Opinion
1684 CV 01840-BLS2
06-24-2016
ABCD Holdings, LLC et al. v. Patrick J. Hannon et al No. 134358
Kenneth W. Salinger, Justice
Filed June 27, 2016
MEMORANDUM AND ORDER DENYING PLAINTIFFS' MOTIONS FOR PRELIMINARY INJUNCTION AND TO ATTACH REAL ESTATE
Kenneth W. Salinger, Justice
Plaintiffs allege that Patrick J. Hannon owes them $1 million or more under various legal theories. They assert claims against him sounding in contract, and in tort, and under G.L.c. 93A. Plaintiffs seek a preliminary injunction that would bar Hannon from dissipating any of his income or assets except for ordinary living or business expenses, and that would bar the eleven reach-and-apply defendants from dissipating or paying to Hannon any income or assets belonging to Hannon, except for payments of salary. They also seek to attach real estate owned by Sofia Gagua, Hannon's spouse, on the theory that this property " constitute[s] the proceeds of a fraudulent transfer." Plaintiffs rely on the allegations of their verified complaint as the sole factual basis for these motions.
The Court concludes that Plaintiffs have not proved they are entitled to the preliminary relief they have requested, even though Plaintiffs have shown that they are likely to succeed in proving that Hannon is liable for at least part of the damages claimed by Plaintiffs. It will therefore deny both motions.
1. Likelihood of Success on the Merits
It seems likely that plaintiff ABCD Holdings, LLC, will be able to enforce its rights under Hannon's personal guaranty of half of a $219,759 loan made by Bright Horizon Finance, LLC, to Ware Real Estate, LLC, and ABC& D Recycling, Inc. Although the loan was made by Bright Horizon, that entity subsequently assigned its rights under the note and under Hannon's guaranty to ABCD Holdings.
At the time of that transaction Bright Horizon was owned by Attorney George A. McLaughlin, who was also Hannon's personal lawyer and who now owns or controls Plaintiffs as well. Although Hannon insists that McLaughlin's dual role in this loan transaction makes the note and guaranty unenforceable, another Superior Court judge has already held that this transaction was a proper arm's length deal, that Hannon had independent legal representation in connection with the deal, and that Attorney McLaughlin was entitled to enforce warrants signed by Hannon that allowed McLaughlin to buy a controlling interest in Ware and ABC& D Recycling if Ware and Hannon defaulted on their repayment obligations. Given that finding, it seems likely that ABCD Holdings will succeed in proving that the related note and Hannon's personal guaranty are also enforceable.
If so, then under the terms of his personal guaranty Hannon is likely to be found liable to ABCD Holdings for (1) $109,879.50 of the amounts owed but not paid by Ware Real Estate under its note, plus (2) reasonable attorneys fees and costs incurred as a result of Ware's breach of the note, plus (3) all amounts that Hannon received from Ware Real Estate after it defaulted on the note. The Court need not make any findings regarding the total amount that ABCD Holdings is likely to succeed in recovering from Hannon, however, because whatever that amount may be Plaintiffs are still not entitled to the preliminary injunctive relief sought in the two pending motions.
2. Unavailability of Preliminary Injunctive Relief
2.1. Requested Injunction against Hannon
As noted above, Plaintiffs seek a preliminary injunction that would bar Hannon from encumbering or disposing of any of his assets or income, except to satisfy ordinary living or business expenses.
This request is essentially a " nonstatutory action [ ] to reach and apply" that used to be known as a " creditor's bill." See Cavadi v. DeYeso, 458 Mass. 615, 625, 941 N.E.2d 23 (2011). " Traditionally a creditor's bill could be brought (i) by a judgment creditor, (ii) who had attempted to obtain satisfaction at law, and (iii) who sued in equity for the purpose of reaching property that could not be taken on execution at law." Id. The " true rule in equity is that under usual circumstances a creditor's bill may not be brought except by a judgment creditor after a return of 'nulla bona' on execution." First Nat. Bank of Boston v. Nichols, 294 Mass. 173, 182, 200 N.E. 869 (1936), quoting Harkin v. Brundage, 276 U.S. 36, 52, 48 S.Ct. 268, 72 L.Ed. 457 (1928). In cases involving fraudulent conveyances that leave a judgment debtor insolvent, the judgment creditor need not prove a fruitless attempt at execution, but still must show that it has obtained a final and enforceable judgment before obtaining equitable relief in the nature of a creditor's bill. See Foster v. Evans, 384 Mass. 687, 693-94, 429 N.E.2d 995 (1981).
Since Plaintiffs are not yet judgment creditors of Hannon, the Court may not exercise its general equity jurisdiction to temporarily grant injunctive relief in the nature of creditors' bill attachment. See First Nat. Bank, 294 Mass. at 182-83; Consolidated Ordnance Co. v. Marsh, 227 Mass. 15, 23, 116 N.E. 394 (1917); In re Rare Coin Galleries of America, Inc., 862 F.2d 896, 904-05 (1st Cir. 1988) (applying Massachusetts law); Hunter v. Youthstream Media Networks, 241 F.Supp.2d 52, 55-57 (2002) (Collings, M.J.) (applying Massachusetts law). The Court notes that the United States Supreme Court has reached the same result under federal law, holding that federal courts have " no authority to issue a preliminary injunction preventing" parties " from disposing of their assets pending adjudication of [a] claim for money damages, " where the plaintiff does not claim any lien upon or other equitable interest in the assets. Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 310, 333, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999).
The Court recognizes that it has the power to grant the requested relief against Hannon to the extent that ABCD Holdings is claiming that it has an equitable interest in funds held by Hannon, rather than claiming that it has a legal right to recovery monetary compensation from Hannon for damages suffered by ABCD or its assignee. See, e.g., Gucci America, Inc. v. Weixing Li, 768 F.3d 122, 130-31 (2d Cir. 2014) (distinguishing Grupo Mexicano on ground that plaintiff asserted equitable interest in defendant's profits under federal trademark act).
And it further recognizes that ABCD Holdings asserts that it has an equitable interest in any funds paid to or on behalf of Hannon by Ware Real Estate or ABC& D Recycling after those entities defaulted on their obligations to Bright Horizon under the note.
But Plaintiffs have not yet shown there are likely to succeed in proving that Hannon took monies from either of the borrowers under this note, and thus have not yet shown they are likely to establish they have an equitable lien on Hannon's personal assets. Attorney McLaughlin asserts in the verified complaint that Hannon received payments totaling $620,000 from Ware Real Estate and ABC& D Recycling in violation of the terms of Hannon's personal guaranty, and that Hannon is therefore holding that amount in trust for ABCD Holdings. McLaughlin has attached a spreadsheet to the verified complaint listing all the transactions that he contends support this allegation. But Plaintiffs have provided no admissible evidence demonstrating who prepared this spreadsheet, what records they used to prepare it, or why Plaintiffs are likely to succeed in proving that any or all of the transactions summarized in this spreadsheet constitute an improper transfer of assets to Hannon after Ware Real Estate and ABC& D Recycling breached their obligations under the note. In sum, since McLaughlin does not suggest he has any personal knowledge of facts that support his allegation that Hannon took money from these two borrowers after they defaulted, this allegation appears to rest entirely on information and belief. As a result the record presented by Plaintiffs does not demonstrate that they are likely to succeed in proving that ABCD Holdings has an equitable lien on any assets now belonging to Hannon. See Eaton v. Federal Nat'l Mortgage Ass'n, 462 Mass. 569, 590, 969 N.E.2d 1118 (2012) (allegation supported merely by " information and belief" is not adequate factual basis for granting preliminary injunctive relief); Alexander & Alexander, Inc. v. Danahy, 21 Mass.App.Ct. 488, 494, 488 N.E.2d 22 (1986) (facts alleged in verified complaint " on the basis of personal knowledge" can demonstrate likelihood of success and support issuance of preliminary injunction, but those alleged on information and belief cannot).
2.2. Attachment of Gagua's Real Estate
Plaintiffs seek to attach real estate owned by Hannon's wife, Sofia Gagua, on the ground that Gagua bought the property using funds fraudulently conveyed to her by Hannon. But the allegations of fraudulent transfers to Gagua are all made on information and belief, and not supported by any admissible evidence. That is not enough to show any likelihood that ABCD Holdings were be able to collect Hannon's personal debt by seizing real estate owned by Gagua. See Eaton, supra .
2.3. Relief against Reach and Apply Defendants
Finally, Plaintiffs have not demonstrated that they are likely to succeed in proving that any of the reach-and-apply defendants hold any property belonging to Hannon. By statute, Plaintiffs may seek to reach and apply " any property, right, title or interest, legal or equitable" of Hannon that is held by someone else--and thus " cannot be reached to be attached" before judgment enters " or taken on execution" thereafter--in order to secure repayment of a debt owed by Hannon. G.L.c. 214, § 3(6). They have the burden, therefore, to demonstrate not only that Hannon owes them some debt, but also that the reach-and-apply defendants hold property or money that belongs to Hannon. See generally Foster, 384 Mass. at 692; see also In re Borofsky, 138 B.R. 345, 347 (D.Mass. 1992) (under Massachusetts law, " [a] complaint to reach and apply must sufficiently describe the property sought to be reached and applied"). The verified complaint asserts " on information and belief" that the reach-and-apply defendants are holding funds or other assets that belong to Hannon. That is not enough. Id. ; see also Peters v. Saulinier, 351 Mass. 609, 614, 222 N.E.2d 871 (1967) (plaintiff seeking to reach and apply proceeds of automobile insurance policy had burden of establishing driver's compliance with policy, and thus that driver had legal right to coverage under that policy).
ORDER
Plaintiffs' motions for a preliminary injunction and to attach real estate owned by Sofia Gagua are both DENIED.