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People's United Bank v. B&B Fire Protection, Inc.

Appeals Court of Massachusetts, Essex

January 2, 2019

PEOPLE'S UNITED BANK
v.
B&B FIRE PROTECTION, INC.

          Heard: October 4, 2018.

         Civil action commenced in the Superior Court Department on December 22, 2014.

         The case was heard by Joshua I. Wall, J., and a motion for reconsideration was considered by him.

          Peter M. Ross for the defendant.

          Charles J. Domestico (Vincent M. Domestico also present) for the plaintiff.

          Present: Milkey, Desmond, & Wendlandt, JJ.

          MILKEY, J.

         In 2014, EAB Elevator, Inc. (EAB Elevator), and Barnes International, LLC (Barnes International), defaulted on two loans they had received from plaintiff People's United Bank (bank). Seeking to collect on the loans, the bank brought this action against EAB Elevator, Barnes International, their principal, Andrew Barnes, and B&B Fire Protection, Inc. (B&B or company). What remains of the case is the bank's collection action against B&B based on that entity's having executed a guaranty of the loans.[1] B&B's defense was that it never properly authorized the guaranty. Following a two-day bench trial, a Superior Court judge ruled in the bank's favor after concluding that regardless of whether the guaranty initially had been executed with authority, B&B effectively had ratified it through its actions and inaction. For substantially the same reasons expressed by the judge in his thoughtful memorandum of decision, we affirm.

         Background.[2]

         1. B&B's relationship with EAB Elevator and Barnes International.

         B&B, formed in 2012 by Andrew Barnes and Daniel Berry, was a business that designed and installed fire sprinkler systems. Barnes and Berry had a family connection in that Berry was married to Barnes's first cousin. The two men had distinct roles at B&B. Barnes, who held a fifty-one percent ownership share, served as B&B's president and ran the business side of the enterprise. Berry, who owned the remaining forty-nine percent, ran the operations side, that is, he was the one who performed, or at least oversaw, the actual design, installation, and maintenance of the sprinkler systems. Although Berry nominally served as a B&B director and its treasurer and secretary, he was content to leave business decisions to Barnes. At no point did the company observe any corporate formalities; for example, there never were any board meetings or resolutions. Rather, B&B was run in practice as a partnership, with Barnes as the one in charge.

         EAB Elevator was in the business of installing and maintaining elevator systems, and Barnes International was an affiliated company. Unlike B&B, both of these other entities were wholly owned by Barnes. However, their operations were intertwined with those of B&B, which allowed all three companies to take advantage of various mutual benefits, such as joint marketing opportunities. The three firms shared office space, equipment, and personnel, and B&B was marketed "as a Barnes International Company." Their finances were also enmeshed, with B&B directly receiving some of the monies lent to EAB Elevator, and B&B in turn making regular payments to Barnes International in the form of monthly management fees. At least initially, Berry was content with this arrangement.

         2. The May 2013 loan.

         In May of 2013, the bank agreed to loan EAB Elevator $100, 000 in the form of a credit line.[3] B&B executed a guaranty of that loan (the May 2013 loan). Berry was aware of the guaranty at the time and either affirmatively blessed it or at least made no objection.[4]

         3. The falling out.

         By Thanksgiving of 2013, Berry had grown disaffected with Barnes's management of B&B. As he explained at trial, he had begun to believe that Barnes was skimming money from B&B for his own benefit. The two men had a falling out, and by mid-December, Berry either quit or was fired. Nevertheless, Berry retained his ownership interest in B&B and nominally remained a director and officer thereof.

         4. The December 2013 loans.

         On Christmas Eve of 2013 (that is, after Berry had left the company as an employee), the bank executed two agreements to lend money to EAB Elevator and Barnes International. These loans (the December 2013 loans) are the subject of the current collection action. One loan, for $65, 000, was to refinance an existing loan from a different bank. The other, for $200, 000, had two components. One paid off the existing $100, 000 indebtedness on the May 2013 loan to EAB Elevator (thus effectively serving as a refinancing of that debt). The other established an additional $100, 000 line of credit that could be drawn from over time. B&B executed a separate corporate guaranty on these loans, and thereby nominally agreed to obligate itself on them. The guaranty was signed by B&B's general counsel, purportedly pursuant to a power of attorney executed by Barnes (who, at the time, was in Florida). Meanwhile, Berry, who continued to hold a forty-nine percent share of B&B, was not informed about the December 2013 loans, much ...


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