Superior Court of Massachusetts, Suffolk, Business Litigation Session
John J. Meunier et al.
Market Strategies, Inc.; Market Strategies, Inc.
Cogent Research Holdings, LLC No. 136585
February 24, 2017
MEMORANDUM AND ORDER ALLOWING MOTION TO DISMISS CLAIM
AGAINST COGENT RESEARCH HOLDINGS, LLC
Kenneth W. Salinger, Justice of the Superior Court.
Strategies, Inc. (" MSI") claims that Cogent
Research Holdings, LLC (which the parties refer to as "
Holdco") is liable for breaching a covenant not to sue
not because Holdco itself filed a lawsuit, but instead
because the three members of Holdco sued MSI in their
individual capacities. The two lawsuits have been
consolidated. The Court will ALLOW Holdco's motion to
dismiss the one claim against it because MSI has not alleged
facts plausibly suggesting that Holdco can be held liable for
breach of contract.
consolidated actions arise from the May 2013 sale of Cogent
Research, LLC to MSI. At the time of the transaction, John
Meunier, Christy White, and the John J. Meunier 2012
Irrevocable Trust were the sole owners of Cogent Research.
They agreed to sell Cogent Research to MSI in exchange for an
" Initial Payment" of $8.0 million, a "
Delayed Payment" of $2.0 million, and a "
Contingent Payment" of roughly $3.14 million that was
due after MSI received additional audited financial
statements of Cogent Research. Meunier and White also agreed
to work for MSI for three years and entered into a
White, and the irrevocable trust created Holdco in connection
with this transaction. They transferred ownership of Cogent
Research to Holdco, which in turn was the entity that
actually sold Cogent Research to MSI. The parties'
purchase agreement provides that MSI was required to pay the
Initial Payment, Delayed Payment, and Contingent Payment to
Holdco. MSI does not have any contractual obligation to make
any of these payments to Meunier, White, or the irrevocable
the parties' purchase agreement provides that MSI was to
make the Deferred Payment and Contingent Payment to Holdco no
later than April 30, 2016, a separate subordination agreement
executed at the same time modifies those terms. The parties
to the subordination agreement were Holdco, MSI, and an
administrative agent representing Senior Lenders of MSI.
Meunier and White signed this contract on behalf of Holdco.
The subordination agreement provides that the obligations of
MSI to make the Delayed and Contingent Payments " shall
be subordinate and subject in right and time of payment . . .
to the prior Payment in Full of all Senior Debt" held by
the Senior Lenders. It further provides that MSI shall not
make and Holdco shall not accept payment of any part of the
Deferred and Contingent Payments until the Senior Lenders are
paid in full. It also provides that the subordination
agreement trumps any conflicting provisions in the purchase
agreement and any other agreements pertaining to the Deferred
and Contingent Payments.
subordination agreement also contained a covenant not to sue.
It provides that Holdco " shall not . . . take any
Enforcement Action with respect to" the Deferred Payment
and Contingent Payment obligations of MSI " without the
prior written consent" of the administrative agent
representing the Senior Lenders. The phrase "
Enforcement Action" is defined to include bringing a
lawsuit, or initiating or participating with others in a
lawsuit, to collect all or any part of the Deferred Payment
or Contingent Payment amounts.
2016 Meunier, White, and the irrevocable trust all sued MSI
in their own names, purporting to assert their own rights
under the purchase agreement rather than rights belonging to
Holdco. In their complaint, Meunier, White, and the trust
allege they are third-party beneficiaries under the purchase
agreement governing the sale of Cogent Research to MSI. They
claim, among other things, that MSI breached the purchase
agreement by failing to make the Deferred Payment and
Contingent Payment by April 1, 2016. Meunier, White, and the
trust sought a preliminary injunction against MSI, but that
motion was denied in October 2016.
responded to the first lawsuit by suing Holdco for breaching
the covenant not to sue that Holdco entered into as part of
the subordination agreement. This is the claim that Holdco
now moves to dismiss. The two actions were consolidated for
all purposes in January 2017.
complaint does not allege facts plausibly suggesting that
Holdco is liable for breaching its covenant not to sue with
respect to MSI's Deferred Payment and Contingent Payment
obligations. Cf. Lopez v. Commonwealth, 463 Mass.
696, 701, 978 N.E.2d 67 (2012) (to survive a motion to
dismiss under Mass.R.Civ.P. 12(b)(6), a complaint or
counterclaim must allege facts that, if true, would "
plausibly suggest[ ] . . . an entitlement to relief")
(quoting Iannacchino v. Ford Motor Co., 451 Mass.
623, 636, 888 N.E.2d 879 (2008), and Bell A. Corp. v.
Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d
Court must apply New York law in construing the covenant not
to sue because another term in the subordination agreement
says that the contract " shall be governed by and shall
be construed and enforced in accordance with the internal
laws of the State of New York[.]"
lawsuit by Meunier, White, and the irrevocable trust does not
violate the subordination agreement. The plain language of
the covenant not to sue bars Holdco, not its individual
members, from filing suit to compel MSI to make the Deferred
and Contingent payments. MSI does not allege that Holdco
itself has ever filed a lawsuit or taken any other
enforcement action in violation of its covenant not to sue.
Neither the subordination agreement nor the purchase
agreement contain a covenant barring Meunier, White, and the
irrevocable trust from bringing suit in an attempt to compel
MSI to pay over the Deferred Payment and Contingent Payment
amounts to Holdco. Presumably it never occurred to MSI that
it needed such a covenant, since the purchase agreement
specifies that those payments are owed to Holdco, and not to
the individual owners and members of Holdco. Nonetheless, the
only covenant not to sue binds Holdco but not Meunier, White,
or the trust. The Court may not construe the parties'
written contract to " add or excise terms, nor distort
the meaning of those used and thereby make a new contract ...