Stonewood Capital Management, Inc. v. Giner, Inc. et al

Filing 101

Judge Rya W. Zobel: Memorandum of Decision entered denying (47) Motion to Compel; denying (50) Motion to Compel; denying (57) Motion for Protective Order; denying (60) Motion to Compel; denying (65) Motion for Extension of Time to File Response/ Reply ; denying (68) Motion to Take Deposition ; denying (71) Motion to Compel; granting (76) Motion ; granting (81) Motion for Summary Judgment; denying (88) Motion for Order; granting (96) Motion to Seal Document in case 1:11-cv-11422-RWZ. Judgment may be entered accordingly. Associated Cases: 1:11-cv-11422-RWZ, 1:12-cv-11271-RWZ(Urso, Lisa)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

CIVIL ACTION NO. 11-11422-RWZ

STONEWOOD CAPITAL MANAGEMENT, INC.
v.
A. SILVANA GINER and ANDREW R. BELT
***********************************
CIVIL ACTION NO. 12-11271-RWZ
SBC EQUITY PARTNERS MANAGEMENT CO., LLC. et al.
v.
A. SILVANA GINER and ANDREW R. BELT

MEMORANDUM OF DECISION
January 3, 2013
ZOBEL, D.J.
Stonewood Capital Management, Inc. (“Stonewood”) has sued A. Silvana Giner
(“Giner”) and Andrew R. Belt (“Belt”) for tortious interference with prospective economic
advantage. It claims that Giner and Belt, two board members of Giner, Inc., broke up
Stonewood’s proposed deal to buy that company. Giner and Belt now move for
summary judgment.1
I.

Background
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The court has reviewed the pending discovery motions, and finds that none of
them seek evidence that could affect its conclusions below. Therefore, the motion for
summary judgment is ripe for decision.

Stonewood is a private equity firm based in Pennsylvania. It manages the
investment strategy of a limited partnership called SBC Equity Partners, LP (“SBC
Equity Partners”). The members of that partnership included SBC Equity Partners
Management Co., LLC (the general partner), J. Kenneth Moritz (the president of
Stonewood), John Tippins, William Tippins, George Knapp, Peter Muth, and JWA
Investments, LLC (collectively, the “SBC Plaintiffs”).
In early 2011, Stonewood expressed interest in buying Giner, Inc., a small
Massachusetts technology company founded by Giner’s father. At the time, both Giner
and Belt were on the board of directors of Giner, Inc. The parties began negotiating,
and in April 2011 they signed a letter of intent memorializing certain proposed terms for
the contemplated transaction. Following its usual practice, Stonewood planned to set
up a new entity named Giner Acquisition Co., LLC (“Giner Acquisition”) as a purchasing
vehicle. The SBC Plaintiffs would contribute funds to SBC Equity Partners, which would
invest in Giner Acquisition, which would then purchase Giner, Inc. At the end of the
transaction, the SBC Plaintiffs would indirectly be the new owners of the assets that
formerly belonged to Giner, Inc.
On June 22, 2011, Giner, Inc. informed Stonewood that it was no longer
interested in a deal. Stonewood claims that Giner, Inc.’s change of heart was
orchestrated by Giner and Belt, who proposed their own deal to replace Stonewood’s
offer. Giner, Inc. eventually pursued the alternative transaction proposed by Giner and
Belt; that alternative transaction closed in December 2011.
Stonewood initially sued Giner, Inc. and one of its subsidiaries for breach of
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contract, as well as Silvana Giner for tortious interference with contract and with
prospective economic advantage. This court dismissed the contract-based claims,
leaving only the claim of tortious interference with prospective economic advantage
against Giner. The complaint was later amended to add a similar claim against Belt.
The SBC Plaintiffs then filed an action against Giner and Belt asserting the same
claims; that action was consolidated with Stonewood’s.
II.

Legal Standard
Summary judgment will be granted if there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P.
56(a). The court must view the record in the light most favorable to the nonmoving party
and draw all justifiable inferences in that party’s favor. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 255 (1986). Summary judgment against a party is appropriate if that
party “fails to make a showing sufficient to establish the existence of an element
essential to that party’s case, and on which that party will bear the burden of proof at
trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In that situation, the moving
party need not bring affirmative evidence; it need only “point[] out . . . that there is an
absence of evidence to support the nonmoving party’s case.” Id. at 325.
III.

Analysis
Under Massachusetts law, the elements of a claim for tortious interference with

prospective economic advantage are: “(1) a business relationship or contemplated
contract of economic benefit; (2) the defendant’s knowledge of such relationship; (3)
the defendant’s interference with it through improper motive or means; and (4) the
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plaintiff’s loss of advantage directly resulting from the defendant’s conduct.” Am.
Private Line Servs. v. E. Microwave, Inc., 980 F.2d 33, 36 (1st Cir. 1992); see
Blackstone v. Cashman, 860 N.E.2d 7, 12-13 (Mass. 2007). Where a corporate official
acting within the scope of his corporate responsibilities is sued for intentional
interference with prospective economic advantage, it is not enough for the plaintiff to
show interference by improper motive or means; instead, he must show that the
corporate official acted with actual malice, meaning “a spiteful, malignant purpose,
unrelated to the legitimate corporate interest.” Blackstone, 860 N.E.2d at 13 (quoting
Wright v. Shriners Hosp. for Crippled Children, 589 N.E.2d 1241, 1246 (Mass. 1992)).
Giner and Belt raise three major arguments in their motion for summary
judgment. First, they argue that neither Stonewood nor the SBC Plaintiffs had a
business relationship or contemplated contract with Giner, Inc. Second, they argue that
because they are directors of Giner, Inc., Stonewood must show that they acted with
actual malice, and Stonewood has made no such showing. Third, they argue that even
if they are not entitled to an actual malice standard, there is no evidence to show they
interfered with the deal through any improper motive or means.
A. Business Relationship
Under the contemplated deal, Stonewood planned to create the shell entity
Giner Acquisition to purchase Giner, Inc.’s assets. The various contract drafts
exchanged between Stonewood and Giner, Inc. named Giner Acquisition as the
prospective buyer. But because the deal fell through, Giner Acquisition was never
created.
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If Giner Acquisition had existed during the parties’ negotiations, it would clearly
have had a business relationship with Giner, Inc. through their contemplated contract,
thereby satisfying the first element of a tortious interference claim. But Giner and Belt
argue that because Giner Acquisition never came into existence, no entity can assert a
business relationship here. They argue that Stonewood cannot assert a business
relationship because it was not the intended buyer of Giner, Inc.’s assets; the SBC
Plaintiffs cannot assert a business relationship because they were not parties to the
negotiations or the contemplated contract; and Giner Acquisition cannot assert a
business relationship because it did not and does not exist.
The law has often considered contracts made in the name of corporations that
do not yet exist. It is hornbook law that such contracts are treated as belonging to the
promoter who expects to organize the corporation. One treatise puts it succinctly:
Contracts are frequently made by promoters on behalf of corporations
they expect to organize. Often, the terms of these contracts are of a kind
which, if the corporation were already in existence, the contract would be
that of the corporation and not of the promoter. However, since it is
impossible for the corporation to contract before it comes into existence,
the contract is treated as that of the promoter even though the language
of the contract is appropriate for a contract by the corporation.
12 Williston on Contracts § 35:71 (West 2012). Massachusetts law is to the same
effect. See, e.g., Island Transp. Co. v. Cavanaugh, 767 N.E.2d 609, 613 (Mass. App.
Ct. 2002) (promoter is “liable upon, and entitled to the benefit of, contracts that he had
made in behalf of the corporation to be formed”).
The question in this case is slightly more complicated. Stonewood does not
assert a contract right based on an actual contract on behalf of Giner Acquisition; it
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asserts a tort claim based on interference with a contemplated contract. Whether that
claim is available appears to be a question of first impression. The parties have cited
no authority addressing this precise situation, and the court has found none. But given
the principles above, and the reality of modern business transactions, the court
concludes Massachusetts courts would find that a promoter may assert a claim for
tortious interference based on a contemplated contract on behalf of an unformed
corporation.
Massachusetts law already makes clear that an actual contract on behalf of an
unformed corporation belongs to its promoter. It stands to reason that a contemplated
contract on behalf of an unformed corporation should also belong to its promoter. That
being so, the promoter should be able to base a claim for tortious interference on such
a contemplated contract.
Moreover, the purposes of the tort support this conclusion. The tort of intentional
interference with prospective economic advantage is intended to protect contemplated
contracts from wrongful disruption by third parties. It compensates economic actors
who put serious effort into business negotiations, only to find that a third party has used
threats, defamation, or other improper means to destroy them. Likewise, the tort deters
third parties with improper motives from wrongfully interfering with their adversaries’
businesses. These purposes apply just as strongly to contemplated contracts
negotiated by promoters for unformed corporations as they do for any other
contemplated contracts.
Finally, it is a reality of the modern business world that many mergers and
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acquisitions are structured using ad hoc entities that are formed solely to carry out the
transaction. These entities are normally created shortly before the deal is signed and
effectively vanish when the deal closes. They are controlled throughout by their
promoters. They have no independent economic reality beyond their role in the
transaction. As such, it would make no sense to insist that the promoter who actually
negotiates the deal cannot assert a business relationship and a contemplated contract
with the other party merely because the structure of the proposed deal included such
an ad hoc entity. And there is no point in requiring the promoter to go through the
formality of creating the ad hoc entity in advance of negotiations just to ensure that
entity will be able to bring a tortious interference claim.
For those reasons, the court concludes that a Massachusetts court would find a
promoter can assert a claim for tortious interference with prospective economic
advantage based on a contemplated contract on behalf of an unformed business entity.
Therefore, Stonewood may assert Giner Acquisition’s contemplated contract with
Giner, Inc. to meet the first element of its tortious interference claim. The SBC Plaintiffs,
however, were not the promoters of Giner Acquisition, and they have no independent
business relationship with Giner, Inc. The SBC Plaintiffs have thus failed to meet the
first element of their tortious interference claim, and so Giner and Belt are entitled to
summary judgment against them.
B. Actual Malice
When acting within the scope of her corporate responsibilities, a corporate
official is only liable for intentional interference with prospective economic advantage if
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he or she acts with actual malice. Blackstone, 860 N.E.2d at 13. “The ‘actual malice’ standard
. . . is a burden placed on the plaintiff, not a defense that must be proved by the
defendant.” Id.
On defendants’ previous motion to dismiss, the court refused to apply the actual
malice standard because Stonewood alleged that “Giner was acting for her own
account, not on behalf of the company.” Docket # 19, Order at 7. Now, at summary
judgment, Giner and Belt argue that Stonewood has failed to present facts showing that
Giner and Belt were acting outside the scope of their corporate responsibility. They
conclude that the actual malice standard is appropriate.
The Supreme Judicial Court of Massachusetts clarified the applicability of the
actual malice standard in Blackstone v. Cashman, 860 N.E. 2d 7 (Mass. 2007). In
Blackstone, a corporate director named Cashman who was not involved in the day-today operation of his company was entitled to a $20,000 payment from the company
each month. One month, he did not receive his payment. Concerned that the
company’s accountant, Blackstone, was improperly witholding it, he called the company
office and demanded his check. When Blackstone refused to send it, Cashman swore
at him. Cashman then called the company’s manager, Ferrari, and angrily threatened
physical violence against Blackstone. When Blackstone learned of the threats, he grew
extremely agitated and eventually left the company. Blackstone then sued Cashman for
intentional interference with prospective economic advantage, claiming that he would
have continued at the company if Cashman had not threatened him. Id. at 10-12.
The Supreme Judicial Court found that Cashman was entitled to a jury
8

instruction on the actual malice standard. It held that as a director, Cashman qualified
as a corporate official even though he was not involved in the day-to-day activities of
the company. Id. at 17-18. Furthermore, it held that Cashman was still acting as a
corporate official even though “the interest pursued by Cashman was the payment of
money to himself.” Id. at 18. It explained that “[a]s a director, Cashman acted within the
scope of his responsibilities in demanding that corporate officers like Blackstone and
Ferrari meet the obligations of the corporation to him.” The Supreme Judicial Court thus
held that a corporate official may be carrying out his corporate responsibilities, and so
entitled to the actual malice standard, even when the official’s actions result in his own
financial gain.
Here, even taking the facts in the light most favorable to Stonewood, Giner and
Belt are entitled to the actual malice standard. Despite Stonewood’s allegations that
Giner and Belt were acting for themselves and not on behalf of the company, the facts
Stonewood has produced show otherwise. It is undisputed that Giner and Belt were
both directors of Giner, Inc. As directors, upon receiving Stonewood’s offer to buy
Giner, Inc., Giner and Belt were duty-bound to reasonably consider other options that
might be better for the company. See Blackstone, 860 N.E.2d at 17 (directors’ duties of
loyalty and care require “‘reasonable intelligence’ in the oversight of corporate
business”). In other words, their corporate responsibilities as directors included looking
at possible alternative transactions, which is exactly what they did. The fact that their
alternative transaction was in their financial interest, of course, does not show they
acted outside their corporate responsibilities. See id. at 18. Stonewood has also
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produced evidence that the alternative transaction was worse for the company than
Stonewood’s deal, and that Giner and Belt knew that. But even that evidence cannot
show Giner and Belt acted outside of their corporate duties—it can only show Giner
and Belt did a bad job fulfilling their duties. The actual malice standard is precisely
intended to prevent courts from second-guessing such internal corporate activities. See
id. at 16 n.15 (“[I]n matters related to the conduct of the internal affairs of a corporation,
corporate officials require a heightened level of protection from liability.”).
Stonewood argues that Giner and Belt acted unilaterally, without the approval of
the rest of the board, in preparing the alternative transaction and in leading Giner, Inc.
to reject the Stonewood deal. However, it does not present any evidence from which a
reasonable jury could conclude that any unilateral actions by either Giner or Belt fell
outside of their authority as corporate directors. Furthermore, it is undisputed that by
July 5, 2011, the board of Giner, Inc. had met as a whole and officially decided to reject
Stonewood’s deal in favor of the alternative transaction.
Because Giner and Belt are protected by the actual malice standard, Stonewood
must present facts allowing a reasonable inference that they acted from “a spiteful,
malignant purpose, unrelated to the legitimate corporate interest.” Blackstone, 860
N.E.2d at 13 (quoting Wright, 589 N.E.2d at 1246). It has not presented any such facts.
Therefore, Giner and Belt are entitled to summary judgment on Stonewood’s claim.
C. Improper Motive and Improper Means
Even if Giner and Belt were not covered by the actual malice standard,
Stonewood would still have to present facts showing that Giner and Belt had acted from
10

an improper motive or by improper means. Stonewood has not met that burden either.
1. Improper Motive
Stonewood concedes, as it must, that personal financial gain is not an improper
motive. See Am. Private Line Servs.,980 F.2d at 37 (no improper motive where party’s
“sole motivation was its own financial benefit”); King v. Driscoll, 638 N.E.2d 488, 495
(Mass. 1994) (“The motivation of personal gain, including financial gain, however,
generally is not enough to satisfy the improper interference requirement.”). With
respect to Giner, it concedes that Giner’s potential financial benefit from interfering with
the Stonewood transaction does not show an improper motive. With respect to Belt, it
argues that Belt was upset when he learned Stonewood did not plan to keep him as a
paid consultant at Giner, Inc., and that he was motivated to interfere in order to keep
his role at the company. But Stonewood does not explain how Belt’s desire to keep his
consulting role is anything but a personal financial motive. Belt’s alleged desire to keep
his job is not the type of motive Massachusetts courts have found improper in the past.
See, e.g., Comey v. Hill, 438 N.E.2d 811, 816 (Mass. 1982) (finding age discrimination
an improper motive); Adcom Prods., Inc. v. Konica Bus. Machs. USA, Inc., 668 N.E.2d
866, 869-70 (Mass. App. Ct. 1996) (evidence of longstanding personal enmity supports
finding of improper motive). Stonewood’s evidence that Belt was upset at Stonewood is
not enough to raise an inference that Belt acted purely out of spite, as “personal dislike
will not warrant an inference of the requisite ill will.” King, 638 N.E.2d. at 495.
2. Improper Means
“To demonstrate improper means, a plaintiff must prove improper conduct
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beyond the fact of the interference itself.” Bartle v. Berry, 953 N.E.2d 243, 250 (Mass.
App. Ct. 2011). Such improper conduct may occur where a party “violated a statute or
rule of common law,” or “used threats, misrepresented any facts, defamed anyone, or
used any other improper means.” United Truck Leasing Corp. v. Geltman, 551 N.E.2d
20, 24 (Mass. 1990). The Supreme Judicial Court has indicated that the factors listed in
Section 767 of the Restatement (Second) of Torts may be helpful in determining
whether a particular act constitutes improper means. Id. at 24 n.10.2 Determining
whether particular means are improper requires a case-by-case analysis, see Ayash v.
Dana-Farber Cancer Inst., 822 N.E.2d 667, 690 (Mass. 2005), but summary judgment
is nevertheless appropriate if the plaintiff fails to advance evidence supporting this
element of the claim.
Stonewood advances five theories in its brief as to how the actions of Giner and
Belt might constitute interference by improper means. None can survive summary
judgment.
First, Stonewood claims that Giner and Belt used it as a “stalking horse,” by
allowing it to propose a transaction and then simply mirroring it in their own alternative
proposal. Stonewood argues that this “stalking horse” ploy was deceptive on the part of
Giner and Belt and therefore improper. But the allegation that Giner and Belt used
Stonewood as a “stalking horse” does not speak to the means that Giner and Belt used

2

Those factors include the nature of the actor’s conduct, the actor’s motive, the
interests of the party interfered with, the interests of the actor, the social and
contractual interests at play, the proximity of the actor’s conduct to the interference,
and the relations between the parties. Restatement (Second) of Torts § 767 (West
2012).
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to break up Stonewood’s deal. Simply offering an alternative proposal—even a
proposal that mirrors an existing proposal—is not itself improper. Nor has Stonewood
presented evidence from which a reasonable jury could conclude that Giner and Belt
deceived Stonewood into creating its proposal in the first place, while planning all
along to steal it.
Second, Stonewood presents evidence that Giner told Giner, Inc.’s attorneys not
to communicate with Stonewood about its revised draft because she was going to
propose an alternative transaction. Stonewood submitted its revised draft to Giner, Inc.
on June 14, 2011; the company rejected Stonewood’s proposal on June 22, 2011. Even
assuming that Giner acted outside her corporate responsibilities by talking to her
company’s attorneys, there is no evidence that she acted improperly towards them
(such as by threatening or coercing them). And even if she did act improperly, there is
no evidence her actions interfered with the deal. Stonewood has produced nothing to
show that Giner, Inc.’s eight days of silence between June 14 and June 22 actually
caused the deal to break up. A reasonable jury could not conclude that Giner, Inc.’s
own delay in commenting on Stonewood’s proposal was what caused the company to
reject that deal.
Third, Stonewood argues that the alternative transaction proposed by Giner and
Belt paid Giner, Inc.’s minority shareholders less than Stonewood’s transaction would
have, harming those shareholders. But that harm occurred when the alternative
transaction closed, well after Giner, Inc. rejected Stonewood’s deal. As such, it cannot
be a means of interference with the deal. To the extent that Stonewood alleges Giner
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and Belt improperly interfered by misleading Giner, Inc. about the terms of their
alternative proposal, there is no evidence supporting that claim.
Fourth, Stonewood argues that Giner and Belt used confidential information from
Stonewood’s proposal in order to structure their own. This allegation allowed
Stonewood to survive a motion to dismiss on its claim, as the misuse of confidential
information is clearly an improper means. However, Stonewood has not produced
evidence sufficient to support its allegation. In its brief, Stonewood does not clearly
identify what specific confidential information it believes Giner and Belt misused;
instead, it refers generally to Stonewood’s due diligence on Giner, Inc. and the
resulting acquisition proposal (including the proposed per-share price), which it claims
Giner and Belt mirrored. It cites to one piece of evidence in the record showing that
Belt knew Stonewood’s due diligence had found Giner, Inc. to be in sound financial
health with good future prospects. It also cites other evidence showing that the
alternative transaction Giner and Belt proposed was based on Stonewood’s
contemplated transaction, and that it was intended to leave everyone at Giner, Inc.
doing as well as or better than they would have done under Stonewood’s plan.
This evidence is not sufficient to raise a reasonable inference that Giner and
Belt misused Stonewood’s confidential information. First, Giner and Belt were clearly
acting within their corporate responsibilities as directors in assessing the value of
Stonewood’s deal and considering alternative transaction options. Indeed, as directors
they had an affirmative duty to reasonably consider any alternative transactions that
might be better for the company. See Blackstone, 860 N.E.2d at 17 (citing Prod. Mach.
14

Co. v. Howe, 99 N.E.2d. 32, 35 (Mass. 1951) (directors have duty to reasonably
oversee corporate business). That was the reason Stonewood provided its confidential
information to Giner and Belt in the first place. Because Giner and Belt’s corporate
responsibilities included using Stonewood’s information to consider alternative
transactions, Stonewood cannot sustain its claim on this basis without showing actual
malice—which it has not done. Furthermore, even if Giner and Belt were not protected
by the actual malice standard, Stonewood’s factual showing is too weak to sustain a
reasonable inference of misuse of confidential information. It cannot rest upon its
“conclusory allegations, improbable inferences, and unsupported speculation.” MedinaMunoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990).
Fifth, Stonewood argues that Belt misled it by telling it on June 22, 2011, that he
would try to get the deal back on track, even though he had no intention of doing so. At
oral argument, Stonewood claimed that Belt’s misrepresentation “cut off” negotiations
between Stonewood and Giner, Inc., because Stonewood believed Belt would
adequately rectify the situation. The record does not support that conclusion. According
to the undisputed facts, Stonewood continued to negotiate with Giner, Inc. after June
22, including by sending it a revised asset purchase agreement on June 29, 2011.
Stonewood therefore cannot show that Belt’s misrepresentation, assuming it was
improper, actually interfered with the contemplated transaction.
Because Stonewood has not presented evidence from which a reasonable jury
could find that Giner or Belt interfered with its transaction through an improper motive
or improper means, even assuming that the higher actual malice standard does not
15

apply, Giner and Belt are entitled to summary judgment.
IV.

Conclusion
Defendants’ motion for summary judgment (Docket # 81) is ALLOWED. The SBC

Plaintiffs’ motion to seal (Docket # 96) and the joint motion to file consolidated briefs
(Docket # 76) are also ALLOWED. The other pending motions (Docket ## 47, 50, 57,
60, 65, 68, 71 and 88) are DENIED as moot.
Judgment may enter accordingly.

January 3, 2013
DATE

/s/Rya W. Zobel
RYA W. ZOBEL
UNITED STATES DISTRICT JUDGE

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