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ABCD Holdings, LLC v. Hannon

Superior Court of Massachusetts, Suffolk, Business Litigation Session

June 24, 2016

ABCD Holdings, LLC et al.
Patrick J. Hannon et al No. 134358

         Filed June 27, 2016


          Kenneth W. Salinger, Justice

         Plaintiffs allege that Patrick J. Hannon owes them $1 million or more under various legal theories. They assert claims against him sounding in contract, and in tort, and under G.L.c. 93A. Plaintiffs seek a preliminary injunction that would bar Hannon from dissipating any of his income or assets except for ordinary living or business expenses, and that would bar the eleven reach-and-apply defendants from dissipating or paying to Hannon any income or assets belonging to Hannon, except for payments of salary. They also seek to attach real estate owned by Sofia Gagua, Hannon's spouse, on the theory that this property " constitute[s] the proceeds of a fraudulent transfer." Plaintiffs rely on the allegations of their verified complaint as the sole factual basis for these motions.

         The Court concludes that Plaintiffs have not proved they are entitled to the preliminary relief they have requested, even though Plaintiffs have shown that they are likely to succeed in proving that Hannon is liable for at least part of the damages claimed by Plaintiffs. It will therefore deny both motions.

         1. Likelihood of Success on the Merits

         It seems likely that plaintiff ABCD Holdings, LLC, will be able to enforce its rights under Hannon's personal guaranty of half of a $219, 759 loan made by Bright Horizon Finance, LLC, to Ware Real Estate, LLC, and ABC& D Recycling, Inc. Although the loan was made by Bright Horizon, that entity subsequently assigned its rights under the note and under Hannon's guaranty to ABCD Holdings.

         At the time of that transaction Bright Horizon was owned by Attorney George A. McLaughlin, who was also Hannon's personal lawyer and who now owns or controls Plaintiffs as well. Although Hannon insists that McLaughlin's dual role in this loan transaction makes the note and guaranty unenforceable, another Superior Court judge has already held that this transaction was a proper arm's length deal, that Hannon had independent legal representation in connection with the deal, and that Attorney McLaughlin was entitled to enforce warrants signed by Hannon that allowed McLaughlin to buy a controlling interest in Ware and ABC& D Recycling if Ware and Hannon defaulted on their repayment obligations. Given that finding, it seems likely that ABCD Holdings will succeed in proving that the related note and Hannon's personal guaranty are also enforceable.

         If so, then under the terms of his personal guaranty Hannon is likely to be found liable to ABCD Holdings for (1) $109, 879.50 of the amounts owed but not paid by Ware Real Estate under its note, plus (2) reasonable attorneys fees and costs incurred as a result of Ware's breach of the note, plus (3) all amounts that Hannon received from Ware Real Estate after it defaulted on the note. The Court need not make any findings regarding the total amount that ABCD Holdings is likely to succeed in recovering from Hannon, however, because whatever that amount may be Plaintiffs are still not entitled to the preliminary injunctive relief sought in the two pending motions.

         2. Unavailability of Preliminary Injunctive Relief

         2.1. Requested Injunction against Hannon

         As noted above, Plaintiffs seek a preliminary injunction that would bar Hannon from encumbering or disposing of any of his assets or income, except to satisfy ordinary living or business expenses.

         This request is essentially a " nonstatutory action [ ] to reach and apply" that used to be known as a " creditor's bill." See Cavadi v. DeYeso, 458 Mass. 615, 625, 941 N.E.2d 23 (2011). " Traditionally a creditor's bill could be brought (i) by a judgment creditor, (ii) who had attempted to obtain satisfaction at law, and (iii) who sued in equity for the purpose of reaching property that could not be taken on execution at law." Id. The " true rule in equity is that under usual circumstances a creditor's bill may not be brought except by a judgment creditor after a return of 'nulla bona' on execution." First Nat. Bank of Boston v. Nichols, 294 Mass. 173, 182, 200 N.E. 869 (1936), quoting Harkin v. Brundage, 276 U.S. 36, 52, 48 S.Ct. 268, 72 L.Ed. 457 (1928). In cases involving fraudulent conveyances that leave a judgment debtor insolvent, the judgment creditor need not prove a fruitless attempt at execution, but still must show that it has obtained a final and enforceable judgment before obtaining equitable relief in the nature of a creditor's bill. See Foster v. Evans, 384 Mass. 687, 693-94, 429 N.E.2d 995 (1981).

         Since Plaintiffs are not yet judgment creditors of Hannon, the Court may not exercise its general equity jurisdiction to temporarily grant injunctive relief in the nature of creditors' bill attachment. See First Nat. Bank, 294 Mass. at 182-83; Consolidated Ordnance Co. v. Marsh, 227 Mass. 15, 23, 116 N.E. 394 (1917); In re Rare Coin Galleries of America, Inc., 862 F.2d 896, 904-05 (1st Cir. 1988) (applying Massachusetts law); Hunter v. Youthstream Media Networks, 241 F.Supp.2d 52, 55-57 (2002) (Collings, M.J.) (applying Massachusetts law). The Court notes that the United States Supreme Court has reached the same result under federal law, holding that federal courts have " no authority to issue a preliminary injunction preventing" parties " from disposing of their assets pending adjudication of [a] claim for money damages, " where the plaintiff does not claim any lien upon or other equitable interest in the assets. Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 310, 333, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999).

         The Court recognizes that it has the power to grant the requested relief against Hannon to the extent that ABCD Holdings is claiming that it has an equitable interest in funds held by Hannon, rather than claiming that it has a legal right to recovery monetary compensation from Hannon for damages suffered by ABCD or its assignee. See, e.g., Gucci America, Inc. v. Weixing Li, 768 F.3d 122, 130-31 (2d Cir. 2014) (distinguishing Grupo ...

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