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Roger v. Centerline Holding Co.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

February 3, 2017

Stephen D. Roger
v.
Centerline Holding Company et al No. 136527

          Filed February 7, 2017

          MEMORANDUM OF DECISION AND ORDER ON THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

          Mitchell H. Kaplan, Justice of the Superior Court.

         In this action, the plaintiff, Stephen D. Roger, seeks a declaratory judgment concerning his rights under two limited liability company agreements (the Agreement[s]) governing two Delaware limited liability companies: nominal defendants Centerline GP Holdings, LLC and Centerline GP Dispositions, LLC (respectively, GP Holdings and GP Dispositions, or, collectively, the GP companies). The GP companies each have two members: Roger and defendant Centerline Holding Company (CHC); Roger and CHC each hold a 50% interest in each of the companies.[1] As relevant to this litigation, the Agreements are identical. Roger seeks a declaration that, under the Agreements, (i) management decisions require the vote of both members, and (ii) he has a right to access to all of the GP companies' records necessary to exercise his management rights.

         PROCEDURAL ISSUES AND RELATED LITIGATION

         This case is before the court on Roger's motion for summary judgment. CHC has filed an opposition to that motion and also a motion under Mass.R.Civ.P. 56(f) in which it asserts that: " this case remains in its early stages, and much work remains to be done before summary adjudication is remotely appropriate . . . the parties have not yet deposed any of the more than 12 witnesses that they have collectively identified as having knowledge material to the dispute . . ." The court disagrees.

         First, it may be noted that this case was filed on April 16, 2015; on August 15, 2016, the court entered a scheduling order (jointly proposed by the parties) which called for fact discovery to be completed by March 31, 2017; to date, neither party has taken any depositions; and, notably, CHC elected not to take any discovery in the three months and one-half months that passed between the date the summary judgment motion was served on it and the date of the hearing on that motion. The Rule 56(f) motion might have been more convincing if it had been supported by discovery demonstrating that material, disputed facts existed.

         The court finds that, as the case has developed, the issues presented by the Amended Complaint (the Complaint) can be resolved based upon a few clearly undisputed facts and a review of the Agreements. The controlling question raised by the Complaint is whether each of the two members of the GP companies can independently manage the business of the companies or whether management decisions require a majority vote of the members, which, under the present membership, requires the vote of both remaining members. While factual issues may exist regarding whether, in the past, CHC caused the GP companies to act without Roger's consent, Roger has explicitly stated that he does not seek damages as a result of any prior unilateral actions, nor is he asking that any prior act be rescinded or undone. The relief that Roger requests is entirely prospective. A resolution of any factual dispute concerning historic conduct is not material to any remaining material issues in this litigation.

         The existence of a present dispute, i.e., an actual controversy, concerning the meaning of the Agreements is clearly established by the parties' pleadings. See Entergy Nuclear Generation Co. v. Dept. of Envt'l, Protection, 459 Mass. 319, 325, 944 N.E.2d 1027 (2011). Roger asserts " that all actions taken by the Members require the consent of a majority of the Members." CHC contends that: " Actions that may be taken by 'each of the Members' may still be taken by a member individually . Thus, to the extent that CHC has caused [the GP companies] to take actions in the ordinary course of their business, it has not violated any right of Roger." (Emphasis in CHC's pleading.)

         The court notes that a related case between the same parties is pending in the Delaware Court of Chancery: Centerline Holding Co. v. Roger No. 12015-CB (the Delaware action). CHC filed the Delaware action on February 18, 2016. In it, CHC alleges that it (or certain employees of an affiliate of CHC) properly exercised rights granted them under the Agreements to purchase Roger's membership interests in the GP companies by notices delivered to him on December 9, 2015. Although Roger disputed the valuation of his interests set out in the notice, the Agreements require the parties to arbitrate valuation, if they disagree on the number. Among other relief CHC asked the Court of Chancery to declare that Roger no longer owns membership interests in the GP companies and to compel Roger to arbitrate the value (i.e., purchase price) of these interests. In his answer to CHC's complaint Roger asserted that CHC did not have right to call his interests and, in any event the notice was defective. Roger moved, in Delaware, to dismiss or stay the Delaware action, which was filed more than a year after the Massachusetts case. The Court of Chancery denied the motion, explaining that the issue presented in the Delaware action-whether CHC had acquired Roger's membership interests-was not raised by the Complaint in the Massachusetts case and did not have to be raised as a compulsory counterclaim in that case. It is this court's understanding that although the Delaware action has been pending for some time, CHC has apparently only recently filed a motion for judgment on the pleadings, and CHC's counsel informed the court at the hearing on Roger's motion for summary judgment that the motion for judgment on the pleadings is scheduled to be heard in the Court of Chancery on February 14, 2017.

         While this court could decide the question of whether CHC has properly exercised a right to purchase Roger's membership interests, as the parties have addressed this issue in their summary judgment pleadings and it is certainly implicated by the pending motion, this court notes, as did the Chancellor in the Delaware action, that the Massachusetts complaint was not amended to address the purchase notice delivered to Roger after his action was commenced. This court will, therefore, defer to the Court of Chancery, which is scheduled to decide this issue in only two weeks.

         At oral argument on the summary judgment motion, this court asked whether any ruling it might enter regarding Roger's rights as a member of the GP companies would be academic, if the Court of Chancery held that his interests had been acquired by CHC. His counsel responded that the issue of who controlled the GP companies might affect the value of Roger's interests. The court then asked CHC's counsel whether CHC planned to argue in an arbitration that Roger's alleged limited ability to participate in the management of the GP companies reduced the value of his interests, i.e., that some manner of discount for lack of control should be applied. Counsel asked for time to consult with his client on this question and report back to the court.

         CHC did, thereafter, file a report with the court, but the report did not answer the question raised at oral argument. Rather, it went on for multiple pages explaining that the GP companies were holding companies. And, even though the GP companies held majority interests, directly or indirectly, in the downstream operating companies, the operating agreements of these subsidiary companies deprived the GP companies of the ability to control management of the operating companies. The degree of management and control that the GP companies can exert over any downstream affiliates is manifestly not an issue before this court. Rather, the question is whether, as a member of the GP companies, Roger has or had a right to participate in management of the GP companies equivalent to that of CHC and whether his consent is necessary for any management decision. As CHC did not answer the question of whether it would assert its interpretation of the Agreements in an arbitration concerning the value of Roger's membership interests, this court finds that the resolution of the dispute concerning each member's right to participate in the management of the GP companies is necessary, even if the Court of Chancery finds that CHC has properly exercised its rights to acquire Roger's interests.

         FACTUAL ...


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