Opinion
CV186077340S
06-19-2019
Valerie J. THURSTON (Individually) and Valerie J. Thurston as Trustee v. THURSTON ASSOCIATES, LLC et al.
UNPUBLISHED OPINION
Wilson, J.
FACTS
The plaintiffs, Valerie J. Thurston (individually) and Valerie J. Thurston as trustee for the William D. Thurston, Jr. Amended and Restated Revocable Trust Indenture (trust), commenced this action against the-defendants, Thurston Associates, LLC (Thurston Associates) and Thurston Foods, Inc. (Thurston Foods), on January 24, 2018. In their four-count complaint, the plaintiffs allege that the defendants in November 2017 each failed to make full, scheduled payments to the trust as required by two promissory notes.
Before the court presently is the defendants’ motion to stay pending arbitration. At issue are a stock redemption agreement, which was subsequently amended, and two promissory notes. The plaintiffs argue that this action is premised on the promissory notes, which do not contain arbitration clauses, while the defendants argue that the agreement’s arbitration clause applies.
The first document is the Thurston Foods stock redemption agreement (agreement), which was entered into between the corporation and its shareholders on June 6, 1994. It provides that, upon the death of a stockholder, Thurston Foods is to buy the deceased stockholder’s stock in the corporation. The agreement’s underlying purpose is to guarantee a market and fair value for the sale of a deceased stockholder’s stock but also to restrict potential sales by the deceased stockholders’ legal representatives. Paragraph 4(b) of the agreement provides the corporation with two options in buying back a deceased stockholder’s stock: (i) it can pay the entire balance in cash at closing; or (ii) it can pay ten percent in cash at closing and execute a promissory note payable in forty equal, quarterly installments for the balance.
The agreement was signed by William D. Thurston, Jr., Valerie J. Thurston’s late husband.
The agreement also contains modification provisions that could affect the parties’ rights and responsibilities. For example, paragraph 1(b) allows the children of a deceased stockholder to repurchase the deceased stockholder’s stock from Thurston Foods upon reaching a certain age and service milestone with the corporation. Paragraph 7(b) provides that the corporation is not obligated to redeem stock in excess of $100,000 in one year; if the corporation’s obligations exceed $100,000 in one year, payments are to be reduced and the term of the payout extended.
The parties amended the agreement on February 22, 2010. The amendment increased the corporation’s maximum yearly stock obligations to $500,000. The amendment, inter alia, also added a new provision, paragraph 4(d), which provides that the transferring stockholder is to be paid the difference if the corporation resells the stock within two years of closing for a higher price than it paid.
The amendment was signed by the plaintiff Thurston, as executrix. The amendment provides that the provisions of the agreement it did not address were to remain in full force.
Thurston Foods issued a promissory note (Thurston Foods note) consistent with the amendment one week later, on March 1, 2010. Pursuant to this note, Thurston Foods promised to pay Thurston, as executrix, a principal sum of over four million dollars, plus interest, over thirty-seven quarterly installments. Thurston Associates executed a promissory note (Thurston Associates note) on November 25, 2009, promising to make periodic payments to Thurston.
The following provisions of the agreement and notes are relevant to the issue of whether this action is arbitrable. Paragraph 4(b) of the agreement sets the framework for the stock redemption transaction it contemplates. Paragraph 4(b) states in relevant part: "At the time of Closing, unless the balance of the purchase price is forthwith paid in cash, the Corporation ... shall execute and deliver to the Legal Representative or the transferring Stockholder, as the case may be ... at the time of Closing, a promissory note payable in forty (40) equal, quarterly installments for the balance of the purchase price." The agreement contains an arbitration clause. Paragraph 12 states in relevant part: "Any controversy, claim, or breach arising out of or relating to this Agreement shall be submitted for settlement to a panel of three arbitrators."
The following provisions of the Thurston Foods note are applicable. The note states in relevant part: "The terms and conditions of this Note shall supersede the terms and conditions of any provisions for the purchase of a deceased Stockholder’s capital stock in the Maker as set forth in a certain Stock Redemption Agreement by and among the Shareholders and the Maker dated as of June 6, 1994 ... notwithstanding the foregoing, payments under this Promissory Note may be modified to the extent required by the Stock Redemption Agreement as modified ..." The note adds in relevant part: "For the consideration aforesaid, the maker waives any right which it might have to a notice and a hearing or a prior court order, under said chapter 903a [of the Connecticut General Statutes] or as otherwise provided under any applicable federal or state law, in the event the holder hereof seeks any prejudgment remedy in connection with any suit involving this note, including any extensions or renewals hereof, any deficiency hereon, or any other instrument given in connection with or to secure this note." The Thurston Foods note does not contain an arbitration clause, unlike the agreement.
The defendants filed this motion to stay pending arbitration on November 29, 2018. The plaintiffs objected on December 12, 2018, and the defendants filed a memorandum in support of their motion on February 14, 2019. Oral argument was heard on the motion at short calendar on February 19, 2019.
DISCUSSION
General Statutes § 52-409 states: "If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration." "Arbitration is a creature of contract ... The arbitration provision in an agreement is, in effect, a separate and distinct agreement. Courts of law can enforce only such agreements as the parties actually make ... No one is under a duty to submit any question to arbitration except to the extent that he has signified his willingness." (Citations omitted.) Connecticut Union of Telephone Workers, Inc. v. Southern New England Telephone Co., 148 Conn. 192, 197, 169 A.2d 646 (1961). "The issue of whether the parties to a contract have agreed to arbitration is controlled by their intention ... The parties’ intent is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction." (Citation omitted; internal quotation marks omitted.) State v. Philip Morris, Inc., 279 Conn. 785, 796, 905 A.2d 42 (2006).
"Section 52-409 provides relief when a party to a contract that contains an arbitration clause desires arbitration of a dispute, and the other party, instead of proceeding with arbitration, institutes a civil action to resolve the dispute. The party desiring arbitration can then seek a stay of the civil action ... [I]n granting or denying a stay under § 52-409 ... the trial court must determine whether the contract between the parties provides for arbitration." (Emphasis in original.) Success Centers, Inc. v. Huntington Learning Centers, Inc., 223 Conn. 761, 768-69, 613 A.2d 1320 (1992). "[T]he positive assurance test of arbitrability ... is the law in this state ... Under the positive assurance test ... [a]n order to arbitrate the particular [dispute] should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." (Citations omitted; emphasis in original; internal quotation marks omitted.) Welch Group, Inc. v. Creative Drywall, Inc., 215 Conn. 464, 467, 576 A.2d 153 (1990). "To establish its right to a stay of proceeding under [Section 52-409] a movant must establish ... (1) that both it and the plaintiff in the action sought to be stayed are parties to a written arbitration agreement; (2) that at least one issue involved in the action to be stayed is referable to arbitration under the agreement; and (3) that the movant is ready and willing to proceed with the arbitration." (Internal quotation marks omitted.) Kutcher v. Connecticut Vascular & Thoracic Surgical Associates, PC, Superior Court, judicial district of Fairfield, Docket No. CV-09-5026130-S (January 7, 2010, Gilardi, J.T.R.) (49 Conn.L.Rptr. 137, 138).
In moving to stay the action, the defendants argue that the note does not supersede the arbitration clause in the agreement and that the arbitration clause remains intact and governs this action. Specifically, the defendants argue that the superceding language in the note only affects payment terms and not nonpayment provisions of the agreement. The plaintiffs argue that this action arises out of the breach of the notes, and that the notes contemplate a court action. They single out the prejudgment remedy provision of the Thurston Foods note, which states in relevant part: "For the consideration aforesaid, the maker waives any right which it might have to a notice and a hearing or a prior court order ... in the event the holder hereof seeks any prejudgment remedy in connection with any suit involving this note ..." (Emphasis added.)
The analysis in section "A" will be limited to the Thurston Foods note. It will not contain discussion of the Thurston Associates note.
The Thurston Foods note states in relevant part: "The terms and conditions of this Note shall supersede the terms and conditions of any provisions for the purchase of a deceased Stockholder’s capital stock in the Maker as set forth in a certain Stock Redemption Agreement by and among the Shareholders and the Maker dated as of June 6, 1994 ..." (Emphasis added.)
A.
The court first considers the relationship between the agreement and the Thurston Foods note to assess the parties’ intentions in contracting with one another. "[I]n determining the intent of the parties to these contracts, we are limited to the express contractual language and the parties’ intent as they expressed it in the agreements ... [I]n order to know which terms to consider, we first must interpret the language of the [subsequent] agreement to determine whether it incorporated the [prior] agreement, and, if so, to what extent ... Our determination of the extent to which the [prior] agreement was incorporated, if at all, depends upon whether the ... terms of the two agreements are in conflict with one another ... Where ... the signatories execute a contract which refers to another instrument in such a manner as to establish that they intended to make the terms and conditions of that other instrument a part of their understanding, the two may be interpreted together as the agreement of the parties ... When parties execute a contract that clearly refers to another document, there is an intent to make the terms and conditions of the other document a part of their agreement, so long as both parties are aware of the terms and conditions of that other document." (Citations omitted; footnote omitted; internal quotation marks omitted.) Allstate Life Ins. Co. v. BFA Limited Partnership, 287 Conn. 307, 314-15, 948 A.2d 318 (2008). See also Massaro v. Savoy Estates Realty Co., 110 Conn. 452, 459, 148 A. 342 (1930) ("These two contracts being connected by reference and subject-matter, both are to be considered in determining the real intent of the parties"). "[I]t is important to note that even though several instruments relating to the same subject and executed at the same time should be construed together in order to ascertain the intention of the parties, it does not necessarily follow that those instruments constitute one contract or that one contract was accordingly merged in or unified with another so that every provision in one becomes a part of every other." (Internal quotation marks omitted.) Georgetown Mill Residential, LP v. Georgetown Land Development Co., LLC, Superior Court, judicial district of Danbury, Docket No. CV-08-5005966-S (May 22, 2009, Sommer, J.).
Where a court has found a significant interrelationship between separate documents, without conflicting provisions, it has construed them together to determine the parties’ intent. See, e.g., Georgetown Mill Residential, LP v. Georgetown Land Development Co., LLC, supra, Superior Court, Docket No. CV- 08-5005966-S (construing purchase agreement, promissory note, and mortgage together). Here, the Thurston Foods note and agreement are connected by reference, pertain to the same subject matter, and involve common parties. The note states that payments made pursuant to it may be modified by the agreement, thus requiring that the parties look to the agreement. The agreement provides that, in the event of a stockholder’s death, Thurston Foods is to buy and the executor is to sell stock owned by the deceased stockholder, which is the basis for the note. The agreement provides further that, unless the purchase price is paid in full at closing, Thurston Foods is to execute and deliver to the executor a promissory note payable in forty equal, quarterly installments. In the note, Thurston Foods promises to pay Thurston over thirty-seven equal, quarterly installments. Also, the agreement was amended seven days before the note’s execution. The court finds that the agreement and note are to be construed together to determine intent.
Having determined that the agreement and note are to be read together to determine the parties’ intent, the court must now analyze what the parties intended. To that end, paragraph 4(b) is instructive. Paragraph 4(b) provides that a promissory note is only required if the corporation does not pay the entire purchase price at closing. Nevertheless, any action arising under the agreement- such as if the purchase price were paid fully in cash- would undoubtedly be governed by its arbitration clause. To argue, therefore, that the note supersedes the arbitration clause in the agreement is to argue that the parties intended the method of payment- cash in full at closing or the balance spread out over time, pursuant to a note- to dictate whether a dispute is arbitrable. This is unconvincing given that an identical dispute could arise under the agreement and the note. For example, the modification provisions in the agreement apply to both the agreement and the note. A dispute could arise over the right of a deceased stockholder’s children to repurchase the deceased stockholder’s stock from the corporation. If the note were to supersede the agreement in full, this matter would not be arbitrable, even though the agreement contains the modification provisions. The parties could not have intended the corporation’s method of payment to dictate whether such matters are arbitrable. For this reason, the court finds that the parties did not intend for the note to supersede the arbitration clause in the agreement.
Paragraph 4(b) of the agreement states in relevant part: "At the time of Closing, unless the balance of the purchase price is forthwith paid in cash, the Corporation ... shall execute and deliver to the Legal Representative or the transferring Stockholder, as the case may be ... at the time of Closing, a promissory note payable in forty (40) equal, quarterly installments for the balance of the purchase price." (Emphasis added.)
Other provisions of the documents do not indicate the parties intended for the arbitration clause to strictly govern an action arising under the agreement. The note indeed states in relevant part: "The terms and conditions of this Note shall supersede the terms and conditions of any provisions for the purchase of a deceased Stockholder’s capital stock in the Maker as set forth in a certain Stock Redemption Agreement ..." While the note supersedes some provisions of the agreement, it does not supersede its arbitration clause. The note only supersedes technical provisions of the agreement it expressly overrides or parts it renders superfluous. As an example, one technical provision, paragraph 4(b) provides that, after closing, the balance is to be paid over forty equal, quarterly installments, while the note provides that it is to be paid over thirty-seven such installments. Also, the note provides that the whole balance, plus interest, is to be due if an installment is not paid within fifteen days of the due date and default is not cured within ten days of notice, whereas paragraph 4(b) requires the balance to be due if the corporation’s default continues fifteen days after written notice. Other provisions of the agreement are rendered superfluous by the note, such as paragraph 1(a)- ordering, in most instances, the deceased stockholder’s legal representative to sell and the corporation to buy the deceased stockholder’s stock- and paragraph 2(b)- ordering the stockholder to sell his or her stock to the corporation upon termination of employment during the stockholder’s lifetime. The note has either fulfilled or eliminated these purposes.
The plaintiffs argue that the prejudgment remedy provision in the note, which provides in part that the maker waives any right to notice, a hearing, or a prior court order if the "holder hereof seeks any prejudgment remedy in connection with any suit involving this note," establishes that the parties intended any dispute arising thereunder to be brought in Superior Court. The inclusion of this provision, however, is not inconsistent with an arbitration clause. General Statutes § 52-422 provides that a trial court may issue an order granting a prejudgment remedy in spite of a pending arbitration. See Savanna Investors, LLC v. Vaughn, Superior Court, judicial district of Stamford-Norwalk, Complex Litigation Docket, Docket No. X 08-CV-08-4012896-S (July 30, 2008, Jennings, J.) (46 Conn.L.Rptr. 369, 372) ("[T]here is nothing in § 52-422 ... that differentiates between an application for prejudgment remedy in aid of arbitration or any other pendente lite order in aid of arbitration").
General Statutes § 52-422 states in relevant part: "At any time before an award is rendered pursuant to an arbitration under this chapter, the superior court ... upon application of any party to the arbitration, may make forthwith such order or decree ... as may be necessary to protect the rights of the parties pending the rendering of the award and to secure the satisfaction thereof when rendered and confirmed." See also New England Pipe Corp. v. Northeast Corridor Foundation, 271 Conn. 329, 335-38, 857 A.2d 348 (2004) (describing circumstances where court intervention proper amid ongoing arbitration proceeding).
The closest case to the present one factually is Georgetown Mill Residential, LP v. Georgetown Land Development Co., LLC, supra, Superior Court, Docket No. CV- 08-5005966-S, where the court construed the language and the interrelationship of a purchase agreement, a promissory note, and a mortgage. The agreement there contained a similar, broadly worded arbitration clause, yet the court determined the parties did not intend for it to apply to actions on the note and/or mortgage. Georgetown Mill, however, is distinguishable in the following ways. First, the note and mortgage each contained explicit clauses stating that actions were to be brought in court. No such explicit clauses exist here. Second, the note and agreement in Georgetown Mill were less integrated. The parties had considerable freedom in drafting the terms of the note, whereas here the agreement dictated many of the note’s terms. Also, the note here is subject to the modification provisions, which are only contained in the agreement. Third, unlike the present action, the note and the agreement in Georgetown Mill were designed to be severable. To institute an action on the note in Georgetown Mill, the agreement required the party to first terminate the agreement. Here, the note and agreement coexist.
The note stated in relevant part: "[The defendant] and [the plaintiff] irrevocably agree that any suit, action or other legal proceeding arising out of this Note shall be brought in the courts of record ... in the State of Connecticut ..." (Internal quotation marks omitted.) Georgetown Mill Residential, LP v. Georgetown Land Development Co., LLC, Superior Court, judicial district of Danbury, Docket No. CV-08-5005966-S (May 22, 2009, Sommer, J.).
Considering the foregoing, this court cannot say with positive assurance that this dispute is not covered by the broadly worded arbitration clause in the agreement. Moreover, Thurston Foods has said that it is ready and willing to proceed with arbitration.
B.
Having determined that the parties intended for the arbitration clause to apply to actions brought under the Thurston Foods note, the remaining issue is whether the clause envelopes the counts asserted against Thurston Associates, which is not a party to the agreement. The Thurston Associates note neither references the agreement nor contains its own explicit arbitration clause. The Thurston Associates note states in relevant part: "The terms and conditions of this Note shall supersede the terms and conditions of any provisions for the purchase of a deceased Member’s Membership Interest in the Maker as set forth in a certain Operating Agreement for Thurston Associates, LLC dated as of June 26, 1997 as amended by the Amendment thereto dated February 24, 2009; however, notwithstanding the foregoing, payments under this Promissory Note may be modified to the extent required by Section 8.4(b) of said Amendment and all amounts due hereunder shall be due upon the closing of sale of substantially all of the assets of the Maker as provided in Section 8.4(c) of said Amendment." The operating agreement (or amendment thereto) has not been submitted by the parties as evidence, so the court cannot find that the parties to the Thurston Associates note have agreed to arbitrate a dispute arising out of it.
Nevertheless, "[t]he remedy afforded to a successful movant under § 52-409 is a stay of the action or proceeding, not merely a stay of that part of the action or proceeding that involves arbitratable issues that pertain directly to the applicant. The key question presented for the Court’s decision is thus whether or not [the signatory defendant] is entitled to a stay under § 52-409." (Internal quotation marks omitted.) American Materials Corp. v. Eagle Crusher Co., Superior Court, judicial district of Hartford, Docket No. CV-03-0827738-S (December 16, 2003, Sheldon, J.). In American Materials Corp., the court granted the defendants’ motion to stay the proceeding even though one co-defendant was not a party to the arbitration agreement. Id. See also D’Attilo v. Koskoff, Koskoff & Bieder, P.C., Superior Court, judicial district of New Haven, Docket No. CV-14-6051836-S (March 26, 2015, Frechette, J.) ("[A] signatory’s argument that it cannot be obligated to arbitrate its claims against a nonsignatory has no bearing on the signatory’s duty to arbitrate its claims against another signatory and therefore furnishes no authority for denying the motion for stay pending arbitration. The statute, § 52-409, is very clear in this regard ..." [internal quotation marks omitted]). Because Thurston Foods is entitled to a stay, it is proper that all proceedings in this action are stayed until the arbitration contemplated in the agreement is concluded.
CONCLUSION
Accordingly, for the foregoing reasons, the defendants’ motion to stay is granted.