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Harris Acquisition Trust v. Botwinik

Superior Court of Massachusetts, Suffolk

December 22, 2017

Harris Acquisition Trust[1] et al.[2]
Dan Botwinik et al.[3]

          Caption Date: December 21, 2017

          Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Leibensperger, Edward P., J.


          Edward P. Leibensperger Justice

         This case presents a dispute between two investors regarding a real estate opportunity in Maine. Plaintiff, Jeffrey S. Baker, alleges various wrongdoings by defendant, Dan Botwinik. In his First Amended Complaint (FAC), Baker asserts relief under twelve (12) separate counts. The counts include claims for breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing, intentional and negligent misrepresentation, violation of G.L.c. 93A, negligence and conversion. Defendants move to dismiss under Mass.R.Civ.P. 12(b)(6) only two of those counts: Counts VII (violation of Chapter 93A) and VIII (negligence). For the reasons stated below, defendants’ motion to dismiss will be allowed, in part, and denied, in part.


         The facts as revealed by the FAC, and the documents attached to the FAC, are as follows.

         Botwinik is engaged in the business of real estate investment, acquisition, and management related to commercial real estate throughout New England. Botwinik is the founder and principal of defendant, Cougar Capital Management, Inc., through which Botwinik operates. Cougar is, essentially, the alter ego of Botwinik, so the two defendants will be referred to collectively as " Botwinik" in this memorandum unless more specificity is required. Botwinik seeks investors to provide capital for real estate acquisition and development.

         In the spring of 2016, Botwinik had a contract to acquire a residential apartment building located at 25 Hartford Street, Rumford, Maine (Property). The Property was formerly a hotel. During April and May of 2016, Botwinik had numerous telephone conferences and meetings in Boston[4] with Baker regarding a potential acquisition of the Property. Initially, Botwinik sought a $200, 000 investment from Baker to assist in the acquisition of the Property. In exchange, Baker would receive equity in the project. Botwinik provided a written offering memorandum to Baker, which represented returns of up to 17% per annum on the investment. Botwinik also represented that he would secure additional financing to provide the remaining funds necessary for acquisition and construction. Baker represented that he had the financing lined up. Finally, Botwinik represented that he had the experience and expertise to develop the property.

         Baker agreed to invest $200, 000 in the project in reliance upon Botwinik’s representations. Botwinik formed Maine Coon Management, LLC (MCM) to be the vehicle to hold title to the Property. The membership interests of MCM were divided between Botwinik (20%) and Baker (80%).

         Before the deal could close, Botwinik informed Baker that there would be a delay in obtaining a loan from a local bank needed to acquire the Property. Botwinik explained to Baker that they needed a short-term bridge loan to allow the parties to acquire the Property. Botwinik asked Baker if he would loan additional monies needed to complete the acquisition. Botwinik represented to Baker that he would refinance the Property after the acquisition and repay the loan to Baker, with interest.

         Baker agreed to provide a short-term bridge loan in the amount of $410, 000 in order to fund the acquisition of the Property. Botwinik also agreed to loan an additional $205, 000 to fund the acquisition. In connection with pursuing their plan to acquire the Property, Botwinik and Baker formed Harris Acquisition Trust, a plaintiff in this action. The Harris Trust was executed on June 13, 2016, the same date as the closing on the Property. The co-trustees of the Harris Trust are Botwinik and Baker. The beneficiaries of the Harris Trust are Botwinik (33.33%) and Baker (66.66%). The FAC alleges that the Harris Trust was established in order to facilitate the loans from Baker and Botwinik because the individuals wanted to create a separate legal entity to enter into an arm’s length transaction with MCM. Botwinik, as manager of MCM, executed a promissory note and mortgage to Harris Trust. Botwinik also executed a personal guaranty. In total, Harris Trust provided a $615, 000 bridge loan to MCM.

         Botwinik and Baker also entered into an Agreement for Acquisition of 25 Hartford Street, Rumford, ME (Harris Hotel). That document, hereinafter the " Agreement, " was executed on the same day as the Harris Trust, June 13, 2016. The Agreement was intended to supersede and to modify the terms of the MCM operating agreement. The Agreement referenced the bridge loans and detailed the parties’ respective ownership interests. Baker’s 80% interest in MCM was to be held by First Day Realty Trust and Salem Real Estate Investment, LLC (two entities owned and controlled by Baker) up to 18%. The remaining 62% of Baker’s 80% interest was to be held by Botwinik in trust for Baker. Botwinik’s interest was 20%. The parties expressly acknowledged that Botwinik shall owe a fiduciary duty to Baker. The Agreement also provided that Botwinik agreed to personally guarantee the bridge loan and any other bank loans needed to obtain financing for the Property. Moreover, the Agreement provided that when the bridge loan was repaid in full to Harris, Baker and his associated entities would then, and only then, be required to invest capital in the amount of $200, 000. Also, once the bridge loan was repaid in full, Baker would provide an additional $50, 000 loan, on a temporary revolving basis. Under the Agreement, Botwinik made all daily decisions as to the management of MCM, but was required to consult with Baker on a regular basis.

         In June of 2016, the parties completed their acquisition of the Property. MCM took title to the Property, subject to the mortgage to Harris.

         Immediately thereafter, Botwinik decided to replace the Property’s roof and repair the elevator. Botwinik did not obtain a construction loan to finance the new roof. Instead, he used existing operating revenues. Baker claims that Botwinik breached the terms of agreements between the parties with respect to use of funds. Baker claims that Botwinik grossly ...

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