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Kushner v. Wallace

Superior Court of Massachusetts, Suffolk

January 29, 2018

Evan M. KUSHNER
v.
Robert V. WALLACE, Jr. et al.

          File Date: January 30, 2018

          MEMORANDUM AND ORDER ON DEFENDANT’S MOTION TO DISMISS THE AMENDED COMPLAINT IN PART, PLAINTIFF’S MOTION TO FILE A SECOND AMENDED COMPLAINT, AND PLAINTIFF’S MOTION TO COMPEL DISCOVERY

          Kenneth W. Salinger, Justice

         This decision resolves three pending motions. First, Defendants have moved to dismiss most of the claims asserted by plaintiff Evan M. Kushner in his first amended complaint. The Court will allow this motion in part. It will dismiss so much of Count IV that asserts claims against Robert Wallace and Wallace Lending Corporation to enforce a promissory note entered into by Wallace Capital, LLC. Mr. Kushner may assert that claim against Wallace Capital, but not against the other two defendants. The Court will also dismiss any claim that Wallace Lending Corporation acted in concert with Robert Wallace to divert income from Wallace Capital, LLC, because any such claim must be brought as a derivative action on behalf of Wallace Capital and not as a personal claim by Mr. Kushner. And the Court will also allow the motion to the extent that it seeks a more definite statement of the claims for breach of fiduciary duty, and will order that Kushner is bound by the more definite statement that his counsel provided during the hearing and clarified in a subsequent written submission. The rest of the motion to dismiss Kushner’s remaining claims is denied. Second, the Court will deny Kushner’s motion for leave to file a second amended complaint because the proposed second amended complaint would not provide a " short and plain statement" of Kushner’s claims as required by Mass.R.Civ.P. 8(a), and because Kushner has not shown that there is any good reason to allow this further amendment.[1] Third, the Court will also deny Kushner’s motion to compel discovery.

         1. Defendant’s Motion to Dismiss the First Amended Complaint

         1.1. Note Claim

         Count IV of the amended complaint is a claim to enforce and collect under a $1.25 million promissory note. Kushner asserts this claim against all three defendants- Wallace Capital, Robert Wallace, and Wallace Lending. The latter two argue to dismiss this claim as against them, arguing that they cannot be held liable on a note that by its terms is payable only by Wallace Capital.

         The Court agrees that the amended complaint does not allege any facts plausibly suggesting that Mr. Wallace or Wallace Lending can be held liable under this promissory note, and that Count IV must therefore be dismissed to the extent that it asserts a claim against these two defendants. See generally Lopez v. Commonwealth, 463 Mass. 696, 701 (2012) (standard for dismissal under Mass.R.Civ.P. 12(b)(6)); Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008) (same).

         The note provides that Wallace Capital, LLC, was the sole borrower and thus the only party that Kushner can sue for repayment. Mr. Wallace and Wallace Lending are not parties to the note, either as borrowers or guarantors. The complaint therefore fails to state a viable claim against those two defendants for repayment of the note.[2]

         Although Kushner alleges in paragraph 161 of the amended complaint that Mr. Wallace and Wallace Lending guaranteed repayment of this note, that conclusory allegation does not state a claim against these defendants.

         Unsupported and conclusory allegations that a defendant is liable for damages are not enough to state a claim. In deciding the motion to dismiss, the Court must " look beyond the conclusory allegations in the complaint and focus on whether the factual allegations plausibly suggest an entitlement to relief." Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 473 Mass. 336, 339 (2015), quoting Curtis v. Herb Chambers I- 95, Inc., 458 Mass. 674, 676 (2011). The amended complaint alleges no facts plausibly suggesting that either Wallace or Wallace Lending ever did anything to guarantee repayment of this note by Wallace Capital.

         At oral argument, Kushner argued that he could cure this by further amending his complaint. More specifically, Kushner asserted that the guarantees he relies upon are set forth in a separate " Amended and Restated Subordination Agreement, " a copy of which is attached to Defendants’ answer. This assertion is without merit.[3]

         The subordination agreement provides that certain specified debts owed by Wallace Capital to various creditors would be subordinated to other debts owed by Wallace Capital to other lenders that were represented by their agent CSE Mortgage, LLC. It appears to be undisputed Mr. Kushner signed this agreement as a " Subordinated Creditor, " and thereby agreed that the amounts owed to him by Wallace Capital would be subordinated to the senior debt managed by CSE Mortgage.

         Nothing in the subordination agreement made either Mr. Wallace or Wallace Lending a guarantor of the debt owed by Wallace Capital to Mr. Kushner under their promissory note. Kushner notes that the paragraph 12 of the subordination agreement addresses claims against any " Credit Party, " and paragraph 1 defines that terms to include Wallace Capital as well as " any other Person who is obligated under any of ... the Subordinated Debt Documents, including, without limitation, Wallace Property Company, Inc. and Robert V. Wallace, Jr." But this definition does not create any legally enforceable rights. Since Wallace Lending (the former Wallace Property) and Mr. Wallace have no obligation under the terms of Kushner’s promissory note, they are not " credit parties" with respect to that note for the purposes of the subordination agreement.

         Since the subordination agreement does not make Wallace or Wallace Lending a guarantor of Kushner’s promissory note, it would be futile to allow Kushner to further amend his complete to make such an allegation. The Court therefore denies Kushner’s oral motion to amend his complaint to allege that the subordination agreement made Wallace and Wallace Lending guarantors of the obligations of Wallace Capital to Kushner under their promissory note. See generally Johnston v. Box, 453 Mass. 569, 583 (2009) (" Courts are not required to grant motions to amend prior [pleadings] where ‘the proposed amendment ... is futile.’ " (quoting All Seasons Servs., Inc. v. Commissioner of Health & Hosps. of Boston, 416 Mass. 269, 272 (1993)); Thermo Electron Corp. v. Waste Mgmt. Holdings, Inc., 63 Mass.App.Ct. 194, 203 (2005) (affirming denial of motion for leave to assert counterclaim that would have been futile); Mancuso v Kinchla, 60 Mass.App.Ct. 558, 572 (2004) (if amendment to add claim could not survive motion to dismiss, allowing amendment would be exercise in futility).[4]

         1.2. Fiduciary Duty Claims

         Defendants’ argued, quite correctly, that it is well-nigh impossible to tell from the First Amended Complaint which Defendants are alleged to have breached, or aided in the breach, of what fiduciary duties.

         Mr. Kushner has in effect provided a more definite statement that fixes this problem. His counsel first provided a somewhat clearer statement of the fiduciary duty claims during oral argument. Kushner then reduced this more definite statement to writing, in his post-hearing supplemental brief. As specified in the following order, the Court rules that Kushner is bound by this clarification and that the claims for ...


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