AB BONNIERFORETAGEN vs. ARTHUR M. HARRISON, and another[1]

No. 92-0056-DCommonwealth of Massachusetts Superior Court CIVIL ACTION MIDDLESEX, ss.
September 4, 1996

[EDITOR’S NOTE: This case is unpublished as indicated by the issuing court.]
[1] Robert Marc Desmond.

MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

NEEL, JUSTICE.

The plaintiff corporation, AB Bonnierforetagen (“Bonnier”), brought this action and a subsequent “counterclaim” against the defendants Arthur M. Harrison (“Harrison”) and Robert Marc Desmond (“Desmond”), seeking enforcement of a foreign judgment and a $1 million indemnity clause. The defendants have responded with counterclaims alleging breach of contract and fraud. Each of the parties’ claims arise out of interim agreements reached during the course of negotiations for the sale to the defendants of certain corporations owned by Bonnier. The matter is before the Court on Bonnier’s motion for summary judgment as to all claims. For the reasons set forth below, Bonnier’s motion is allowed in part, and denied in part.

BACKGROUND
The following facts are undisputed.

The plaintiff Bonnier is a Swedish corporation which in 1990 owned a holding corporation known as the Dental Group B.V. (“Dental Group”). Dental Group, in turn, owned subsidiaries in France, Germany, Scandinavia, and England. The subsidiaries were and continue to be engaged in the sale of dental supplies through mail order.

On October 23, 1990, the parties executed a Memorandum of Understanding (“MOU”) in which the defendants stated their intent to purchase the Dental Group or its subsidiaries (collectively, “Group of Companies”) through a share purchase agreement, subject to certain terms and conditions: (1) the defendants were required to provide a “comfort letter” to Bonnier by November 12, 1990, evidencing that the defendants had “the financial strength to enter into and fully honour the aforesaid Share Purchase Agreement”; (2) the defendants had an exclusive right to buy the French subsidiary, Promodentaire SARL (“Promodentaire”) up to November 12, 1990 and the rest of the Group of Companies up to December 1, 1990; (3) the MOU would be void unless the parties executed an agreement no later than December 1, 1990; and (4) the MOU would be governed by the laws of England.[2] Nothing in the MOU precluded Bonnier from negotiating with other parties.

On November 12, 1990, the parties executed a document amending various provisions in the original MOU (“Amendments to MOU”). In particular: (1) November 26, 1990 replaced November 12, 1990 as the deadline by which defendants were to provide a “comfort letter” evidencing their financial ability to consummate the transaction; (2) the defendants were required to give Bonnier an irrevocable standby letter of credit for $1 million; (3) if defendants provided the letter of credit by November 26, 1990, (a) the deadline for a definitive agreement would be December 15, 1990, rather than December 1, and (b) defendants would have the exclusive right through December 15, 1990 to acquire the Group of Companies and, during that same period, Bonnier would be precluded from negotiating with others for the sale of those subsidiaries; (4) if defendants did not provide the letter of credit by November 26, 1990, defendants’ exclusive right to purchase the Group of Companies would run only until December 1, 1990, their exclusive right to buy Promodentaire would run only until December 7, 1990, and Bonnier would be free to negotiate with third parties for the sale of those entities beginning November 27, 1990; and (5) if, in addition to failing to give Bonnier a letter of credit by November 26, 1990, defendants failed to consummate the purchase of either Promodentaire or the Group of Companies by December 15, 1990, defendants would be obligated to pay “an indemnity” to Bonnier in the amount of $1 million.[3]

On November 26, 1990, Bonnier received a letter from Lawrence J. King (“King”), president of Saugus Bank and Trust Company in Massachusetts, indicating his respect and admiration for Desmond. With respect to the proposed purchase and sale agreement with Bonnier, King stated “[Desmond] has made me aware of the proposed transaction he is considering in Europe and I am happy to recommend him to you. He has an ability to close the transaction as I understand it.” Following receipt of the King letter, the parties continued to negotiate the sale of the Group of Companies.

On December 13, 1990, Bonnier presented Desmond with a proposed comprehensive agreement (“Main Agreement”), which provided for the sale of the Group of Companies to the defendants on December 21, 1990. Desmond reviewed the draft, objected to two of the terms therein, and negotiated a compromise with Bonnier as to each. Desmond declined to execute the Main Agreement, however, until his attorneys had had an opportunity to review it. Bonnier and Desmond instead executed a document stating that the parties had “reached an understanding re. the sale of the Group of Companies listed in Enclosure 1” (“Understanding”). The document stated that the “understanding is i.e. [sic] subject to the following provisions.” One of the provisions required the defendants to give, no later than 5:00 p.m. Stockholm time on December 19, 1990, evidence to Bonnier’s satisfaction of sufficient bank financing to purchase the Group of Companies.

Bonnier did not receive from the defendants the required evidence of bank financing by 5:00 p.m on December 19, 1990. On December 17, 1990, Bonnier reopened negotiations with GACD. After 5:00 p.m. on December 19, 1990, Bonnier consummated the sale of Promodentaire to GACD for $1.5 million. Between August and the end of 1993, Bonnier sold the remaining subsidiaries to other parties.

On December 28, 1990, the defendants filed a lawsuit against Bonnier in Sweden for breach of contract. The Stockholm District Court ordered Desmond and Harrison to post bond as security for legal costs, which they failed to do. On June 14, 1991, the Swedish Court dismissed the action and assessed costs against the defendants in the amount of Swedish Krone (“Skr”) 137,000 plus interest from the date of judgment. Based upon the exchange rate of Skr 5.5865 per U.S. dollar as of the time of the filing of Bonnier’s Complaint, the dollar equivalent of the Swedish judgment was $24,523.40. The rate of post-judgment interest under Swedish law is set by statute at fifteen percent.

DISCUSSION
Summary judgment shall be granted where there are no genuine issues as to any material fact and where the moving party is entitled to judgment as a matter of law. Cassesso v. Commissioner of Correction, 390 Mass. 419, 422 (1983); Community National Bank v. Dawes, 369 Mass. 550, 553 (1976); Mass.R.Civ.P. 56(c). The moving party bears the burden of affirmatively demonstrating the absence of a triable issue, “and [further] that the moving party is entitled to judgment as a matter of law.” Pederson v. Time, Inc., 404 Mass. 14, 16-17 (1989). A party moving for summary judgment who does not have the burden of proof at trial, may demonstrate the absence of a triable issue either by submitting affirmative evidence that negates an essential element of the opponent’s case or “by demonstrating that proof of that element is unlikely to be forthcoming at trial.” Flesner v. Technical Communications Corp., 410 Mass. 805 (1991), accord, Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991). “If the moving party establishes the absence of triable issue, the party opposing the motion must respond and allege specific facts which would establish the existence of a genuine issue of material fact in order to defeat [the] motion.” Pederson, supra at 17. “[T]he opposing party cannot rest on his or her pleadings and mere assertions of disputed facts to defeat the motion for summary judgment.” LaLonde v. Eissner, 405 Mass. 207, 209 (1989).

A. Bonnier’s claims 1. The Swedish judgment
General Laws c. 235, § 23A requires this Court to enforce the judgment of a foreign court, except as provided in the statute. The defendants make no claim that any of the exceptions provided in the statute apply in this case. Accordingly, Bonnier’s motion for summary judgment on its claim under the Swedish judgment is allowed.

2. The indemnity clause
Under the Amendment to MOU, if defendants failed to provide a letter of credit by November 26, 1990, and if the sale of the French subsidiary, Promodentaire, or the entire Group of Companies was not concluded by December 15, 1990, the defendants were required to indemnify Bonnier in the amount of $1 million. The defendants maintain that plaintiff’s motion for summary judgment should be denied because the indemnity clause represents an unenforceable penalty rather than liquidated damages, and because it was procured through a fraudulent misrepresentation.

“One who has relied on a misrepresentation as to a material fact, intentionally made and knowingly false, is entitled to rescission of the disputed transaction.” Cherry v. Crispin, 346 Mass. 89, 92 (1963). In this case, the defendants have submitted affidavits that Bonnier represented to them that a third party, GACD, had offered $1 million more for Promodentaire than the defendants had been willing to pay. The defendants further attest that they relied upon this representation when they agreed to the $1 million indemnification provision in the Amendment to MOU. Subsequently, defendants allege, they learned from GACD’s president that GACD had offered only $800,000 and not $2 million for Promodentaire. The defendants’ affidavits give rise to an issue of fact as to whether Bonnier induced the defendants’ agreement to the indemnity clause by means of a fraudulent representation.

Apart from the misrepresentation issue, there remains an issue whether or not the “indemnity” clause is for liquidated damages, or constitutes an unenforceable penalty. Accordingly, Bonnier’s motion for summary judgment on its claim under the indemnification clause of the Amendment to MOU is denied.

B. The defendants’ counterclaims 1. Breach of contract
The defendants contend that Bonnier breached the interim agreements by negotiating with GACD for the sale of Promodentaire, completing the transaction with GACD, and refusing to sell any of the remaining companies of the Group of Companies to the defendants. It is undisputed that the laws of England control at least the MOU and the Amendment to MOU. While the Court refers, when necessary, to the English caselaw and the affidavit testimony of experts in English law presented by both parties, the Court primarily relies on the plain language of the interim agreements in determining the parties’ rights.

a. The Amendment to MOU
The Amendment to MOU prohibited Bonnier from entering into negotiations regarding the sale of any of the Group of Companies with any party other than the defendants until December 15, 1990, unless the defendants failed to meet certain conditions. Specifically, if the defendants failed to provide a $1 million letter of credit by November 26, 1990, then Bonnier was free to negotiate with other parties concerning the sale of Promodentaire after December 7, 1990, and sale of the other subsidiaries after December 1, 1990. The defendants argue, inter alia, that Bonnier had agreed to remove the letter of credit requirement after the defendants discovered that Bonnier had procured the provision by allegedly fraudulent means. A Second Amendment to MOU memorializing this oral agreement was drafted by the defendants and sent to Bonnier, but Bonnier never signed it.

This Court need not determine whether the parties had entered into a binding agreement to remove the letter of credit provision, or whether Bonnier’s alleged fraud invalidates the letter of credit provision. Even if defendants had provided a timely letter of credit (or were relieved of any obligation to do so), it is undisputed that the period of time during which Bonnier was required to negotiate exclusively with the defendants under the Amendment to MOU lasted until December 15, 1990 at the latest. Bonnier has submitted affidavits stating that it did not reopen negotiations with GACD until after that time. The defendants have presented no evidence to the contrary which complies with the requirements of Rule 56, Mass.R.Civ.P. Accordingly, there is no basis for finding that Bonnier breached the Amendment to MOU, and the motion for summary judgment is allowed as to so much of Count I of the counterclaim as alleges such a breach.

b. The Main Agreement and the Understanding
The defendants contend that the parties reached a binding agreement for the purchase and sale of the Group of Companies, that this agreement is memorialized in the unexecuted Main Agreement subject to the conditions provided in the Understanding, and that Bonnier breached this agreement by selling Promodentaire to GACD and refusing to sell the other subsidiaries to defendants. Bonnier denies that any such agreement was reached, noting that the Main Agreement was not executed. Bonnier maintains that the Understanding merely listed the conditions under which it would be willing to sell the Group of Companies to defendants, but in no way precluded Bonnier from selling to other parties or obligated it to sell to the defendants.

Bonnier’s expert in English law, Justin Ede, describes the applicable law of England as follows:[4] “While English law allows oral contracts, whether an unsigned memorandum or oral agreement is binding depends on what the parties intended.” Ede continues:

If two negotiating parties intended that an agreement would be recorded in a written document, it is necessary to examine the parties’ intentions to determine whether this was a prerequisite for an agreement or a mere formality. There are two alternatives; either any agreement reached between the parties was to be regarded as incomplete and not intended to be legally binding until the terms of a formal document were agreed and duly executed, or it was intended only as a solemn record of an already complete and binding agreement.[5]

Bonnier drafted the Main Agreement, and was therefore presumably in agreement with its terms. There is evidence that Desmond substantially agreed to the terms of the Main Agreement and declined to sign it only because he felt it prudent to have his attorneys review it. While the parties did not execute the Main Agreement, they did execute the Understanding, which stated that “[t]he parties [had] negotiated . . . the main features of a definitive agreement.” These facts are sufficient to raise an issue whether, notwithstanding the absence of a formal written and signed contract, the parties had reached an agreement regarding the sale of the Group of Companies, and intended to be bound by that agreement. The record before the Court also raises factual issues as to whether defendants’ conduct constituted a breach of any such agreement sufficient to excuse Bonnier from performing. Accordingly, the motion for summary judgment, as to so much of Count I of the counterclaim as alleges breach of the Main Agreement and Memorandum of Understanding, is denied.

2. Fraud
The burden of proving fraud by a preponderance of the evidence rests on the party so alleging. Cereghin v. Giannon, 247 Mass. 319 (1924). “To sustain a claim of misrepresentation, [the defendants] must show a false statement of a material fact made to induce the [defendants] to act, together with reliance on the false statement by the [defendants] to the [defendants’] detriment.” Zimmerman v. Kent, 31 Mass. App. Ct. 62, 77 (1991).

The defendants’ counterclaim for fraud alleges that Bonnier had represented to the defendants that it would sell them the Dental Group and the Group of Companies, and that it would deal exclusively with the defendants. The defendants further allege that Bonnier had no intention of keeping these promises when it made them, that Bonnier made these representations with the intent of inducing the defendants into entering into negotiations, and that the defendants relied to their detriment upon these representations.

As noted above, defendants can demonstrate no right to exclusivity of negotiations with Bonnier prior to December 13, 1990, at which time they allege that they reached agreement with plaintiff on all significant terms of their purchase of the Group of Companies. Plaintiff’s alleged negotiations with third parties thereafter, and its intent in conducting such negotiations, are issues of fact which the Court at this stage is not prepared to say are immaterial to defendant’s claim of fraud. Accordingly, the plaintiff’s motion as to Count II of the counterclaim is denied.

ORDER
For the foregoing reasons, it is hereby ORDERED that the plaintiff AB Bonnierforetagen’s motion for summary judgment as to its complaint (claiming under the Swedish judgment) is ALLOWED, and as to its counterclaim (to enforce the indemnification clause of the Amendment to MOU) is DENIED; and that the plaintiff’s motion for summary judgment as to the defendants Arthur M. Harrison’s and Robert Marc Desmond’s counterclaims of breach of contract and fraud is ALLOWED as to so much of Count I thereof as alleges breach of the Amendment to MOU, and is otherwise DENIED.

Stephen E. Neel Justice of the Superior Court

Dated: September 4, 1996

[2] Article 6 of the MOU provided: “Buyer shall as soon as possible and no later than November 12, 1990 provide Seller with sufficient evidence (a comfort letter) that it has the financial strength to enter into and fully honour the aforesaid Share Purchase Agreement.”

Article 8 provided: “Buyer shall have the exclusive right to buy and Bonnier and Seller undertakes not to transfer the shares in the Company up to November 12, 1990 for the shares in or the assets of [Promodentaire] and up to December 1, 1990 for the rest of the Group of Companies to any other party than foreseen in this understanding.”

Article 11 provided: “In the absence of a concluded share purchase agreement before or on December 1, 1990 this agreement in its entirety is null and void without any claims from either party to this understanding.”

Article 12 provided: “This understanding is governed by the laws of England.”

[3] Paragraph C of the Amendments to MOU provided: “Messrs. Desmond and Harrison shall provide Bonnier with an irrevocable standby letter of credit issued by a bank located in Boston, Massachusetts, United States of America, in the amount of U.S. $1,000,000. Such letter of credit shall be payable to Bonnier no earlier than December 15, 1990 and no later than December 24, 1990 in accordance with its terms only upon receipt by the issuing bank of a written certificate signed by Bonnier, certifying: (I) that there have been negotiations in good faith by Bonnier and (ii) that there has been no material breach of representations and warranties or other failure to satisfy any condition to closing by the Seller . . . and (iii) that neither one of the following events has occurred on or before December 15, 1990: (A) a closing has occurred at which the Buyer . . . has purchased [Promodentaire] for a total purchase price of U.S. $2,000,000 . . .; or (B) a closing has occurred at which the Buyer . . . has acquired some or all of the [Dental Group] and all of the Group of Companies . . . .”

Paragraph F of the Amended MOU provided: “With reference to Article 4 of the MOU [setting December 15, 1990 as the Transfer Date], by signing this Amendment and Clarification to MOU, Bonnier acknowledges and confirms that the conditions referenced therein to be satisfied by the Buyer no later than November 12, 1990 [resolving the acquisition of Promodentaire] shall be deemed fulfilled and satisfied in full provided that the letter of credit referred to in paragraph C of this Amendment and Clarification to MOU is issued by . . . November 26, 1990 . . . to Bonnier. . . .

“In the absence of such aforesaid receipt by Bonnier of the letter of credit by . . . November 26, 1990 . . ., paragraph G below is null and void and replaced by Article 8 in the MOU, as amended by the following sentence. In such case, Messrs. Desmond and Harrison shall have the exclusive right to purchase the entire Group of Companies until December 1, 1990 and the exclusive right to purchase Promodentaire SARL until December 7, 1990, and if neither . . . transaction . . . is concluded on or before December 15, 1990, Messrs. Desmond and Harrison shall pay an indemnity to Bonnier in an amount equal to U.S. $1,000,000.

“With reference to Article 6 of the MOU [regarding the comfort letter], it is agreed that the date for satisfaction of the conditions referenced therein to be satisfied by the Buyer shall be extended from November 12, 1990 to 5:00 p.m. (Stockholm time) on Monday, November 26, 1990.”

Paragraph G provided: “With reference to Articles 5, 7 and 11 of the MOU, the date by which a definitive Agreement for the purchase of the Group of Companies shall be signed . . . shall be changed from December 1, 1990 to December 15, 1990. With reference to Article 8 of the MOU, the Buyer shall have the exclusive right to buy, and Bonnier undertakes not to negotiate with or transfer to any other party, the Company [the Dental Group] and the Group of Companies (including without limitation Promodentaire SARL and the French operations) for the period of time through and including December 15, 1990.

[4] The defendants have also presented an affidavit of their own expert in English law, John Hawkins. After reviewing both British law and analogous Massachusetts law, the Court is of the opinion that Bonnier’s expert provides the more accurate description of those circumstances in which parties may be bound by an oral or unexecuted agreement, despite their intent to execute a formal written document at a later date.
[5] Massachusetts law appears to be generally consistent. In Massachusetts, “the fact that parties contemplate the execution of a final written agreement justifies a strong inference that the parties do not intend to be bound by earlier negotiations or agreements until the final terms are settled.” Rosenfield v. United States Trust Co., 290 Mass. 210, 216 (1935). However, “[i]f all the material terms which are to be incorporated into a future writing have been agreed upon, it may be inferred that the writing to be drafted and delivered is a mere memorial of the contract, which is already final by the earlier mutual assent of the parties to those terms.” Id. at 216. “[E]ven where a writing is contemplated by the parties, if sufficient evidence exists to show that an oral contract has been entered into, the parties’ intention to memorialize the contract in writing does not defeat the existence of an oral contract.” Chedd-Angier Production v. Omni Publications Int., 756 F.2d 930, 935 (1st Cir. 1985). See also Goren v. Royal Investments Inc., 25 Mass. App. Ct. 137, 140-141
(1987).
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