Opinion
No. 213-2019-CV-00023
09-18-2019
Scott A. Ryan v. Patrick J. Ryan and Access Design, Inc.
ORDER
The Plaintiff, Scott A. Ryan, ("Scott") has brought an action against the Defendant, Patrick J. Ryan, ("Patrick") seeking a declaratory judgment that Scott is the 100% shareholder of a company called Access Design, Inc. ("ADI"). Scott alleges that he is the 100% owner of ADI as a result of an agreement entered into between the parties on March 21, 2017. Scott asserts that the contract is in substance a Shareholder Agreement, which alters the legal relationship of the shareholders of ADI, Scott and Patrick.
For clarity, the Court will refer to Mr. Ryan junior and senior by their first names.
Scott asserts that he named ADI as an interested party so that in the event the Court cancels Patrick's 51 shares of stock of the company, it can be ordered to update its shareholder ledger and issue 51 additional shares of stock to him.
Patrick has brought a number of Counterclaims, alleging, inter alia, that the agreement that Scott refers to as a "Shareholder Agreement" is not a shareholder agreement within the meaning of RSA 293-A: 7.32. The Court will refer to the agreement as "the Contract" because the Court has determined that it is in fact a binding contract.
Patrick refers to the Contract as a "Mediation Agreement."
Scott has moved to dismiss Counterclaims III-X, XIII and XIV because the Counterclaims are not reasonably susceptible to a construction that would permit recovery. (Mot. to Dismiss ¶ 1.) Scott has filed a Motion for Summary Judgment, alleging he is entitled to specific performance of Patrick's obligation to transfer his remaining 51 shares of ADI to him under the Contract or, alternatively, a declaration that he is the 100% shareholder of ADI as of January 3, 2019. Patrick has also moved for partial summary judgment on Counterclaims III, IV, and XI and Scott's request for specific performance.
For the reasons stated in this Order, both Motions for Summary Judgment are DENIED, as genuine issues of material fact exist. Scott's Motion to Dismiss Patrick's Counterclaims is GRANTED with respect to Counterclaims III-IX and XIII. Scott's Motion to Dismiss is DENIED with respect to Counterclaims X, XI, XII, and XIV.
I. FACTS
Many of the facts do not appear to be in dispute and can be taken from the Complaint, Answer, and Supporting Affidavits to the various motions. Scott is the son of Patrick Ryan and Michelle Ryan. Scott and Patrick were the sole shareholders of ADI for some time prior to 2017. Scott became President of ADI in 2014. In the years leading up to 2017, Scott and Patrick had numerous disagreements about how to effectively run ADI. (Patrick Ryan Aff. ¶ 3.) As a result of these disagreements, Scott and Patrick ultimately decided they should negotiate a buyout, and that Scott would eventually assume ownership of the company. (Id. ¶ 4.)
Scott states that the parties agreed at some point prior to 2017 that Patrick's 80 shares would be valued at $20,000 per share and that Patrick would have a purchase agreement drawn by his attorney. The agreement between the parties required him to make payments in the amount of $8,666.66 per month. (Scott Ryan Aff. ¶ 3.) The Contract states that Scott made 27 payments of this amount prior to its execution. (¶3.)
Because they could not agree about all of the terms regarding the transfer in stock, they enlisted the services of a mediator. (Patrick Ryan Aff. ¶ 6.) The parties differ as to what the mediation was intended to achieve. Critically, they dispute the results of the mediation. Yet, after a one-day mediation on March 11, 2017, Scott and his wife, Whitney Ryan, and Patrick and his wife, Michelle Ryan, entered into a Memorandum of Understanding ("MOU").
On March 21, 2017, the parties signed the Contract, which was captioned "Agreement for Sale of Stock and Resolution of Past Management Disputes." The intent in signing the Contract was "to formalize the [MOU]." (¶1) The parties agree that the terms of the Contract and the MOU are essentially the same, with some differences. For example, paragraphs are numbered differently, and while the MOU states that "it is anticipated that the BOD consists of Pat Ryan, Scott Ryan and Robert Murcha," the Contract states, "The parties shall select a third member of the Board of Directors, by agreement, as soon as practicable." (Def.'s Counterclaim Ex. B, ¶ 12); (The Contract ¶8).
It is the interpretation of the Contract that forms the basis of this case. Both parties refer to the Contract extensively in their Pleadings and Affidavits. In relevant part, the Contract provides as follows:
3. The parties reaffirm the previously agreed to sales price of one million six hundred thousand dollars ($1,600,000.oo) for the sale of 80 shares of stock in Access Design, Inc. from Patrick J. Ryan to Scott A. Ryan. The parties further reaffirm they agreed to terms of payment for said sale at a price of $20,000 per share to be paid in monthly installments of $8666.66, inclusive of interest at a rate of 2.5%, until the amount of $1,600,000 has been paid in full. The parties
further reaffirm that Scott A. Ryan has, either directly or as President of Access Design, Inc. caused 27 such monthly payments to be made, reducing the amount owed for the sale of stock to $1,366,000.00.
4. Patrick J. Ryan shall transfer 29 shares of stock to Scott A. Ryan promptly upon the execution of this agreement, resulting in a stock ownership split in Access Design, Inc. of 51 shares owned by Patrick J. Ryan and 49 shares owned by Scott A. Ryan.
5. The agreement to pay $580,000 for the 29 shares being transferred in conjunction with the transfer of shares set forth in paragraph 4 shall be secured by the promissory note attached as "Exhibit B" running from Scott A. Ryan and Whitney L. Ryan in favor of Patrick J. Ryan and Michelle T. Ryan.
6. The parties agree that the day to day control of operations and management of Access Design, Inc. shall rest solely with Scott A. Ryan. Patrick A. Ryan and Michelle T. Ryan agree that they will not be physically present at Access Design, Inc. without prior notice to and approval by Scott A. Ryan and that they will not initiate contact with Access Design, Inc. staff or employees during normal Access Design, Inc. business hours.
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8. During such time as Patrick J. Ryan is the majority shareholder of Access Design, Inc. he has the right to call a Board of Directors meeting if there is a default on a monthly payment of $8,666.66 as set forth in paragraph 3 and Exhibit B, or if Access Design, Inc. should operate at a loss for 2 consecutive quarters. The parties shall select a third member of the Board of Directors, by agreement, as soon as practicable.
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11. At such time as Patrick J. Ryan and Michelle T. Ryan are released from their obligation as personal guarantors on the Access Design, Inc. line of credit with TD Bank, Scott A. Ryan shall have an option to purchase, and Patrick J. Ryan shall have an obligation to transfer, the remaining 51 shares of stock in Access Design, Inc. to Scott A. Ryan.
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13. At such time as Patrick J. Ryan and Michelle T. Ryan are
removed from their obligations as guarantors on the line of credit a new promissory note, running from Scott A[.] Ryan and Whitney L. Ryan in favor of Patrick J. Ryan and Michelle T. Ryan shall be signed, reflecting the amount then owed, based on payments made between the date of this agreement and the date Patrick J. Ryan and Michelle T. Ryan are released from their obligations as guarantors on the line of credit. Said note shall also require monthly payments of $8666.66 inclusive of an interest rate of 2.5% until such time as the full purchase price set forth in paragraph 3 has been paid and said note shall also give Scott A. Ryan and Whitney L. Ryan the right to accelerate payments.(The Contract ¶¶ 3-6, 8, 11, 13) (emphasis added).
On May 30, 2017, the Board of Directors held a special meeting. At the meeting, it was unanimously voted by Patrick and Scott in their capacity as directors that "the MOU dated March 11, 2017 is hereby approved." (Def.'s Mot. for Partial Summ. J. at 3.) A transfer of 29 shares of stock from Patrick to Scott was authorized at the special meeting. Mr. Mucha declined to sit on the Board, and no third Board member was ever appointed. (Aff. of Patrick Ryan ¶ 9.)
Scott continued to make payments to Patrick after signing the Contract. The money to finance those payments came in the form of loans distributed to Scott by ADI. (Patrick Ryan Response Aff. ¶ 3.) Scott applied for the requisite life insurance policy, but was denied. (Scott Ryan Aff. ¶ 17.) Instead, Scott made Patrick and Michelle Ryan beneficiaries of $1.2 million dollars from a pre-existing life insurance policy. (Id.)
Additionally, Scott agreed that in his capacity as president of ADI he would cause ADI to (1) continue paying the health insurance premiums for Patrick and Michelle Ryan until their deaths; (2) ADI would continue to pay for the cell phone plans of Patrick and Michelle Ryan; and (3) ADI would provide Patrick and Michelle Ryan with a gas credit card allowance of $200 per month. (Id. ¶ 15.) The Parties agree Scott made payments to Patrick's attorney for health insurance coverage after Patrick indicated his attorney would not be responsible for accepting such payments. (Patrick Response Aff. ¶ 15.) The parties seem to dispute whether all payments have been made by ADI to Patrick's health insurance provider. (Scott Ryan Aff. ¶ 19.) ADI has continued to pay for Patrick and Michelle Ryan's cell phones. (Scott Ryan Aff. ¶ 20.) Patrick and Michelle Ryan were also given gas credit cards funded by ADI. (Scott Ryan Aff. ¶ 21); (Patrick Ryan Response Aff. ¶ 15).
On January 3, 2019, Scott advised Patrick he was exercising his option to purchase his remaining 51 shares of stock of ADI. Scott provided a promissory note as consideration for purchase of shares in conformity with all of terms of the Contract. (Complaint ¶ 16.) Patrick has refused to transfer the shares.
II. THE PARTIES' CLAIMS
The parties have made a number of claims and counterclaims. Scott has moved for summary judgment on his claim, and Patrick has moved for partial summary judgment on his Counterclaims III, IV and XI. Scott has moved to dismiss Patrick's claims.
A. Scott's Claims
Scott asserts that he is entitled to a declaration that he was the 100% shareholder of ADI as of January 3, 2019, because he complied with all the provisions of the Contract, which required Patrick to transfer his remaining shares in ADI as of that date. (Plf.'s Mem. in Supp. of Mot. for Summ. J. at 9.) He is seeking specific enforcement of Paragraph 11 of the Contract, which provides:
11. At such time as Patrick J. Ryan and Michelle T. Ryan are released from their obligation as personal guarantors on the Access Design, Inc. line of credit with TD Bank, Scott A. Ryan shall have an option to purchase, and Patrick J Ryan shall have an obligation to transfer, the
remaining 51 shares of stock in Access Design, Inc. to Scott A. Ryan. (emphasis added)
The basic premise of Scott's position is that the Contract is a valid contract which requires all of the stock of ADI to be transferred to him and which modifies the rights of the parties as shareholders so that the Court should grant specific performance and order transfer of the stock. He argues that while Patrick has challenged through his Counterclaims certain management actions taken by Scott, all "these issues are primarily outside the scope of the . . . Contract and do not affect the enforceability of that contract." (Plf.'s Mem. of Law in Supp. of Mot. for Summ. J. at 7-8.)
Patrick disputes Scott's claim that he has fully complied with the Contract. In fact, he denies that the parties ever reached an agreement to transfer the stock at all. (Reply to Pl.'s Mot. for Summ. J. at 3.) In addition, he has brought a number of Counterclaims.
B. Patrick's Counterclaims
Counterclaim I seeks a declaratory judgment that the Contract is not a shareholder agreement within the meaning of RSA 293-A: 7.32. Counterclaim II seeks a declaratory judgment that by signing the Contract, Patrick did not waive any of his rights under the Bylaws, including but not limited to his right to call a special meeting of the Board to seek removal of Scott as president of ADI. Counterclaims III through IX seek rescission of the Contract on the ground that Scott has not complied with it. Counterclaim X alleges that Scott as a corporate officer failed to act in good faith while discharging his duties in violation of 293-A: 8.42, in that he failed to hold and attend annual meetings prescribed by the Bylaws of the company and by RSA 293-A: 7.01. Counterclaim XI alleges that Scott violated his duty of loyalty under RSA 293-A: 8.31 by engaging in a conflict of interest transaction when issuing to himself, without Board approval, a note from ADI in the amount of $517,515.40. Counterclaim XII alleges that Scott violated RSA 293-8:6.4 when issuing a personal loan in the amount of over $500,000 to himself without a declaration from the Board of Directors, because the loan was a constructive dividend. Counterclaim XIII seeks an order that Scott produce any and all corporate records to Patrick. Counterclaim XIV seeks judicial removal of Scott as a director of ADI in accordance with the provisions of RSA 293-A:8.09.
The gravamen of Patrick's Counterclaims is that the Contract was, in part, a mechanism by which the management of the company was to occur during the period of time before the transfer took place. He argues that while the Contract provided that Scott would have the authority to control the day-to-day operations of the business, the loans from ADI to Scott cannot be characterized as customary or within the scope of day-to-day business operations. Patrick posits that the Contract "set forth a scheme by which Company shares would be transferred from [Patrick] to [Scott] and further establishes the division of management authority." (Def.'s Mot. and Integrated Mem. of Law for Partial Summ. J. at 6.) Patrick argues that his "intent in entering into the agreement . . . was to maintain governing authority over the company as the majority shareholder and as a member of the board of directors." (Patrick Ryan Aff. ¶ 10.) He asserts that:
While the [Contract] arguably limits the Defendant's ability to call Board meetings and prohibits removal of the Plaintiff as President, it neither expressly or implicitly limits his authority as a Director nor circumscribes the authority of the Board to manage the Company's affairs beyond the day-to-day authority reserved for the Plaintiff. Just the opposite, the [Contract] appoints the Defendant as a Director and requires that an additional third Director be appointed (presumably to settle any impasse between the parties). Therefore, under any good faith interpretation, the [March 21 Contract] required the Plaintiff to call a board meeting and receive the requisite for approval, per the corporate Bylaws, if he desired to act
beyond his limited day-to-day authority. The Plaintiff never did so.(Def.'s Mot. Part. Summ. J. at 6) (emphasis in original).
The Court addresses the various claims as follows.
III. THE CONTRACT IS A BINDING AGREEMENT
In order to determine the pending motions, the Court must first analyze the effect of the agreement between the parties made at mediation on March 21, 2017. The Contract recites that it is an agreement for "sale of stock and resolution of past management disputes." Patrick argues in his Reply to Plaintiff's Motion for Summary Judgment that "the parties never fully negotiated the sale of stock in the [Contract]." (Def.'s Reply to Pl.'s Mot. for Summ. J. at 3.) Patrick admits that the agreement documents an agreement on price, sets out the conditions precedent to a potential buyout, and specifies that the sale will be effectuated by execution of promissory notes running from Scott and Whitney Ryan to Patrick and Michelle Ryan requiring monthly payments of $8,666.66 until such time as the full purchase price for the stock has been repaid. (Id.) He argues, however, that the Contract "left essential terms to be negotiated in the future," specifically (1) whether the note was to be a secured or unsecured promissory note, (2) if a secured note then what collateral would be accepted, and (3) what would occur in the event of default. (Id. at 3.) The Court disagrees.
Offer, acceptance, and consideration are essential to contract formation. Tsiatsios v. Tsiatsios, 140 N.H. 173, 178 (1995). But, while contracts must be definite to be enforceable, the standard of definiteness is one of reasonable certainty, and not pristine precision. Chisholm v. Ultima Nashua Industrial Corporation, 150 N.H. 141, 145 (2003). The important consideration is not whether the document is a "paradigm of draftsmanship" but whether its "general structure and specific provisions are reasonably clear." Panto v. Moore Business Forms, Inc., 130 N.H. 730, 733 (1988). The fact that some terms are not clear or specific or even complete does not mean that a contract does not exist. Chisholm, 150 N.H at 145. A contract which is not specific regarding financing terms may well be ambiguous, but the lack of such terms does not go to the validity of a contract. Whether or not the promissory note created as part of the Contract is secured or unsecured does not affect the validity of the Contract.
Patrick argues that the Contract is not a "Shareholder Agreement" within the meaning of RSA 293-A: 7.32. But, he does not point to any portion of the statute which would invalidate the Contract. RSA 293-A:7.32(a) specifically allows shareholders the freedom to structure the management of a corporation by altering the obligations and rights of Board members. The Contract was signed by both Patrick and Scott, and specifically limits Patrick's rights as a shareholder. (The Contract ¶ 8.) Patrick further argues that because the agreement was also signed by non-shareholders, Michelle Ryan and Whitney Ryan, the Contract is somehow unenforceable. He provides no authority for this proposition, and the Court is not aware of any.
IV. SCOTT'S MOTION FOR SUMMARY JUDGMENT AND PATRICK'S CROSS MOTION FOR SUMMARY JUDGMENT ON HIS COUNTERCLAIMS
In reviewing cross-motions for summary judgment, a court must consider the evidence in the light most favorable to each party in its capacity as the nonmoving party and, if no genuine issue of material fact exists, determine whether the moving party is entitled to judgment as a matter of law. Granite State Management & Resources v. City of Concord, 165 N.H. 277, 282 (2013).
The Court has found the Contract to be binding and enforceable. Consequently, the Parties' claims rest on whether a material fact exists regarding breach of the Contract. The Contract provides that Scott shall have an option to purchase and Patrick shall have an obligation to transfer the remaining 51 shares of stock in ADI. "In common parlance, the word 'shall' is 'used to express a command' or to 'signify something that is required or mandatory.'" Glick v. Chocura Forest Lands Limited Partnership, 157 N.H. 240, 249 (2008) (quoting Webster's Third New International dictionary 2085 (unabridged Ed. 2002)); see also McCarthy v. Wheeler, 152 N.H. 643, 645 (2005). As the Court noted in Dancart Co. v. St. Albans Rubber Co., 124 N.H. 598, 602 (1984) ("[W]hen 'shall' is contained in a term requiring action by a person identified, the word commonly does have a mandatory character."). Under these circumstances, if Scott complied with the terms of the Contract, Patrick would have, as Scott asserts, a legal obligation to transfer his 51 shares of ADI stock to Scott. Patrick has expressly refused to perform under the terms of the contract because, as he claims, Scott has failed to perform his duties under the Contract. If Scott has indeed materially breached the Contract, then Patrick is under no duty to perform._ Fitz v. Coutinho, 136 N.H. 721, 725 (1993).
There are several genuine issues of material fact as to whether the provisions regarding obtaining a life insurance policy, payment of health insurance, gas card and access to business records were breached. Patrick claims Scott has not complied with these terms of the Contract. First, Patrick points out that although the Contract provided that Scott shall "promptly purchase a $1,200,000 life insurance policy naming Patrick J. Ryan and Michelle T. Ryan as beneficiaries and keep such policy in effect until such time as the obligation set forth in paragraph 3 above has been fully satisfied," Scott did not obtain a new policy but provided coverage through an existing policy in April 2018, more than a year after execution of the agreement. Scott does not dispute this claim but states he was unable to obtain the additional policy. (Scott Ryan Aff. ¶ 17.) Therefore, to comply with the provision, Scott changed the beneficiary designation on his existing $1,500,000 policy to Patrick and Michelle Ryan as 80% beneficiaries and his wife as a 20% beneficiary. (Id.) Patrick argues that by failing to comply with the precise terms of paragraph 14 of the Contract, Scott "materially breached the contract." (Id. at 18.)
Second, Patrick argues Scott did not provide adequate financial reports to him. Patrick admits Scott provided him with profit and loss reports and balance sheets accurately reflecting income and expenses of ADI on a weekly basis as required by the Contract. However, he argues that Scott's refusal to answer follow-up questions constitutes a breach of the agreement.
Similarly, Patrick claims Scott has failed to provide for Patrick and Michelle Ryan's health insurance premiums as required by the Contract. He admits, however, that Scott mailed a check to Patrick's counsel on a monthly basis "even though counsel has indicated he is not authorized to accept them." (Def.'s Reply to Plf.'s Mot. for Summ. J. at 20.) He also admits that Scott provided him and his wife gas credit cards as required under the Contract. (Id.) But, he alleges that Scott refused to communicate with him as to what day of the month the per-month calculation began, so that he "could not properly budget for the use of this bargained for benefit." (Id.) He claims that "by refusing to provide this simple information, Plaintiff breached the contract." (Id.)
The Contract specifically provided that the parties "shall select a third member of the Board of Directors, by agreement, as soon as practicable." (The Contract ¶ 8.) The MOU, which is an exhibit to the Contract, contemplated that Robert Mucha would serve as the third member of the Board of Directors, but apparently he declined to do so. Although this provision of the Contract mandated that a third director be selected, it is not clear who had responsibility for selecting a third director. There is nothing in the record to indicate why a third director was never selected and neither party claims this provision of the contract was satisfied by the selection of a director who refused to serve.
The issue of whether the failure to select a third director was a material breach of the Contract by either party cannot be determined on summary judgment, because it goes to Patrick's central claim that Scott violated his fiduciary duties to the corporation, and to him, by causing loans to be made to him without Board of Directors approval. At the very least, corporate officers owe the Corporation a duty of care. RSA 293-A:8.42(a) (2). Corporate officers must act "in a manner the officer reasonably believes to be in the best interests of the corporation." RSA 293-A:8.42(a)(3). According to emails attached as an exhibit from ADI's accountants, the loans to Scott constitute distributions to pay Patrick for the shares of stock purchased from him. (Ex. F to Patrick Ryan Aff.) Loans to corporate officers may constitute dividends if at the time of the distribution the parties intend the loans will not be repaid. See, e.g., Crowley v. Internal Revenue Service, 962 F.2d 1077, 1078 (1st Cir. 1992). The record is silent on this issue. Moreover, the record is not clear on the extent to which these loans affect the viability of ADI.
Not every breach of the terms of a contract is a material breach. Whether a breach of a contract is material is a question of fact. Id. For a breach of contract to be material, it must go to the root or essence of the agreement between the parties, or be one which touches the fundamental purpose of the contract and defeats the object of the parties in entering into the contract. Foundation for Seacoast Health v. Hospital Co. of America, 165 N.H. 168, 181 (2013). The New Hampshire Supreme Court has stated that "[a] breach is 'material' if a party fails to perform a substantial part of the contract or one or more of its essential terms or conditions, the breach substantially defeats the contract's purpose, or the breach is such that upon a reasonable interpretation of the contract, the parties considered the breach as vital to the existence of the contract." Ellis v. Candia Trailers & Snow Equipment, 164 N.H. 457, 467 (2012) (emphasis omitted); see also Restatement (Second) of Contracts § 341 (1981).
The purpose of the Contract is set forth in its title; it is an "Agreement for Sale of Stock and Resolution of past Management." The agreement between the parties was plainly intended to provide for an orderly transfer of Patrick's ADI stock to Scott for fair remuneration, and ensure that Scott would be able to run the business, while protecting Patrick's interest in ensuring that the business continue so that he would be paid for his stock. Although these issues appear to be all ancillary to the "essence of the contract," there is also a genuine issue of material fact as to whether such breaches, if they exist, are material. Fitz v. Coutinho, 136 N.H. at 725. Finally, while damages are not an element of a breach of contract case, Restatement (Second) of Contracts § 347 (1981), Patrick has asserted no damages as a result of the alleged breach, and whether damage was caused by the alleged breach plainly goes to its materiality.
Considering the evidence in the light most favorable to the nonmoving party, the Court finds that many issues of material fact exist regarding whether or not Scott was in compliance with the Contract, and therefore both motions for summary judgment are DENIED.
V. SCOTT'S MOTION TO DISMISS PATRICK'S COUNTERCLAIMS
A. Scott's Motion to Dismiss Counterclaims III through IX
Scott has moved to dismiss Counterclaims III through IX because they seek rescission of the Contract. When considering a motion to dismiss, the Court must consider all evidence submitted as true, and "all reasonable inferences in the light most favorable to the petitioner," in this case Patrick. Elter-Nodvin v. Nodvin, 163 N.H. 678, 680 (2012). However, the court may consider documents sufficiently referred to in the pleadings. Beane v. Dana S. Beane & Co., 160 N.H. 708, 711 (2010).
Scott moves to dismiss counts III through IX on the ground that Patrick seeks rescission. Rescission is a remedy not a cause of action. Properly speaking, rescission is a form of restitution, and is available in certain circumstances as an alternative measure of damages. See generally J. Perillo, Corbin on Contracts § 61.3 at 22 (Rev. Ed. 2012). But, restitution is limited to cases in which the claimant will restore the defendant to the status quo ante. Restatement (Third) of Restitution and Unjust Enrichment § 37 (2011). As a general rule, if rescission would prejudice intervening rights of innocent third parties, the remedy will on that account be denied. Id. at 3 (c).
Patrick argues that he does not seek to rescind the entirety of the Contract, but merely that portion of the agreement which relates to sale of stock. The general rule is that a right to rescind applies to the whole contract and cannot be exercised as to a part only. Ellis v. Candia Trailers and Snow Equip., Inc., 164 N.H. 457, 462 (2012). Where partial rescission is allowed, it is founded upon the proposition that the contract is severable and for rescission purposes is to be regarding as embracing two or more contracts. Id; see also Pearson v. Baldwin, 81 N.H. 247, 249 (1924). --------
Scott has been operating ADI without input from Patrick since the Contract was executed, and ADI's financial situation is obviously very different since then. Approximately $500,000 of ADI's assets is now in the form of a loan to Scott. Patrick and Michelle Ryan have subsequently been released from their obligations as guarantors of ADIs line of credit, so rescission of the agreement would affect Michelle, a non-party to this action. Moreover, Patrick does not dispute that the rights of TD Bank, also a non-party, would be affected by rescission of the agreement. TD bank may well seek different terms from any new guarantor of ADI's line of credit. Patrick's requested remedy is an action for damages. Restitution would not be appropriate under the circumstances. Restatement (Third) of Restitution and Unjust Enrichment §§ 37, 54 (2011). To the extent Patrick seeks rescission as a remedy for the alleged breach, the Motion to Dismiss is GRANTED.
B. Scott's Motion to Dismiss Counterclaims X, XI and XII
Scott also moves to dismiss Counterclaims X and XI which assert, in substance, a breach of fiduciary duty and Counterclaim XII which seeks injunctive relief. Scott argues that Patrick may not make such claims directly because ADI is a closely held corporation and such a lawsuit must be brought as a derivative action. But, the New Hampshire Supreme Court has recognized that "the derivative/direct distinction makes little sense when the only interested parties are two individuals or sets of shareholders, one who is in control and the other who is not. In this context, the debate over derivative status can become purely technical." Durham v. Durham, 151 N.H. 757, 762 (2005), citing F. O'Neal and R. Thompson, O'Neal and Thompson's Close Corporations and LLCs: Law and Practice § 9-138-139 (3rd ed. 2004). The Motion to Dismiss these Counterclaims must be DENIED.
C. Scott's Motion to Dismiss Counterclaim XIII
Scott moves to dismiss Patrick's right to demand corporate records pursuant RSA 293-A: 16.02. Scott points out that RSA 293-A: 16.02 (a) grants shareholders the right to request access to a shareholder list if the shareholder gives the corporation a signed, written notice of the demand at least 5 days before the requested inspection date, and the request relates to a matter noticed for a shareholder meeting. Patrick fails to allege that he has complied with the essential elements of a shareholder's record request. Moreover, the Contract arguably limits his right to request specific records. The Motion to Dismiss Counterclaim XIII must be GRANTED without prejudice.
D. Scott's Motion to Dismiss Counterclaim XIV
Finally, Scott alleges that Patrick cannot not seek judicial removal of Scott as a shareholder because RSA 293-A: 80.09 provides that only the Superior Court of the County where the corporate principal office is located may remove a director of the corporation, and the principal office of ADI is in Cheshire County. Scott waived this claim by consenting to the jurisdiction of the Business and Commercial Dispute Docket. RSA 491:7-a. Accordingly, the Motion to Dismiss Counterclaim XIV must be DENIED.
SO ORDERED
9/18/19
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/