Woolley v. Groft

653 F.Supp.3d 171

Mark E. WOOLLEY, Plaintiff v. Michael GROFT, Defendant

No. 1:20-cv-01887

United States District Court, M.D. Pennsylvania

Filed January 27, 2023

Arthur P. Fritzinger, Leigh Ann Benson, Cozen O'Connor, Philadelphia, PA, for Plaintiff.

Mark D. Bradshaw, Stevens & Lee, P.C., Harrisburg, PA, Peter J. Adonizio, Jr., Stevens & Lee, PC, Scranton, PA, for Defendant.

MEMORANDUM

Kane, Judge

In the above-captioned action, stemming from alleged fraud and breach of contract, Plaintiff Mark E. Woolley ("Plaintiff") and Defendant Michael Groft ("Defendant") have filed cross-motions for summary judgment (Doc. Nos. 63, 66) as to Plaintiff's amended complaint (Doc. No. 26). Plaintiff requests summary judgment on Counts I, II, V, and VI of the amended complaint. (Doc. No. 66.) Defendant requests summary judgment on all six (6) counts of the amended complaint. (Doc. No. 63.) For the reasons that follow, the Court will deny summary judgment in favor of Plaintiff on Counts I and II and deny summary judgment in favor of Defendant on Counts I, II, III, and IV. The Court will further dismiss Counts V and VI of the amended complaint, as they are duplicative of Counts I and II.

I. BACKGROUND

A. Factual Background¹

Plaintiff is a founder and partner of MGM Enterprises, Inc. ("MGM"), a company that invests in and manages real estate properties. (Doc. No. 68 ¶¶ 2-4.) The instant dispute arises from events that occurred during and after Defendant Michael Groft ("Defendant")'s tenure as Chief Financial Officer ("CFO") and President of MGM from approximately 2008 through 2017. (Doc. Nos. 68 ¶¶ 6, 16; 64 ¶ 9.) Defendant was hired by MGM in 2008. (Doc. No. 68 ¶ 6.) Under the terms of Defendant's employment agreement, Defendant was given the opportunity to invest with MGM without upfront payment.² (Doc. Nos. 64 ¶ 3; 73 ¶ 3.) Any future property acquisitions by MGM would be purchased through a limited partnership. (Id.) "Each such limited partnership" would "have a one (1%) percent general partnership interest and a ninety-nine (99%) percent limited partnership interest," and Defendant would "receive five (5%) of the ninety-nine (99%) percent limited partnership interest." (Id.) In exchange for that interest, Plaintiff (or another MGM partner) would pay Defendant's share of the purchase price and Defendant would execute a demand note for the value of his interest in the property at the time of purchase. (Doc. Nos. 64 ¶¶ 14-15, 17, 21-22; 68 ¶¶ 20-23; 73 ¶ 17.) Under each demand note, Defendant's repayment obligations are described as follows ("Repayment Provision"):

Any proceeds from refinancing or the sale of the [specific property] shall not be paid to Limited Partner Michael Groft, his estate or heirs, until such time as Limited Partner[s] . . . their respective heirs and/or assigns, have each received [the face value of the demand note], from sale proceeds, refinance proceeds or payment from Michael Groft.

(Doc. No. 67-1.) In 2008 and 2009, Defendant executed thirteen (13) demand notes ("Demand Notes") under the terms of the employment agreement, which contained language materially similar to the above. (Id.) Nine (9) of the thirteen (13) Demand Notes were between Plaintiff and Defendant only, while the remaining four listed Steven J. Gumenick, another MGM partner, as a co-obligee. (Id.)

In addition to the Demand Notes, on March 13, 2013, Plaintiff and Defendant entered into an agreement pursuant to which Plaintiff sold Defendant a three-percent interest in KGLA Associates, another of MGM's real estate partnerships. ("KGLA Agreement"). (Doc. Nos. 68 ¶ 62; 75 ¶ 62; 67-2.) The KGLA Agreement contains the following language setting out the nature of the parties' transaction:

Woolley hereby agrees to sell a 3% limited partnership interest in KGLA to Groft and Groft desires to purchase same for a total purchase price equal to Two Hundred Sixty Two thousand, Two Hundred ($262,200.00) Dollars (the "Purchase Price").

(Doc. No. 67-2 at 2.) The next section of the KGLA Agreement, titled "Payment of Purchase Price," contains the same Repayment Provision as the Demand Notes, as does a separate demand note executed for the KGLA Agreement ("KGLA Demand Note") (together with the KGLA Agreement "KGLA Agreement/Demand Note").

(Id. at 2-3, 7-8.) Additionally, the KGLA Agreement provides an option for Plaintiff to repurchase Defendant's three-percent share should he leave his position at MGM. (Id. at 3-4.)

As President of MGM, Defendant was responsible for the sale and refinancing of all MGM properties, which generated income for him and the other partners. (Doc. Nos. 68 ¶¶ 29-31; 75 ¶¶ 29-31.) The investment properties at issue were periodically refinanced, resulting in disbursements to Defendant, Plaintiff, and other MGM partners. (Doc. Nos. 68 ¶ 42; 75 ¶ 42.) The property held by the KGLA partnership was refinanced in 2015, and "Groft was in charge of the Transaction[.]" (Doc. Nos. 68 ¶ 67; 75 ¶ 67.) Plaintiff alleges, and Defendant disputes, that as a result of this refinancing, Defendant improperly received proceeds equal to his partnership share, despite not having fulfilled his repayment obligation under the KGLA Agreement/Demand Note. (Doc. Nos. 68 ¶¶ 68-69; 67-3; 75 ¶¶ 68-69.)

The core of the present dispute is over the meaning of the language quoted above. Plaintiff maintains that the Demand Notes and the KGLA Agreement/Demand Note required Defendant to pay Plaintiff back for his portion of the investment, either through cash payments, or through diverting Defendant's share of refinancing or sale proceeds to Plaintiff. (Doc. No. 68 ¶¶ 27-28.) Defendant interprets the demand note language as offering two routes of satisfaction, either: (1) Defendant can pay Plaintiff for the face value of each demand note from his own funds; or (2) each note will be satisfied if Plaintiff receives refinancing or sale proceeds from a given property greater than the face value of the demand note on that property. (Doc. No. 64 ¶¶ 22-24.) It is undisputed by the parties that Defendant did not pay any of the Demand Notes from his own funds. (Doc. Nos. 68 ¶¶ 49-50; 75 ¶¶ 49-50.) Plaintiff alleges that, at the beginning of 2020, three years after Defendant resigned from his position at MGM, the company's "attorneys and officers made Woolley aware that Groft had breached the KGLA Agreement by failing to pay the purchase price and failing to make any effort to return the stock after voluntarily resigning his position." (Doc. No. 71 at 6.) On August 27, 2020, Plaintiff sent Defendant a letter demanding immediate payment under the Demand Notes and the KGLA Agreement/Demand Note. (Doc. Nos. 1-6; 64 ¶ 75.) Defendant never made payment on the notes as demanded by Plaintiff. (Doc. No. 67-6 at 22.)

B. Procedural Background

On October 13, 2020, Plaintiff initiated the above-captioned action by filing a complaint in this Court. (Doc. No. 1.) The complaint alleges claims for: (I) breach of contract as to the Demand Notes; (II) breach of contract as to the KGLA Agreement; (III) fraud; (IV) unjust enrichment; (V) declaratory relief as to the interpretation of the Demand Notes; and (VI) declaratory relief as to the interpretation of the KGLA Agreement. (Id.) Defendant filed a motion to dismiss Counts I, III, IV, and V of the complaint as untimely. (Doc. No. 9). In particular, Defendant argued that because the thirteen (13) original Demand Notes had been executed in 2008 or 2009, any attempt to enforce the notes was barred by the statute of limitations set out in Pennsylvania's adoption of the Uniform Commercial Code ("UCC"). See 13 Pa. C.S. § 3118(b); (Doc. No. 13 at 4, 11). On February 16, 2021, following briefing on Defendant's motion to dismiss (Doc. Nos. 13, 16-17), the Court issued a Memorandum and Order in which it found that: (1) the Demand Notes were negotiable instruments governed by the UCC; (2) Counts I, III, IV, and V of Plaintiff's complaint were time-barred; and (3) neither the discovery rule nor the principles of equitable tolling rendered Plaintiff's claims timely. (Doc. Nos. 18-19.) The Court further determined that, in light of its finding that Plaintiff's claims as to the 2008 and 2009 Demand Notes were time-barred as a matter of law, amendment would be futile. (Doc. No. 18 at 12 n.4.) Accordingly, the Court dismissed Counts I, III, IV, and V of Plaintiff's complaint with prejudice and directed Defendant to file an answer to Plaintiff's remaining claims within fourteen (14) days. (Doc. No. 19.)

On March 2, 2021, Defendant filed his answer to Plaintiff's complaint. (Doc. No. 20.) However, the same day, Plaintiff filed a motion for reconsideration, along with a brief in support, requesting that the Court reconsider its dismissal insofar as it determined that Plaintiff's claims should be dismissed with prejudice. (Doc. Nos. 21-22.) The Court granted Plaintiff's motion, determining that Plaintiffs claims should have been dismissed without prejudice and that Plaintiff should be given leave to amend his complaint to plead facts related to fraudulent concealment and the relevant statutes of limitation. (Doc. Nos. 24-25.)

On April 22, 2021, the Court deemed Plaintiff's amended complaint filed. (Doc. No. 26.) It alleges claims for: (I) breach of contract as to the Demand Notes; (II) breach of contract as to the KGLA Agreement; (III) fraud; (IV) unjust enrichment; (V) declaratory relief as to the interpretation of the Demand Notes; and (VI) declaratory relief as to the interpretation of the KGLA Agreement. (Id.) Defendant filed an answer to the amended complaint on May 13, 2021. (Doc. No. 27.)

On June 6, 2022, following lengthy discovery, both Defendant and Plaintiff filed motions for summary judgment, along with briefs in support and statements of material facts. (Doc. Nos. 63-68.) Defendant seeks summary judgment in his favor on all counts of Plaintiff's amended complaint. (Doc. No. 63.) Plaintiff seeks partial summary judgment in his favor as to Counts I, II, V, and...