Opinion
No. 00-454-B
Dated: May 4, 2000
MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS' MOTION TO DISMISS PURSUANT TO MASS. R. CIV. P. 12(b)(6)
The plaintiff Louis J. Giuliano ("Giuliano") filed a verified complaint for declaratory and injunctive relief, alleging that he was the holder of an equitable mortgage and seeking the right of redemption of property owned by the defendants GTWO, LLC, a Rhode Island Limited Liability Company, MR2-A Limited Partnership, and HR2-A Limited Partnership (collectively "RFP"). RFP has now moved to dismiss the complaint for failure to state a claim upon which relief can be granted. Mass.R.Civ.P. 12(b)(6). RFP asserts that Giuliano cannot establish the existence of an equitable mortgage for the following reasons: (1) Giuliano released the claims he now asserts in a Closing Agreement executed by the parties in November, 1999; (2) Giuliano waived these claims in the Closing Agreement; and (3) the complaint fails to plead the elements necessary to establish an equitable mortgage.
Defendants GTWO, MR2-A and HR2-A are alter egos of one another and are affiliated with Realty Financial Partnership. Realty Financial Partnership is the entity that agreed to provide financing to Giuliano.
For the following reasons, RFP's motion to dismiss is allowed.
BACKGROUND
The following facts, taken from the plaintiff's Verified Complaint, are assumed to be true for purposes of the present motion. In 1997, Giuliano and Gary Piontkowski ("Piontkowski") began discussing the possibility of acquiring a certain 91 acre parcel of real estate located at the intersection of Routes 1 and 495 in Plainville, Massachusetts ("the Property"). Giuliano and Piontkowski planned to operate a harness racing facility on the Property.
In September 1997, Piontkowski commenced negotiations to acquire the Property with the owner of the Property, Pacella Development Corp. ("Pacella"). Ultimately, Pacella and Management Acquisition Corp. ("MAC"), a corporation formed by Piontkowski, executed a purchase and sale agreement ("Pacella PS"). The Pacella PS provided for a purchase price of approximately $4,125,000 and a closing date of May 1, 1998. It further provided that MAC would have the right to extend the closing date for up to seven additional thirty-day periods upon the payment of $20,000 for each such monthly extension.
After securing several monthly extensions of the closing date of the Pacella PS, Piontkowski informed Giuliano in June, 1998, that he was unable to make the July 1, 1998 payment required to further extend the closing date, and he requested that Giuliano accept an assignment of MAC's interest in the Pacella PS in exchange for making this payment. Giuliano agreed and made the $20,000 payment due July 1, 1998, in return for which Giuliano received an assignment of MAC's rights in the Pacella PS.
The closing date on the Pacella PS was subsequently extended to December 1, 1998, the absolute deadline for the completion of the purchase. In September 1998, Giuliano sought out potential lenders to fund the $4,125,000 necessary to acquire the Property as well as the additional funding necessary to commence construction of the proposed racetrack. RFP, a Boston-based lender, was one of the financing entities approached by Giuliano. In October 1998, RFP committed to lend $6,125,000 to Giuliano, $4,125,000 of which was to be used by Giuliano to acquire the Property and the balance to begin funding the cost of infrastructure and racetrack improvements. The proposed loan offered by RFP provided for an annual rate of return to RFP of 25% over a term of approximately fourteen months, expiring on January 28, 2000 ("the First Loan").
Giuliano and RFP contemplated that once the racetrack improvements were in place, Giuliano would pay off the First Loan and refinance the project through a conventional lender, which would provide a long term loan at a lower interest rate. The First Loan called for RFP to receive, among other things, a first mortgage on the Property and the personal guaranty of Giuliano. As additional security, Giuliano was required to assign to RFP his interest in certain property located on Martha's Vineyard ("the Vineyard Property"). The closing on the First Loan was scheduled for November 13, 1998, approximately two weeks before the Pacella PS was scheduled to expire. On that date, a closing on the $6,125,000 First Loan from RFP to Giuliano was held at the offices of RFP's counsel in Providence, Rhode Island. At the closing, RFP and Giuliano executed documents by which RFP agreed to lend the $6,125,000 necessary for Giuliano to acquire the Property and begin construction of the racetrack ("First Loan Documents").
Pursuant to the First Loan, on November 16, 1998, a deed was executed by Pacella in favor of GTWO, LLC, a Massachusetts limited liability company previously formed by Giuliano to take title to the Property ("GTWO"). After the closing, and only one or two weeks before the Pacella PS was scheduled to expire, representatives of RFP informed Giuliano that they did not intend to proceed with the First Loan as documented and insisted that the loan transaction be "restructured." On November 20, 1998, RFP advised Giuliano that the only basis upon which it would lend the money necessary to complete the Pacella PS prior to December 1, 1998, would be if, instead of a conventional mortgage, RFP or its nominee received a deed to the Property and Giuliano received an Option to Purchase the Property which could be exercised upon repayment of the amount advanced by RFP. Giuliano maintains that RFP explained that the restructured loan transaction would accomplish the same purpose as the First Loan. RFP further represented to Giuliano that the restructured loan would allow Giuliano to have complete control over the Property and provide him with the same rights that he had under the First Loan.
Giuliano agreed to restructure the loan according to the terms proposed by RFP. A closing on the restructured loan transaction was held at the same offices of RFP's counsel in Providence, Rhode Island, on November 25, 1998. A document entitled "Closing Agreement" was executed by Giuliano and RFP on that date.
The restructured loan transaction contained, among other provisions, the following terms: (1) RFP would provide $7 million in funding; (2) RFP, through its nominee, GTWO, would take title to the Property; (3) Giuliano would receive an Option to Purchase the Property upon the payment of $9.25 million (the $7 million funded by RFP plus a 25% annual return); (4) the Option to Purchase would expire on January 28, 2000; (5) Giuliano's interest in the Vineyard Property would be deemed consideration for the Option to Purchase and returned to Giuliano upon his exercise of the Option; (6) Giuliano would receive a Master Lease to allow him to control the Property and construct the racetrack; and (7) the Master Lease from GTWO to Giuliano would expire on January 28, 2000, and would provide that all rent would be accrued and deemed satisfied upon the exercise of the Option to Purchase.
The Closing Agreement provides, in pertinent part:
§ 2.2 The potential economic and other effects of the transaction as so structured are significantly different from the provision of a loan by MR2-A to Giuliano for the purpose of purchasing the Property. These various economic and other effects are fully intended by the parties. The parties agree that the transaction is not, and shall not be deemed to be a financing transaction or loan and Giuliano hereby fully, knowingly and completely waives any and all rights, defenses or arguments which would suggest that the transaction is in effect a financing transaction.
§ 2.4 Giuliano . . . hereby release[s], remise[s], and forever discharge[s] MR2-A and all related entities . . . from any and all actions and causes of action . . . including without limitation, any Claim or Claims in any way directly or indirectly arising out of or in any way connected to this Agreement, the purchase of the Property and/or the transaction documents. . . .
§ 2.5 Both of the parties hereto have the opportunity to be advised by counsel with respect to this agreement and have been so advised. The parties fully intend that this agreement be enforceable to the fullest extent permitted by law.
Pursuant to the restructured transaction, the parties executed the following documents: (1) a deed from Pacella to GTWO/RI; a Master Lease from GTWO/RI to GTWO/MA with a term expiring on January 28, 2000 ("Master Lease"); an Option to Purchase from GTWO/RI to Giuliano with an option price of $9,250,000, also expiring on January 28, 2000 ("Option to Purchase"); and a quitclaim deed from GTWO/RI to Giuliano which was held in escrow pursuant to an Escrow Agreement pending Giuliano's payment of the $9,250,000. RFP thereupon advanced $4.3 million to acquire the Property. Subsequently, RFP advanced $2.7 million to Giuliano for the purpose of commencing construction of the infrastructure and racetrack improvements.
In early 1999, Giuliano requested additional funding from RFP to complete the construction of the racetrack. When RFP denied Giuliano's request, Giuliano borrowed an additional $3 million from a third party, Commerce Park Realty, LLC ("Commerce Park"). These funds, like the $2.7 million from RFP, were utilized for racetrack improvements and increased the value of the Property.
On October 12, 1999, after the racetrack was complete and in operation, Plainville Racing Company, LLC "PRC"), the operator of the racetrack under a sublease from Giuliano, instituted an action in this Court against GTWO/MA and GTWO/RI, seeking a declaration that PRC had a right to exercise an option to purchase the Property. In that action, PRC obtained a memorandum of lis pendens ("Lis Pendens").
PRC v. GTWO, Civil Action No. 99-1640 (Norfolk County Super. Ct.).
As a result of the cloud of title placed on the Property by the filing of the Lis Pendens, Giuliano was unable to obtain the conventional financing necessary to pay off the $9.25 million loan to RFP on January 28, 2000. As a result, RFP has informed Giuliano that the Option to Purchase has expired, that RFP is entitled to absolute ownership of the Property, that RFP is entitled to absolute ownership of Giuliano's rights in the Vineyard Property, and that Giuliano has no further rights or interests in either the Property or the Vineyard Property.
On February 22, 2000, RFP entered into a purchase and sale agreement with an entity known as Ourway Realty, LLC ("Ourway") under which Ourway agreed to purchase the Property for $13.6 million on or before April 17, 2000. Ourway is a Massachusetts limited liability company owned and controlled by investors in PRC.
DISCUSSION
When evaluating the sufficiency of a complaint pursuant to Mass.R.Civ.P. 12(b)(6), the court must accept as true any well pleaded factual allegations of the complaint, as well as any reasonable interferences which can be drawn therefrom in the plaintiff's favor. Fairneny v. Savogran Co., 422 Mass. 426, 470 (1996); Eyal v. Helen Broadcasting Corp., 411 Mass. 426, 429 (1991). "[The] complaint should not be dismissed for failure to state a claim unless it appears beyond a reasonable doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Nader v. Citron, 372 Mass. 96, 98 (1977), quoting Conely v. Gibson, 355 U.S. 41, 45-46 (1957); see also Charbonnier v. Amico, 367 Mass. 146, 152 (1975); Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 89 (1979).
I.
Giuliano's present action is barred by his release of RFP from claims arising out of the financial transaction that he entered into with RFP. A release is enforceable according to its terms. Minassian v. Ogden Suffolk Downs, Inc., 400 Mass. 490, 492 (1987). Although a release is considered an affirmative defense that generally must be raised by way of answer, Mass.R.Civ.P. 8(c), it is well settled law that when "the complaint shows on its face the existence of an affirmative defense, the complaint does not state a claim upon which relief can be granted, and a motion to dismiss [pursuant to Mass.R.Civ.P. 12(b)(6)] is appropriate." Cavanagh v. Cavanagh, 396 Mass. 836, 838 (1986). Where the document containing the release is attached to the complaint, "[a Mass.R.Civ.P. 12(b)(6)] motion in lieu of the answer is . . . appropriate." Smith Zobel, Rules Practice, § 12.13 at 303 (1999). "In ruling on a motion to dismiss a complaint we must `assume as true the allegations contained in the . . . complaint and accompanying [exhibits]'" 285 Lynn Shore Drive Condominium Trust v. Automatic Sprinkler Appeals Board, 47 Mass. App. Ct. at 437, 440 (1999), quoting Cross v. Commissioner of Correction, 27 Mass. App. Ct. 1154, 1154 (1989).
The Closing Agreement provide terms of release that bar Giuliano's claim. Section 2.4 of the Closing Agreement, which is attached to Giuliano's complaint, expressly provides that "Giuliano . . . hereby release[s], remise[s], and forever discharge[s] MR2-A and all related entities . . . from any and all actions and causes of action . . . including without limitation, any claim or claims in any way directly or indirectly arising out of or in any way connected to" the financing transaction originally contemplated by Giuliano and RFP. (emphasis added). Giuliano's complaint alleges that the Property purchase is void and an illegal security transaction, and seeks a declaration that Giuliano holds a right of redemption in an equitable mortgage on the Property. Thus, the action consists of claims arising out of the originally contemplated financing transaction and falls squarely within the scope of the release. The motion to dismiss must therefore be allowed on this ground.
The release expressly discharged MR2-A and all related entities. The Complaint alleges that all of the defendants are alter egos of one another. Therefore, the motion to dismissed must be allowed as to all three defendants.
II.
The doctrine of waiver also bars Giuliano's action against RFP. "Waiver is the intentional relinquishment of a known right."Nashua River Paper Co. v. Lindsay, 242 Mass. 206, 208 (1922). A party who has waived its claims is "precluded from recovery." Id. at 209. Pursuant to Mass.R.Civ.P. 8(c), waiver is an affirmative defense. Alternatively, the defense of waiver may be raised by a motion to dismiss. Cavanagh, 396 Mass. at 838. Section 2.2 of the Closing Agreement provides that, "[t]he parties agree that the transaction is not, and shall not be deemed to be a financing transaction or loan and Giuliano hereby fully, knowingly and completely waives any and all rights, defenses or arguments which would suggest that the transaction is in effect a financing transaction." (emphasis added). Since Giuliano expressly waived his right to argue that this transaction is a loan transaction, the motion to dismiss must be allowed on this ground as well.
III.
Giuliano has alleged that the financing agreement constituted an equitable mortgage. In order to establish the existence of an equitable mortgage, the moving party must prove that it conveyed property to another, and that at the time of the conveyance, the parties intended that the transaction be an equitable mortgage. See Jacobson v. Jacobson, 334 Mass. 658, 661 (1956). The parties must intend that the equitable mortgage exist at the time the deed is signed. Murley, 334 Mass. 627, 631 (1956). Giuliano has failed to plead the first element of an equitable mortgage, namely, that Giuliano conveyed the Property to RFP. Rather, the Verified Complaint expressly alleges that Pacella, not Giuliano, conveyed the Property to RFP.
Giuliano has also failed to establish the second element of his claim because he pleads facts that expressly contradict any claim that the parties intended to create an equitable mortgage. The parties must have intended to create an equitable mortgage at the time of the transaction. See Allen v. Mutual Acceptance Corp., 350 Mass. 553, 557 (1966). Section 2.4 of the Closing Agreement states that the parties did not intend the transaction to be a loan or financing arrangement. Giuliano attached the Closing Agreement to his Verified Complaint. Accordingly, the complaint on its face rejects the theory of an equitable mortgage. Accordingly, the motion to dismiss must also be allowed on this ground.
ORDER
For the foregoing reasons, the defendants' "Emergency Motion . . . to Dismiss Pursuant to Mass.R.Civ.P. 12(b)(6)" is ALLOWED .
_____________________________ Peter M. Lauriat Justice of the Superior Court
Dated: May 4, 2000