VAT Master Corp. v. Almanac Realty Sec. V

• Docket Number: 2022AP1413
• Decision Date: 14 September 2023
• Parties: VAT Master Corp. and VAT Master Limited Partnership, Plaintiffs-Respondents-Cross-Appellants, v. Almanac Realty Securities V, LP, TWP-FARS Corp., TW-ARS Corp., Moreen R. McGurk, as Executor of the Estate of John McGurk, and Justin Hakimian, Defendants-Appellants, Almanac Realty Investors, LLC, Matthew Kaplan and Randall Guenther, Defendants-Cross-Respondents.
• Court: Wisconsin Court of Appeals

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VAT Master Corp. and VAT Master Limited Partnership, Plaintiffs-Respondents-Cross-Appellants, v. Almanac Realty Securities V, LP, TWP-FARS Corp., TW-ARS Corp., Moreen R. McGurk, as Executor of the Estate of John McGurk, and Justin Hakimian, Defendants-Appellants, Almanac Realty Investors, LLC, Matthew Kaplan and Randall Guenther, Defendants-Cross-Respondents.

No. 2022AP1413

Court of Appeals of Wisconsin, District IV

September 14, 2023

Not recommended for publication in the official reports.

APPEAL AND CROSS-APPEAL from an order of the circuit court for Dane County No. 2020CV1893 SUSAN M. CRAWFORD, Judge. Affirmed.

Before Kloppenburg, P.J., Blanchard, and Graham, JJ.

BLANCHARD, J.

¶1 VAT Master Corporation and VAT Master Limited Partnership (collectively, "VAT") claim that four entities and four individuals (collectively, "the Almanac defendants") breached a 2013 agreement intended to settle disputes between the two sides. VAT's specific claim is that in 2014 and again in 2015 the Almanac defendants breached corporate governance rules that were newly established in, and enforceable through, the 2013 settlement agreement.

¶2 The Almanac defendants moved the Dane County Circuit Court to dismiss VAT's operative complaint against all defendants based on the failure to state a claim, arguing that the settlement agreement does not itself create an independent obligation to follow the corporate governance rules described in the settlement agreement. Instead, the Almanac defendants argue, the settlement agreement requires only that the parties amend a corporate operating agreement to reflect the new corporate governance rules at issue, which is an amendment that both sides agree occurred. The court denied the motion to dismiss on the ground that the settlement agreement itself unambiguously creates the obligation to follow the new corporate governance rules. We granted the Almanac defendants' petition for an interlocutory appeal.

¶3 We affirm denial of the motion to dismiss, but based on a different rationale from the circuit court's. We conclude that dismissal is not appropriate because the settlement agreement is fairly susceptible to more than one reasonable interpretation as to whether the settlement agreement independently obligates the parties to follow the new governance rules. Therefore, proper interpretation of the ambiguously worded agreement will require a factfinder to consider extrinsic evidence about the mutual intent of the parties, assuming that relevant extrinsic evidence is available and that the evidence creates a genuine issue of material fact.

¶4 Separately, the Almanac defendants appeal a circuit court ruling that involves only John McGurk and Justin Hakimian two signers of the settlement agreement. McGurk and Hakimian moved to be dismissed on the ground that they cannot be sued in their individual capacities, because they signed solely in their capacities as members of a corporate board. The circuit court rejected that argument. We conclude that the only reasonable interpretation of the settlement agreement is that McGurk and Hakimian are parties to it, each signing in an individual capacity, and that the operative complaint states claims for breaches of the contractual duties that McGurk and Hakimian individually owe to the VAT plaintiffs. Accordingly we affirm the circuit court on this issue.

¶5 In a cross appeal, VAT argues that the circuit court erred in dismissing this action against Randall Guenther, who is not a party to the settlement agreement, and Matthew Kaplan, who is a party to it. The court ruled that the operative complaint fails to state claims against either Guenther or Kaplan upon which relief may be granted. We agree with the circuit court in each case and, accordingly, also affirm the order dismissing the claims against them.

BACKGROUND

Allegations in VAT's Complaint

¶6 Broadly summarized, VAT alleges the following in its operative complaint.^[1] Beginning in 2007, VAT entered into agreements with various Almanac defendants under which the Almanac defendants invested in VAT's real estate business, but the relationship established by those agreements eventually deteriorated. To resolve their disputes, the parties entered into a written settlement agreement in 2013. The Almanac defendants breached the settlement agreement, once in 2014 and again in 2015. These breaches allowed the Almanac defendants to: "sabotage" VAT's "reasonable" attempts to have the Almanac defendants' interests in VAT's business bought out "collect inflated interest payments" on debts improperly conceal and destroy records of the business; and improperly break up the business and sell its assets at "fire-sale" prices. These breaches of the settlement agreement allowed the Almanac defendants to "plunder[]" the business and reduce VAT's "equity value" in the business from more than $130 million to zero.

¶7 With that broad set of allegations in mind, the operative complaint more specifically includes the following allegations against: Almanac Realty Investors, LLC; Almanac Realty Securities V, LP; TWP FARS Corporation; TW-ARS Corporation; Matthew Kaplan; the executor of the estate of John McGurk; Justin Hakimian; and Randall Guenther.^[2] At all relevant times, VAT Master Corporation was the general partner of VAT Master Limited Partnership; the VAT corporation owned the VAT partnership along with more than 200 additional partners who consisted of VAT's investors.^[3] The VAT partnership held an interest in a Wisconsin-based commercial real estate company.

¶8 VAT sought to expand. To raise money, on November 1, 2007, VAT "entered into a series of investment agreements" with the Almanac defendants, including Almanac, a Delaware limited liability corporation with a principal place of business in New York City and then called Five Arrows Realty Securities V., LP. In the "primary" agreement, Almanac extended a line of credit of up to $106.7 million, at 8.5% interest.

¶9 To facilitate these investments, a credit agreement and an operating agreement were entered into in 2007, which called for the following:

• VAT would create a new holding company named Vanta Commercial Properties, LLC ("Vanta").^[4]

• The VAT partnership was to own 98 percent of Vanta, with Almanac owning the remaining two percent.

• The Vanta board would have four directors-two appointed by Almanac and two appointed by the VAT partnership-and "all material decisions" would require majority board approval. The result was that any major action would require a vote from at least one Almanac director or one VAT director.

¶10 Almanac appointed John McGurk and Matthew Kaplan to the Vanta board. The VAT partnership appointed Terrence Wall, then Vanta's chief executive officer, and another individual, who was then Vanta's chief operating officer.

¶11 In 2011, Vanta and Almanac "renegotiated the terms" of the 2007 credit and Vanta operating agreements. Under the renegotiated 2011 agreements:

• "[T]he original line of credit was capped at the then outstanding balance of approximately $76.5 million-no longer $106.7 million-and a second new $25 million line of credit was opened at a 15% interest rate."

• The size of Vanta's board was increased from four to five, with Almanac to appoint three members and the VAT partnership to appoint two.

• All Vanta matters "were to be decided by a majority vote of the Board, except for modifications of any of the 'Transaction Documents'- including the 2011 Credit Agreement," which would require unanimous board approval.

• The VAT partnership was given 14 months "to attempt to raise capital to buy Almanac out," during which time Wall would remain as Vanta's chief executive officer.

¶12 Almanac appointed its employee Justin Hakimian as a Vanta director, joining Kaplan and McGurk on the Vanta board. The VAT partnership appointed Terrence Wall and another individual.

¶13 In April 2012, the three Almanac directors voted to remove Terrence Wall both as chief operating officer and as board chair of Vanta and further voted to appoint McGurk as chief operating officer.

¶14 Disputes that arose among VAT, the Almanac defendants, and others included a breach of fiduciary duty lawsuit that was litigated in the Delaware Court of Chancery. The parties sought to resolve their disputes, including the Delaware litigation, through a written settlement agreement that was executed in August and September 2013. The settlement agreement is at the center of this appeal. For background purposes it is sufficient to note the following regarding the settlement agreement.

¶15 Ten entities and four individuals entered into the settlement agreement. It obligated the parties to amend the Vanta operating agreement to cause the following changes to Vanta's governance: the board would be reduced from five members to three, with two appointed by Almanac and one by the VAT partnership; all board decisions would be made by majority vote of the three; but for transactions involving Almanac and the Almanac-related entity TWP-FARS, a unanimous vote would be required and all three board members would have to be present at a meeting for the board to take any action. There is no dispute by the parties now that the Vanta operating agreement was in fact amended, following execution of the settlement agreement, to establish the new governance rules addressing these quorum and unanimity requirements.

¶16 VAT's operative complaint in this Dane County action is based on the following premises: the settlement agreement itself required the parties to follow the new Vanta governance rules, and the Almanac defendants breached their standalone obligations to follow the governance rules that were created by the settlement agreement. The current...