Armstrong v. White Winston Select Asset Funds, LLC

• Decision Date: 27 December 2022
• Docket Number: Civil Action 16-10666-JGD
• Parties: GRANT ARMSTRONG and ARMSTRONG RX GP, LLC Plaintiffs, v. WHITE WINSTON SELECT ASSET FUNDS, LLC, Defendant/Third-Party Plaintiff, ARMSTRONG RX II GP, LLC and ARMSTRONG RX II, LP, Third-Party Defendants.
• Court: U.S. District Court — District of Massachusetts

GRANT ARMSTRONG and ARMSTRONG RX GP, LLC Plaintiffs,
v.
WHITE WINSTON SELECT ASSET FUNDS, LLC, Defendant/Third-Party Plaintiff,

ARMSTRONG RX II GP, LLC and ARMSTRONG RX II, LP, Third-Party Defendants.

Civil Action No. 16-10666-JGD

United States District Court, D. Massachusetts

December 27, 2022

MEMORANDUM OF DECISION AND ORDER ON WHITE WINSTON SELECT ASSET FUNDS, LLC'S MOTION FOR SUMMARY JUDGMENT

Judith Gail Dein United States Magistrate Judge

I. INTRODUCTION

This matter concerns an action brought by Grant W. Armstrong (“Mr. Armstrong”) and Armstrong RX GP, LLC (“AGP”), an entity wholly owned by Mr. Armstrong, against White Winston Select Asset Funds, LLC (“WW” or “White Winston”), a financing company that provided Mr. Armstrong and AGP with loans to purchase and operate two pharmacies in Texas, one in Plano (the “Plano Pharmacy”) and one in Dallas (the “Dallas Pharmacy”). (See Docket No. 116 (the “Third Amended Complaint” or “TAC”)). WW has also asserted counterclaims

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against Mr. Armstrong and AGP, and it has brought similar claims in a third-party complaint against two other entities owned by Mr. Armstrong, Armstrong RX II GP, LLC (“AGP II”) and Armstrong RX II, LP (“ALP II”) (together with Mr. Armstrong, AGP, and AGP II, the “Armstrong Parties”). (See Docket No. 12 (the “Counterclaim Complaint” or “CC”); Docket No. 17 (the “Third-Party Complaint” or “TPC”)). The parties' claims focus on the formulation, performance, and enforcement of numerous agreements executed in connection with the purchase of the Dallas Pharmacy.

Presently before the court is “White Winston Select Asset Funds, LLC's Motion for Summary Judgment” (Docket No. 233). Through its motion for summary judgment, WW requests (i) entry of full summary judgment in its favor on all claims asserted against it by Mr. Armstrong and AGP, (ii) partial summary judgment in its favor on all counterclaims brought against Mr. Armstrong and AGP; and (iii) partial summary judgment in its favor as to all claims asserted against the third-party defendants AGP II and ALP II. WW asks the court to determine liability on its counterclaims and claims against the third-party defendants and reserve the issue of damages for trial.

“The role of summary judgment is ‘to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.'” Jenkins Starr, LLC v. Cont'l Ins. Co., Inc., 601 F.Supp.2d 344, 346 (D. Mass. 2009) (quoting Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991)). In sum, for many of the claims asserted in the Third Amended Complaint, the Armstrong Parties have failed to prove up their allegations and provide sufficient evidence to show that there is a genuine need for trial. That said, there are some discrete claims for which the Armstrong Parties have proffered evidence that, when viewed in the light most favorable to

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the Armstrong Parties as the nonmoving parties, demonstrates a genuine dispute of material fact to preclude resolution of such claims on a motion for summary judgment. Accordingly, for the reasons explained herein, WW's motion for summary judgment is hereby ALLOWED in part and DENIED in part in accordance with this memorandum of decision.

II. STATEMENT OF FACTS

Scope of the Record

In connection with this motion for summary judgment, WW moved to strike certain opposition evidence proffered by the Armstrong Parties through the “Affidavit of Grant W. Armstrong” (Docket No. 245 Ex. 51 (the “Armstrong Affidavit”)). (See Docket No. 249). The court will consider the Armstrong Affidavit in accordance with its separate order allowing in part and denying in part WW's motion to strike. (See Docket No. 261). The following facts are primarily drawn from “White Winston Select Assets Funds, LLC's Response to Armstrong Parties' Statement of Material Facts Regarding Motion for Summary Judgment by White Winston Select Assets Funds, LLC” (Docket No. 251 (“WW Reply SMF”)) and are undisputed unless otherwise indicated.

Acquisition of the Plano Pharmacy

Mr. Armstrong and AGP acquired the Plano Pharmacy from QVL Pharmacy Holdings, Inc. (“QVL”) on or about January 23, 2014 (the “Plano Acquisition”). (WW Reply SMF ¶ 1). Prior to the Plano Acquisition, Mr. Armstrong worked in QVL's corporate offices as a corporate pharmacist. (See Docket No. 235-2 (“Armstrong Dep. Tr.") 31:13-33:23). In November 2013, the QVL board of directors decided to liquidate QVL and WW, as the agent for the senior secured lender to QVL, was involved with that liquidation process. (See WW Reply SMF ¶¶ 72, 73, 77).

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Stephen Cox (“Mr. Cox”), QVL's former chief financial officer, was involved with both the liquidation of QVL and engaged with Mr. Armstrong in connection with the acquisition and operation of the pharmacies. (See id. ¶¶ 73, 79). Todd Enright (“Mr. Enright”) is the manager for WW who was involved with both the liquidation at QVL and the sale and financing of the Plano Pharmacy and the Dallas Pharmacy to the Armstrong Parties. (Id. ¶¶ 7, 72).

To finance the Plano Acquisition, WW, Mr. Armstrong, and AGP executed a loan agreement (the “Plano Loan Agreement”) and related loan documents, including a promissory note through which WW loaned Mr. Armstrong and AGP $460,000 to acquire and operate the Plano Pharmacy. (Id. ¶¶ 2, 3). Under the Plano Loan Agreement, the Armstrong Parties set up a lockbox account to hold the cash collateral for the Plano Pharmacy. All payments and revenues due from the operation of the business would be deposited into this account. (Docket No. 235-1 Ex. A-2, § 3.3). Section 3.3 of the Plano Loan Agreement allows the Armstrong Parties to access and make disbursements from the Plano Pharmacy lockbox, so long as no Event of Default, as defined in the agreement, has occurred. (Id.; see WW Reply SMF ¶ 4). As part of the Plano Acquisition, Mr. Armstrong and AGP signed a Transition Services Agreement with QVL (the “Plano TSA”), which provided for QVL to cover certain operating expenses for the Plano Pharmacy with funds from a lockbox account that held insurance reimbursements for prescriptions filled at the Plano Pharmacy. (See Docket No. 245 Ex. 47, § 2.02). Under the terms of the Plano TSA, QVL would then remit the net receivables to the Plano Pharmacy. (See id.)

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Acquisition of the Dallas Pharmacy

After the purchase of the Plano Pharmacy, Mr. Armstrong began exploring the acquisition of the Dallas Pharmacy. (WW Reply SMF ¶ 7). Mr. Armstrong asserts that Mr. Enright insisted that Mr. Armstrong go through with the purchase of the Dallas Pharmacy in order for Mr. Armstrong to seek forbearance under the Plano Loan Agreement. (Id. ¶ 85). WW denies this fact. (Id.)

On May 29, 2014, Mr. Armstrong and AGP II entered into the Partnership Interest Purchase Agreement (the “PIPA”) with QVL to purchase the controlling interest in the Dallas Pharmacy. (Id. ¶ 8). Pursuant to the PIPA, AGP II purchased 100% of the issued and outstanding general partner interests of the Dallas Pharmacy, Mr. Armstrong purchased 100% of the Class A common limited partner interests in the Dallas Pharmacy, and QVL Equity Holding Group, LLC (which is managed by WW) purchased the Class B common limited partner interests, holding a 49.5% interest in the Dallas Pharmacy. (Id. ¶ 9). This transaction is referred to as the Dallas Acquisition.

To finance the Dallas Acquisition, WW, AGP II, and Mr. Armstrong executed a loan agreement dated May 29, 2014 (the “Dallas Loan Agreement”). (Id. ¶ 15). AGP II also executed a $1 million note in favor of WW to be used to acquire the ownership interest in the Dallas Pharmacy (the “$1M Note” or the “Term Note”) and an additional $500,000 line of credit in favor of WW to be used for general working capital to operate the Dallas Pharmacy (the “$500K Note” or the “Revolving Line of Credit”) (together with the $1M Note, the “Dallas Promissory Notes”). (Id. ¶¶ 10, 13, 14). As further discussed below, the principal of the $500K Note was later increased to $750,000. (Id. ¶¶ 27, 29). Under the terms of the Dallas Loan Agreement,

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the Armstrong Parties were required to establish a deposit account where receivables from the store would be held and then credited to the balance of interest on the Revolving Line of Credit or to other obligations in WW's discretion. (See Docket No. 235-1 Ex. A-8, §§ 1.2(c)(ii), 3.3).

In connection with the Dallas Loan Agreement, AGP executed a Guaranty, dated May 29, 2014 (the “AGP Guaranty”). (WW Reply SMF ¶ 20). Mr. Armstrong also executed a personal Limited Guaranty, dated May 29, 2014 (the “Armstrong Limited Guaranty”). (Id. ¶ 21). The Armstrong Limited Guaranty provides that Mr. Armstrong guarantees the Dallas Promissory Notes and the Dallas Loan Agreement, subject to the limitations set forth in section 2 of the guaranty (referred to as the “Good Guy Clause”). (Id. ¶ 22). The Good Guy Clause states that if certain terms and conditions are satisfied, as reasonably determined in good faith by WW, Mr. Armstrong will be released from the obligations of the Armstrong Limited Guaranty. (Id.; see Docket No. 235-1 Ex. A-10, § 2). Mr. Armstrong and AGP II also executed a Transition Services Agreement with QVL in connection with the Dallas Acquisition (the “Dallas TSA”), dated May 29, 2014. (See Docket No. 245 Ex. 48). Like the Plano TSA, the Dallas TSA provides that QVL will pay for the costs of certain services to the Dallas Pharmacy and deduct the costs from the cash receivables in a lockbox account.^[1](Id. § 2.02).

Finally, Mr. Armstrong and QVL Pharmacy Subsidiaries Funding Group, LLC (“QVL Funding Group”), for which WW acts as agent, also entered into a Side Agreement on May 29, 2014, which concerns the hiring and funding of a Physicians Relationship Manager (“PRM”).

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(See Docket No. 245 Ex. 49; WW Reply SMF Ex. D (“Enright July Decl.”) ¶ 36; WW Reply SMF ¶ 56). Mr. Armstrong later hired Manny Anzaldua to serve as a PRM for...