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AM Project Norwood, LLC v. Endicott South Development Corp.

Superior Court of Massachusetts, Suffolk

January 22, 2019



          Kenneth W. Salinger, Justice of the Superior Court

          EW Development, LLC is a single-purpose entity that was created to develop a residential condominium project in Norwood, Massachusetts. AM Project Norwood, LLC owns 51 percent of EW Development; Endicott South Development Corporation owns the other 49 percent.

          AM Project brought suit seeking to compel Endicott to sell its membership interest in EW Development pursuant to a buy/sell provision in EW’s operating agreement, or alternatively to pay alleged damages.[1]

          AM Project has now moved for a very different kind of preliminary injunctive relief. It argues that Endicott improperly withheld its consent to a modification of the terms of a loan made by Cambridge Savings Bank to EW Development. AM Project seeks an order compelling Endicott to give its consent to the proposed modification.

          The Court will DENY this motion for a preliminary injunction for three reasons. First, AM Project has not yet asserted any claim that Endicott’s withholding of consent was a breach of contract or otherwise unlawful. Second, AM Project lacks standing to assert such a claim, which may only be brought by or derivatively on behalf EW Development. Since AM Project lacks standing to assert such a claim the Court lacks subject matter jurisdiction to grant the requested relief. Third, AM Project has not shown that it or EW Development would suffer any irreparable harm if the request for injunctive relief is denied.

         "A preliminary injunction is an extraordinary remedy never awarded as of right." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). To the contrary, "the significant remedy of a preliminary injunction should not be granted unless the plaintiffs had made a clear showing of entitlement thereto." Student No. 9 v. Board of Educ., 440 Mass. 752, 762 (2004). AM Project has not met that burden.

          1. No Claim

          AM Project’s request for injunctive relief to force Endicott to consent to the loan modification is premature because AM has not asserted any claim that the withholding of that consent was unlawful.

         To obtain preliminary injunctive relief, "the applicant must show a likelihood of success on the merits of the underlying claim; actual or threatened irreparable harm in the absence of injunction; and a lesser degree of irreparable harm to the opposing party from the imposition of an injunction." Wilson v. Commissioner of Transitional Assistance, 441 Mass. 846, 860 (2004).

         The filing of a meritorious claim or counterclaim is therefore a condition precedent to seeking injunctive relief. See, e.g., Litton Industries, Inc. v. Colon, 587 F.2d 70, 74 (1st Cir. 1979) (injunction "must be based on a valid cause of action alleged in the complaint"); Goerlitz v. City of Maryville, 333 S.W.3d 450, 455 (Mo. 2011) (en banc) ("an injunction is a remedy and not a cause of action; therefore, it must be based on some recognized and pleaded legal theory").

          AM Project cannot demonstrate a likelihood of success on the merits as to a claim that has never been asserted in this action. "[A]ny motion or suit for either a preliminary or permanent injunction must be based upon a cause of action ... ‘There is no such thing as a suit for a traditional injunction in the abstract. For a traditional injunction to be even theoretically available, a plaintiff must be able to articulate a basis for relief that would withstand scrutiny under’" a motion to dismiss for failure to state a claim. Alabama v. U.S. Army Corps of Engineers, 424 F.3d 1118, 1127 (11th Cir. 2005), quoting Klay v. United Healthgroup, Inc. 376 F.3d 1092, 1097 (11th Cir. 2004).

          2. No Standing

         Even if AM Project had amended its complaint to add a claim that Endicott acted unlawfully in withholding its consent to EW Development’s proposed loan modification, AM Project is unlikely to succeed on such a claim because it lacks standing to assert a claim and seek an injunction intended to benefit EW Development as a corporate entity. This is an independent reason why AM Project may not obtain the requested preliminary injunction. Cf. Fordyce v. Town of Hanover, 457 Mass. 248, 266 (2010) (vacating preliminary injunction because plaintiffs were "unlikely to succeed on the merits").

         Since the alleged wrong in withholding consent to the proposed loan modification harms the LLC rather than an individual member, AM Project is "required to file a derivative claim" on behalf of EW Development rather than sue on its own behalf. See Fronk v. Fowler,456 Mass. 317, 332 n.23 (2010) (emphasis in original); accord Bessette v. Bessette,385 Mass. 806 (1982) (affirming dismissal of brought by majority stockholder of close corporation on own behalf that should have been brought as derivative action on behalf of corporation). "As a general rule, a shareholder does not have standing to sue to redress an injury to the corporation in which he holds an interest." Quarterman v. City ...

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