Caption Date: December 21, 2017
(with first initial, no space for Sullivan, Dorsey, and
Walsh): Leibensperger, Edward P., J.
MEMORANDUM OF DECISION AND ORDER ON DEFENDANTSâ
PARTIAL MOTION TO DISMISS
P. Leibensperger Justice
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, defendantsâ
motion to dismiss will be allowed, in part, and denied, in
facts as revealed by the FAC, and the documents attached to
the FAC, are as follows.
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
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 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.
agreed to invest $200, 000 in the project in reliance upon
Botwinikâs 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%).
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,
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
armâs 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.
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 partiesâ
respective ownership interests. Bakerâs 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 Bakerâs 80% interest
was to be held by Botwinik in trust for Baker. Botwinikâs
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.
of 2016, the parties completed their acquisition of the
Property. MCM took title to the Property, subject to the
mortgage to Harris.
thereafter, Botwinik decided to replace the Propertyâs 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