Estate of Carter v. R&M Enters., Inc.

ESTATE OF NORMAN J. CARTER v. R&M ENTERPRISES, INC., ET AL.

No. 2318

COURT OF SPECIAL APPEALS OF MARYLAND

September Term, 2018

May 22, 2020

Circuit Court for Cecil County

Case No. C-07-CV-17-000446

UNREPORTED

Fader, C.J., Beachley, Battaglia, Lynne A. (Senior Judge, Specially Assigned), JJ.

Opinion by Fader, C.J.

* This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.

The Estate of Norman J. Carter, the appellant, asks this Court to reverse an order of the Circuit Court for Cecil County granting summary judgment in favor of R&M Enterprises, Inc. ("R&M") and Buttonwood Beach Marina, Inc. ("Buttonwood"), the appellees. The Estate first contends that the court should not have considered the motion for summary judgment at all. Even if the motion were properly presented, the Estate argues, the court should have denied it because the record revealed genuine disputes of material fact. Although we hold that the motion was properly before the court, ultimately we conclude that there remained a genuine dispute of material fact regarding whether the agreement at the center of this dispute remained in effect. We will therefore vacate the award of summary judgment and remand for further proceedings consistent with this opinion.

BACKGROUND

R&M, Buttonwood, and the Stockholders

R&M is a real estate investment and holding company that owns and operates Buttonwood Beach, a recreational vehicle resort in Earleville, Maryland. Buttonwood leases waterfront property from R&M and operates a marina on that property. Until Mr. Carter's death, R&M and Buttonwood were both owned by the same four individuals. Leonard E. Wilson and Robert A. Parrack¹ each owned 27 shares of each company andDeborah L. Carter and Mr. Carter each owned 13½ shares.² Each of these individuals had varying degrees of involvement in R&M and Buttonwood. Mr. Wilson was the president and general counsel of both entities. Mr. Parrack provided accounting services and acted as treasurer. Deborah Carter served as corporate secretary, a role in which, among other duties, she kept minutes of R&M board meetings. She also assumed a general manager role over time. Mr. Carter was the outdoor supervisor at Buttonwood and served as vice president of both entities.

The Redemption Agreement

This dispute centers on a Redemption Agreement that was entered into by R&M, Buttonwood, and the four stockholders on August 1, 2007. In basic terms, the Redemption Agreement provided that upon the death of any of the stockholders, R&M would buy out that stockholder's shares using the proceeds of life insurance policies that the company had taken out on the stockholders' lives for that purpose. Specifically, the agreement:

• Recited that R&M had taken out life insurance policies on the lives of each of the four stockholders in the amounts of $500,000, with respect to Messrs. Wilson and Parrack, and $250,000, with respect to Mr. Carter and Deborah Carter. That insurance was "purchased for the purpose of financing a stockholders redemption agreement in the event of the death of certain of the stockholders";

• Provided, in paragraphs 1 and 2, that in the event of the death of Messrs. Wilson or Parrack, each agreed to sell all of his stock in R&M and Buttonwood back to the respective companies "for the sum of$500,000.00, the said sum to be paid within thirty days from the date of collection of insurance proceeds on the life of the stockholder;

• Provided, in paragraphs 3 and 4, that in the event of the death of Mr. Carter or Deborah Carter, each agreed to transfer all of his or her stock in R&M and Buttonwood to the other (i.e., Mr. Carter to Deborah Carter and vice versa), in exchange for "the payment to [his or her] Estate of $250,000.00, said sum to be advanced by R&M [] from the proceeds of the insurance policy as hereinbefore referenced."

According to Mr. Wilson's deposition testimony, the stockholders had agreed that the sums of $500,000 and $250,000 were "a fair price at that time," but they did not receive any independent valuation of the stock.

The last provision of the Redemption Agreement that is relevant to the current dispute is paragraph 5, which provides: "The term of this Agreement shall be the maturity date of the insurance policies in force."³ The agreement does not define "maturity date" or "the insurance policies in force."

The Insurance Policies

Although the Redemption Agreement referenced four different insurance policies in place at the time the parties entered into the Redemption Agreement—one on each of the stockholders—and there were apparently three others in place at the time of Mr. Carter's death—one on each of the stockholders other than Mr. Wilson—only one policy is included in the record. That is Empire General Life Assurance Company policynumber 00485596, which R&M took out on the life of Mr. Carter effective as of August 26, 2005. The Policy Schedule page provides the following information:

 POLICY SCHEDULE FACE AMOUNT: $250,000AGE AT ISSUE: 62SEX: MALEINSURED: NORMAN J CARTEROWNER: R & M ENTERPRISES INC POLICY NUMBER: 00485596DATE OF ISSUE: August 26, 2005EXPIRY DATE: August 26, 2039 PREMIUM CLASS: STANDARD, NONSMOKERINITIAL PREMIUM PERIOD: 10 YEARSCHANGE OF PLAN PERIOD: 10 YEARS SCHEDULE OF BENEFITS AND PREMIUMS FORM NO BENEFITS BENEFITAMOUNT ANNUALPREMIUM INITIALPREMIUMPERIOD   LIFE INSURANCE  $250,000  $1,422.50*  10 YEARS 

^*SEE PAGE 3A FOR SUBSEQUENT PREMIUMS.

The next page of the policy, page 3A, identifies the annual premiums payable for the insurance. The annual premiums were to remain constant at $1,422.50 throughout the ten-year "initial premium period," and then increase fairly precipitously, beginning at $26,500 in policy year 11 and rising to $233,800 in policy year 34, when Mr. Carter would have been 95 years old. The Empire General policy does not use the term "maturity" anywhere in its terms, but does define Termination, as follows:

Termination. All coverage under this policy will terminate when any one of the following events occurs:

(1) The policy reaches its Expiry Date.

(2) The Owner requests that coverage terminate. Such written request will require the return of this policy.

(3) The Insured dies.

(4) The Grace Period ends and the required premium has not been paid.

Deborah Carter testified that R&M owned similar Empire General policies on her life and those of Messrs. Wilson and Parrack at the time they all entered into the Redemption Agreement in 2007.

In August 2015, before the end of the Empire General policies' ten-year initial premium period, R&M sought to obtain "coverage that was affordable to fund the buy-sell agreement." According to Deborah Carter, R&M successfully converted the Empire General policies taken out on herself and Messrs. Carter and Parrack to policies with Protective Life Insurance Company providing the same death benefits.⁴ With respect to Mr. Carter, as summarized by the Estate's expert witness in his expert report:

Application to replace the maturing [Empire General] Term policy #E00485596 with a Universal Life policy was signed and submitted on August 17, 2015 to Protective Life Insurance Company in the amount of $250,000.00 death benefit. Protective Life issued Universal Life policy #B00706852 with a policy effective date of 08/26/2015 covering the life of Norman J. Carter in the amount of $250,000.00.

Although the policy itself is not included, the record contains a Protective Life "application for conversion or exchange," dated August 17, 2015 and signed by Mr. Carter,⁵ and a Protective Life "amendment to application," dated September 11, 2015, which identifiesthe Protective Life policy as an "[e]vidence free conversion of policy E00485596 to B00706852." The amendment is signed by Deborah Carter, as Secretary of R&M, and by Mr. Carter.

Although R&M succeeded in continuing insurance coverage on the lives of three of its stockholders in 2015, it did not do so on the life of Mr. Wilson, who was older than the other stockholders. As reflected in the minutes of an R&M Board of Directors meeting, insurance providing a $500,000 death benefit for Mr. Wilson would have cost $425,115 annually. As a result, Mr. Wilson "was not insured at the renewal of the term policies in August 2015." Mr. Wilson later agreed that, in light of the insurance situation, his estate would accept $250,000 paid directly by R&M for his shares. He made that announcement at a January 18, 2017 meeting of the R&M Board of Directors, which Mr. Carter did not attend.⁶ Minutes of an October 2017 Board meeting, held months after Mr. Carter's death, reflect that the remaining stockholders accepted Mr. Wilson's proposal and, on that basis, voted to "keep the current Redemption Agreement dated August 1, 2007, valid and enforceable."

The Underlying Dispute

Mr. Carter passed away on February 27, 2017. The Orphan's Court for Cecil County appointed Gertrude Carter as Personal Representative of the Estate.

After collecting the insurance proceeds from Protective Life, R&M sent Gertrude Carter, in her capacity as Personal Representative, a check for $250,000 and asked that she surrender Mr. Carter's shares of R&M and Buttonwood. Gertrude Carter, however, refused to surrender any of Mr. Carter's stock to R&M. On August 14, 2017, R&M and Buttonwood filed suit in the circuit court against the Estate, seeking specific performance of the Redemption Agreement. In September 2017, Gertrude Carter returned R&M's $250,000 check.

Summary Judgment

Along with their complaint, R&M and Buttonwood filed a motion for summary judgment, in which they asserted that there were no genuine disputes of material fact and that they were entitled to a judgment enforcing the Redemption Agreement. In response, Gertrude Carter submitted an affidavit of defense not available pursuant to Rule 2-501(d). The affidavit...