Tracy v. Curtis

• Decision Date: 09 June 1980
• Citation: 10 Mass.App.Ct. 10,405 N.E.2d 656
• Parties: Thomas H. TRACY et al. 1 v. Thomas E. CURTIS et al., individually and as trustees (and a companion case).
• Court: Appeals Court of Massachusetts

Page 656

405 N.E.2d 656

10 Mass.App.Ct. 10

Thomas H. TRACY et al. ¹ v. Thomas E. CURTIS et al., individually and as trustees (and a companion case).

Appeals Court of Massachusetts, Worcester .

Argued Feb. 11, 1980.

Decided June 9, 1980.

Ansel B. Chaplin, Boston (Andrew M. Higgins, Boston, with him), for plaintiffs.

Stephen H. Oleskey, Boston, (Joan A. Lukey, Boston, with him), for defendants.

Before HALE, C. J., and GRANT and NOLAN, JJ.

GRANT, Justice.

The plaintiffs have appealed from judgments of dismissal entered in two separate actions brought by them in the Superior Court. The first action (derivative action) was brought by the plaintiffs as minority shareholders of Curtlo Realty Trust (Curtlo), a Massachusetts business trust with transferable shares (G.L. c. 182, §§ 1 et seq.), against Thomas E. Curtis (Thomas), Richard D. Curtis (Richard) and David J. Curtis (David), who at all material times have been the only trustees of Curtlo, and seeks relief in behalf of Curtlo by reason of various breaches of trust which are alleged to have been committed by the defendants as trustees in the course of their management of the affairs of the trust. See Peterson v. Hopson, 306 Mass. 597, 612, 29 N.E.2d 140 (1940); Cohen v. United States Trust Sec. Corp., 311 Mass. 152, 161, 40 N.E.2d 282 (1942); Mass.R.Civ.P. 23.1, 365 Mass. 768 (1974). ² The second action (individual action) was brought against the same defendants, in both their capacities, and seeks relief in behalf of the plaintiffs as individuals by reason of various misrepresentations and omissions to disclose relevant information which are alleged to have been made or committed by Thomas and Richard in the course of soliciting the plaintiffs to invest in Curtlo, and while allegedly standing in a fiduciary relationship to the plaintiffs. ³ As different facts, allegations and legal principles are applicable to the two actions, we shall deal with the actions separately.

THE DERIVATIVE ACTION.

The following is a summary of the relevant subsidiary findings of fact made by the master in the derivative action. Curtlo was formed in 1961 by Thomas, Richard, and David (who are brothers), together with a fourth person who is no longer connected with or interested in the trust, for the purpose of purchasing and developing real estate which would be leased in whole or in part to various corporations (operating companies) which were or would be owned or controlled by the brothers, who were then engaged in the retail grocery business. By the end of 1962 the defendants were the only trustees and shareholders of Curtlo, which had 300 shares outstanding, had a paid in capital of $300, owned several parcels of real estate subject to mortgages, and was indebted to one of the operating companies in the amount of $63,000. The book value of a Curtlo share at that time was $0.276. The defendants wished to expand the operations of Curtlo. They decided to sell 300 units of Curtlo to outsiders at a price of $400 per unit. Each unit was to consist of one share of Curtlo and an interest-free loan to Curtlo in the amount of $83.33, which would be repayable in five annual installments.

In mid 1963 the plaintiffs, as the result of solicitation by Thomas and Richard, invested $30,000 in Curtlo, thus acquiring seventy-five of its shares and lending it $6,249.75 (which has been repaid). The other 225 units were sold to other outsiders. As the result of the sale of the entire 300 units Curtlo received a total of $120,000, of which $25,000 was treated as short term debt and $95,000 was treated as paid in capital. None of the defendants provided any additional capital at that time. Curtlo has never paid a dividend to its shareholders.

Between 1963 and 1968 Curtlo acquired and developed numerous parcels of real estate, which were then leased in whole or in part to the operating companies. The aggregate cost of these acquisitions and developments ran to several million dollars. That cost was financed by mortgage debt and by loans from the operating companies at rates varying from six to approximately ten and one half percent; no new capital was obtained in connection with the acquisitions. ⁴ By 1970 Curtlo was indebted to the operating companies on at least $300,000 of demand notes. That indebtedness was refinanced in part by Curtlo's issuance of $200,000 of ten-year, twelve percent debentures and $100,000 of ten-year, ten percent convertible debentures. Such of the debentures as were not purchased by outside shareholders (not including the plaintiffs) were taken up by the operating companies or by various family trusts controlled by the defendants.

In 1965 the defendants formed two corporations, wholly owned by them, for the purpose of managing the various Curtlo properties. During the period 1965 through 1977 Curtlo paid these corporations substantial management fees, calculated at the rate of five percent of the non-tax component of the rents received by Curtlo. The master ultimately found that the amounts paid by Curtlo to the management companies had been reasonable.

At the 1968 annual meeting of the shareholders one of the outside shareholders "proposed . . . that Curtlo cease acquisition of additional property and concentrate its efforts on developing the property it then owned. Thomas . . . stated to the shareholders at that meeting that he would therefore continue acquisition of additional property himself. (The female plaintiff) was present at the meeting and voiced no objection thereto. However, no vote was taken thereon." ⁵ Curtlo does not appear to have made any further property acquisitions after the 1968 annual meeting.

In 1970 Thomas formed an entity by the name of South Shore Realty Trust (South Shore), with himself as the sole trustee and with the entire beneficial ownership being vested in the three defendants. During the next two years South Shore proceeded to acquire some fifteen parcels of real estate. Some of them appear to have been located in the same general area as properties owned by Curtlo; some of them appear to have been leased in part to one of the operating companies.

In 1972 the defendants caused all the operating companies to be merged into a single corporation, which then proceeded to sell substantially all its assets to Angelo's Supermarkets, Inc. (Angelo's). Some of the leases between Curtlo and the operating companies were assigned to Angelo's with the approval of the outside shareholders (including the plaintiffs); other leases were cancelled and replaced by new leases which were negotiated by the defendants. The master made the following findings on this branch of the case: "36. In conjunction with the sale of the assets of (the surviving operating company) to Angelo's employments contracts between Angelo's and each of the (d)efendants were entered into for a period of five years and these were subsequently extended for an additional year in the cases of Thomas . . . and Richard . . . . 37. Each employment contract contains a non-competing covenant for a 10 year period covering the eastern half of Massachusetts up to and including Worcester County and restricted the employees in respect to engaging in real estate operations which would be used for or leased to businesses competing with Angelo's. Consideration for these non-competing covenants are recited as $160,000 in the case of Thomas . . . and $76,000 in the cases of Richard . . . and (David) ( ⁶ ) . . . and is payable in weekly installments over a 10 year period commencing on termination of his respective employment. 38. Curtlo granted Angelo's a right of first refusal to buy or lease its properties and also granted Angelo's a right to prevent a grocery type use of its properties " (emphasis supplied). Further facts, or the absence thereof, will be adverted to at later points in this part of our opinion.

The plaintiffs filed a plethora of objections, requests and motions addressed to the master's report, which was recommitted for further findings on the question, among others, of the reasonableness of the management fees paid to the Curtis entities. There were further objections, requests and motions addressed to the supplemental report. A perusal of the various facets of the assault on the reports discloses that some of the objections were to failures of the master to make specific findings desired by the plaintiffs (see Minot v. Minot, 319 Mass. 253, 259, 261, 66 N.E.2d 5 (1946)); that other of the objections and motions raised purely discretionary questions as to whether there should be further subsidiary findings on particular points (see Black v. Parker Mfg. Corp., 329 Mass. 105, 117-118, 106 N.E.2d 544 (1952)); and that many objections framed in terms of the insufficiency of the evidence to warrant particular subsidiary findings dissolve into complaints as to the weight or interpretation which the master chose to place on particular items of evidence (see H. Piken & Co. v. Planet Constr. Corp., 3 Mass.App. 246, 248, 326 N.E.2d 725 (1975)). Some facets of the assault were grounded on the contents of exhibits before the master which were not properly before the court. See and compare Whaler Motor Inn, Inc. v. Parsons, 3 Mass.App. 662, 665, 339 N.E.2d 197 (1975), Id., 372 Mass. 620, 363 N.E.2d 493 (1977), Id., --- Mass.App. --- ^a, 402 N.E.2d 507 (1980); Martin v. Commonwealth Acceptance Corp., --- Mass.App. ---, --- ^b, 396 N.E.2d 1019 (1979); Glynn v. Gloucester, --- Mass.App. ---, --- n.6 ^c, 401 N.E.2d 886 (1980). ⁷ Another facet was directed to the alleged inadequacy of the master's summaries of evidence. The court had approved the appointment of a stenographer to take the testimony before the master (compare Jones v. Wayland, 4 Mass.App. 725, 726-727, 729, 358 N.E.2d 822 (1976), Id., 374 Mass. --- ^d, 373 N.E.2d 199 (1978), Id., --- Mass. --- ^e, 402 N.E.2d 63 (1980)), but it does not appear from any of the portions of the record reproduced in the record appendix, nor...