Opinion
NOCV20151432
04-17-2018
William DISCHINO et al.[1] v. DELANSON CIRCLE HOLDING, LLC et al.[2]
File Date: April 19, 2018
MEMORANDUM AND ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
Peter B. Krupp, Justice of the Superior Court
Plaintiffs, who are children and grandchildren of Robert L. Dischino ("Robert L."), seek to undo Robert L.’s transfer of his interests in properties in Wellesley to defendants Delanson Circle Holding, LLC and Central Street Holding, LLC (together, the "LLCs") shortly before his death in 2009. The dispute turns on the enforceability of a Transfer Restrictions agreement signed in 1987 by all of the owners or holders of an interest in the properties. The case is before me on cross motions for summary judgment. Because I find the Transfer Restrictions agreement to be unenforceable, I must allow the LLCs’ motion and deny plaintiffs’ cross motion.
BACKGROUND
During their lifetime, Damiano G. Dischino ("Damiano") and Erminia A. Dischino owned the properties at 23-25 Central Street, 53-61 Central Street, 1-3 Delanson Circle, and 8 Delanson Circle, all in Wellesley (together, the "Properties"). Damiano had three children, Robert L., Louise B. Touhey ("Louise"), and Lawrence J. Dischino ("Lawrence"). Upon Damiano’s death in 1967, part of the ownership of the Properties passed to his three children, while half of the principal of his estate was placed in a testamentary trust ("Damiano’s Trust"), with Robert L., as its trustee. The assets in Damiano’s Trust were to be distributed to the surviving children of Robert L., Louise, and Lawrence-i.e., to Damiano’s grandchildren-upon the deaths of Robert L., Louise, and Lawrence. Twenty years later, the Properties were still owned by Damiano’s descendants (children and some grandchildren) as tenants in common, with each owning a percentage of the whole.
The Properties are now quite valuable. In 2017, they were assessed in excess of $11 million.
In 1987, Robert L. had his attorney draft the now-disputed Transfer Restrictions agreement (the "TRA") with respect to the Properties. The TRA dated December 21, 1987, was prepared to "maintain[ ] the benefits derived from these properties among the decedents of the late Damiano G. Dischino and Erminia A. Dischino." The TRA was signed by Robert L., and each of his children; Louise, and each of her children; and each of Lawrence’s children. At that time, Robert L., Louise, and each of Lawrence’s children had a vested ownership interest in a percentage of the Property, and each of Robert L.’s and Louise’s children had a vested interest contingent upon their survival of their respective parent.
Probably should be "descendants."
Lawrence died in 1985, before the TRA was drafted. His ownership interest in the Properties had then vested in his children in equal shares.
The TRA is hardly a model of draftsmanship. It purports to give rights to "holders of an interest" in the Properties in one section, TRA ¶ 1, and to "owners" of the Properties in another, Id., ¶ 3; and seems to define an "owner" of an interest in the Properties as any person "having any property interest therein." Id. The order of the paragraphs is confusing, as are the mechanisms for implementation. The purpose of the TRA, however, is quite clear: to keep the Properties in the Dischino family as long as any family member is able and wants to own them. In relevant part, the TRA states:
In the event of any change in the ownership of any interest in any one of the above set forth properties (made or proposed) whether by the holder’s act or by death, legal disability, operation of law, legal processes, order of court, or otherwise except as to transfers by a holder of such interest to his or her spouse and/or issue, and/or between issue, including legally adopted children, the other holders of an interest in that said property or properties, as the case may be, shall have the right to purchase such interest in equal shares. If any one or more of the remaining holders of an interest in said property or properties elect not to participate in the acquisition the rest of the holders or holder, as the case may be, shall continue to have said rights to purchase as a group or individually if there be only one left desirous of acquiring the offered interest.Id., ¶ 1 (emphasis added). "In any such event, "-presumably referring to "any change in the ownership of any interest in" the Properties, whether "made or proposed"-"the owner of the interest concerned therein ... shall give notice thereof in detail satisfactory to the rest of the owners." The "other owners" then have ten days to "elect whether or not to exercise their said rights in respect to said interest and, if they elect to exercise them, shall give notice of their election." Id., ¶ 3.
The TRA sets the purchase price of any such interest at "the fair value thereof as determined by mutual agreement or, failing such agreement, by arbitration." Id., ¶ 2. The TRA provides a sparse procedure for arbitration before a panel of three arbitrators. Id., ¶ 3. While the arbitrators are to be named within 15 days, the TRA imposes no rules or schedule for the arbitrators to determine "fair value" other than that they are to "proceed promptly." Id. Once the parties agree, or the arbitrators determine, "fair value," the sale of the interest to an owner or holder of an interest in the Properties must be accomplished within 90 days. Id., ¶ 4. Only if all of "the remaining holder or holders of an interest in the property involved ... elect ... not to exercise their said rights, or fail[ ] to exercise them" within the 90 days, may the holder of the rights transfer his/her interest in the Properties to another purchaser or purchasers, "but only upon generally the same terms and conditions and at the same price as determined hereunder for a transfer to the parties in interest herein and if such transfer be consummated within ninety days thereafter any such event." Id., ¶ 5. Regardless of how the transfer is effectuated, or to whom, the TRA requires that "[a]ll transfers in any one of the above set forth properties shall be made only subject to these restrictions and any interest acquired therein shall be acquired only subject to these said restrictions." Id., ¶ 6.
On or about November 9, 2009, Robert L. transferred his ownership interest in the Properties on Central Street to defendant Central Street Holdings, LLC and his ownership interest in the Properties on Delanson Circle to Delanson Circle Holding, LLC. When he did so, he and his wife, Dorothy ("Dorothy"), controlled the LLCs; and Robert L. was the manager of both of the LLCs.
Robert L. died a month and a half later on December 20, 2009. Upon his death, the ownership portions of the Properties reserved in Damiano’s Trust for Damiano’s grandchildren through Robert L. passed to Robert L.’s surviving children or their issue, while the portion of the Properties Robert L. had owned continued to be owned by the LLCs.
Less than three months later, Dorothy died. Upon Dorothy’s death, Robert L.’s prior ownership interest in the Properties continued to be held by the LLCs. Trusts set up by Robert L. and Dorothy are members of the LLCs.
Plaintiffs have long known that Robert L. transferred his ownership interest in the Properties to the LLCs prior to his death. In September 2011, plaintiffs offered to purchase Robert L.’s interest in the Properties from the LLCs, asserting that Robert L.’s transfer of his interest in the Properties to the LLCs triggered certain rights under the TRA. The LLCs challenged plaintiffs’ assumptions and refused the plaintiffs’ offer.
The parties have also engaged in litigation in the Norfolk Probate and Family Court with regard to the management of the LLCs.
In November 2015, plaintiffs filed this action, seeking a declaration of the rights of the parties under the TRA and an order for specific performance of that agreement. The LLCs and the plaintiffs now cross move for summary judgment.
DISCUSSION
I. The Summary Judgment Standard
Summary judgment is proper where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. See Cassesso v. Commissioner of Corr., 390 Mass. 419, 422 (1983); Community Nat’l Bank v. Dawes, 369 Mass. 550, 553 (1976); Mass.R.Civ.P. 56(c). The moving party bears the burden of affirmatively demonstrating that there is no genuine issue of material fact on every relevant issue. See Pederson v. Time, Inc., 404 Mass. 14, 17 (1989). If the moving party does not bear the burden of proof at trial, the moving party may demonstrate the absence of a triable issue either by submitting affirmative evidence negating an essential element of the non-moving party’s case, or by showing that the non-moving party has no reasonable expectation of proving an essential element at trial. See Flesner v. Technical Commc’ns Corp., 410 Mass. 805, 809 (1991).
Once the moving party establishes the absence of a triable issue, the party opposing the motion must respond and allege specific facts establishing the existence of a genuine issue of material fact. See Pederson, 404 Mass. at 17. The court must consider the evidence presented in the light most favorable to the non-moving party. Mass.R.Civ.P. 56(c); Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991); Flynn v. Boston, 59 Mass.App.Ct. 490, 491 (2003).
In moving for summary judgment, the LLCs argue Robert L.’s transfer to the LLCs, which he and his wife controlled, did not trigger the rights of other interest holders in the Properties under the TRA; plaintiffs are equitably barred from bringing this action; the TRA is an unenforceable restraint on alienation; and plaintiffs do not have standing to challenge Robert L.’s transfer that occurred before they acquired a non-contingent interest in the Properties. Some of these arguments miss the mark or would only incompletely resolve the case. Accordingly, I address the central and dispositive question of whether the TRA is enforceable, which is the first issue presented by plaintiffs’ cross motion.
For example, Robert L.’s transfer of his ownership interest to the LLCs during his life clearly triggers the provisions of the TRA. Regardless of whether Robert L. and Dorothy controlled the LLCs at the time of the transfer or until their death, Robert L.’s transfer of his ownership interest in the Properties to the LLCs during his life was a "change in the ownership" of Robert L.’s interest, TRA ¶ 1, to "a separate legal entity," G.L.c. 156C, § 12(b), rather than the type of transfer permitted by the TRA to his "spouse and/or issue." TRA ¶ 1. Plaintiffs also have standing. Not only did they have a vested contingent interest in the Properties in 2009 before Robert L.’s death, but they are each signatories to the TRA. They therefore had a right to protect against violations of that agreement. See Trapp v. Roden, 473 Mass. 210, 219 (2015) ("When a party is a signatory to a contractual agreement, a breach of contract is an injury sufficient to confer standing").
Some of the non-LLC defendants also reasonably seek a declaration about the validity and enforceability of the TRA.
II. Restraint on Alienation
Massachusetts law recognizes a strong public policy against "unreasonably long restrictions on the alienability of land." Certified Corp. v. GTE Products Corp., 392 Mass. 821, 825 (1984). Accord Fisher v. Fisher, 23 Mass.App.Ct. 205, 207 (1986). However, "[r]easonable restraints on alienation may be enforced." Franklin v. Spadafora, 388 Mass. 764, 766 (1983). The following factors generally will tend to support the reasonableness of such a restraint:
1. the one imposing the restraint has some interest in land which he is seeking to protect by the enforcement of the restraint; 2. the restraint is limited in duration; 3. the enforcement of the restraint accomplishes a worthwhile purpose; 4. the type of conveyances prohibited are ones not likely to be employed to a substantial degree by the one restrained; 5. the number of persons to whom alienation is prohibited is small.Id., quoting Restatement of Property § 406, comment i (1944). "None of these factors is determinative, nor is the list exhaustive. Each case must be examined in light of all the circumstances." Franklin, 388 Mass. at 766.
In connection with tenancies in common, Massachusetts courts have "upheld and enforced testamentary provisions prohibiting or postponing partition for a reasonable period of time" and recognized that "a tenant in common may bind himself by agreement from asserting any right to partition, and that such an agreement if extending for only a reasonable time is not contrary to public policy and operates by way of waiver or estoppel to prevent the maintenance of partition proceedings." Roberts v. Jones, 307 Mass. 504, 506 (1940) (emphasis added, citations omitted). Accord Pacelli v. Pacelli, 2016 WL 6465328 at *6 (Land Ct. Oct. 28, 2016) (Sands, J.). In Roberts, the Court refused to enforce a cumbersome mechanism for tenants in common to buy out the other’s interest, finding it to be an unreasonable restraint on alienation and for an unreasonable period of time.
The provision in question in Roberts stated: "In the event that either party hereto desires to sell or otherwise dispose of their interest in the said property, then that party shall first offer to sell to the other party, and the other party being unwilling to accept such offer, then the party desiring to sell shall procure a bona fide purchaser, and the other party shall then have 30 days in which to either: (a) Accept said purchaser under the same terms and conditions as the parties hereto may be bounden at the time being, (b) or purchase themselves at the price said purchaser has agreed upon, (c) or offer to sell his share also at the same or lessor [sic] price, in which event the party desiring to sell may, (1) Either by at that price and sell to another party, (2) Procure a second purchaser for that other’s share, (3) Or. have the original purchaser buy both shares." 307 Mass. at 505.
In this case, the TRA purports to impose a restraint in perpetuity. Under the TRA, the restraint on alienation is of unlimited duration, not unlike the one at issue in Roberts; applying even after an interest in the Properties is transferred to a stranger to the TRA. TRA ¶ 6. The TRA’s buyout mechanism is supposedly triggered when "any change in the ownership of any interest in" any of the Properties is "made or proposed." TRA ¶ 1. It is therefore not simply triggered by an owner receiving a bona fide offer to purchase the owner’s interest in the Properties. The TRA also imposes a cumbersome mechanism for determining the "fair value" for an interest in the Properties, which may not necessarily equal or exceed any offered price for the interest (if any offer was received). While the notion of "fair value" referenced in ¶ 2 of the TRA may take into account an offered price, depending on the circumstances, the owner seeking to divest his/her interest in the Properties is not assured of receiving the amount offered as the "fair value" under the mechanism established in the TRA. Such restraint on alienation is unreasonable, and the TRA is therefore void and unenforceable under the rationale of Roberts.
Plaintiffs rely principally on Bortolotti v. Hayden, 449 Mass. 193 (2007), which addressed the enforceability of a right of first refusal of indefinite duration. The facts of that case are quite different from the situation the parties face here. In Bortolotti, the executors of the decedent’s will recorded a deed to a parcel of land to the grantee, "reserv[ing] to the grantor’s heirs, executors, administrators, and assigns, a preemptive right to purchase the property on the same terms and conditions contained in any bona fide offer received by, and acceptable to, the grantee, his heirs, executors, administrators, and assigns." 449 Mass. at 194. The document required the grantor’s heirs, executors, administrators, and assigns to exercise the right of first refusal by agreeing to match the bona fide offer within 20 days of being notified of the offer.
The Court in Bortolotti ruled the specific right of first refusal at issue there was not an unreasonable restraint on alienation. The Court found that it created only "a de minimis restraint on the alienation of property" because it "involves neither a fixed price nor a long period during which the holder of the right can choose to purchase"-either of which "would burden the property by discouraging bona fide offers or, alternatively, making an owner unwilling to sell." Id. at 204.
In contrast to Bortolotti, the right of first refusal (if it can be called that) at issue here is not at an offer price, but at a "fair value" price to be set (assuming the parties do not agree) through an arbitration of uncertain duration; and thereafter must be exercised by a holder of an interest in the Properties within 90 days, or if no holder of an interest in the Properties decides to purchase the interest, then the TRA still imposes time constraints and purchase price conditions on the transfer of the interest to a third party. These conditions constitute far more significant restrictions on alienation than at issue in Bortolotti.
More importantly, and although not specifically addressed in Bortolotti, the right of first refusal in Bortolotti was a "one-off," a single right of first refusal burdening only a single owner. The grantor’s descendants had a single right to purchase the parcel from the grantee or his descendants when and if they decided to sell. If the right was not exercised, it expired. Here, in contrast, the TRA purports to continue in perpetuity and burdens alienation by quite a number of separate owners. If an owner of an interest in the Properties transferred his/her interest to a third-party, the third party would take the interest subject to the restrictions in the TRA and would still have to give the relevant Dischino family members notice if the third party made or proposed a transfer of the third-party’s interest in the Properties. Such a restraint is unreasonable in duration and unenforceable.
ORDER
Defendants Delanson Circle Holding, LLC and Central Street Holding, LLC’s Motion for Summary Judgment (Docket # 26.0) is ALLOWED, and Plaintiffs’ Cross Motion for Summary Judgment (Docket # 26.2) is DENIED. It is further DECLARED and ADJUDGED as follows: The Transfer Restrictions agreement dated December 21, 1987 is void and unenforceable. Final judgment shall enter accordingly.