Cook et al v. Larrea-Olozaga et al

Filing 52

OPINION AND ORDER granted 21 Motion to Vacate Plaintiffs' Deposit of Funds; denied 37 Request for Injunction; noted 47 Motion to Join/Adopt 38 Opposition. Clerk of Court to return the $848,000 deposited in this Court to Glaze On Investment, Inc.; GOI officer(s) to submit proof of deposit in escrow account within 5 days after return of said amount to GOI. Signed by Judge Carmen C. Cerezo on 10/27/2014. (mld)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
JOHN MATTHEW COOK; ELLYSMAR
GOMEZ-LUZARDO
Plaintiffs
vs
F. GERARDO LARREA-OLOZAGA;
JUAN A. LARREA-FRENCH;
CARIBBEAN GLAZE CORPORATION;
GLAZE ON INVESTMENT, INC.; LUIS
ARENAS; ALEJANDRO D. CERDA;
IVELISSE BORRERO-DE
CORDOVES; ARTURO FERNANDEZ;
FELIPE FLORES-ROLON;
FRANCISCO GERARDO
LARREA-FRENCH; MARIA
LARREA-FRENCH; GILBERTO
MARXUACH; JACOBO
ORTIZ-MURIAS; ANICETO
SOLARES-RIVERO; FERNANDO L.
TORO
Defendants

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OPINION AND ORDER
Before the Court are two interrelated motions: (1) Motion to Vacate
Plaintiffs’ Deposit of Funds (D.E. 21)1 filed on September 11, 2014 by
defendants Gerardo Larrea-Olozaga and Juan A. Larrea-French (hereinafter
“the Larreas”), and Luis Arenas, Alejandro Cerda, Ivelisse Borrero, Arturo
Fernández, Felipe Flores, Francisco Larrea-French, María Larrea-French,
Gilberto Marxuach, Jacobo Ortiz-Murias, Aniceto Solares and Fernando Toro,
generally referred to in the filings as “minority shareholders” or as “the
11 individual defendants;” and (2) defendant CGC’s Motion for an Injunction
Pursuant to 28 U.S.C. § 2361 (D.E. 37).

1

The related filings are oppositions filed by Caribbean Glaze Corporation (CGC) on 9-24-14
(D.E. 24) and by plaintiffs Cook and Gómez on 9-29-14 (D.E. 27) and a reply to such oppositions
by the Larreas filed on 10-23-14 (D.E. 44).

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2

Before this action was commenced, there were two other civil actions
between the same parties filed in the courts of the Commonwealth of Puerto
Rico.

The core controversy underlying all three actions is whether the

11 individual defendants are minority shareholders of both corporations (¶¶ 29,
30, 31 of Verified Amended Complaint) and have a 16 percent participation of
the shares and of a recently declared $5.3 million dividend equivalent to
$848,000.00. The four co-founding partners of CGC, the exclusive franchisee
of Krispy Kreme donuts in Puerto Rico, hold adversarial positions on the
matter. The Larreas fully acknowledge the lawful existence and participation
of the minority shareholders in the corporations, while Cook and Gómez claim
that the Larreas concocted a fraudulent scheme to misrepresent that the two
corporations approved the issuance of a 16 percent participation to the
11 individual defendants.
This dispute had its judicial genesis in the Court of First Instance of
Puerto Rico, San Juan Part, as a Mandamus Petition filed by Cook and Gómez
on October 31, 2013 against CGC, its holding company Glaze On Investment,
Inc. (GOI), and the Larreas, Civil No. KPE2013-5152(904).

See docket

entry 20-5. This civil action was handled by two different Civil Court judges, the
first being Superior Court Judge Angel Pagán, who dismissed the Mandamus
Petition but ordered the remaining parties, the Larreas and the 11 minority
shareholders, to continue with their claims (the Larreas’ Counterclaim and the
minority shareholders’ Declaratory Judgment Petition) and instructed the
Clerk’s Office to reassign the case to another judge as an ordinary proceeding.
It was then reassigned to Superior Court Judge Melba D. Ayala-Ortiz and while
the case number remained the same, KPE2013-5152, the courtroom changed

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from

904

to

505,

3
that

is,

Civil

No.

KPE2013-5152(904)

became KPE2013-5152(505).
Cook and Gómez had alleged in the Mandamus Petition dismissed by
Judge Pagán that they had presented a Motion for Declaration and Distribution
of Dividends at a meeting of the Board of Directors of the corporations held on
October 28, 2011 and again on August 20, 2012, and on both occasions the
Larreas, members of the Board of Directors of CGC, objected to such motion.
Their petition requested that the Court “compel directors

F. Gerardo

Larrea-Olozaga and Juan A. Larrea-French to exercise their ministerial duty”
(¶ 39 of D.E. 20-5) and that they proceed to comply with the declaration and
distribution of benefits by CGC. The Larreas filed an Answer to the Petition for
Mandamus and a Counterclaim in Civil No. KPE2013-5152(904).

They

generally averred in the Counterclaim (D.E. 48-1, ¶¶ 17-46) that it was in the
best business interest of CGC to postpone the distribution of dividends until
there was a final determination regarding the existence of the minority
shareholders and until the commitment made with the minority shareholders
as to their 16 percent participation was complied with. The dominating theme
of the San Juan Superior Court Counterclaim filed by the Larreas is anchored
on the ongoing controversy as to the existence of minority shareholders and
their total percentage of shares, if any. Under the heading “Background and
beginning of the discrepancies between the parties,” subpart (B.),
paragraphs 38 through 107, particularly at paragraphs 38-47, 49-56 and
91 through 104; under “Second Cause of Action: Derivative Action,”
paragraphs 127 through 133; under “Third Cause of Action: Accounting,”
paragraphs 142 through 147; and under “Fifth Cause of Action: Judicial
Administrator,” paragraphs 170-171 and 174 through 177, the Larreas’

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4

Counterclaim continuously refers to their efforts to achieve the integration of
the minority shareholders into the corporation, referring to GOI, to Cook and
Gómez’ opposition to the participation of the minority shareholders and to the
fact that there is a deadlock or impasse among the members of the Boards of
Directors of both GOI and CGC regarding the composition of the shareholders
of the corporations.
Superior Court Judge Pagán issued a Partial Judgment on February 18,
2014 dismissing the Mandamus Petition. Upon reassignment of the case to
Judge Ayala at Courtroom 505, she considered one of the two remaining
claims: the Petition for Declaratory Judgment that had been filed on
December 31, 2013 by the 11 individual defendants as intervenors and the
corresponding motion to dismiss of Cook and Gómez dated March 21, 2014
for lack of personal jurisdiction over them.

Although the “minority

shareholders” had notified their request for intervention and intervenors’
Declaratory Judgment Petition to the attorneys for the corporations and to
mandamus petitioners Cook and Gómez, their intervenors’ Complaint for
Declaratory Judgment was dismissed for lack of personal service upon Cook
and Gómez.
The Larreas then filed on May 27, 2014 a Motion for Reconsideration or
Relief from Judgment (D.E. 48-2), addressing Judge Ayala’s Judgment
dismissing the entire case, without prejudice (KPE2013-5152(904)). They
requested that the Court vacate that portion of its judgment with respect to the
Larreas’ counterclaim, the other claim pending upon reassignment, contending
that the dismissal for lack of personal jurisdiction was aimed solely at the
Declaratory Judgment Petition filed by the intervenors-minority shareholders,
not at the Larreas’ counterclaim against Cook and Gómez. The Larreas’

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5

reconsideration motion was originally set for argument on September 4, 2014
(see August 21, 2014 Order of Superior Court Judge Ayala in
KPE2013-5152(505), D.E. 48-4 in our case). It was rescheduled for hearing
on October 23, 2014 by order issued by the same judge. See D.E. 48-5.
Meanwhile, the 11 individual “minority shareholders”-intervenors whose
petition

for

declaratory

judgment

had

been

dismissed

in

Civil

No. KPE2013-5152(505) pursuant to the May 22, 2014 Judgment, pending
reconsideration, went on to refile a Declaratory Judgment Petition on June 10,
2014 as Civil No. DAC2014-1549(506) in the Puerto Rico Court of First
Instance, Bayamón Part. This pleading has been submitted in its English
version as D.E. 6-2 in our case. The English translation, however, incorrectly
translates its title as “Judgment.” The Bayamón Court complaint mirrors the
previous San Juan Complaint for Declaratory Judgment (D.E. 49-1) filed by the
same 11 individual persons who identified themselves as “jointly, the minority
shareholders.” The Bayamón action is neither a different claim nor is it based
on unrelated factual allegations. They both request the Court to declare
plaintiffs’ rights as “minority shareholders.”
The undersigned has carefully compared, paragraph by paragraph, the
factual allegations and the legal principles set forth in each of these two
complaints. They have identical wording, except for minor differences of form
in the numbering and sequence of several paragraphs. Plaintiffs Cook and
Gómez contend, nonetheless, that the Bayamón complaint includes new
causes of action. This is not so. The earlier San Juan Superior Court
intervenors’ action identified “Declaratory Judgment” as its subject-matter;
while the Bayamón Superior Court complaint, in addition to “Declaratory
Judgment,” mentions “Breach of Contract and Promissory Estoppel.” However,

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6

the same breach of contract claims are present in the San Juan Superior Court
complaint, at page 9 under the heading “The binding nature of verbal
agreements or promises between the parties.” The breach of contract claim
is discussed in that pleading at paragraphs 50 through 55, inclusive. The same
contractual claim appears in the Bayamón Superior Court complaint at page 9
under the same heading at paragraphs 54 through 57, inclusive. The matters
discussed under the headings “Binding Nature of Contract and Verbal
Contracts,” “Validity of Stock Subscription Agreements,” and “Unilateral
Statement of Intent” appear in both complaints although not in the same order.
In sum: the later Bayamón Court complaint sets forth exactly the same
controversies as its San Juan counterpart.
Against this backdrop we reach the two motions that are the object of this
order, to wit: (1) the Larreas and the “minority shareholders’” Motion to Vacate
Plaintiffs’ Deposit of Funds (D.E. 21), opposed at D.E. 24 and D.E. 27, reply
at D.E. 44, and (2) CGC’s request for an injunction (D.E. 37), opposition at
D.E. 38, joined by the 11 individual defendants at D.E. 47, which is NOTED.
Docket entry 21 seek to vacate the $848,000.00 deposit, that the Clerk of Court
be ordered to return to Cook and Gómez the monies improperly deposited, with
interest accrued, and to also order the plaintiffs to deposit these funds in an
escrow account, as agreed to by the Larreas, Cook and Gómez in their
capacity as members of the Board of Directors of Caribbean Glaze Corporation
(CGC) in the “Joint Action of the Board of Directors and Shareholders of Glaze
On Investment, Inc. By Unanimous Written Consent” which was executed on
May 24, 2014 (D.E. 21-1), and as agreed in the “Action of the Board of
Directors of Caribbean Glaze Corporation By Unanimous Written Consent”
executed by the Larreas, Cook and Gómez on May 24, 2014 (D.E. 21-1).

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7

The Joint Action of the Board of Directors and Shareholders of Glaze On
Investment, Inc. on declaration of dividends states that its wholly-owned
subsidiary, CGC, had declared a dividend in the amount of $5.3 million to
Glaze On Invesment, Inc. (GOI) and this corporation similarly wished to declare
dividends in the same amount to its shareholders.

The Joint Action

acknowledges that the two Larreas, Cook and Gómez are shareholders of GOI
with equal participation and that at that time there was a dispute before the San
Juan Superior Court among the four shareholders in case number
KPE2013-5152(505) as to whether they own a 100% of the corporation or 84%
with the remaining 16% owned by the intervenors, referring to the
11 individuals who filed a Declaratory Judgment Petition in that case. The four
principal shareholders specifically state that “in order to facilitate the
declaration and payment of a dividend by the Corporation, notwithstanding the
dispute, the Corporation would deposit in escrow 16 percent of such dividend,
or $848,000.00, pending resolution of the declaratory judgment action
mentioned before filed by the individual intervenors. It was also resolved that
each of the four shareholders who signed the Joint Action would receive at the
time, $1,001,700.00 and the remaining balance of the dividend, the
$848,000.00, would be deposited in escrow upon final resolution of the
Declaratory Judgment Action in case No. KPE2013-5152(505).” The other
document entitled “Action of the Board of Directors of Caribbean Glaze
Corporation By Unanimous Written Consent” resolved that the declaration and
payment of the $5.3 million dividend declared by CGC “is contingent upon a
declaration and payment by Glaze On Investment, Inc. of a similar dividend to
shareholders, including the deposit in escrow of the $848,000.00 of such
dividend,” as set forth in the above-mentioned Joint Action.

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8

Having examined all of the relevant documents filed in the two cases
pending before the Superior Courts of San Juan and Bayamón, the Court
concludes that, contrary to Cook and Gómez’ contentions, the San Juan case,
KPE2013-5152(505), is still pending disposition of the Motion for
Reconsideration or Relief from Judgment filed by the Larreas regarding the
dismissal of the Counterclaim.

Said Counterclaim included the same

controversies related to the existence of the minority shareholders and to their
16 percent participation in the share of the corporations. The Counterclaim
filed by the Larreas, together with their answer to the petition, both before the
San Juan Superior Court, is a 29-page document. It commences at page 17
of D.E. 46-1 and contains detailed allegations regarding the primary dispute
between the four principal shareholders, the Larreas pitted against Cook and
Gómez, regarding the status of the 11 individual defendants as minority
shareholders of 16 percent of CGC shares. Particularly, in the first and third
paragraphs of the Counterclaim, the Larreas allege that Cook and Gómez
refuse to acknowledge a participation of the 11 minority shareholders despite
having participated in the discussion of the final determination of the
shareholders; that they insist in declaring illegal dividends to the detriment of
the minority shareholders’ rights and attempt to exclude them from the payment
of dividends in order to receive a percentage higher than that to which they
(Cook and gómez) are entitled.

The Larreas specifically allege at

paragraphs 142 through 144 of their Counterclaim that the final list of
shareholders includes the 11 minority shareholders whose existence Cook and
Gómez denied; that the four principal shareholders - Cook, Gómez and the
Larreas - own 84 percent of the shares and the remaining shareholders own
a total of 16 percent.

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9

It is clear, therefore, that the Counterclaim contains allegations and
request remedies that are directly related to the ongoing dispute among the
shareholders regarding the very existence of minority shareholders and their
participation, if any. That is, the 84-16 percent distribution claimed by the
Larreas and the individual defendants and the 100 percent strictly for the
four principal shareholders as advanced by Cook and Gómez.
Additionally, and, more importantly, the Bayamón Superior Court
complaint, the identical suit refiled after dismissal for delay in service of
process without prejudice, not on the merits, reflects that the shareholders’
dispute which triggered the corporate resolution that conditioned the
payment of dividends on placing in escrow the 16 percent or $848,000.00,
still remains unresolved. The whole purpose behind the “Joint Action” was
precisely to break the impasse among the shareholders by placing in escrow
the disputed amount.

That impasse has, as yet, not been overcome.

Therefore, the agreement in the Joint Action of the Board of Directors of GOI
and in the Action of the Board of Directors of CGC for the escrow deposit is still
in effect.
For the reasons stated, the Motion to Vacate Plaintiffs’ Deposit of Funds
in Violation of Fed. R. Civ. P. 67 (D.E. 21) is GRANTED. The Court has
determined that the $848,000.00 or 16 percent of the dividend declared in
issue is still subject to being deposited in escrow. The Request for Injunction
(D.E. 37) which seeks “to restrain each defendant from commencing or
prosecuting any action in any State or United States Court against CGC related
to title to CGC and/or GOI shares and capital stock and the $848,000.00
dividend” is DENIED.

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It is FURTHER ORDERED that the $848,000.00 deposited in this Court
be returned to Glaze On Investment, Inc. (GOI) for deposit in an escrow
account, as set forth by the Joint Action of the Board of Directors of Glaze On
Investment, Inc. (GOI). An officer or officers of GOI shall submit proof before
the Court of the deposit in escrow of the sum of $848,000.00 within five (5)
days after the return of said amount to said Corporation by the Clerk of Court.
SO ORDERED.
At San Juan, Puerto Rico, on October 27, 2014.

S/CARMEN CONSUELO CEREZO
United States District Judge