Realty Fin. Holdings, LLC v. KS Shiraz Manager, LLC

• Decision Date: 05 September 2014
• Docket Number: No. 13–P–252.,13–P–252.
• Citation: 18 N.E.3d 350,86 Mass.App.Ct. 242
• Parties: REALTY FINANCE HOLDINGS, LLC v. KS SHIRAZ MANAGER, LLC, & others.
• Court: Appeals Court of Massachusetts

86 Mass.App.Ct. 242

18 N.E.3d 350

REALTY FINANCE HOLDINGS, LLC¹

v.KS SHIRAZ MANAGER, LLC, & others.²

No. 13–P–252.

Appeals Court of Massachusetts, Suffolk.

Argued Jan. 9, 2014.

Decided Sept. 5, 2014.

Jeffrey P. Allen (Maria Galvagna Mesinger with him) for the defendants.

Paul S. Samson, Boston, for the plaintiff.

Present: KATZMANN, FECTEAU, & MILKEY, JJ.

Opinion

KATZMANN, J.

In this appeal, the parties dispute whether two thirty-eight page limited liability company agreements, negotiated and drafted with the assistance of counsel and each containing an integration clause, should be enforced as written. A Superior Court judge entered summary judgment for the plaintiff, ruling that the agreements were fully integrated contracts and that the parol evidence rule prohibited consideration of the parties' negotiations to show that the agreements were subject to contingencies. A final judgment then entered awarding damages to the plaintiff. On appeal, the defendants argue that it was always understood that the agreements, though fully executed, were not to take effect until certain financing and property acquisitions were in place and that electronic mail message (e-mail) exchanges between the parties raise genuine issues of material fact whether integration was intended. The defendants further maintain that the plaintiff is not entitled to damages under the terms of the agreements. We affirm.

1. Facts. We take the undisputed facts from the judge's February 1, 2010, “Memorandum and Order on the Plaintiff's Motion for Summary Judgment on Liability” and from the parties' statement of undisputed facts. We also add material from the record for purposes of background and discussion, as noted. During the relevant events of this case, the plaintiff was a Delaware limited liability company involved in real estate specialty finance.³ The defendants are related Massachusetts entities involved in real estate acquisition and management. Kambiz Shahbazi is the principal of KS GS Manager, LLC; KS GS Equity Partners, LLC; KS Shiraz Manager, LLC; and KS Shiraz Equity Partners, LLC, the entities that control the daily operations of the real estate portfolios owned by KS–RFC GS, LLC (GS Company), and KS–RFC Shiraz, LLC (Shiraz Company) (collectively, the defendants). Shahbazi has a master's degree in business from Columbia University and twenty-five years of experience in real estate development.

a. The amended agreements. On March 6, 2006, the plaintiff and the defendants, GS Company and Shiraz Company, entered

into the limited liability company agreements (2006 agreements), pursuant to which the plaintiff acquired an equity interest in the companies. Subsequently, the parties set out to restructure their relationship from equity to debt. The defendants agreed to pay the plaintiff's interest as a monthly obligation.⁴ To that end, the parties set about to negotiate and execute amended agreements.⁵ The process leading up to their execution took several months, Shahbazi first submitting term sheets to the plaintiff on November 30, 2007. The parties were assisted in their negotiations by their respective counsel, who were experienced in complex real estate transactions and who drafted the amended agreements.

As described by the judge, “[t]he [a]mended [a]greements are detailed, comprehensive documents that address all major issues that arose in connection with the real estate partnership between the plaintiff and the KS defendants.” Relevant here, the amended agreements contain provisions requiring the defendants to make monthly distribution payments to the plaintiff. In addition, both the amended GS agreement and the amended Shiraz agreement contain an integration clause, which provides as follows:

“Entireties; Amendments. This Agreement and its exhibits constitute the entire Agreement between the Members relative to the formation of the Company. Except as otherwise provided herein, no amendments to this Agreement shall be binding upon any member unless set forth in a document duly executed by such Member.”

The amended agreements also both contain a detailed provision

affording the defendants a one-time right to refinance their primary loan, referred to as the PNC loan, upon satisfaction of enumerated conditions. A governing law provision provided that Delaware law would apply in construing the amended agreements and the obligations of the parties.⁶ The first amendment set forth the addition of two properties in Marlborough to the assets of GS Company.

b. Execution of the amended agreements. From the record we add the following. It is undisputed that on March 12, 2008, the plaintiff signed and delivered the amended GS agreement and the amended Shiraz agreement to the defendants' attorney, Sally Michael. According to an April 2, 2008, e-mail from Michael, the defendants signed the amended agreements, which she dated “as of April 1, 2008.” On April 2, 2008, Michael sent the signed signature pages to the plaintiff, but stated by accompanying e-mail that none of the agreements would go into effect unless she received three signed documents from the plaintiff concerning the property acquisitions and a loan that the defendants were pursuing with General Electric Capital Corporation (the GE loan). The documents requested were (1) the signed first amendment; (2) a signed consent vote authorizing the GE loan; and (3) a signed Patriot Act Certificate in connection with the GE loan. It is undisputed that the plaintiff supplied the requested documents. On April 11, 2008, according to an accompanying letter, Michael delivered to the plaintiff the “fully executed original” of the signature pages for the amended agreements, without stating any further express conditions.

According to the defendants, at some point after signing and delivering the amended agreements to the plaintiff, they learned that the GE loan had been terminated. The plaintiff did not receive the payments allegedly due under the amended agreements, and subsequently filed this action in Superior Court. The plaintiff's motion for summary judgment followed.

c. Evidence of the parties' negotiations. In opposing the summary judgment motion, the defendants argued that evidence of the parties' negotiations raised an issue of fact whether the plaintiff understood and agreed that the amended agreements were subject to two conditions: first, that the defendants obtain the GE loan, and second, that the defendants acquire two properties

in Marlborough. Although those transactions are not identified as conditions precedent in the amended agreements, the defendants maintain that they were integral to the amended agreements' effectiveness. They rely on evidence of the parties' e-mail correspondence in late March and early April, 2008, to establish the parties' understanding of the inclusion of the two conditions in the deal.

In particular, the defendants point to several e-mails between Shahbazi and Paul Martin, Shahbazi's primary contact at RFC, in which Shahbazi linked the Marlborough property acquisitions to his ability to refinance the PNC loan through GE, and thereby fund the restructure. The judge took note of the following exchange in his memorandum. On April 7, 2008, Martin e-mailed Shahbazi regarding delivery of the executed amended agreements and the status of the GE loan, stating “why you won't sign at least Shiraz unconditionally is beyond comprehension.”⁷ Shahbazi responded that the property acquisitions were necessary to obtain the GE loan, and that the GE loan “is where I get my comfort that I would have the funds necessary to service your approx[imately] $27mm preferred equity in GS/Shiraz.”

The judge ruled that, under either Delaware or Massachusetts law, the amended agreements were fully integrated and that the parol evidence rule barred admission of the parties' e-mail correspondence to vary the amended agreements' terms. The plaintiff's motion for summary judgment motion was allowed, a final judgment entered awarding damages to the plaintiff, and the defendants filed this appeal.

2. Choice of law. As noted, the amended agreements provided in their governing law provisions that Delaware law be applied to “construe and enforce the 2008 agreements.” Accordingly, the plaintiff argues that Delaware law should apply to the controversy here. The defendants counter that the amended agreements never took effect, hence the contract's choice of law provision is without effect, and Massachusetts law should apply. Both parties assert their respective positions in perfunctory fashion, without supporting argument or authority, and both maintain that they should prevail under the laws of either jurisdiction in any event.

Massachusetts will give effect to a choice of law provision in a

contract dispute, if to do so is fair and reasonable. See Morris v. Watsco, Inc., 385 Mass. 672, 674, 433 N.E.2d 886 (1982) ; Stagecoach Transp., Inc. v. Shuttle, Inc., 50 Mass.App.Ct. 812, 817–818, 741 N.E.2d 862 (2001). Our courts make an exception in situations where the validity of the contract's formation is challenged, as with a claim of precontract misrepresentation or fraud in the inducement, in which case it is less likely that the contract's choice of law provision will be honored. See, e.g., Jacobson v. Mailboxes Etc. U.S.A., Inc., 419 Mass. 572, 578, 646 N.E.2d 741 (1995) ; Northeast Data Sys., Inc. v. McDonnell Douglas Computer Sys. Co., 986 F.2d 607, 610–611 (1st Cir.1993).

Whether that principle applies here is a question we need not decide, as we agree that the choice of law does not affect the outcome. Both jurisdictions approach the issue of integration by considering the nature of the writing, and in particular, whether the parties included an integration clause. As Massachusetts cases on the topic admit to more complexity, and in the interest of fairness and finality, we focus our discussion there.⁸

3. Integration. This court recently observed that an integration clause is evidence of integration,...