Stonewood Capital Management, Inc. v. Giner, Inc. et al
Filing
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Judge Rya W. Zobel: ORDER entered granting in part and denying in part 14 Motion to Dismiss; ALLOWED as to counts I, II, III and IV DENIED as to V; granting 18 Motion for Leave to File Document ; Counsel using the Electronic Case Filing System should now file the document for which leave to file has been granted in accordance with the CM/ECF Administrative Procedures. Counsel must include - Leave to file granted on (date of order)- in the caption of the document. (Urso, Lisa)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 11-11422-RWZ
STONEWOOD CAPITAL MANAGEMENT, INC.
v.
GINER, INC.,
GINER ELECTROCHEMICAL SYSTEMS, L.L.C.,
and A. SILVANA GINER
ORDER
October 18, 2011
ZOBEL, D.J.
On April 6, 2011, Stonewood Capital Management Inc., a private equity firm,
Giner, Inc., an electrochemical engineering company, and Giner Electrochemical
Systems, LLC (a Giner subsidiary) (jointly “Giner” or “the Company”), signed a “letter of
intent” 1 (“LOI”) expressing plaintiff’s “indication of interest to acquire all of the assets
and business” of Giner. The LOI laid out, inter alia, the anticipated purchase price, the
methodology for the treatment of Giner’s existing cash reserves and liabilities and
valuation of inventory, the fate of Giner’s employees, as well as deal contingencies and
While the complaint does not attach the LOI, defendants’ memorandum of law
in support of their motion to dismiss does (Docket # 15 Ex. A). The parties do not
dispute the existence or authenticity of the LOI, and all of plaintiff’s claims are based
directly on the language of the LOI. Therefore, it is proper for the court to consider the
LOI at the motion to dismiss stage. “When ruling on a motion to dismiss, the court may
consider documents incorporated by reference in the complaint, matters susceptible to
judicial notice, and matters of public record.” Giragosian v. Ryan, 547 F.3d 59, 65-66
(1st Cir. 2008).
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certain representations and warranties. The LOI also contained provisions regarding
due diligence, confidentiality, negotiation exclusivity and cost bearing.
The exclusivity provision in Paragraph 7 of the LOI provides in relevant part:
The Buyer will have an exclusive period to complete its due diligence and
proceed to Closing … the exclusivity period will terminate on July 5,
2011… [d]uring this period of exclusivity, the Company and its owners,
employees, agents or representatives will not negotiate for, solicit or
accept any offer to sell the Company or its assets ....
However, the previous paragraph, Paragraph 6 explicitly states:
This letter is an expression of intent only and other than the obligations
regarding confidentiality and expenses set forth in the following
paragraph, it is not a binding contract.
Plaintiff alleges that despite Paragraph 6, the exclusivity provision contained in
Paragraph 7 is binding on the parties. It further states that on June 22, 2011, after the
LOI had been executed but before the exclusivity period terminated, A. Silvana Giner (a
director of Giner and daughter of its founder and majority shareholder, José Giner)
communicated to Giner’s CEO that she and her family desired to execute a different,
but substantially similar, transaction that would allow her to control Giner. As a result,
the Company ceased negotiations with plaintiff and did not complete the transaction
contemplated by the LOI.
The complaint is in five counts and alleges that the Company breached the LOI’s
exclusivity provision (Count I) and its underlying covenant of good faith and fair dealing
(Count II) by entertaining Ms. Giner’s deal. The complaint also alleges that Ms. Giner
tortiously interfered with a contract (Count IV) and a prospective economic advantage
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(Count V), and that plaintiff relied on the exclusivity provision to its detriment (Count
III).
Defendants have moved to dismiss all counts.
I.
Standard
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 129 S.Ct. 1937, 1949 (2009). Facial plausibility is shown “when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. Plausibility “is not akin to a
probability requirement, but it asks for more than a sheer possibility that a defendant
has acted unlawfully.” Id. Under this standard, “A pleading that offers ‘labels and
conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.’”
Id. “The interpretation of an unambiguous contract is a matter of law, the review of
which is limited to ‘the plain meaning of the language used.’” Barrett Paving Materials,
Inc. v. Continental Ins. Co., 488 F.3d 59, 66 (1st Cir. 2007).
II.
Analysis
A.
Contract Claims
The full paragraph, Paragraph 7, which contains the confidentiality, exclusivity
and expense provisions, states:
The Company and the Buyer (together with their respective owners,
employees, agents and representatives) agree to keep all of the terms,
conditions and other subject matter of this letter confidential, and agree
not to disclose the terms, conditions or other subject matter of this letter
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without the other party’s prior written consent. The Buyer will have an
exclusive period to complete its due diligence and proceed to Closing
until 45 days after the date on which the Company’s audited financial
statements described below are completed and delivered to the Buyer or
90 days from the date of this letter, whichever is later, provided that to the
extent that the audited financial statements are not delivered by May 31,
2011, the exclusivity period will terminate on July 5, 2011. During this
period of exclusivity, the Company and its owners, employees, agents or
representatives will not negotiate for, solicit or accept any offer to sell the
Company or its assets or provide business plans or any material
information regarding the Company or anyone other than the Buyer
without the Buyer’s written consent, and the Company will continue to
operate its business in its customary and ordinary course. Other than
with respect to the audit described below, the parties will pay their
respective costs and expenses of the transactions contemplated hereby.
The parties agree that the first sentence, dealing with confidentiality, and the last
sentence, dealing with costs and expenses, in Paragraph 7 are binding; they disagree
on whether the middle three sentences, the exclusivity language, is also binding.
In support of their motion to dismiss, defendants point to Paragraph 6 (at p. 2
above) expressly starting that the LOI is not a binding contract except for the sentences
pertaining to confidentiality and expenses, which are not at issue here. Plaintiff, on the
other hand, argues that the exclusivity provision is simply an adjunct to the larger and
binding confidentiality provision and thus by the plain terms of Paragraph 6 is binding
as well.
As a matter of law the LOI is clear and unambiguous and states unequivocally
that the only provisions binding both parties are those addressing confidentiality and
expenses. Combined Energies v. CCI, Inc., 514 F.3d 168, 173 (1st Cir. 2008) (“Where
the words of a contract in writing are clear and unambiguous, its meaning is to be
ascertained in accordance with its plainly expressed intent.”)
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The LOI treats as binding only the confidentiality and expenses provisions in
Paragraph 7. This deliberate isolation leads to only one interpretation, namely that the
confidentiality and expenses provisions in Paragraph 7 are binding, while the remaining
sentences of that paragraph are not. Any other reading of Paragraph 6 would render
the specific mention of the confidentiality and expenses provisions superfluous.
Babcock Borsig Power GmbH v. Babcock Power, Inc., 2006 WL 1581742,*3 (D. Mass.
2006). (“Under Massachusetts law, courts avoid interpreting contracts in a manner that
would render express terms superfluous.”)
Plaintiff also sues the Company for breach of the obligation of good faith and fair
dealing and Ms. Giner for tortious interference with a contract. In order to establish a
breach of the obligation of good faith and fair dealing a binding contract must be
established, Hutchins v. Zoll Medical Corp., 430 F.Supp.2d 24, 34 (D. Mass. 2006)
(“obligation of good faith and fair dealing … presupposes the formation of a contract”),
the same is true for tortious interference with a contract Cina Fire Underwriters Co. v.
MacDonald & Johnson, Inc., 86 F.3d 1260, 1267 (1st Cir. 1996) (“party [claiming
tortious interference with a contract ] must prove … that there was a contract with a
third party...”). Here, the exclusivity clause did not create a binding agreement;
therefore, there can be no breach of the underlying obligation of good faith and fair
dealing, or tortious interference with respect to it.
The motion to dismiss is allowed as to Counts I, II, and IV.
B.
Detrimental Reliance
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As to Count III the complaint alleges the defendants “consistently represented
that the Company would negotiate in good faith with Stonewood Capital to complete the
transaction set forth in the Letter of Intent” and that “as a proximate result of its reliance
on the promises made [plaintiffs have suffered damages].”
“Massachusetts law recognizes that a promisee's reasonable and detrimental
reliance on a promise may serve as a substitute for consideration and render the
promise ‘enforceable pursuant to a traditional contract theory,’ but only if the promisee
can prove ‘all the necessary elements of a contract other than consideration.’” Kiely v.
Raytheon Co., 105 F.3d 734 (1st Cir. 1997). Here, however, plaintiff cannot establish
any promise that would be binding “but for” consideration because the LOI does not
create any obligations on either party to consummate a final transaction. Santoni v.
Federal Deposit Ins. Corp., 677 F.2d 174, 179 (1st Cir. 1982) (“A mere expression of
future intention … does not constitute a sufficiently definite promise to justify
reasonable reliance thereon”). Even assuming plaintiff relied on defendants’ “obligation
to negotiate in good faith” exclusively with plaintiff, such reliance is unreasonable for
the same reason – the deal could have been tabled at any time for any reason by either
party.
C.
Tortious Interference with an Actual or Prospective Business
Relationship
In order to prevail on a tortious interference with business advantage
claim, a plaintiff must prove (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 plaintiff's loss of advantage directly resulting
from the defendant's conduct. A plaintiff need not prove that it had a
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binding contract, rather a probable future business relationship
anticipating a reasonable expectancy of financial benefit is sufficient.
Boyle v. Douglas Dynamics, LLC, 292 F.Supp.2d 198, 213 (D. Mass. 2003) (internal
citations and quotations omitted) (emphasis added).
In this case, plaintiff sufficiently alleges that there was a contemplated contract
of economic benefit. The LOI contained a detailed offer of purchase, and a fairly
particular set of guidelines setting forth how the parties were to exchange information
and negotiate a possible deal. If nothing else, the LOI was the beginnings of a
“contemplated contract of economic benefit.”
Defendants next argue that by virtue of Ms. Giner’s status as a director, plaintiff
must establish “actual malice” by proving that Ms. Giner employed “improper motive or
means.” However, this heightened standard is only applicable to corporate officials
acting within the scope of their corporate responsibilities. Blackstone v. Cashman, 448
Mass. 255, 261-262 (2007). Here, plaintiff alleges that Ms. Giner was acting for her
own account, not on behalf of the company. Therefore, the “actual malice” standard is
not applicable.
While some measure of impropriety beyond the mere interference
itself is required to establish a tortious interference claim, United Truck Leasing
Corporation v. Geltman, 406 Mass. 811, 816 (1990), plaintiff meets its burden. It
alleges that Ms. Giner, relying improperly on confidential information contained in the
LOI, interfered with plaintiff’s contemplated economic benefit by offering a competing
deal to purchase the Company on substantially the same terms as the LOI – a deal
designed to enable her to exercise control over the Company – and as a result caused
plaintiff damages. This is enough.
The motion is denied as to this count.
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III.
Conclusion
Defendants’ motion to dismiss (Docket # 14) is ALLOWED as to Counts I, II, III
and IV and DENIED as to Count V.
/s/Rya W. Zobel
RYA W. ZOBEL
UNITED STATES DISTRICT JUDGE
October 18, 2011
DATE
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