Superior Court of Massachusetts, Suffolk, Business Litigation Session
Arthur S. Demoulas et al.
Demoulas Super Markets, Inc. et al No. 134354
June 22, 2016
MEMORANDUM AND ORDER ALLOWING MOTION FOR A
Kenneth W. Salinger, Justice
claim that Defendants have breached their contractual
obligation to let them participate in an ongoing tax audit by
the Internal Revenue Service of Demoulas Super Markets, Inc.,
(the " Company"). Arthur S. Demoulas (" Arthur
S."), seeks a preliminary injunction that would order
the Company and Arthur T. Demoulas (" Arthur T.")
to include Plaintiffs' representative in, or copy him on,
all communications they have with the IRS. For their part,
Defendants insist that Arthur T.'s contractual right to
control the conduct of the audit absolutely trumps the right
of Arthur S. to participate. The Court concludes that both
sides misread the relevant contract provision, but that
Arthur S. is entitled to preliminary injunctive relief that
is somewhat narrower than he sought.
of background, the Company's current and former
stockholders resolved a bitter dispute regarding management
of the Company in 2014, leading to an agreement that some of
the stockholders would sell their shares to others. The
transaction closed in December 2014. Since then, Arthur S.
and Rafaela Evans have been the designated representatives of
the stockholders who sold their shares, and Arthur T. has
been the designated representative of the remaining Company
parties anticipated that the Company might be involved in
future tax audits or other tax proceedings. Any such
proceeding could have financial implications for past and
future shareholders because the Company is a subchapter S
corporation and thus its earnings are treated as having been
passed through to its shareholders for income tax purposes.
result, the Stock Purchase Agreement (" SPA") among
the Company's former and current stockholders provides
that if the Company is audited by a taxing authority then
Arthur T. " shall control the conduct of" the audit
on behalf of the Company and its current and past
shareholders, " provided that" Arthur S. and Ms.
Evans " shall have the right to participate" in the
audit and that the Company and its remaining stockholders
(including Arthur T.) " may not settle or otherwise
resolve" the audit proceeding without written consent
from Arthur S. and Ms. Evans, " unless such settlement
or resolution would not adversely affect the Sellers."
Court concludes that this provision is not ambiguous, and
that the Court must therefore decide what it means based only
on the language of the SPA. See, e.g., Eigerman v. Putnam
Investments, Inc., 450 Mass. 281, 287, 877 N.E.2d 1258
(2007) (interpretation of unambiguous written contract "
is a question of law for the court" to resolve);
Berkowitz v. President & Fellows of Harvard College,
58 Mass.App.Ct. 262, 270, 789 N.E.2d 575, rev. denied, 440
Mass. 1101, 795 N.E.2d 573 (2003) (whether contract language
" is ambiguous is also a question of law for the
SPA, Arthur T.'s right to control the tax audit is
expressly made subject to the condition that Arthur S. and
Ms. Evans be allowed to " participate" in the
proceeding. The right to participate in the audit is a right
to " take part in" the audit. See Webster's
Ninth New Collegiate Dictionary at 858 (1991).
Court holds that the right of Arthur S. and Ms. Evans to
participate in the tax audit includes the right to have their
designated representative sit in on any meetings and listen
in on any telephone calls, and to receive copies of all paper
or electronic communications, between the Company and the IRS
involving any kind of substantive inquiry or discussion
regarding the ongoing audit. The contractual right to
participate also includes the right to receive copies of, or
at least to obtain access to, all materials provided by the
Company to the IRS. However, the right to participate does
not include the right to be part of non-substantive
communications between the Company and the IRS, to
communicate directly with the IRS, or to make comments or ask
questions during meetings or phone calls with the IRS, as
that would be inconsistent with Arthur T.'s contractual
right to control the audit process.
S. has demonstrated that he is likely to succeed on the
merits of his claims. The undisputed facts demonstrate that
Arthur T. has violated Plaintiffs' contractual right to
participate in the audit process, but that to date the
violation appears to have been quite minor. Arthur S. and Ms.
Evans have designated Gerard Levins as their representative
for the purpose of participating in the ongoing tax audit.
Arthur T. allowed Mr. Levins to attend the initial meeting
with the IRS in May 2016, albeit grudgingly and only after a
fair amount of back-and-forth between the two sides'
lawyers. Since then, however, the IRS had has additional
conversations with the Company's representatives
regarding draft requests for documents or other information
that Levins was not told about and not allowed to participate
T. stipulated in the SPA " that the other parties would
be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their
specific terms or otherwise are breached or violated."
Defendants are bound by this stipulation. As a result, Arthur
S. is not required to prove that he would be irreparably
harmed if no preliminary injunction were to issue.
the circumstances of this case, the Court concludes that no
bond or other security should be required before it issues an
appropriate preliminary injunction
AND PRELIMINARY INJUNCTION
motion by Arthur S. Demoulas for a preliminary injunction is
ALLOWED. The Court orders that Demoulas Super Markets, Inc.
(the " Company"), Arthur T. Demoulas, and their
agents, employees, attorneys, and others acting on their
behalf shall: (1) take all steps necessary to give Plaintiffs
or their designated representative the opportunity to attend
any meetings and listen to any telephone calls between the
Company and the Internal Revenue Service (" IRS")
involving any kind of substantive inquiry or discussion
regarding the ongoing tax audit of the Company; (2) provide
Plaintiffs or their designated representative with copies of
all paper or electronic communications between the Company
and the IRS regarding ...