Opinion
21-P-153
02-10-2022
SG REALTY HOLDINGS, LLC, & another v. 49 MELCHER STREET, LLC, & another.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The defendants, 49 Melcher Street, LLC (49 Melcher) and its manager, Steven Goodman, appeal from a Superior Court judgment, after a jury-waived trial, ordering specific performance of an option agreement. The option was held by the plaintiff SG Realty Holdings, LLC (SGRH), which is managed by the plaintiff Seth Greenberg, a restaurant developer. The option conferred a right to purchase real estate in Boston that 49 Melcher owned and had leased to an affiliate of Greenberg to operate a restaurant. On appeal, the defendants challenge the judge's rulings that (1) the plaintiffs properly exercised the option; (2) Goodman, in order to acquire the "equity participation" in SGRH to which the option's exercise entitled him, was required to pay for that interest in pari passu with, i.e., on the same terms as, the other investors in SGRH; and (3) 49 Melcher and Goodman were bound by the statements of one of 49 Melcher's attorneys during negotiations over the option and related agreements. We affirm.
Judgment also entered for the plaintiffs on their claims for breach of the implied covenant of good faith and fair dealing and for declaratory relief. Those claims raise no separate issues relevant to this appeal and will not be discussed further. Judgment entered for the defendants on the plaintiffs’ claims for misrepresentation and violation of G. L. c. 93A, and for the plaintiffs on the defendants’ counterclaim for declaratory relief. Those claims are not at issue on appeal.
1. Exercise of option. The defendants argue that the attempted exercise of the option by the plaintiffs SGRH and Greenberg was invalid for two reasons and that the judge erred in concluding otherwise. First, they assert that the attempted exercise was by Greenberg individually, rather than by an entity controlled by him as the option required. Second, they claim that even after Greenberg formed SGRH as the entity to exercise the option, SGRH's attempts to do so failed because Goodman lacked the equity participation in SGRH that the option required.
The option agreement, entered into in 2012, recited that it was made "between Seth Greenberg's nominee entity, with [a specified address in New York City] (hereinafter ‘Buyer’) and 49 Melcher Street, LLC ... (hereinafter ‘Seller’)." The option contained two recitals:
"WHEREAS, pursuant to a certain lease (the ‘Lease’) dated of even date herewith between Seller and Buyer's affiliate, 49 Melcher Restaurant Group, LLC (‘Tenant’), Seller has leased to Tenant the premises consisting of approximately 10,500 plus or minus square feet on the lower floor and first floor (the ‘Premises’) of the building known as 49 Melcher Street, Boston ... and
"WHEREAS, Seller has agreed to grant Buyer a one-time option to purchase the Premises in accordance with the terms of this Agreement, and conditioned upon the fact that Buyer will be controlled by Seth Greenberg or an entity controlled by Seth Greenberg but in which Steven Goodman, or an entity controlled by Steven Goodman, shall have equity participation."
The option provided that, upon notice of its exercise, 49 Melcher as seller would be required to convert the building to condominiums, one of which would be the "Premises" being purchased. The option agreement was signed by "Seth Greenberg, Buyer" and "49 Melcher Street, LLC, Seller[,] By ... Steven Goodman[,] Manager."
In October 2017, Greenberg sent notice to 49 Melcher as seller of "Buyer's election to purchase the Premises." The notice was signed by Greenberg and written on letterhead bearing the New York address specified in the option. Three weeks later, Greenberg formed SGRH. He then sent a follow-up letter to 49 Melcher, stating, "[i]n furtherance of my exercise of the Option to purchase the Premises ... and in accordance with the terms of the Option, I enclose herewith three (3) original Condominium Purchase and Sale Agreements (‘the PSA’) which have been executed by my nominee and an entity I control, [SGRH] (‘Buyer’)." The attached PSA identified SGRH as the buyer and included a footnote stating, "Buyer represents to Seller that (i) Buyer is controlled by Seth Greenberg and (ii) Steven Goodman or an entity controlled by Steven Goodman will have an equity participation in Buyer."
We omit some details of this and later notices and 49 Melcher's responses that are immaterial to the issues on appeal.
49 Melcher responded that same day by sending Greenberg a notice rejecting the exercise, on the ground that the option could be exercised only by "Greenberg's nominee entity," rather than Greenberg individually, and that the entity was required to be one in which Goodman "had equity participation," which he did not yet have.
Next, in November 2017, SGRH sent notice to 49 Melcher of "Seth Greenberg's nominee entity, [SGRH]’s, election to purchase the Premises." The notice further stated that SGRH "is an entity controlled by Seth Greenberg and which Steven Goodman or an entity controlled by Steven Goodman shall have an equity participation in." 49 Melcher again rejected the exercise on the ground that Goodman at that time had no equity participation in SGRH.
Finally, in December 2017, SGRH sent another notice to 49 Melcher of its election to purchase the premises. The notice repeated the prior notice's representations about SGRH. It also attached a proposed operating agreement for SGRH, executed by Greenberg as its manager and a member, reflecting "Goodman's agreed upon fifteen (15%) percent Percentage Interest in [SGRH]." The agreement treated Goodman as a "member" of SGRH and established no different conditions on Goodman's membership than those applicable to other potential members of (i.e., investors in) SGRH. The notice asked that Goodman sign and return the operating agreement. 49 Melcher rejected the exercise for the reasons set forth in its prior correspondence.
a. Exercise by Greenberg individually. The defendants argue, as they did at trial, that the first notice of exercise of the option was invalid because it was signed by Greenberg individually, whereas the option identified only "Greenberg's nominee entity," with a specified New York address, as the "Buyer" entitled to exercise the option. The judge concluded otherwise, based on her findings that (1) Greenberg individually had signed the option as "Buyer"; (2) the option referred to the entity operating the restaurant as "Buyer's affiliate," at a time when SGRH did not yet exist; and (3) the address identified in the option as "Buyer[’s]" address was Greenberg's own address. Further, a subordination agreement, which Greenberg signed at 49 Melcher's request after the option was executed, identified Greenberg and his nominee entity collectively as the option's "holder." Finally, when Greenberg personally guaranteed a bank loan made to the restaurant operator, and as part of the guarantee pledged the option as collateral for the loan, Goodman on behalf of 49 Melcher executed a consent to the pledge.
We take the judge to have concluded that, because SGRH did not yet exist, and because there was no other entity of which the restaurant operator could logically have been an affiliate, the term "Buyer," as used in the phrase "Buyer's affiliate," necessarily encompassed Greenberg individually.
The defendants do not challenge any of these factual findings as clearly erroneous. Nor do they identify any error of law in the judge's resulting conclusion that "Greenberg had standing to send the [f]irst [n]otice" of the exercise of the option. Moreover, the defendants do not explain why, even if the first notice of exercise was invalid because it was sent by Greenberg individually, that defect was not cured by the second and third notices, which were sent by SGRH. Although the defendants quote the option's recital that it was a "one-time option," they offer no argument regarding what that phrase means. In particular, they do not explain how an attempted exercise by a party they claim was not entitled to exercise the option (Greenberg individually) could essentially exhaust the option and deprive a party that was entitled to exercise it (Greenberg's nominee, SGRH) of the opportunity to do so. Nor do they explain why the phrase "one-time option" should preclude the option holder from promptly curing purported defects in the notice of exercise identified by the seller. In sum, we see no error in the judge's conclusion that the option was properly exercised, whether by Greenberg or SGRH.
b. Timing of Goodman's equity participation. The option, entered in 2012, stated that the yet-to-be-established "Buyer" "will be controlled by Seth Greenberg or an entity controlled by Seth Greenberg but in which Steven Goodman, or an entity controlled by Steven Goodman, shall have equity participation." The defendants argue that SGRH, once formed in 2017 and despite being controlled by Greenberg, could not exercise the option, because the condition that Goodman "shall have equity participation" in SGRH was not yet satisfied. The defendants argue that "by its very terms, th[is] provision required Greenberg and Goodman to jointly form a ‘buyer’ entity before the Option was exercised."
The judge disagreed, ruling: "[T]he Option nowhere states that any Greenberg-controlled entity must be formed as of the time of the [notice of exercise]. Nor does it require that Greenberg and Goodman jointly form the Buyer or that Goodman actually acquire any equity interest in the Buyer" (footnote omitted). Rather, "[p]roperly construed in light of the evidence, including the parties’ course of dealing, both of the conditions stated in the Option's second whereas clause were met as of [the date of Greenberg's follow-up letter]. Greenberg had formed [SGRH], which he controlled. He also had represented to 49 Melcher in writing that [SGRH] would serve as Buyer, and Goodman or an entity Goodman controlled would have the right to participate in its equity or ownership." Put differently, the judge reasoned, "the second whereas clause condition[ed] the right of any Greenberg-controlled entity to purchase the Premises on the right of Goodman (or an entity he controlled) to acquire a 15% membership interest in that entity," not on Goodman's actually having done so by any particular time (emphasis added).
On appeal, the defendants insist that "the plain language of the Option" required that Goodman have equity participation in SGRH before it exercised the option, rather than at some unspecified future time. But the option required no such thing. It was silent regarding the time by which Goodman was to acquire equity participation. Had the parties intended to require that Goodman acquire it before the option was exercised, they could simply have added or altered a word or two to achieve that result. The option could have provided that Goodman "shall have acquired equity participation," or "has equity participation," in the entity exercising the option. Instead, as the judge concluded, the option left open the time for Goodman to obtain such participation. The defendants identify no error in that conclusion.
Nor are we persuaded by the defendants’ argument that a motion judge's earlier ruling established as the binding law of the case that Goodman must have equity participation before the option was exercised. Even if we read the motion judge's decision as clearly having so ruled (which we do not), "a second judge does have the power to rule differently from the first judge on a ‘case, an issue, or a question of fact or law once decided’ in order to reach a just result." Winchester Gables, Inc. v. Host Marriott Corp., 70 Mass. App. Ct. 585, 593 (2007), quoting Goulet v. Whitin Mach. Works, Inc., 399 Mass. 547, 554 (1987).
The motion judge, ruling on the parties’ cross motions for summary judgment, concluded that in order for the buyer to be the type of entity that could exercise the option, the buyer must satisfy what the judge termed "conditions precedent": that the entity "will be controlled" by Greenberg or a Greenberg-controlled entity and that Goodman or a Goodman-controlled entity "shall have equity participation." This merely tracked the future tense used in the option. The judge did not address whether such control and equity participation were required to exist at the time the option was exercised, as opposed to being the subjects of enforceable assurances of future existence.
Finally, even if Goodman were required to have equity participation in SGRH at the time SGRH exercised the option, SGRH's December 2017 notice of exercise attached a proposed operating agreement providing Goodman with such participation, in a percentage and on conditions corresponding to what the judge found as fact was an earlier agreement between Greenberg and Goodman. All that was necessary for Goodman to acquire the promised equity participation in SGRH was Goodman's own signature. The defendants do not argue that Goodman, by simply refusing to accept what he had been promised, could validly prevent SGRH from exercising its option.
The defendants contest this point, but, as discussed infra, we see no error in the judge's findings.
Although the operating agreement gave Greenberg the right to require members to make capital contributions, in proportion to their equity shares, in order to acquire the premises, the judge did not find that Greenberg ever exercised that right or otherwise asked Goodman to make any payment (which in Goodman's case could have been up to $450,000 or more) in order to acquire Goodman's equity participation.
2. Goodman's pari passu participation. The defendants argue, as they did at trial, that the option gave Goodman an absolute right to equity participation in the buyer, SGRH -- free of any requirement that he, like other members, be prepared to make a proportional capital contribution to SGRH or that his participation be subject to the same conditions as applied to SGRH's other members. The judge disagreed, finding as fact that at a dinner meeting between Greenberg and Goodman in July 2012, before the option was put in final form,
"Greenberg agreed, after negotiation, that Goodman or an entity controlled by Goodman could acquire a 15% interest in [the Greenberg-controlled entity that would own the option, ultimately SGRH]. They further agreed that Goodman or his entity could acquire this interest ‘pari passu,’ that is, on the same terms that Greenberg offered interests to other investors."
The defendants now argue that the judge based those findings on evidence admitted in violation of the parol evidence rule. They contend that the option agreement was "[a] fully integrated agreement[,] ... a statement which the parties have adopted as a complete and exclusive expression of their agreement" (citation omitted). Chambers v. Gold Medal Bakery, Inc., 83 Mass. App. Ct. 234, 242 (2013). And "evidence of ... prior agreements ... is not admissible to vary or to broaden the written terms of the fully integrated agreement." Id.
Although at trial the defendants lodged parol evidence objections to certain testimony and exhibits, they themselves elicited important parol evidence and did not move to strike it. For example, in cross-examining Greenberg, defense counsel asked, "You never had any discussions with Mr. Goodman about him contributing capital before you sent him this operating agreement; did you?" Greenberg replied, "That's not true. When we talked about it at dinner when I first agreed to give him 15 percent, I said he could come in pari passu like everyone else."
What the defendants overlook is that, unlike Chambers and most of the other cases on which they rely -- and unlike the two other contemporaneous agreements between these same parties or their affiliates -- the option agreement did not contain any integration clause. "The parol evidence rule only bars the introduction of prior or contemporaneous written or oral agreements that contradict, vary, or broaden an integrated writing.... It does not bar extrinsic evidence that elucidates the meaning of an ambiguous contract." Kobayashi v. Orion Ventures, Inc., 42 Mass. App. Ct. 492, 496 (1997). See General Convention of the New Jerusalem in the United States of America, Inc. v. MacKenzie, 449 Mass. 832, 835–836 (2007).
See Chambers, 83 Mass. App. Ct. at 239-240 (noting that contract included integration clause). See also Realty Fin. Holdings, LLC v. KS Shiraz Manager, LLC, 86 Mass. App. Ct. 242, 244 (2014) (same); Winchester Gables, Inc. v. Host Marriott Corp., 70 Mass. App. Ct. 585, 591-592 (2007) (same); Bendetson v. Coolidge, 7 Mass. App. Ct. 798, 801 (1979) (same). Integration clauses were also included in the lease of the premises from 49 Melcher to the Greenberg-affiliated restaurant operator, and in the restaurant group operating agreement between those same parties.
Here, the judge found that the reason the option did not mention that Goodman's equity participation would be fifteen percent was that 49 Melcher's counsel "requested, for privacy reasons, that [Greenberg's counsel] not refer to it in a document that would be recorded." And, even putting that percentage issue to one side, the phrase "equity participation" has no single accepted meaning, either standing alone or in the context of the remainder of the option. The judge was thus warranted in concluding that the phrase "equity participation" was ambiguous and had to be "construed in light of the evidence" to incorporate Greenberg's and Goodman's prior agreement that Goodman "would have the right to acquire a [fifteen percent] interest, pari passu, in [SGRH]." The judge did not err in relying on parol evidence to reach that conclusion.
The defendants do not argue that this finding was clearly erroneous. Based thereupon, the judge could conclude that the parties did not intend the option "as a complete and exclusive expression of their agreement" regarding Goodman's equity participation (citation omitted). Chambers, 83 Mass. App. Ct. at 242.
Indeed, at trial, the defendants argued that the phrase left open so many questions that it rendered the option contract as a whole too indefinite to be enforced. The judge rejected that claim, and the defendants do not pursue it on appeal.
The defendants also argue that the judge's interpretation of the option as incorporating a pari passu provision -- that Goodman acquire his equity participation on the same terms as other investors, including by making a proportional (fifteen percent) capital contribution if requested by Greenberg, see note 8, supra -- constituted a material modification of the option and so was unenforceable under the statute of frauds. See Simon v. Simon, 35 Mass. App. Ct. 705, 711 (1994). The judge ruled, however, that any such defense was waived: SGRH and Greenberg's complaint alleged that Goodman was claiming more than "the agreed [fifteen percent] applicable to the transaction," and thus put the defendants on notice that SGRH and Greenberg asserted the existence of a term not set forth in the written option agreement, yet the defendants failed to plead a statute of frauds defense. We thus do not agree with the defendants’ claim on appeal that "they never had notice of the attempt to modify the Option" and so cannot be held to have waived the defense.
In any event, the statute of frauds is inapplicable. As relevant here, it applies to a "contract for the sale of lands ... or of any interest in or concerning them," G. L. c. 259, § 1, cl. Fourth, whereas the option provided that Goodman would have equity participation in the buyer, not in the premises being bought. The buyer (SGRH) was a limited liability company, and "[a] limited liability company interest is personal property. A member has no interest in specific limited liability company property." G. L. c. 156C, § 38. The statute of frauds does not apply to the option agreement's provision entitling Goodman to an equity interest in SGRH itself -- an interest that would be personal property -- rather than any interest in the real property SGRH sought to purchase.
3. Statements by counsel during negotiations. The defendants argue that the judge erred in ruling that they were bound by the statements of one of 49 Melcher's attorneys, Nancy Perlman, during negotiations over the option and related agreements. More specifically, they point to the judge's conclusion that Perlman had agreed, in discussions with Greenberg's attorney, that (1) Goodman would contribute capital to obtain his equity participation in the buyer entity, and (2) the operating agreement governing the buyer entity would be substantially similar to one that governed Greenberg's investors’ rights in the option. The defendants argue that Perlman lacked authority to bind them to such terms. See Torrao v. Cox, 26 Mass. App. Ct. 247, 252 (1988) (attorney's implied authority in contract negotiations to bind client to "substantial modifications" in contract terms is more limited than implied authority in litigation).
We assume arguendo that, as the defendants assert, the judge concluded that Perlman had reached such an agreement. The judge's written findings and rulings refer only to Perlman having engaged in discussions to this effect.
We are not persuaded. First, the defendants have not shown that the terms agreed to by Perlman constituted "substantial modifications" of what Goodman had already agreed to with Greenberg. Torrao, 26 Mass. App. Ct. at 252. The judge concluded that Greenberg and Goodman had previously agreed that Goodman would have the right to acquire an interest in the buyer on the same terms as Greenberg's other investors. The defendants have not shown how Perlman's agreement substantially modified those existing terms, as opposed to permissibly filling in additional details.
Second, even assuming it was error to conclude that Perlman could bind the defendants to the terms she negotiated, the defendants have not shown how any such error prejudiced them. The judge's findings regarding Perlman's negotiations were but one of several factors supporting the judge's conclusion that the option agreement was sufficiently definite to be enforceable. The judge did not conclude that Perlman's negotiations were essential, and on appeal the defendants have not argued otherwise. Indeed, on appeal, the defendants have abandoned their argument that the option was too indefinite to be enforceable. See note 12, supra. In short, even if the judge erred in ruling that Perlman could bind the defendants, they have not shown that the error entitles them to any particular relief.
4. Attorney's fees. The plaintiffs request an award of appellate attorney's fees and costs, under a provision of the option agreement entitling parties to such an award if they prevail in litigation to enforce the option. The plaintiffs seek such an award in connection with both (1) this appeal, including the defendants’ unsuccessful request to the single justice for a stay of the judgment pending appeal; and (2) the defendants’ unsuccessful petition to the single justice for endorsement of a memorandum of lis pendens. See SG Realty Holdings, LLC vs. 49 Melcher Street, LLC, Appeals Ct., No. 21-J-67 (Mar. 3, 2021).
We conclude that the plaintiffs are entitled to such an award. The plaintiffs may file a verified and itemized application for such fees and costs within fourteen days of the date of this decision. The defendants will have fourteen days thereafter in which to file any opposition to the amounts requested. See Fabre v. Walton, 441 Mass. 9, 10 (2004).
Judgment affirmed.