Moulton v. David Bane & Prime Choice Enters., LLC

2015 DNH 206

Thomas M. Moulton v. David Bane and Prime Choice Enterprises, LLC v. Thomas M. Moulton, et al.

Civil No. 14-cv-265-JD

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

November 16, 2015

ORDER

Thomas M. Moulton brought suit against David Bane and his company, Prime Choice Enterprises, LLC ("PCE"), after their business relationship failed. In response, Bane and PCE brought counterclaims against Moulton and third-party claims against Eric Emery, King's Highway Realty Trust, Ltd. Partnership, and North Madison Hill LLC. Moulton moves for summary judgment on some of his claims against Bane and PCE and on all of their counterclaims against him. North Madison Hill LLC ("NMH") moves for summary judgment on the third-party claims against it. Bane and PCE object.¹

Standard of Review

Summary judgment is appropriate when the moving party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "A genuine dispute is one that a reasonable fact-finder could resolve in favor of either party and a material fact is one that could affect the outcome of the case." Flood v. Bank of Am. Corp., 780 F.3d 1, 7 (1st Cir. 2015). Reasonable inferences are taken in the light most favorable to the nonmoving party, but unsupported speculation and evidence that "is less than significantly probative" are not sufficient to avoid summary judgment. Planadeball v. Wyndham Vacation Resorts, Inc., 793 F.3d 169, 174 (1st Cir. 2015) (internal quotation marks omitted).

Background

The Meat House ("TMH") was a business that operated retail butcher shops through franchises.² In 2013, Moulton made a loan to TMH and held a promissory note for the loan. As part of the security agreements for the loan, individual shareholders of TMH signed "pledge agreements" through which Moulton would succeedto their voting rights in the company and "step in" to operate the company, called "step in rights," upon default on the promissory note.

By 2014, TMH was in financial distress. It had defaulted on the promissory note to Moulton, which triggered Moulton's step in rights under the pledge agreements. TMH had also defaulted on other obligations and was closing stores.

David Bane was a franchisee of TMH and opened a store in Summit, New Jersey, in 2012. Bane learned in January of 2014 that TMH was in need of financial assistance. Bane attempted, unsuccessfully, to acquire the assets of TMH through a deal with TMH principals and its lender, Centrix Bank.

In February of 2014, Bane and Moulton began discussions about working together so that Moulton could get the promissory note paid and Bane could acquire TMH's assets. Both Moulton and Bane had an interest in keeping TMH out of bankruptcy. On March 6, 2014, Moulton exercised his step in rights and assumed control of TMH. Moulton appointed himself as COO and appointed Michael Rubin as CFO of an entity to manage TMH.

Moulton, Rubin, and Bane discussed forming a new company to operate TMH and discussed ownership of the new company, particularly Moulton's interest in the company. In emails, Bane referred to their plans as the "Moulton deal." Bane agreed to pay the amount of Moulton's TMH promissory note and agreed topay Moulton for certain expenses that Moulton would incur. Moulton understood that he would have an ownership interest in the new company formed to operate TMH.

At the same time, another franchisee of TMH was also interested in working with Moulton to acquire TMH assets. That franchisee offered to buy out Moulton for the amount of his TMH loan and his expenses. Moulton turned down that offer because it did not provide him an opportunity for an ownership interest in the company that would operate TMH.

Bane formed PCE during March of 2014. Eric Emery worked with Bane in operating the new company. Moulton was spending money to preserve TMH's assets against efforts by other creditors and landlords of TMH stores to seize assets. Moulton and Bane continued to discuss options for Moulton's investment in and ownership share of PCE.

In March of 2014, Team Funding Solutions notified Centrix Bank that it had a perfected security interest in the equipment it had leased to TMH for the Stratham, New Hampshire, store. Team Funding further asserted that its security interest took priority over Centrix Bank's lien. Ted Reynolds, the president of Team Funding, states in his affidavit that in response to the notice, Centrix Bank agreed that the equipment subject to Team Funding's security interest would be excluded from the sale of TMH's assets.

Rubin notified Bane on April 15, the day of the sale, that the equipment at the TMH store in Stratham, New Hampshire, was leased from Team Funding Solutions and Pawnee Leasing Corporation. As a result, Rubin reported, Centrix Bank could not sell that equipment.

PCE acquired the TMH assets on April 15, 2014, through an Article 9 secured party sale conducted by Centrix Bank.³ Bane, as the sole shareholder in PCE, paid $790,000 through an Asset Purchase and Escrow Agreement ("Asset Purchase Agreement"). The Asset Purchase Agreement sold assets of several TMH entities and the equipment and furnishings owned by TMH at seven store locations. The Asset Purchase Agreement also appended a subordination agreement between Centrix Bank and Team Funding Solutions that excluded from the sale equipment which had been leased to TMH for the Stratham, New Hampshire, store.

Eric Emery, who worked with Bane, was spending time on reopening the TMH stores for PCE. Among other things, Emery was working to get PCE leases for the stores at the TMH locations in Scarborough, Maine, and Stratham, New Hampshire.

On April 17, 2014, Moulton, Rubin, and Bane exchanged emails about operating the business while Bane was on vacationin Costa Rica. Moulton and Rubin sent Bane the expenses they had incurred in their work for PCE, which irritated Bane. While Bane was away, Moulton and Rubin worked on behalf of PCE to prepare to open stores, and Moulton provided office space for PCE. Bane later acknowledged that it was helpful to have Moulton and Rubin working on the project.

On April 22, 2014, Bane sent Emery text messages in which Bane directed Emery to begin to separate from Moulton and Rubin. Bane expressed negative feelings and used derogatory terms about Moulton and Rubin. Two days later, when Emery told Bane that the lease for the store in Stratham, New Hampshire, had not been finalized, Bane responded that he wanted the lease signed before he told Moulton that he would not get "deal stock." Emery responded that "the guy" for the Stratham store was a close friend of Moulton's so that the deal was a "lock as of rt now."

Rubin advised Moulton not to enter into an agreement with Bane. Rubin also offered ideas on how to structure the business arrangement with Bane to Moulton's advantage.

Bane on behalf of PCE paid Moulton $136,827.33 for the principal and interest on Moulton's loan to TMH pursuant the "Assignment Agreement," and PCE succeeded to Moulton's rights in TMH. On April 27, 2014, Bane sent an email to Moulton telling him that Bane would handle the expenses going forward and asked for invoices and expenses. On April 28, Rubin provided invoicesfor $107,537.34 in expenses, which included attorneys' fees. Bane responded telling Rubin not to incur any more expenses and noting that there were too many lawyers working on the business.

By April 28, Bane had assembled a group of investors for PCE. Under the investment plan, the investors would own all of the stock with Bane as the majority owner. Moulton was not included in the group of investors.

Moulton sent Bane an email on April 29, 2014, to address the issues of expenses and the structure of the company.⁴ In the cited email, Moulton noted a breakdown in communication between them. Moulton reiterated his expectations from their arrangement, which he acknowledged was not formalized in a memorandum of understanding. His expectations were that his expenses would be paid and that he would be offered an opportunity to invest and receive an ownership interest in the company. Moulton asked Bane to review the expenses and to present him with an offer to buy "deal stock." Later in the day on April 30, Moulton questioned the amount of money Bane claimedto have invested in PCE, $1.2 million, and suggested that he and Bane meet to discuss their perspectives on their business arrangement. Bane sent Moulton a list to show how he had invested $1.2 million in the business, and the list included a designation: "tom expenses 100000."

Moulton and Bane met on May 2, 2014. Bane informed Moulton that he would not get "deal stock" in PCE. He told Moulton that he could invest in PCE but would not get any special investment terms. Moulton declined the investment offer. Moulton continued to press to be paid for his expenses and told Bane that he would take the TMH stores in Stratham and Scarborough if he were not paid.

After learning that he would not be an investor in PCE, Moulton began plans to compete with PCE. Moulton began to operate NMH. Moulton told Bane that if Bane would transfer PCE's rights to the TMH stores in Scarborough and Stratham to NMH, he would waive collection of the expenses. That offer was not accepted.

Moulton then informed his friends, Steve Lopilato of Jenty, LLC and Mark Stebbins of Kings Highway Realty Trust Ltd., who were the landlords of TMH stores in Scarborough, Maine, and Stratham, New Hampshire, respectively, that he would not be involved in PCE after all. Lopilato had signed a lease with PCE for the store in Scarborough based on the representation thatMoulton would be involved in PCE and its operations. Because of Lopilato's relationship with Moulton, he had not required a personal guaranty or financial statements. When Moulton told Lopilato that he would not be involved in PCE, Lopilato directed Jenty's counsel to void the lease with PCE because it had...