Davis v. Dawson, Inc.

Citation15 F.Supp.2d 64
Decision Date09 June 1998
Docket NumberCivil Action No. 95-12255-PBS.
PartiesJudy DAVIS and The First National Bank of Boston, as Trustee of the Albert A. Davis Trust f/b/o Judy Davis, Plaintiffs, v. DAWSON, INC. and Dawson Holdings PLC, Defendants.
CourtU.S. District Court — District of Massachusetts

John P. Dennis, Dale C. Kerester, Lynch, Brewer, Hoffman & Sands, Boston, MA, for Plaintiffs.

Richard D. Belin, Michael A. Albert, Sayoko Blodgett-Ford Foley, Hoag & Eliot, Boston, MA, for Defendants.


SARIS, District Judge.

After hearing, I adopt the well-reasoned report and recommendation dated February 12, 1998. I make only three brief comments.

First, Dawson objects to the magistrate judge's recommendation that the sellers be granted summary judgment on Counterclaim V, which asserts that the sellers breached Section 2.11 of the Stock Purchase Agreement relating to tax claims by the Japanese, Canadian, and Massachusetts authorities. The heart of this breach of contract claim is laid out in the October 11, 1996 set-off letter (Appendix 608-621) in which Dawson demands indemnification as a result of damages arising from the breaches of representations and warranties made in the Stock Purchase Agreement and Schedules. Specifically, Dawson sought indemnification for all unpaid taxes, stated it would set off $29,185 for the settlement of unpaid taxes owed to the Japanese tax authority, and reserved the right to set-off those amounts of unpaid taxes due to Massachusetts and Canada when they become more "precisely determinable."

In my review of the defendants' brief (Docket No. 357) and the pleadings, Dawson never expressly raised before the magistrate judge the present claim that a breach of warranty as to potential future tax liability at the time of the Stock Purchase Agreement had an adverse impact on the value of Faxon, as measured by the difference between the purchase price and the actual value of Faxon. Her voluminous opinion which discusses in meticulous detail each and every claim doesn't discuss this theory of breach of contract, and correctly in my opinion, analyzes the set-off claim articulated in the October 11, 1996 letter. At the hearing, I asked Dawson to point to any place in the extensive pleadings where this issue of diminution of the value of Faxon resulting from a breach of warranty on unpaid taxes at the time of the agreement had been expressly raised. The letter from counsel, dated March 26, 1998, does not do so, but concedes the summary judgment record was incomplete on this point. Accordingly, with respect to Counterclaim V, the issue of diminution of value has not been fairly presented or preserved.

Second, with respect to Plaintiff's objection 16, I agree that the relevant time for assessing the accuracy of the warranty in Section 2.4 is July 29, 1994. However, I wait until trial to determine whether any possible Nihon Faxon intercompany account loss could be "probable of occurrence" or "reasonably estimated" in light of the pending EBSCO offer on July 29, 1994.

Third, as stated at the hearing, plaintiffs may press a claim for a breach of the duty of good faith and fair dealing.


Feb. 12, 1998.

BOWLER, United States Magistrate Judge.

Pending before this court are: (1) a motion for partial summary judgment (Docket Entryè313 & 315) filed by plaintiffs Judy Davis ("Davis") and BankBoston, N.A., formerly known as The First National Bank of Boston ("FNB") (collectively: "plaintiffs" or "the sellers"); and (2) a motion for partial summary judgment (Docket Entry # 257) filed by defendants Dawson, Inc. ("Dawson, Inc.") and Dawson Holdings PLC ("Dawson PLC") (collectively: "Dawson" or "the buyer"). The latter motion references four, separate supporting memorandum.2 Each memorandum addresses a particular subject matter and includes a separate statement of undisputed facts.

Where, as here, there are cross motions for summary judgment, this court treats each motion separately and assesses the factual record differently depending on which party is the nonmovant and which party bears the underlying burden of proof at trial. Disputes as well as mere allegations set forth in the factual background are readily apparent.3 It is in the discussion section wherein this court resolves the factual disputes in favor of the nonmoving party to the extent necessary to resolve a summary judgment motion.4 The standard of review of a summary judgment motion is well established.

"Summary judgment is appropriate when `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Barbour v. Dynamics Research Corporation, 63 F.3d 32, 36-37 (1st Cir.1995), cert. denied, 516 U.S. 1113, 116 S.Ct. 914, 133 L.Ed.2d 845 (1996) (quoting Rule 56, Fed.R.Civ.P.). "`[E]vidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his [or her] favor.'" Rogers v. Fair, 902 F.2d 140, 143 (1st Cir.1990) (citation omitted). Furthermore, it is particularly apropos to the case at bar, to acknowledge that credibility issues are not the proper subject of a summary judgment motion. In general, the role of a summary judgment motion "is to pierce the boilerplate of the pleadings and assay the parties' proof in order to determine whether trial is actually required." Coyne v. Taber Partners I, 53 F.3d 454, 457 (1st Cir.1995).

"As to issues on which the summary judgment target bears the ultimate burden of proof, she [or he] cannot rely on an absence of competent evidence, but must affirmatively point to specific facts that demonstrate the existence of an authentic dispute." McCarthy v. Northwest Airlines, Inc., 56 F.3d 313, 315 (1st Cir.1995). Once the moving party makes a proper showing as to the "`absence of evidence to support the nonmoving party's case,' the burden of production shifts to the nonmovant," Dow v. United Brotherhood of Carpenters, 1 F.3d 56, 58 (1st Cir.1993) (citation omitted), who may not rest on allegations in his briefs, Borschow Hospital & Medical v. Cesar Castillo, 96 F.3d 10, 14 (1st Cir.1996), or, as in the present case, allegations in a brief with inaccurate and, thus, irrelevant citations to the deposition testimony. See also LR. 56.1.5


On October 4, 1994, Davis and FNB, Trustee of the Albert Davis Trust, as the sellers, and Dawson, Inc., as buyer, executed a Stock Purchase Agreement ("the agreement" or "the stock purchase agreement") for the sale of The Faxon Company, Inc. ("Faxon"). Under the agreement, the sellers agreed to sell all of Faxon's outstanding shares of stock to Dawson, Inc. for the purchase price of $14,000,000. The method of payment was for Dawson, Inc. to pay the sellers $3,000,000 in cash at the October 20, 1994 closing and the remaining $11,000,000 in seven annual installments as reflected in certain promissory notes ("the notes" or "the promissory notes").

Faxon, which began as a family owned business in 1918, is in the subscription service business. Based in Westwood, Massachusetts, the company manages subscriptions for libraries, universities and other institutions with large periodical subscription needs. More specifically, Faxon accepts orders for periodicals from its customers and then forwards the orders, oftentimes with payment, to various publisher[s]. Faxon bills its customers for the subscriptions as well as service charges. Faxon's customers often prepay Faxon for their subscriptions which will then arrive in the following calendar year.

In early 1994 Faxon's business consisted of its operations in Westwood ("Faxon domestic" or "Faxon Westwood"), two North American subsidiaries (The Turner Subscription Agency, Inc. ("Turner") and Faxon Canada Limited ("Faxon Canada")), seven European subsidiaries ("the European subsidiaries") and a number of foreign operations and subsidiaries in Latin America, the Middle East and the Asia Pacific region ("the nonEuropean subsidiaries").

In the early 1990s Faxon's business began to decline and the company began experiencing significant losses. (A.232-233).6 In or around Faxon's 1993 fiscal year,7 Chemical Bank declined to renew Faxon's line of credit which covered the company's high seasonal demands for cash during certain periods of the year.8 (A. 231; S.A. 76; P. 25). According to Jonathan S. Altman ("Altman"), the owner of Altman & Company and a financial turnaround consultant for businesses, Faxon unsuccessfully contacted a number of other banks for loans in early 1994.9 (P. 28).

In or around this time period, a series of investments had also proven unproductive and Faxon became unable to pay certain publishers in a manner consistent with its past payment history. (A. 231-232; P. 28). Discussions noted in the minutes of Faxon's March 14, 1994 Board of Directors meeting cite to "traumatic losses" and the depletion of equity resulting from payments to Judy Davis's former husband, Richard Rowe. As a result, at the March 14, 1994 meeting, the Board of Directors ("the board") of Faxon voted to authorize Altman to explore selling Faxon, in whole or in part. (P. 251). Davis supported this decision. (S.A.146).

Similarly, the draft consolidated financial statements for Faxon and its subsidiaries for the years ending March 31, 1994 and 1993, prepared by Deloitte & Touche, L.P. ("Deloitte"), Faxon's auditors, showed respective net losses of $8,330,692 and $7,893,917. (P. 25 & 104). These financials additionally reference Faxon's default on principal payments to various publishers and question Faxon's...

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