No. 01-4740-CCommonwealth of Massachusetts Superior Court Civil Action MIDDLESEX, ss.
January 24, 2003
Peter M. Lauriat, J.
MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
The defendants in this matter, Micromatic Products Co. Inc., d/b/a Precision Swiss Screw (“Micromatic”), Michael P. Contos (“Contos”), Archimedes Realty Trust (“Archimedes”), Pristine of Ward Hill Inc. (“Pristine”), and MPC Realty LLC (“MPC”) (collectively “the Defendants”), have moved for summary judgment on all counts of the Complaint filed by the plaintiff, Admiral Metals Servicenter Co. Inc. (“Admiral”), with the exception of Count I and Count II against Micromatic. Admiral action arises from a sale of goods by Admiral to Micromatic from July through September, 2001. Admiral has brought claims for breach of contract against Micromatic and Pristine (Count I); quantum meruit against Micromatic and Pristine (Count II); fraud against all Defendants (Count III); piercing the corporate veil (Count IV); fraudulent conveyance (Count V); violation of G.L. c. 93A against all Defendants (Count VI); violations of G.L. c. 156B, §§ 61 and 62 against Michael Contos (Count VII). For the following reasons, the Defendants’ summary judgment motion is allowed.
BACKGROUND
The following facts are undisputed. Admiral is a corporation with its principal place of business at 11 Forbes Street, Woburn, Massachusetts. Admiral is a supplier of uncut metal which it sells to purchasers, including Micromatic.
Micromatic a company that was last located at 3 Saber Way, Ward Hill, Massachusetts (“3 Saber Way”), was engaged in the fabrication of precision metal products, and was a supplier of precision cut metal products specially ordered by its customers. Contos was the President and Treasurer, as well as a shareholder of Micromatic.
Pristine was a co-tenant with Micromatic at 3 Saber Way and was in the business of auto body repair and automobile detailing. Contos was the President, Treasurer, and Clerk of Pristine.
MPC was a limited liability company located at 63 Neck Road, Haverhill, Massachusetts (“63 Neck Road”), and the owner of the property located at 3 Saber Way. Contos was the Manager and a signatory of MPC.
Contos resides at 9 Shadow Lane, Andover, Massachusetts. This property is owned by Archimedes Realty Trust. Contos is not a trustee or beneficiary of this trust; however, Contos’ wife, Ethel-Marie Contos (“Ethel-Marie”), is a trustee.
Admiral and Micromatic
Micromatic has been purchasing materials from Admiral for the past forty years without any personal guaranty or other assurances of payment. From July through September 2001, the authorized individual at Micromatic contacted Admiral to request the delivery of necessary inventory. Admiral provided the inventory in the ordinary course of business.
In July 2001, Micromatic’s check to Admiral was returned for insufficient funds. Admiral questioned Micromatic about the check and was assured that the bank had made an error and that Micromatic was not in financial distress.
On or about August 2001, Pristine had become indebted to Micromatic for amounts due from its occupancy of 3 Saber Way. At the request of Micromatic, Pristine made payments directly to Admiral as partial satisfaction of its indebtedness to Micromatic. Admiral received three payments from Pristine, dated August 23, 2001, August 30, 2001, and October 3, 2001, totaling $6,461.05.
On or about October 10, 2001, Micromatic was forced by its secured creditor to cease operations. On or about October 12, 2001, Contos advised a representative of Admiral about the closing of Micromatic. Micromatic then requested that Contos sign a personal guaranty which he refused.
At the time of the foreclosure, Micromatic owed Admiral $46,600.19, plus accrued interest of $2,796, for a total amount of $49,396.19. On October 31, 2001, Admiral filed this Complaint against Micromatic in order to recover the outstanding amounts due.
Transfer of Real Estate
On March 10, 1998, Micromatic conveyed property located at 3 Saber Way to MPC for nominal consideration. On March 18, 1999, Micromatic conveyed property located at 63 Neck Road to MPC, also for nominal consideration.
On February 28, 1991, Contos and his wife, Ethel-Marie purchased the real estate located at 9 Shadow Lane, Andover, Massachusetts (“Shadow Lane”). On August 20, 1999, Contos and Ethel-Marie transferred the Shadow Lane property to Archimedes, of which Ethel-Marie was trustee, for nominal consideration. On March 6, 2000, Archimedes transferred the Shadow Lane property back to Contos and Ethel-Marie for nominal consideration. On March 27, 2000, Contos and Ethel-Marie transferred the Shadow Lane property back to Archimedes for nominal consideration. On May 14, 2001, Archimedes transferred the Shadow Lane property back to Contos and Ethel-Marie for nominal consideration.
DISCUSSION
Summary judgment will be granted when there are no genuine issues as to any material facts and where the moving party is entitled to judgment as a matter of law. Mass.R.Civ.P. 56(c); Cassesso v. Commissioner of Correction, 390 Mass. 419, 422 (1983); Community Nat’l Bank v. Dawes, 369 Mass. 550, 553 (1976). The moving party bears the burden of affirmatively demonstrating the absence of triable issue, and that the summary judgment record entitles it to judgment in its favor as a matter of law. Pederson v. Times, Inc., 404 Mass. 14, 16-17 (1989). The moving party may satisfy this burden either by submitting affirmative evidence that negates an essential element of the opposing party’s case or by demonstrating that the opposing party has no reasonable expectation of proving an essential element of his case at trial. Flesner v. Technical Communications Corp., 410 Mass. 805, 809 (1991); Kourouvacilis v. General Motor Corp., 410 Mass. 706, 716 (1991).
I.
Count I of Admiral’s Verified Complaint alleges that Micromatic and Pristine breached a contract to pay for valuable goods. Micromatic does not ask the court to enter summary judgment on this count. However, Pristine does seek summary judgment in its favor on Count I.
Admiral relies upon the three checks received from Pristine to support its contention that Pristine breached a contract with Admiral. To prevail on this claim, Admiral must demonstrate either the existence of a contract between Admiral and Pristine, or that a novation was established which would substitute Pristine for Micromatic, thus making Pristine responsible for the outstanding amount. See Pagounis v. Pendleton, 52 Mass. App. Ct. 270, 273 (2001).
A contract is formed when there is an offer, acceptance, and consideration. It may be either oral or written. See City of Haverhill v. George Bronx, Inc., 47 Mass. App. Ct. 717, 720 (1999). An offer is a conditional promise given in exchange for “the offeror’s requested act, forbearance or return promise.” Heller Financial v. Insurance Co. of North America, 410 Mass. 400, 407 (1991), citing Restatement (Second) of Contracts § 24 (1979). Acceptance occurs through words, oral or written, performance, or refraining from performance of a specific act. See Hunt v. Rice, 25 Mass. App. Ct. 622, 627 (1988). Finally, consideration exists when there is either legal benefit to the promisor or detriment to the promisee. See Congregation Kadimah Toras-Moshe v. DeLeo, 405 Mass. 365, 366 (1989). Admiral has not provided any evidence to suggest that there was an offer, acceptance or consideration by Pristine to fulfill Micromatic’s obligations. Therefore, Admiral and Pristine never entered into a contract.
Furthermore, to prevail on a novation argument, Admiral must establish the existence of a novation. A novation is created when there is an agreement by the parties to allow for a different party to substitute for another party and to incur the responsibilities of that contract. Se Pagounis, 52 Mass. App. Ct. at 273. The novation exists once the creditor accepts the new debtor in full substitution for the former one, and completely releases the old debtor. Id.
Admiral has not provided any evidence of an agreement between Admiral, Micromatic and Pristine, to suggest that the three payments made by Pristine to Admiral, on behalf of Micromatic, created a novation. Therefore, there is no contract or novation, and Pristine is entitled to summary judgment on Count I.
II.
Count II of Admiral’s Verified Complaint is a claim in quantum meruit
alleging that Micromatic and Pristine received valuable goods and have not paid the outstanding amount on those goods. While Micromatic has not sought summary judgment on this claim, Pristine has requested that the court grant summary judgment in its favor.
To prevail on a claim for quantum meruit, Admiral must establish that it provided services in reliance upon compensation, and that Pristine accepted the services with the knowledge of Admiral’s reliance. See Green v. Richmond, 369 Mass. 47, 48-50 (1979). The court has concluded that Pristine never entered into a contract to purchase metals from Admiral, thus there was no reliance or acceptance of services. For these reasons, summary judgment is allowed for Pristine on Count II.
III.
Count III of Admiral’s Complaint alleges that all of the Defendants engaged in fraudulent acts. In particular, Admiral asserts that Micromatic falsely and fraudulently represented to Admiral in July 2001that Micromatic’s bank had made a mistake when it returned a check for insufficient funds in order to induce Admiral to sell metal products, and that after placing the order it had no intention in making the invoiced payments.
To prevail on a fraud claim, Admiral must establish that Micromatic made a false representation of fact in order to induce Admiral to act and that Admiral detrimentally relied on this representation. See Ravosa v. Zais, 40 Mass. App. Ct. 47, 52 (1996). As the party opposing summary judgment, Admiral must allege specific facts which would establish genuine issues of material facts. See Pederson v. Time. Inc., 404 Mass. 14, 17 (1989). Admiral has failed to do so.
Admiral’s fraud claim rests upon its assertion that Micromatic made a statement in July 2001 that the returned check for insufficient funds was a mistake, and that Admiral relied upon this statement when it agreed to continue to sell metals to Micromatic. However, Admiral has not provided any additional evidence to support its contention that Micromatic had knowledge of becoming insolvent, or that it was in fact insolvent when the parties entered into the agreement for metals. The only evidence produced is undisputed evidence that in October 2001, one of Micromatic’s creditors commenced foreclosure actions in which an outstanding amount remains to be paid to Admiral. Admiral relies solely upon these two facts along with information and belief to allege a fraud claim. However, information and belief are not sufficient to withstand summary judgment. See Polaroid Corp. v. Rollins Environmental Services (NJ), Inc., 416 Mass. 684, 696 (1993). The court concludes that there are not enough facts to establish fraud, therefore, Micromatic is entitled to summary judgment on Count III.
Additionally, Admiral’s fraud claim against Contos must fail. Admiral has not produced any evidence to supports its allegation that Contos, as President of Micromatic, was involved in any fraudulent activity, or to dispute Contos’ affidavit that he never made the arrangements to purchase materials for Micromatic. There is no evidence to suggest that Contos ever made any representation to Admiral, either directly or indirectly, regarding the insufficient funds. Furthermore, Admiral cannot solely rely upon Contos’ position as President to establish fraud because a corporate officer is only “liable for torts in which he personally participated . . . .” LaClair v. Silberline Manufacturing Co., Inc., 379 Mass. 21, 29
(1979). Therefore, Contos is entitled to summary judgment on Count III.
Admiral has also alleged that the Defendants, including MPC and Contos, as a beneficiary of Archimedes, engaged in fraudulent acts. However, Admiral has not cited any factual allegations, nor produced any evidence to support its fraud allegations against MPC and Archimedes. Therefore, MPC and Archimedes are entitled to summary judgment on Count III.
Finally, Pristine is entitled to summary judgment on Admiral’s claim of fraud. Admiral has failed to establish how Pristine making payments on behalf of Admiral constituted a fraudulent act. Pristine was never involved in contract negotiations with Admiral, nor was there ever a contractual relationship between Pristine and Admiral. Furthermore, Pristine never misrepresented its role in making the payments. Therefore, there was no inducement or reliance, thus no fraud.
IV.
Admiral asserts in Count IV of its Complaint that the corporate veil of Pristine, Micromatic, and MPC (collectively “the Contos Entities”) should be pierced to hold Contos and all of his entities responsible for any judgment against one of Contos Entities.
In order to pierce the corporate veil, Admiral must establish that:
“(1) there is active and pervasive control of related business entities by the same controlling person and there is a fraudulent or injurious consequence by reason of the relationship among those business entities; or (2) there is a `confused intermingling of activity of two or more corporations engaged in a common enterprise with substantial disregard of the separate nature of the corporate entities, or serious ambiguity about the manner and capacity in which the various corporations and their respective representatives are acting.'”
Evans v. Multicon Construction Corp., 30 Mass. App. Ct. 728, 733
(1991), quoting My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614, 620 (1968). In applying this standard the court must consider twelve factors:
“(1) common ownership; (2) pervasive control; (3) confused intermingling of business activity assets or management; (4) thin capitalization; (5) non-observance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends; (8) insolvency at the time of the litigated transaction; (9) siphoning away of corporate assets by the dominant shareholder; (10) nonfunctioning of officers and directors; (11) use of corporation for transaction of the dominant shareholder; [and] (12) use of the corporation in promoting fraud.”
Id., citing Pepsi-Cola Metropolitan Bottling Co. v. Checkers, Inc., 754 F.2d 10, 14-16 (1st Cir. 1985).
The court concludes on the record before it that Contos maintained common ownership between Micromatic, Pristine, and MPC. However, Admiral has failed to provide evidence of the remaining factors. In an attempt to prove confused intermingling, Admiral points out that Pristine made payments to Admiral on behalf of Micromatic, and Micromatic conveyed property to MPC. Yet, Admiral has not provided any additional evidence to support its allegation of confused intermingling. For example, all three of these businesses were engaged in separate activities from one another. See Evans, 30 Mass. App. Ct. at 734. Micromatic was involved in the fabrication of precision metal products and was a supplier of metal products. Pristine was in the auto-body repair business. Finally, MPC was in the realty business. Additionally, there is no evidence that Contos did not maintain separate tax returns or separate corporate and business records, nor is there any evidence that Contos obtained any other direct benefits. See id.
Furthermore, Admiral has supported its claim based upon “information and belief.” For example, Admiral asserts that “upon information and belief defendants were thinly capitalized.” Admiral further contends that the defendants refused to respond to document request regarding this factor.[1] Admiral continues to use the reason that Micromatic refused to answer discovery regarding non-observance of corporate formalities, absence of corporate records, insolvency at the time of the litigated transaction, siphoning-away of the corporate assets, and non-functioning of the corporation for transactions of the dominant shareholder. Admiral relies upon the proposition that the question of whether to pierce the corporate veil is fact-intensive. See Eldridge v. Provident Companies, Inc., No. 97-1294C, 2001 WL 13344, at *6 (Mass.Super. Jan. 4, 2001). However, for summary judgment, allegations must be supported by evidence and not upon information and belief. See Polaroid Corp., 416 Mass. at 696.
Therefore, Contos is entitled to summary judgment on Count IV.
V.
Admiral asserts in Count V of its Complaint that Micromatic’s transfer of 3 Saber Way and 63 Neck Road to MPC were fraudulent conveyances within the meaning and scope of G.L. c. 109A, §§ 5 and 6.
General Laws chapter 109A, section 5(a) provides:
“A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation . . . with actual intent to hinder, delay or defraud any creditor of the debtor; or without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor . . . was engaged in a business or a transaction for which the remaining assets of the debtors were unreasonably small . . . or intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.”
General Laws chapter 109A, section 6(a) provides:
“A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claims arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonable equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.”
In determining fraudulent intent at the time of transfer, there are a number of the court must consider a number of factors, including: “(1)actual or threatened litigation against the debtor; (2) a purported transfer of all or substantially all of the debtor’s property; (3) insolvency or other unmanageable indebtedness on the part of the debtor; (4) a special relationship between the debtor and the transferee; and (5) retention by the debtor of the property involved in the putative transfer.” Federal Deposit Insurance Corp. v. Anchor Properties, 13 F.3d 27, 32 (1st. Cir. 1994).
Applying these factors, there is no evidence of any fraudulent conveyances. On March 10, 1998, Micromatic conveyed 3 Saber Way to MPC. On March 18, 1999, Micromatic conveyed 63 Neck Road to MPC. Prior to these transfers, there was no actual or threatened litigation. In fact, the present litigation began several years later. Moreover, a year had passed between the conveyances of 3 Saber Way and 63 Neck Road. Finally, Micromatic became insolvent in October 2001 after a creditor commenced foreclosure proceedings. Admiral has not presented any evidence to suggest that in 1998 and 1999, Micromatic knew that it would become insolvent two years later.
Admiral contends that the conveyances were fraudulent because of Contos’ position as an officer with Micromatic and MPC, and the fact that the transfers were for nominal consideration. Although, Contos’ position with both Micromatic and MPC is a factor for the court to consider, it is not the ultimate factor. See Federal Deposit Insurance Corp., 13 F.3d at 32. Further, where there “is no fraudulent purpose and a conveyance is made upon some legal consideration . . . inadequacy of consideration [is] usually not . . . conclusive evidence of fraud.”Briggs v. Sanford, 219 Mass. 572, 574 (1914). Even though the transfer was made for nominal consideration, Admiral has not provided any evidence of fraud. Moreover, Micromatic did not become insolvent until 2 years later. Therefore, the court concludes that there were no fraudulent conveyances.
VI.
Admiral asserts in Count VI of its Complaint that the Defendants violated G.L. c. 93A, § 11, by engaging in unfair and deceptive act or practices. Admiral alleges that the unfair and deceptive acts occurred: (1) when Micromatic transferred 3 Saber Way and 63 Neck Hill to MPC; (2) when Micromatic made a misrepresentation to Admiral regarding the insufficient funds in order to induce Admiral to continue to sell product to Micromatic; and (3) by reason of Contos’ excessive debts and conversion of corporate assets. The court concludes that Admiral has not presented sufficient evidence to succeed on this claim.
First, Admiral has not produced any evidence to suggest that the payment owed to it was a result of fraud or deceptive acts by Micromatic. Admiral relies upon inferences and assumptions from the July 2001 conversation regarding insufficient funds and the non-payment of the invoice beginning in October. Generally, facts “underlying common law misrepresentations . . . are identical to those which underlie c. 93A claim founded on misrepresentation.” Acushnet Federal Credit Union v. Roderick, 26 Mass. App. Ct. 604, 608 (1988). See also Nickerson v. Matco Tools Corp., 813 F.2d 529, 531 (1st Cir. 1987). Since Admiral has failed to prove fraud and misrepresentation, it has also failed to prove unfair and deceptive acts.
Second, Pristine never entered into a contract or transaction with Admiral. Pristine’s involvement occurred when it made payments directly to Admiral on behalf of Micromatic. Without more, these payments are not enough for the court to conclude that Pristine participated in unfair or deceptive acts.
Third, Contos was not involved in the alleged fraudulent acts and is immunized as an officer from acts that he did not commit personally. Se Nader v. Citron, 372 Mass. 96, 102 (1977). The court has already concluded that Contos did not himself participate in fraud or misrepresentation, and without more, he did not violate G.L. c. 93A. Se McEvoy Travel Bureau, Inc. v. Norton Co., 408 Mass. 704, 713 (1990). Furthermore, Admiral has only relied upon information and belief to establish that Contos distributed and converted corporate assets. Therefore, the court concludes that Contos, individually, was not involved in fraud or misrepresentation, and Admiral’s G.L. c. 93A claim against him must also fail.
Finally, Admiral has not produced any evidence to suggest that the transfer of real estate involving MPC was unfair or deceptive. Therefore, MPC is also entitled to summary judgment on Admiral’s G.L. c. 93A claim.
VII.
Admiral alleges in Count VII of its Complaint that Contos as a corporate officer violated G.L. c. 156B, §§ 61 and 62, by taking excessive distributions and converting corporate assets of the Contos Entities, and he therefore was not acting in the best interest of the company. In support of this claim, Admiral cites G.L. c. 156B, § 65, which provides a general standard for officers and directors:
“A director, officer or incorporator of a corporation shall perform his duties as such, including, in the case of a director, his duties as a member of a committee of the board upon which he may serve, in good faith and in a manner he reasonably believes to be in the best interest of the corporation, and with such care as the ordinarily prudent person in a like position would use under similar circumstances.”
As with its other claims, Admiral relies upon information and belief to support this claim. Admiral repeatedly contends that Contos has refused to respond to discovery regarding his financial affairs and that this refusal creates a question of material fact. As previously noted, this contention is an improper basis for granting summary judgment. Se Polaroid Corp., 416 Mass. at 696. Therefore, Contos is entitled to summary judgment on Count VII because Admiral has failed to produce any evidence to support its claim against him.
ORDER
For the foregoing reasons, Defendants’ Motion for Summary Judgment isALLOWED. Admiral’s claims against Micromatic for breach of contract (Count I), and Quantum Meruit (Count II), as to which Micromatic did not seek summary judgment, shall be set for trial.
___________________________ Peter M. Lauriat Justice of the Superior Court
Dated: January 24, 2003