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Meunier v. Market Strategies, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

February 23, 2017

John J. Meunier et al.
v.
Market Strategies, Inc.; Market Strategies, Inc.
v.
Cogent Research Holdings, LLC No. 136585

          Filed February 24, 2017

          MEMORANDUM AND ORDER ALLOWING MOTION TO DISMISS CLAIM AGAINST COGENT RESEARCH HOLDINGS, LLC

          Kenneth W. Salinger, Justice of the Superior Court.

         Market 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.

         1. Factual Background

         These 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 non-competition agreement.

         Meunier, 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 trust.

         Although 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.

         The 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.

         In May 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.

         MSI 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.

         2. Legal Analysis

         MSIC's 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 929 (2007)).

         The 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[.]"

         The 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 ...


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