Concord Auto Auction, Inc. v. Rustin

• Decision Date: 13 February 1986
• Docket Number: Civ. A. No. 84-3659-Y.
• Parties: CONCORD AUTO AUCTION, INC. and E.L. Cox Associates, Inc., Plaintiffs, v. Lawrence H. RUSTIN, as he is Administrator of the Estate of E. Leroy Cox, Defendants.
• Court: U.S. District Court — District of Massachusetts

627 F. Supp. 1526

CONCORD AUTO AUCTION, INC. and E.L. Cox Associates, Inc., Plaintiffs, v. Lawrence H. RUSTIN, as he is Administrator of the Estate of E. Leroy Cox, Defendants.

Civ. A. No. 84-3659-Y.

United States District Court, D. Massachusetts.

February 13, 1986.

David S. Rosenthal, Hutchins & Wheeler, Boston, Mass., for plaintiffs.

Rosemary Wilson, Herrick & Smith, Boston, Mass., for defendants.

MEMORANDUM AND ORDER

YOUNG, District Judge.

Close corporations, Concord Auto Auction, Inc. ("Concord") and E.L. Cox Associates, Inc. ("Associates") brought this action for the specific performance of a stock purchase and restriction agreement (the "Agreement"). Concord and Associates allege that Lawrence H. Rustin ("Rustin") as the administrator of E.L. Cox's estate ("Cox") failed to effect the repurchase of Cox's stock holdings as provided by the Agreement. The Court has jurisdiction pursuant to 28 U.S.C. 1332(a)(1) because Rustin, a Connecticut citizen, is properly diverse to Concord and Associates, Massachusetts corporations with principal places of business in the Commonwealth.

Rustin alleges in his defense that Concord and Associates are not entitled to specific performance because 1) they have breached the Agreement which they seek to enforce; 2) they have unclean hands because they failed to effect a review and revaluation of the shares; 3) the value of the stock increased so substantially that specific enforcement would be unfair and unjust to Cox's estate; and 4) specific performance is conditional upon an annual review of share value to be held no later than the third Tuesday of February, here February 21, 1984.

Rustin alleges that all parties intended an annual revaluation, that Betsy Cox Powell ("Powell") and Nancy Cox Thomas ("Thomas"), sisters of the decedent Cox, as the only other shareholders in both Concord and Associates, knew that a revaluation would result in a higher price and failed to effect the annual review required by the Agreement, that this failure breached the Agreement and was "undertaken with the intent and effect of depriving the estate of E. Leroy Cox from receiving fair value for its shares of Concord and Associates." Rustin further alleges that by failing to establish new prices, Powell in particular as well as Thomas breached their fiduciary duties to the estate of Cox in light of their direct pecuniary interest in the value of the shares. Finally, Rustin alleges that the actions of Powell, Thomas, Concord and Associates constitute a willful violation of Mass.Gen.Laws, ch. 93A, § 11.

Concord and Associates move for summary judgment, specific performance of the Agreement and dismissal of the counterclaims. Pursuant to Fed.R.Civ.P. 56, the Court will treat the motion for dismissal as a motion for summary judgment because the Court has gone beyond the pleadings to consider various affidavits and exhibits. For the reasons set forth below, the Court allows the motions for summary judgment.

I. Background

Both Concord and Associates are Massachusetts Corporations. Concord operates a used car auction for car dealers, fleet operators, and manufacturers. Associates operates as an adjunct to Concord's auction business by guaranteeing checks and automobile titles. Both are close corporations with the same shareholders, all siblings: Cox (now his estate), Powell, and Thomas. At all times relevant to this action, each sibling owned one-third of the issued and outstanding stock in both Concord and Associates.

To protect "their best interests" and the best interests of the two corporations, the three shareholders entered into a stock purchase and restriction agreement on February 1, 1983. The Agreement provides that all shares owned by a shareholder at the time of his or her death be acquired by the two corporations, respectively, through life insurance policies specifically established to fund this transaction. This procedure contemplates the "orderly transfer of the stock owned by each deceased Shareholder." At issue in the instant action are the prerequisites for and effect of the repurchase requirements as set forth in the Agreement.

This dispute arises because Rustin failed to tender Cox's shares as required by Paragraph 2, Death of Shareholder. Rustin admits this but alleges a condition precedent: that Powell, specifically, and Thomas failed to effect both the annual meeting and the annual review of the stock price set in the Agreement as required by Paragraph 6, Purchase Price: "Each price shall be reviewed at least annually no later than the annual meeting of the stockholders ... (commencing with the annual meetings for the year 1984) ...," here February 21, 1984. Rustin implies that, had the required meeting been held, revaluation would or should have occurred and that, after Cox's accidental death in a fire on March 14, 1984, Powell in particular as well as Thomas were obligated to revalue the stock prior to tendering the repurchase price.

There is no dispute that the By-Laws call for an annual meeting on the third Tuesday of February, here February 21, 1984. There is no dispute that none took place or that, when Cox died, the stocks of each corporation had not been formally revalued. No one disputes that Paragraph 6 of the Agreement provides for a price of $672.00 per share of Concord and a price of $744.00 per share for Associates. This totals $374,976 which is covered by insurance on Cox's life of $375,000. There is no substantial dispute that the stock is worth a great deal more, perhaps even twice as much. No one seriously disputes that Paragraph 6 further provides that:

... all parties may, as a result of such review, agree to a new price by a written instrument executed by all the parties and appended to an original of this instrument, and that any such new price shall thereupon become the basis for determining the purchase price for all purposes hereof unless subsequently superceded pursuant to the same procedure. The purchase price shall remain in full force and effect and until so changed.

Rustin asserts that the explicit requirement of a yearly price review "clashes" with the provision that the price shall remain in effect until changed. He argues a trial is required to determine the intent of the parties:

The question then arises, presenting this Court with a material issue of fact not susceptible to determination on a motion for summary judgment: Did the parties intend, either to reset, or at least to monitor, yearly, the correspondence between the Paragraph 6 price and the current value of the companies? If so, who, if anyone, was principally responsible for effecting the yearly review required by the Agreement, and for insuring an informed review?

In answering these questions the Court first outlines its proper role in the interpretation of this contract.

II. Discussion

A Court sitting in diversity will apply the substantive law of the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), here Massachusetts. In Massachusetts as elsewhere, absent ambiguity, contracts must be interpreted and enforced exactly as written. Freelander v. G. & K. Realty Corp., 357 Mass. 512, 515, 516, 258 N.E.2d 786 (1970). Where the language is unambiguous, the interpretation of a contract is a question of law for the court. Edwin R. Sage v. Foley, 12 Mass.App. 20, 28, 421 N.E.2d 460 (1981); see Robert Industries, Inc. v. Spence, 362 Mass. 751, 755, 291 N.E.2d 407 (1973). Further, contracts must be construed in accordance with their ordinary and usual sense. Zarum v. Brass Mill Materials Corp., 334 Mass. 81, 84, 134 N.E.2d 141 (1956); Edwin R. Sage v. Foley, 12 Mass.App. at 28, 421 N.E.2d 460.

Contrary to Rustin's assertion, the Court in applying these standards holds that there is no ambiguity and certainly no "clash" between the dual requirements of Paragraph 6 that there be an annual review of share price and that, absent such review, the existing price prevails. When, as here, the Court searches for the meaning of a document containing two unconditional provisions, one immediately following the other, the Court favors a reading that reconciles them. Kates v. St. Paul Fire & Marine Ins. Co., 509 F.Supp. 477, 485 (D.Mass.1981). The Court rules that the Agreement covers precisely the situation before it: no revaluation occurred, therefore the price remains as set forth in the Agreement. This conclusion is reasonable, for the Agreement is not a casual memorialization but a formal contract carefully drafted by attorneys and signed by all parties.

Moreover, the Court interprets Paragraph 2 to provide, in unambiguous terms:

"In the event of the death of any Shareholder subject to this agreement, his respective ... administrator ... shall, within sixty (60) days after the date of death ... give written notice thereof to each Company which notice shall specify a purchase date not later than sixty (60) days thereafter, offering to each Company for purchase as hereinafter provided, and at the purchase price set forth in Paragraph 6, all of the Shares owned on said date by said deceased Shareholder. ..." Emphasis by the Court.

Rustin, therefore, was unambiguously obligated as administrator of Cox's estate to tender Cox's shares for repurchase by Concord and Associates. His failure to do so is inexcusable unless he raises cognizable defenses.

All of Rustin's defenses turn on two allegations: that his performance is excused because the surviving parties failed to review and to adjust upward the $374,976 purchase price. Rustin contends that the parties meant to review the price per share on an annual basis. No affidavit supports this assertion, nor does any exhibit. In fact, absent any evidence for this proposition, Rustin's assertion is no more than speculation and conjecture. While Rustin contends that the failure to review and revalue constitutes "unclean hands" and a breach of fiduciary duty which excuses his nonperformance, he places...