Brandt v. Advanced Cell Technology, Inc.

• Decision Date: 31 March 2003
• Docket Number: No. CIV.A. 01-40227NMG.,CIV.A. 01-40227NMG.
• Citation: Brandt v. Advanced Cell Technology, Inc., 349 F.Supp.2d 54 (D. Mass. 2003)
• Parties: William A. BRANDT, Jr., as Assignee for the Creditors of Avian Farms, Inc., Plaintiff, v. ADVANCED CELL TECHNOLOGY, INC. and A.C.T. GROUP, INC., Defendants.
• Court: U.S. District Court — District of Massachusetts

349 F.Supp.2d 54

William A. BRANDT, Jr., as Assignee for the Creditors of Avian Farms, Inc., Plaintiff, v. ADVANCED CELL TECHNOLOGY, INC. and A.C.T. GROUP, INC., Defendants.

No. CIV.A. 01-40227NMG.

United States District Court, D. Massachusetts.

March 31, 2003.

David A. Anderson, Pierce Atwood, Portsmouth, NH, for A.C.T. Group Inc., Advanced Cell Technology Inc., Counter Claimants.

Donald J. Barry, Jr., Citizens Bank of Massachusetts, Boston, MA, for Citizens Bank, Trustee.

Lawrence S. Delaney, Swiggart & Agin, LLC, Boston, MA, for Flagship Bank and Trust Company, Trustee.

Leonard M. Gulino, Bernstein, Shur, Sawyer & Nelson, Portland, ME, for William A. Brandt, Counter Defendant.

Robert J. Keach, Bernstein, Shur, Sawyer & Nelson, Portland, ME, for William A. Brandt, Counter Defendant.

James D. O'Brien, Jr., Mountain, Dearborn & Whiting, LLP, Worcester, MA, for Citizens Bank, Trustee.

MEMORANDUM AND ORDER

GORTON, District Judge.

In this action arising out of a stock purchase agreement, plaintiff has moved to dismiss defendants' counterclaims and for summary judgment and defendants have moved to amend their answer.

I. Factual Background

On July 16, 1999 Avian Farms, Inc. ("Avian") and defendant A.C.T. Group, Inc. ("A.C.T.Group") entered into a Forbearance and Stock Purchase Agreement ("the Agreement") whereby Avian sold 80% of its shares in defendant Advanced Cell Technology, Inc. ("Advanced") and CIMA Biotechnology, Inc. ("CIMA") to A.C.T. Group and agreed to forbear from collecting over $2,000,000 in debt owed to Avian by Advanced and CIMA. In exchange for the shares and Avian's forbearance, two promissory notes in the amounts of $1,787,000 (signed by Advanced) and $1,000,000 (signed by A.C.T. Group) ("the Notes") were made payable to Avian.

Paragraphs 1(a) and 3(a) of the Agreement state that the Notes are payable on the second anniversary date of the closing, which is deemed to be July 29, 1999 in Paragraph 4 of the Agreement. For reasons that are not apparent in the record, however, the closing did not occur until December 23, 1999. On that date, Avian and A.C.T. Group executed the Amendment to Forbearance & Stock Purchase Agreement ("the Amendment"). Paragraph 3 of the Amendment states: "Closing. [Paragraph] 4 of the Agreement is hereby amended by deleting the date `July 29, 1999' and substituting therefor the date `December 23, 1999'." Therefore, in contemplating that the Notes are payable on the second anniversary of the date of the closing, the Agreement requires payment of the Notes by December 23, 1999.

Apparently, the Notes were drafted contemporaneously with the Agreement in July, 1999. In keeping with the original understanding of Avian and A.C.T. Group, that the closing date would be July 29, 1999, the Notes provided that they would be payable two years later on July 29, 2001.¹ Although the parties re-dated the Notes "December 23, 1999" and signed them on that date at the closing, they failed to amend the payment date in the text of the Notes from July 29, 2001 to December 23, 2001. In summary, the Notes contemplate payment dates of July 29, 2001 while the Agreement and the Amendment provide for payment dates of December 23, 2001.

On June 28, 2000, Avian executed and consummated an Assignment for Benefit of Creditors ("the Assignment"), naming plaintiff William A. Brandt, Jr. ("Brandt") as the assignee for the benefit of Avian's creditors. The Assignment, notice of which was given to all of Avian's creditors, required those creditors to file proofs of claim within certain time limits.

The defendants made no payments on the Notes prior to July 29, 2001. On August 2, 2001 Brandt, relying on the earlier payment date, notified A.C.T. Group in writing that it was in default on the Notes and demanded payment. When defendants failed to make payments on the Notes in response to Brandt's demand, Brandt sued defendants for default of both Notes on November 30, 2001.

A.C.T. Group alleges that in November and December, 2001 it was in the process of securing finances through investors that might have been sufficient to meet its obligations under the Notes by December 23, 2001. Defendants allege that Brandt's complaint, filed on November 30, 2001, created adverse media attention that dissuaded those investors and rendered the defendants unable to pay the Notes in full by December 23, 2001.

On the same day that Brandt filed his complaint, he moved for attachment and trustee process in an amount sufficient to satisfy payment of the Notes, interest and reasonable costs of collection and attorneys' fees. That motion was allowed by Magistrate Judge Swartwood on July 18, 2002 but only in an amount sufficient to cover the principal and interest of A.C.T. Group's Note because Advanced had just tendered a check to the plaintiff sufficient to cover the principal and interest under its Note.

Defendants answered the complaint on February 7, 2002 and counterclaimed against the plaintiff for breach of contract. In its counterclaims, defendants allege that Avian failed to reimburse A.C.T. Group for travel expenses and legal fees incurred by Advanced prior to July, 1999 as Avian had undertaken to do in the Agreement.

Shortly thereafter, Brandt filed a motion to dismiss defendants' counterclaims for failure to state a claim upon which relief can be granted and a motion for summary judgment, or in the alternative, partial summary judgment, on his claims against defendants. On May 1, 2002 defendants filed a motion for leave to amend their answer. All motions were timely opposed and are considered below.

II. Legal Analysis

A. Plaintiff's Motion to Dismiss Counterclaim

A motion to dismiss for failure to state a claim may be granted only if it appears, beyond doubt, that the counter-claimant can prove no facts in support of his counterclaim that entitles him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). The Court must accept all factual averments in the counterclaim as true and draw all reasonable inferences in the counter-claimant's favor. Garita Hotel Ltd. Partnership v. Ponce Fed. Bank, F.S.B., 958 F.2d 15, 17 (1st Cir.1992). The Court is required to look only to the allegations of the counterclaim and if under any theory they are sufficient to state a cause of action, a motion to dismiss the counterclaim must be denied. Knight v. Mills, 836 F.2d 659, 664 (1st Cir.1987). Brandt moves this Court to dismiss defendants' counterclaims on two grounds, neither of which is availing.

Brandt argues that the Agreement is a fully integrated agreement and therefore governs the entire contractual relationship between the parties. Because, according to Brandt, the Agreement does not obligate Avian to reimburse defendants for the travel expenses and legal fees that are the subject of defendants' counterclaims, Brandt contends that any "agreements" upon which defendants base their claims are therefore barred by the parol evidence rule under Maine law, which governs disputes under the Agreement.

Paragraph 7(b) of the Agreement states, in pertinent part:

[Avian] covenants and agrees that between the date of this Agreement and the Closing, except as otherwise consented to by [A.C.T. Group] ... [Avian] shall fund all operating liabilities of [Advanced] incurred in the ordinary course of [its] business consistent with past practices ... which are incurred prior to the close of business on July 15, 1999.

Defendants' counterclaim alleges that Avian failed to reimburse A.C.T. Group for nearly $130,000 in travel expenses and legal fees that Advanced incurred in the ordinary course of business prior to July, 1999. If those allegations are true, defendants are entitled to relief for Avian's breach of contract and Brandt is not entitled to a dismissal of defendants' counterclaims on that ground.²

Brandt also argues that the Assignment precludes defendants' counterclaims because they failed to seek reimbursement for the alleged travel expenses and legal fees under the time limits mandated by the Assignment. Brandt contends that defendants had knowledge of the Assignment and its terms but failed to abide by them and are, therefore, entitled to no relief.

That argument is not without merit but fails for several reasons nevertheless:

1. Brandt's entitlement to proceeds under the Notes is limited by the Agreement under which defendants claim relief. It would be incongruous for this Court to entertain Brandt's claims against defendants under the Agreement but not vice-versa, especially in light of Paragraph 17 of the Agreement which explicitly provides that the Agreement "shall be binding upon and inure to the benefits of the parties and the successors and assigns of each of them [i.e., Brandt]."

2. Defendants' counterclaims are "compulsory" because they arise from the "same transaction or occurrence that is the subject matter of [Brandt's] claim[s]." See Fed.R.Civ.P. 13(a). Were this Court to dismiss those counterclaims, defendants would be barred from bringing such claims in any court of law thereafter.

3. Defendants' claim against Avian for travel expenses and legal fees is not that of an ordinary creditor because it arises out of Avian's ownership of Advanced, the entity that incurred the costs for which defendants now seek reimbursement. Thus, Advanced, of which Brandt's assignor still owns a part, may be entitled to recoupment regardless of A.C.T. Group's failure to submit its claim in accordance with the terms of the Assignment. The relevant Maine statute states, in pertinent part:

[T]he right to enforce the obligation of a party to pay an instrument is subject to ... [a] claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument....

Me.Rev.Stat. Ann. tit. 11, § 3-1305(1)(c).

At the very least, Brandt's reliance on the terms of the Assignment as a defense to the counterclaim fails to...