Joseph G. Butler, , John W. Strachan, & Timberline Constr. Corp. v. Edward T. Moore, Lawrence W. Rosenfeld, E. Towers, LLC

JOSEPH G. BUTLER, as Chapter 7 Trustee, JOHN W. STRACHAN, and TIMBERLINECONSTRUCTION CORPORATION, Plaintiffs, v. EDWARD T. MOORE, LAWRENCE W. ROSENFELD,EASTERN TOWERS, LLC, EASTERN PROPERTIES, LLC,HORIZON TOWERS, LLC, TOWER INVESTORS TRUST,GLOVER PROPERTY MANAGEMENT, INC.,5G TOWERS, LLC, and 5G INVESTMENT TRUST, LLC, Defendants.

Civil No. 10-10207-FDS

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

March 26, 2015

FINDINGS OF FACT AND CONCLUSIONS OF LAW

SAYLOR, J.

TABLE OF CONTENTS

I. INTRODUCTION................................................................................................ 6

II. NATURE OF PROCEEDINGS........................................................................... 11

III. FINDINGS OF FACT.......................................................................................... 12

A. The Parties................................................................................................ 12

B. The Cell Tower Industry........................................................................... 14

C. John Strachan............................................................................................ 16

D. Initial Discussions with Moore and Rosenfeld......................................... 18E. Formation of Eastern Towers, Inc............................................................ 25

F. The Beginning of Operations................................................................... 29

G. The LLC Operating and Employment Agreements................................. 30

1. The Negotiation of the Agreements............................................. 30

2. The Terms of the LLC Operating Agreement.............................. 41

3. The Terms of the Executive Employment Agreement................. 45

H. The Purported Ownership Relationship Between the Corporation and the LLC.............................................................................................. 46

I. The Initial Months of Operation and the Need for Financing.................. 49

J. Efforts to Obtain Bank Financing............................................................ 52

K. The Proposed New Entity and Restructuring of the Bank Loan.............. 55

L. The Proposed Withdrawal of Capital and Tower Purchase Agreement . . . . 59

M. The June 2 Closing................................................................................... 62

N. The Tower Purchase Agreement.............................................................. 67

O. The Purchase Price for the Towers.......................................................... 72

P. The Financial Condition of the Business in June 2003 ............................ 75

Q. Tower Purchases between June 2003 and May 2004 ............................... 82

R. The Operation of the Corporation and LLC as a Single Business............ 83

S. The December 2003 Letter....................................................................... 85

T. The Meetings on January 22 and 29, 2004 ............................................... 86

U. Strachan's Termination............................................................................. 89

V. Additional Tower Acquisitions in June and July 2004 ............................ 95

W. The Creation of Eastern Towers II/Horizon Towers................................ 97

X. The Sale of the Wayland WIP.................................................................. 98

Y. Subsequent TD Banknorth Financing....................................................... 105

Z. Further Tower Acquisitions...................................................................... 107

AA. The Timberline Construction Invoices..................................................... 109

BB. Subsequent Litigation and Bankruptcy Petition....................................... 116

IV. CONCLUSIONS OF LAW.................................................................................. 116

A. Jurisdiction and Nature of Proceeding...................................................... 116

B. Claims for Breach of Fiduciary Duty Generally....................................... 119

1. Eastern Towers, Inc., Is a Closely Held Corporation.................... 121

2. Fiduciary Duties in a Closely Held Corporation........................... 121

3. Eastern Towers, LLC Is a Closely Held LLC............................... 123

4. Fiduciary Duties in a Closely Held LLC...................................... 124

5. Self-Dealing Transactions............................................................ 125

6. The Corporate Opportunity Doctrine............................................ 126

C. Claims for Breach of Fiduciary Duty Based on the April 2002 Agreements............................................................................. 127

1. Summary of Claims...................................................................... 127

2. Events Leading up to the April 9 Agreements............................. 128

3. Analysis........................................................................................ 130

D. The Doctrine of Corporate Disregard....................................................... 132

1. Introduction.................................................................................. 132

2. The Doctrine of Corporate Disregard Generally.......................... 135

3. Whether the Doctrine of Corporate Disregard Can Be Employed by the Trustee.............................................................. 137

4. Whether the Corporation and the LLC Should Be Treated as a Single Entity.......................................................................... 138

5. Construction of Pleadings and Trial of Unpleaded Issues............ 143

E. The Effect of § 5.2 of the LLC Operating Agreement.............................. 146

1. Effect of Articles of Organization of Eastern Towers, Inc........... 147

2. Modifying Fiduciary Duties by Contract...................................... 148

3. Scope of §5.2 .............................................................................. 149

4. Effect of § 5.2 on Diversion of Financing and Tower Opportunities.................................................................... 151

5. Application of § 5.2 to Fiduciary Duties Owed to Eastern Towers, Inc...................................................................... 153

F. Other Claims for Breach of Fiduciary Duty............................................. 1531. The Diversion of Bank Financing................................................. 154

a. Disclosure of Transaction................................................. 155

b. Assent of Disinterested Directors, Shareholders, or Members....................................................................... 155

c. Fairness of Transaction..................................................... 155

2. The June 2, 2003 Capital Withdrawal.......................................... 158

a. Disclosure of Transaction................................................. 158

b. Assent of Disinterested Directors, Shareholders, or Members....................................................................... 159

c. Fairness of Transaction..................................................... 159

3. The Tower Purchase Agreement and Resulting Tower Sales....... 162

a. Disclosure of Transaction................................................. 163

b. Assent of Disinterested Directors, Shareholders, or Members....................................................................... 164

c. Fairness of Transaction..................................................... 165

(i) Value of the Repurchase Option........................... 166

(ii) Value of the Towers.............................................. 167

4. Sale of Wayland WIP.................................................................... 168

a. Disclosure of Transaction................................................. 168

b. Assent of Disinterested Directors, Shareholders, or Members....................................................................... 169

c. Fairness of Transaction..................................................... 170

5. The Diversion of Tower Opportunities to New Entities............... 171

a. Disclosure of Transaction................................................. 174

b. Assent of Disinterested Directors, Shareholders, or Members....................................................................... 174

c. Fairness of Transaction..................................................... 174

G. Strachan's Individual Claim for Breach of Fiduciary Duty....................... 175

H. Strachan's Contract and Tort Claims......................................................... 185

1. Breach of Oral Contract................................................................ 185

2. Promissory Estoppel..................................................................... 1863. Breach of Implied Covenant of Good Faith and Fair Dealing...... 187

4. Wrongful Termination.................................................................. 187

I. Claims Asserted by Timberline................................................................ 187

J. Fraudulent Transfer.................................................................................. 192

1. Fraudulent Transfers Generally.................................................... 192

K. Accounting................................................................................................ 198

L. Constructive Trust.................................................................................... 199

V. CONCLUSION..................................................................................................... 200

A. Findings of Liability.................................................................................. 200

B. Relief......................................................................................................... 201

I. INTRODUCTION

This is a dispute concerning a closely held business that developed towers for the cellular telephone industry. The principal dispute involves a series of transactions...