Stroudwater Assocs. v. Kirsch

1

STROUDWATER ASSOCIATES, Plaintiff, v. ROBERT KIRSCH, et al., Defendants.

No. 2:21-cv-00086-NT

United States District Court, D. Maine

December 7, 2021

ORDER ON COUNTER-CLAIMANTS' MOTION TO AMEND AND COUNTER-DEFENDANTS' MOTION TO DISMISS

NANCY TORRESEN, UNITED STATES DISTRICT JUDGE.

Before me are two related motions: a motion by the Counter-Claimants to amend their counterclaims (“Counter-Claimants' Mot. to Amend”), and a motion by the Counter-Defendants to dismiss the counterclaims. For the reasons stated below, the motion to amend is GRANTED, and the motion to dismiss is DENIED.

BACKGROUND^[1]

I. The Agreements

Around April 2018, Plaintiff/Counter-Defendant Stroudwater Associates (“Stroudwater”) entered into a series of Purchase Money Loan Agreements (“Loan Agreements”) with five Stroudwater employees, ^[2] Defendants/Counter-Claimants John Behn Laurie Daigle, Douglas Johnson, Robert Kirsch, and C. Ryan Sprinkle (the “Noteholders”). Countercls. ¶¶ 11, 13, 18 (ECF Nos. 12, 13, 14, 15, 16); Loan Agreements (ECF Nos. 12-2, 13-2, 14-2, 15-2, 16-2).^[3] In exchange for an agreement to pay each of the Noteholders a particular sum of money-which was secured by a Purchase Money Note (the “Note”)-the Noteholders agreed to lend Stroudwater money to buy up the Noteholders' stock (the “deal”) in order to create an Employee Stock Ownership Plan (“ESOP”). Countercls. ¶¶ 11, 13-14. These Notes were entered into simultaneously with the Loan Agreements. Loan Agreements § 3(c). And the Loan Agreements say that the Notes and Loan Agreements “have been made under substantially similar terms as” described in the Loan Agreements unless the Notes say otherwise. Loan Agreements § 3(c).

Stroudwater agreed to pay interest on the Notes, and the Loan Agreements specify that “[p]ayments of interest shall be made bi-annually” on the first of January and on the first of July each year for a period of twenty years. Loan Agreements §§ 1, 2(a), (f). The Loan Agreements state that Stroudwater will be in default if it “fail[s] to make any payment of the principal of the . . . Note within twenty (20) days after” it becomes due. Loan Agreements § 6. But there exists no such provision for the failure to pay interest. Rather, if Stroudwater fails to pay any interest due on the Note within twenty days of its due date, that “unpaid interest shall be added to” the unpaid principal, causing the principal amount due under the Note to be adjusted. Loan Agreements § 6.

Three other provisions of the Loan Agreements are relevant here. One is a requirement that Stroudwater permit the Noteholders to access and copy Stroudwater's books and records upon the Noteholders' requests. Loan Agreements § 5(g). The second is that Stroudwater “shall pay all Collection Costs promptly upon the [Noteholders'] demand from time to time.” Loan Agreements § 5(f). The Loan Agreements define “Collection Costs” as:

any and all costs and expenses of enforcing [the Loan Agreement] including, without limitation, any and all costs and expenses of collecting [on] the [Note] and exercising the [Noteholder's] rights and remedies . . . and any and all other expenses incurred by the [Noteholder] after the occurrence of any Default . . . . In all such events, such costs and expenses shall include, without limitation, the reasonable fees, expenses and disbursements of the [Noteholder's] legal counsel.

Loan Agreements § 1.

And the third relevant provision of the Loan Agreements is that the Note and any accrued interest are secured by the assets of Stroudwater but are always subordinate to any security interest “by a bank lender or other creditor of” Stroudwater. Loan Agreements § 2(h). This provision is consistent with the Junior Security Agreements (“JSAs”) that the Noteholders entered into with Stroudwater a few months before the Loan Agreements. JSAs (ECF Nos. 12-3, 13-3, 14-3, 15-3, 16-3). The JSAs state that the Noteholders' security interests are “subject and subordinate to [a] Senior Security Agreement” and obligate the Noteholders “to confirm such subordination in writing at the request of [a] holder of [a] Senior Security Interest.” JSAs § 2. In the JSAs, Stroudwater agreed to perform its obligations “in any agreement creating a Senior Security Interest or a Pari Passu Security Interest.” JSAs § 4(f). The JSAs define a “Pari Passu Security Interest” as “the security interest granted by” Stroudwater to the Noteholders. JSAs § 1. The JSAs also prohibit Stroudwater from merging with another entity, at least under certain circumstances. JSAs § 6.

In conjunction with the JSAs, the Noteholders also entered into Intercreditor Agreements. Intercreditor Agreements (ECF Nos. 12-4, 13-4, 14-4, 15-4, 16-4). In signing the Intercreditor Agreements, the Noteholders agreed that their security interests were “of equal priority.” Intercreditor Agreements § 2 (emphasis deleted). As a result, in the event of distribution of Stroudwater's assets, the Noteholders agreed that these assets would be distributed “in proportion to [the] amounts owing to the [Noteholders] on account of their outstanding Loans to” Stroudwater. Intercreditor Agreements § 3(a) (emphasis deleted).

One final group of documents is relevant to the motions before me. That consists of the Subordination Agreements entered into by the Noteholders around the same time as the Loan Agreements. Subordination Agreements 1 (ECF No. 23-1). The parties to the Subordination Agreements are Stroudwater, Bangor Savings Bank (“BSB”), and the Noteholders. Subordination Agreements 1. According to the Subordination Agreements, the Noteholders (the “Junior Creditors”) agreed: (1) to subordinate “all rights, claims and interests created pursuant to the Loan Documents” to money owed to BSB (the “Senior Creditor”); (2) that their claims “at all times remain[ed] fully unsecured”; (3) that they have a “right to receive regularly scheduled payments of accrued interest (but not principal or any other amounts) on the remaining unpaid balance of the” Note; and (4) that the Noteholders would not “make demand for all or any portion of” the money owed to them or “commence any action or proceeding against [Stroudwater] to recover all or any part of the” money owed to them, until Stroudwater paid the money it owed to BSB. Subordination Agreements §§ 1(c), 4, 5, 8.

II. Stroudwater's Alleged Breaches

The Noteholders allege that beginning in late 2018, Stroudwater began to struggle financially. Countercls. ¶¶ 32-36. And they allege that Stroudwater's debts exceed its assets. Countercls. ¶¶ 47, 51. Among other debts, Stroudwater has a multi-million dollar outstanding loan to BSB and owes more than two million dollars to the Noteholders. Countercls. ¶ 49.

As Stroudwater began to founder, Counter-Defendant Jeffrey Sommer, the managing director of Stroudwater and a member of the Stroudwater Board of Directors (“BOD”), continued to receive a lucrative compensation package. Countercls. ¶¶ 3, 61. The Noteholders assume that this continues to be the case, and they allege that this is improper. Countercls. ¶ 62. The Noteholders allege that the members of the BOD, including Counter-Defendants Eric Shell and Opal Greenway, have a duty to review Mr. Sommer's performance and compensation package and to make any necessary adjustments to it. Countercls. ¶¶ 4-5, 62.

In 2019, Mr. Sommer took a personal bonus based on anticipated revenue from a project, but the client then became insolvent, and Stroudwater was left with an unsecured claim exceeding $300, 000. Countercls. ¶ 63. After Stroudwater was advised that it should expect no recovery on this claim, Mr. Sommer and Mr. Shell refused to remove this uncollectible receivable from Stroudwater's books in an effort “to prop up” its financial statements and overstate Stroudwater's value. Countercls. ¶ 64. They did so in order to protect their incentive compensation. Countercls. ¶ 64.

The Noteholders contend that, as a result of its financial difficulties, Stroudwater began to shirk its obligations under the Loan Agreements and the other contracts outlined above. For example, Stroudwater did not make all of the interest payments that were due under the Loan Agreements on January 1, 2020, (the “January Payments”) including the payment owed to Mr. Kirsch. Countercls. ¶ 37. However, Ms. Greenway received her January Payment. Countercls. ¶ 37. Some individuals who did not receive their January Payments but remained employed by Stroudwater or sat on its BOD were reimbursed in some form, but others, like Mr. Kirsch, have not been. Countercls. ¶¶ 38-39. Stroudwater also failed to make any of the next two interest payments due to the Noteholders under the Loan Agreements. Countercls. ¶ 42.

The Noteholders further allege that Stroudwater overstated and misrepresented its financial performance in 2020, which benefitted Mr. Sommer, Mr. Shell, and Ms. Greenway (the “Individual Counter-Defendants”). Countercls. ¶¶ 40-41. And Stroudwater refused to allow the Noteholders to review its books and records to verify this allegation despite a demand by the Noteholders. Countercls. ¶¶ 43, 56, 58.

The Noteholders allege a number of other improprieties by the Individual Counter-Defendants, including that: (1) as the sole ESOP trustees (and thus the sole shareholders of Stroudwater), they have used their positions to perpetually appoint themselves to the BOD; (2) they have acted in their own interests rather than those to whom they owe a fiduciary duty, such as by taking steps to remove high-performing employees to ensure that they and their favored employees get the highest bonuses; and (3) they have authorized and approved bonuses and raises in ways that benefit themselves and their supporters. Countercls. ¶¶ 15, 66, 68-70.

The...