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SG Realty Holdings, LLC v. 49 Melcher Street, LLC

Superior Court of Massachusetts, Suffolk, Business Litigation Session

May 22, 2019

SG Realty Holdings, LLC et al.
v.
49 Melcher Street, LLC et al.

          Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Kaplan, Mitchell H., J.

          MEMORANDUM OF DECISION AND ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

          Mitchell H. Kaplan, Justice

          Defendant 49 Melcher Street, LLC (49 Melcher) is the owner of the property located at that address in South Boston (the Property); defendant Steven Goodman is its managing member. 49 Melcher acquired the Property for development purposes. It leased approximately 10,500 square feet in the Property (the Premises) to 49 Melcher Restaurant Group, LLC (49 Melcher Restaurant), an entity controlled by plaintiff Seth Greenberg, for the development of a restaurant (the Lease and the Restaurant). On the same day the Lease was signed, 49 Melcher also executed an Option to Purchase the Premises (the Option). The right to exercise the Option was granted to "Seth Greenberg’s nominee entity," defined as the "Buyer" in the Option. The second recital in the Option provided that the option was "conditioned upon the fact that Buyer will be controlled by Seth Greenberg or an entity controlled by Seth Greenberg but in which Steven Goodman, or an entity controlled by Steven Goodman, shall have equity participation." Plaintiff SG Realty Holdings, LLC (SG Realty) is the Greenberg controlled entity through which Greenberg has attempted to exercise the Option. The defendants maintain that SG Realty is not entitled to exercise that option. That dispute has given rise to the instant action.

          The plaintiffs have pled their complaint in five counts, all asserted against both 49 Melcher and Goodman: Breach of Contract (Count I), Breach of the Covenant of Good Faith and Fair Dealing (Count II), Misrepresentation (Count III), Violation of G.L.c. 93A (Count IV), and Declaratory Judgment (Count V). The defendants have answered and asserted a counterclaim for declaratory judgment seeking a declaration that: "the Option is too indefinite and lacks consideration and therefore is invalid; SG Realty does not have standing to enforce the Option because Goodman does not have an equity participation in it; and/or any exercise of the Option is subject to the mortgages to which Greenberg agreed to subordinate the Option."

          The case is presently before the court on the parties’ cross motions for summary judgment. The defendants move for summary judgment on all of the plaintiffs’ claims and their own claim for declaratory relief. The plaintiffs have filed a cross motion for summary judgment on Counts I and V of their complaint. Both motions are DENIED, except that Goodman’s motion to dismiss Counts I and II as to him is allowed. This is because Goodman did not sign the Option or the Lease in his individual capacity, but only on behalf of 49 Melcher, and therefore no contract claims can be asserted against him individually.

          This memorandum of decision will not include a detailed description of the facts or the law as it appears quite clear that there are facts in dispute that must be decided at trial and there are no novel legal issues that require development at this point in the case. It is intended only to highlight those factual disputes that remain for trial and to clarify certain questions of law in order to facilitate trial.

          FACTUAL BACKGROUND

          The following facts material to the pending motions have evidentiary support in the summary judgment record. Because there are cross motions for summary judgment, that evidence is viewed in the light most favorable to the non-moving party, which will vary depending on the particular facts at issue. The criteria the court has employed is: the existence of sufficient evidence from which a jury could find a fact that supports the following.

          Greenberg had previously developed and run other restaurants in Boston (including Mistral in the Back Bay) and other cities. He and Goodman entered into negotiations for the Lease of the Premises on the ground floor of the Property. Their intention was that Greenberg would develop a high end restaurant, while Goodman developed the balance of the multiple story Property. During the negotiations Greenberg bargained for an option to purchase the Premises as a condominium. Goodman insisted upon an equity participation in the entity that Greenberg would form to exercise the Option and own the Premises. Each of Greenberg and Goodman were represented by counsel during the negotiations and the drafting of the transactional documents.

          The Option and Lease were executed on the same date, October 1, 2012. Indeed, the Option references the Lease "of even date" in its first recital. The Option price was $3 million, and the manner of exercise was spelled out in the Option and a form of Purchase and Sale Agreement for the Premises attached to it. Clearly, the Lease and Option were intended to be part of a single integrated transaction, and the finder of fact could find the Option was a bargained for part of the transaction pursuant to which 49 Melcher Restaurant agreed to the terms of the Lease. All the parties to the Lease and the Option and their lawyers fully understood that the Greenberg nominee in which Goodman was to have an equity interest had not be formed by the time the Lease and Option had been executed and there was then no formal, executed document in which the terms according to which Goodman would hold his equity interest in the nominee were set out.

          There is, however, evidence from which a jury could find that material terms that defined the nature of the equity interest had been negotiated by the time the Lease was executed. For example, there is largely undisputed evidence that Goodman’s interest in the Greenberg nominee entity was to be 15%. There is some evidence that the parties discussed the concept that Goodman would receive this interest on the same terms as other investors would be permitted to acquire interests in this entity. There is some evidence that Greenberg’s lawyer sent Goodman’s lawyer a form of Operating Agreement for SG Realty in 2013, approximately 4 years before SG Realty first attempted to exercise the Option.

          After the execution of the Lease and Option, Goodman asked Greenberg to subordinate the Option to a mortgage granted to Rockland Trust to secure a development loan. Greenberg signed the subordination on April 1, 2013. The subordination agreement recites that the Option has been recorded and Greenberg or his nominee holds an option to purchase the Premises. Greenberg subsequently pledged the Option as collateral for a loan to develop the Restaurant, and on January 21, 2014, Goodman executed a consent to the pledge on behalf of 49 Melcher.

          On October 16, 2017, Greenberg attempted to exercise the Option by sending written notice in the form generally required by the Option and the deposit check to 49 Melcher. 49 Melcher rejected the exercise, principally arguing that Greenberg could not exercise individually, rather only his nominee entity could. On November 8, 2017, Greenberg attempted to exercise the Option in the name of SG Realty. 49 Melcher rejected the exercise, principally on the ground that Goodman did not have an interest in SG Realty. On December 22, 2017, SG Realty again attempted to exercise the Option. This time SG Realty included with the notice of exercise an Operating Agreement which reflected Goodman’s ownership of a 15% interest in SG Realty, subject to an obligation to make a capital contribution of 15% of the costs of exercising the Option. Again, 49 Melcher rejected the exercise "for the reasons set forth in prior correspondence."

          Under the terms of the Option, the Buyer had until "180 days before the 5th anniversary of the Delivery Date," as defined in the Lease, to provide written notice that it is exercising the Option. The closing on the sale is to occur after the Delivery Date ...


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