
We do not rely on the plaintiffs' argument that Barros's failure to contest the award of attorney's fees in earlier litigation about the SPA precludes him from raising such a challenge here.
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Nor do we discern any abuse of discretion as to the amount of costs and attorney's fees awarded. See McGrath v. Mishara, 386 Mass. 74, 87 (1982) (award of attorney's fees subject to abuse of discretion standard). Barros does not challenge the hourly rate charged by the plaintiffs' lawyers; he challenges only the number of hours for which they seek reimbursement. However, the number of hours they spent was a direct result of the procedural and substantive complexity injected into this case by Barros's actions and arguments. As the United States Supreme Court has put it, a defendant "cannot litigate tenaciously and then be heard to complain about the time necessarily spent by the plaintiff[s] in response." Riverside v. Rivera, 477 U.S. 561, 580 n.11 (1986), quoting Copeland v. Marshall, 641 F.2d 880, 904 (1980).
Pursuant to § 7.6 of the SPA, the plaintiffs are entitled to an award of reasonable appellate attorney's fees and costs. Within fourteen days of issuance of the decision, the plaintiffs shall submit a statement of their appellate attorney's fees and costs in accordance with procedure specified in Fabre v. Walton, 441 Mass. 9, 10-11 (2004), and within fourteen days thereafter, Barros may submit an opposition to the amount requested.
Judgment affirmed.