Chambers v. Gold Medal Bakery, Inc.

• Decision Date: 05 February 2013
• Docket Number: No. 11–P–281.,11–P–281.
• Citation: 982 N.E.2d 1190,83 Mass.App.Ct. 234
• Court: Appeals Court of Massachusetts
• Parties: Michele LeComte CHAMBERS & others v. GOLD MEDAL BAKERY, INC., & others.

83 Mass.App.Ct. 234

982 N.E.2d 1190

Michele LeComte CHAMBERS ¹ & others ²

v.GOLD MEDAL BAKERY, INC., & others.³

No. 11–P–281.

Appeals Court of Massachusetts,

Bristol.

Argued Oct. 1, 2012.

Decided Feb. 5, 2013.

Brian A. Davis, Boston, for Roland S. LeComte & another.

Heidi A. Nadel (Kimberly Dean & Christopher R. O'Hara with her), Boston, for the plaintiffs.

Present: CYPHER, KATZMANN, & MILKEY, JJ.

MILKEY, J.

Defendant Gold Medal Bakery, Inc. (Gold Medal), is a large-scale bakery based in Fall River that supplies bread and other baked goods to supermarket chains throughout the northeast. It is a closely-held corporation whose ownership is split evenly between two branches of the LeComte family. The plaintiffs collectively own half of the shares, with the remaining half held by defendant Roland S. LeComte and his sister-in-law Florine LeComte (not a party). Roland S.⁴ and his son, defendant Brian R. LeComte, manage Gold Medal's operations. The plaintiffs allege that Roland S. and Brian, together with others, committed a variety of corporate misdeeds. A subset of the defendants sought to compel arbitration of some of the underlying dispute and to stay the entire litigation pending resolution of the arbitration. A Superior Court judge denied their motion, ruling that the agreement under which the defendants had moved for arbitration was no longer of any force and effect. In this interlocutory appeal, see G.L. c. 251, § 18(a)(1), we affirm, albeit on different grounds.

A. Background. 1. Early history. Gold Medal was founded in 1912 by Auguste LeComte. Auguste had two sons, Leonidas (Leo) and Roland A. (father of Roland S.). The plaintiffs trace their ownership interests to that of Leo, while Roland S. and Florine trace theirs to that of Roland A. Joined as a defendant is a second family business known as Bakery Products Corp. (Bakery Products). Bakery Products is involved in the distribution of Gold Medal's products, and it receives commissions on such sales. From what appears in the record, the management of the two affiliated companies has been intertwined.

2. 1981 succession plans. By 1981, Roland A. had died, and Leo had been running the family businesses. However, at about this time, Leo was retiring from overseeing day-to-day operations, and he was succeeded as president of Gold Medal by his nephew Jean LeComte (to whom Florine was married). As is reflected in the minutes of the companies' meetings, there were extensive discussions about the ownership and control of the businesses going forward. Those discussions came to a head at an annual meeting held on October 27, 1981. At that meeting, the parties agreed that Gold Medal would buy Leo's shares upon his death, thus resulting in full ownership of that business by Roland A.'s branch of the family. This agreement was memorialized in a written stock purchase agreement (hereinafter, 1981 agreement) that established that the purchase price for Leo's shares would be paid over a ten-year period (with ten percent down, twenty semiannual payments, and interest set at prime). The 1981 agreement did not, however, establish the purchase price. Instead, the purchase price would be determined by negotiation. In the event that Gold Medal and the legal representative of Leo's estate could not agree on the value of his shares, the matter would be resolved through binding arbitration. The 1981 agreement stated that it “may be altered, amended, revoked or terminated in whole or in part by a written instrument executed by all the parties hereto.” ^{5, 6} 3. Rising conflict between two branches. Jean served as president of Gold Medal until his death in 2004, at which time Roland S. took over. Under Roland S.'s tenure, tensions between the branches of the family began to escalate with the anticipated buyout of Leo's branch of the family looming in the background. One of the primary sources of that tension was the fact that Gold Medal sharply reduced payments to Bakery Products, which resulted in decreased distributions to the plaintiffs (who claimed they nevertheless had to pay taxes on the monies retained by Gold Medal). Although Leo remained on the board of directors throughout this period (at least some of the time as chair), the record suggests that he played a somewhat limited role, especially as the decades passed since his retirement as Gold Medal's president. The plaintiffs played no active role in the management of Gold Medal and Bakery Products, and they began to question whether the companies were being run in their interests. Accordingly, the plaintiffs made increasing demands for access to information about the companies' financial picture and the recent decisions by their management. The record does not indicate that the plaintiffs were interested in gaining an active role in operating Gold Medal. Instead, it reveals that they simply wanted to ensure that they were fairly compensated in the impending buyout of their shares.

During this same period, there were active discussions among the various players about having Roland S.'s side of the family buy out those on Leo's side not only in Gold Medal but in Bakery Products and two related entities as well. The initial discussions contemplated doing this through an amendment to the 1981 agreement, and the plaintiffs communicated their desire to pursue that course of action at a shareholders meeting held at their request on August 21, 2007. The meeting minutes reflect that “[n]o further action was taken on this matter.” Instead, the meeting participants focused on allowing the plaintiffs to have access to Gold Medal's records so that they could conduct their own audit. The board formally approved that plan.

4. 2007 litigation. Implementation of the agreement to open the companies' books did not go smoothly, and in December of 2007, plaintiffs Michele and Georgette—together with Leo—filed an action alleging that they were being denied reasonable access. The following month, the parties entered into settlement negotiations, and the record includes many of their written communications. As reflected in a January 9, 2008, electronic mail message (e-mail) from their attorney, Steven E. Snow, Michele, Georgette, and Leo initially proposed to enter into a purchase and sales agreement through which they would cash out their interests in both Gold Medal and Bakery Products. Under this proposal, the purchase price was to be “determined by a highly qualified appraisal firm to be jointly agreed upon by the parties.” The new agreement would “replace and supersede the existing [1981] agreement.” Snow's e-mail concluded by stating that there “will be no binding agreement unless and until the parties execute the [proposed purchase and sale agreement].”

According to an affidavit submitted by their counsel, Anthony A. Froio, Gold Medal and Bakery Products rejected the proposal. Specifically, Froio averred that he told Snow on January 23, 2008, “that the Companies would not entertain any global buy-back proposal that was inconsistent with the financial terms of the 1981 ... Agreement.” In his own affidavit recounting the progression of the negotiations, Snow does not deny that Froio made this statement.

When the parties resumed their negotiations later that spring, the form of the deal had evolved considerably. Gone was the proposed purchase and sale agreement, or any other new proposal to bind the companies (or individuals) to buy out Leo's branch of the family. In lieu of pursuing such a proposal, the parties focused on the procedural approach of allowing Michele, Georgette, and Leo to conduct their own independent audit. Thus, the trajectory of the 2008 negotiations largely repeated what had occurred at the August 21, 2007, meeting: Michele, Georgette, and Leo initially proposed a new substantive buyout agreement, but the discussions turned instead to trying to satisfy their interests through an agreement to open up the company books.

At least in the record before us, the new proposed agreement first was memorialized in writing in an e-mail that Snow sent to Froio on May 28, 2008. The parties proceeded to trade several iterations of a so-called “term sheet” designed to reflect the essential terms of such an agreement, and they agreed and signed a final version of the term sheet on June 5, 2008. None of the versions of the term sheet mentions the 1981 agreement; from all that appears in the communications between the two sides, Michele, Georgette, and Leo had dropped their insistence that the 1981 agreement be replaced.

The final settlement term sheet spelled out the process through which Michele, Georgette, and Leo would conduct the contemplated audit, which was denominated the “Vitale” audit (by reference to the name of the accounting firm that would conduct it). The express purpose of the Vitale audit was “to ultimately lead to the valuation and sale of the Plaintiffs' shares of the Defendant corporations, to the Defendant corporations and/or their then-remaining shareholders.” Moreover, under the terms of the final settlement term sheet, “[p]romptly after the completion of the Vitale Audit, Plaintiffs and Defendants shall enter into good faith negotiations for such sale.”

Through their counsel, the parties then entered into negotiations over the drafting of a full agreement. Given that the avowed purpose of the final settlement term sheet had been to set forth the essential terms of the parties' agreement, the final version of the agreement unsurprisingly incorporated the terms of the final settlement term sheet (including the just-quoted language) almost verbatim. At one point during the negotiations, Snow objected to a confidentiality provision that Froio had requested be included. Snow pointed out that this provision was not included in the proposed settlement term sheet, and that, in any event, such a provision “is unnecessary and inappropriate in the context of this case.” With regard to the latter point, he stat...