Superior Court of Massachusetts, Suffolk, Business Litigation Session
John J. MOONEY, et al.
DIVERSIFIED BUSINESS COMMUNICATIONS, et al.
Date: February 5, 2018
MEMORANDUM AND ORDER ALLOWING CERTAIN DEFENDANTSâ
MOTION TO COMPEL APPRAISAL
Kenneth W. Salinger, Justice of the Superior Court
four plaintiffs were minority owners of defendant DBC
Pri-Med, LLC, which is a Delaware limited liability company.
Defendant Diversified Business Communications is the majority
member of Pri-Med. In January 2017 Pri-Med called all of
Plaintiffsâ membership shares, as expressly permitted in
§ 13.1(a) of Pri-Medâs operating agreement. This LLC
Agreement provided for an appraisal firm to be by the parties
to determine the value of any called (or put) shares. That
appraisal process has not yet begun because Plaintiffs have
refused to agree upon an appraisal firm.
and Diversified have moved for specific performance of the
third-party appraisal provision. Plaintiffs John Mooney and
Morgan Wheelock filed a written response stating that they
"have no objection to an independent appraisal,"
but asking the Court to establish a new process under which a
special master would select the appraiser and schedule (and
perhaps conduct) evidentiary hearings before the appraiser.
Plaintiffs John Squire and Macgregor Investments Corporation
filed a written response joining in the arguments by the
Mooney Plaintiffs. At oral argument, however, the Squire
Plaintiffs suddenly reversed course and asserted for the
first time that no appraisal should be conducted, either ever
or for now.
have the better of these arguments. Under Delaware law
Defendants are entitled to enforce the contractual appraisal
process, subject only to limited judicial review of the
appraiserâs final decision. It would be inappropriate for the
Court to arrogate to a special master the power to select the
appraisal firm or to schedule or conduct hearings. The Court
will ALLOW the motion to compel.
Court must apply Delaware law in deciding this motion. The
parties agreed in § 15.5 of the LLC Agreement that this
contract "shall be construed and enforced in accordance
with the laws ... of the State of Delaware." The
provision is enforceable. See Hodas v. Morin, 442
Mass. 544, 549-50 (2004) ("As a rule, â[w]here the
parties have expressed a specific intent as to the governing
law, Massachusetts courts will uphold the partiesâ choice as
long as the result is not contrary to public policyâ ")
(quoting Steranko v. Inforex, Inc., 5 Mass.App.Ct.
253, 260 (1977).
appraisal provision of the LLC Agreement that Pri-Med and
Diversified seek to enforce states as follows:
In the event that the Company [i.e., DBC Pri-Med, LLC] and
the selling Employee Member fail to agree on a price for the
selling Employee Memberâs Shares on or before the thirtieth
(30th) day following the delivery and receipt of the Put or
Call Notice, as applicable, the selling Employee Memberâs
Shares shall be appraised by a mutually agreeable,
independent, certified, business valuation and appraisal firm
(the "Appraisal Firm"), whose fees and
expenses shall be shared equally between the Company and the
selling Employee Member. The valuation of the subject Shares
shall be based on a valuation of the Company as a going
concern and shall not be discounted for the illiquidity or
minority nature of such Shares. The Appraisal Firm shall be
instructed to deliver its appraisal report within sixty (60)
days of the engagement. The Appraisal Firmâs appraisal of the
value of the subject Shares shall be final and binding on the
parties as the Redemption Price.
party has suggested that this provision is ambiguous, or
sought to offer any extrinsic evidence regarding its meaning.
the schedule established in this contractual provision, the
appraisal process should have begun a year ago and finished a
few months after that. Pri-Med delivered its call notices in
early January 2017. The parties did not agree upon a
redemption price within thirty days. Both sides had an
obligation to select a mutually agreeable appraisal firm and
to instruct that firm to deliver its final appraisal report
within sixty days after its formal engagement. It is
undisputed that Plaintiffs have not agreed to any of the
appraisal firms proposed by Defendants or proposed an
alternative. They refuse to do so unless and until there is
judicial oversight of the appraisal process.
Court does not believe it would be appropriate for it to
appoint a special master and oversee the appraisal process.
Doing so would be inconsistent with the terms of the LLC
Agreement and inconsistent with the governing Delaware law.
To the extent that the Court has the discretion under
Delaware law to appoint a special master and take control of
the appraisal process, it declines to do so.
are contractually bound to allow an agreed-upon appraisal
firm to determine the value of Pri-Med and thus the value of
their shares. Under Delaware law, a contractual agreement to
resolve valuation disputes through a final and binding
appraisal process, where invoked (as here), "provide[s]
mandatory form of arbitration, precluding recourse to the
courts." Closser v. Penn Mutual Insurance
Co., 457 A.2d 1081, 1087 (Del. 1983) (emphasis added). A
partyâs unwillingness "to proceed with the appraisal
process does not entitle him to seek recourse in the courts
instead." Nahill v. Raytheon Co., 84
Mass.App.Ct. 1129, 2014 WL 183961, *3 (2014) (unpublished
opinion) (applying Closser and Delaware law).
appraisal provision of the contract is silent regarding what
process the appraisal firm should follow to obtain
information and argument from the parties. This means that
the parties are free to agree upon a particular process when
they retain the appraisal form. In the absence of such
agreement, the contract implicitly authorizes the appraisal
firm to establish a fair and appropriate process, without
judicial oversight. See Prettinaro Const. Co., Inc. v.
Harry C. Partridge, Jr. & Sons, Inc., 408 A.2d 957, 963
(Del. 1979) (where dispute is subject to arbitration,
substantive and procedural disputes should all be decided by
the arbitrator, not by a court); LG Electronics, Inc. v.
InterDigital Communications, Inc., 98 A.2d 135, 140
(Del.Ch. 2014) (Laster, Vice C.) (same).
Mooney Plaintiffs are asking the Court to get involved in the
appraisal process in a manner that seems inconsistent with
the appraisal provision that the parties agreed to in their
LLC Agreement. "When parties bargain to have a
contractual payment turn on the valuation of [a business or
some] property, the parties are free to set whatever level of
judicial review" and other judicial involvement
"they like." Senior Housing Capital, LLC v. SHP
Senior Housing Fund, LLC, C.A. No. 4586-CS, 2013 WL
1955012, *26 (Del.Ch. 2013) (Strine, C.). In this case the
parties agreed that they would select an appraiser, and that
the appraiserâs valuation of Pri-Med "shall be final and