Opinion
CIVIL ACTION NO. 02-12167-GAO
August 8, 2003
MEMORANDUM AND ORDER
The plaintiffs, Domenick Nicolaci, Rosalie Hassey, Lisa Boling, Lori Boling Randall, and John Nicolaci, bring this action against the defendants, Joel and Walter Anapol, to enforce an indemnification clause in a Stock Purchase Agreement to which they are all parties. The defendants have countered with a motion for judgment on the pleadings, arguing that the plaintiffs are not entitled to indemnification either under the parties' contractual agreement or under a common law theory of indemnification. For the reasons discussed below, the defendants' motion is granted, and judgment shall enter in favor of the defendants.
Although styled a motion for judgment on the pleadings, see Fed.R.Civ.P. 12(c), the motion was filed before the defendants filed an answer. It is more appropriate to regard it as a motion to dismiss the complaint for failure to state a claim upon which relief can be granted, see Fed.R.Civ.P. 12(b)(6). In either event, the same standard applies: whether, assuming the well-pled factual allegations of the complaint to be true, the plaintiffs nonetheless cannot succeed on their claims as a matter of law. See Petricca v. City of Gardner, 194 F. Supp.2d 1, 4 (D.Mass. 2002) (stating that the standards for evaluating motions under Fed.R.Civ.P. 12(b)(6) and 12(c) are "essentially the same").
A. Summary of Facts
The plaintiffs are all former stockholders in a closely-held company called Cliftex Corporation ("Cliftex"). On January 16, 1998, the plaintiffs sold their shares in the company back to Cliftex. Joel and Walter Anapol were officers, directors, and shareholders of Cliftex at the time. Each of the plaintiffs received varying amounts of money for their stock, ranging from as much as $1,000,000 paid to John Nicolaci for his shares to as little as $25,000 paid to Lori and Lisa Boling for their shares. The Stock Purchase Agreement which the parties negotiated and executed included a "General Releases" provision. See Defs.' Mem. Supp. Mot. for Judgment on the Pleadings, Ex. A, § 4 at 2-4. A portion of that provision specified that:
(b) Each of Cliftex, Joel Anapol and Walter Anapol hereby:
(i) releases and discharges each of the Sellers and their respective heirs, representatives and assigns from and against any claims, rights or causes of action which such person may have against such Seller arising from any fact, circumstance or condition existing on the date hereof, whether or not such claims, rights or causes of action are known to Cliftex, Joel Anapol or Walter Anapol, as the case may be, provided, however, that this release shall not cover or apply to any claims arising under this Agreement or any agreement or instrument delivered in connection herewith; and
(ii) agrees to indemnify and hold harmless each of the Sellers and their respective heirs, representatives and assigns from and against any claims, rights or causes of action which relate to or which arise or arose out of the business of Cliftex as operated prior to or after the date of this Agreement except to the extent the same have been caused or incurred solely as the result of the unauthorized and wrongful action of the party seeking to be indemnified. . . .
Id. at 3 (emphasis added). The plaintiffs also allege that Cliftex benefitted from the Stock Purchase Agreement because it terminated Cliftex's obligation to pay John Nicolaci compensation, and the Anapols benefitted because they obtained exclusive control of the corporation.
About two and a half years later, in August 2000, Cliftex filed a voluntary Chapter 7 bankruptcy petition in this District. A Trustee of the estate was appointed. On March 27, 2002, the Trustee commenced an adversary proceeding in the bankruptcy court alleging that the stock purchase and its related agreements constituted a fraudulent transfer and demanding that the plaintiffs return the money they received in exchange for their stock. In the Trustee's action, the plaintiffs filed a third-party complaint against Joel and Walter Anapol asserting that the Anapols would have to indemnify them for any liability they incurred as a result of the fraudulent transfer action. On October 17, 2002, the bankruptcy court determined that it did not have jurisdiction over the indemnity claims, and dismissed the third-party complaint without prejudice.
After the third-party complaint was dismissed, Domenick Nicolaci, Rosalie Hassey, Lisa Boling, and Lori Boling Randall commenced this action reasserting their indemnity claims against the Anapols. In their complaint, they set forth claims for indemnification under the Stock Purchase Agreement and under Massachusetts common law. Shortly after the complaint was filed, John Nicolaci was allowed to intervene as a party plaintiff; he asserts essentially the same claims for indemnification against the Anapols.
B. Discussion
Although the underlying fraudulent transfer action is still pending in the bankruptcy court, this controversy is ripe for adjudication in the constitutional sense because the plaintiffs have already incurred costs by defending themselves against the Trustee's action, which costs may arguably be recoverable from the putative indemnitors. See Urban Inv. and Dev. Co. v. Turner Constr. Co., 616 N.E.2d 829, 834-35 (Mass.App.Ct. 1993) (contract's indemnity clause included obligation to pay costs of unsuccessful claim).
The defendants argue that it can be determined as a matter of law that the plaintiffs are not entitled to indemnification under either theory outlined in their complaint. After reviewing the Stock Purchase Agreement, as well as the briefs and arguments of the parties, I agree with the defendants that the Trustee's fraudulent transfer claim does not fall within the scope of the contractual indemnification clause. The clause establishes only a limited right to indemnification. It is limited to claims "which relate to or which arise or arose out of the business of Cliftex as operated prior to or after the date of this Agreement. . . ." Claims arising from the stock repurchase transaction are not claims that arise from the company's "business . . . as operated" before and after the agreement. Defs.' Mem. Supp. Mot. for Judgment on the Pleadings, Ex. A, § 4(b)(ii) at 3. In ordinary usage, a distinction is usually made between capital transactions and transactions in the course of a company's business, and a corporation's repurchase of its own stock would not typically be considered to have occurred in the course of the operation of the business. See Comm'r of Corps. and Taxation v. Filoon, 38 N.E.2d 693, 700 (Mass. 1941) (listing capital transactions and ordinary operations as distinct sources of profit). There is nothing in the surrounding language, or elsewhere in the entire agreement, to counter this usual understanding.
To the contrary, this understanding of the indemnification clause is consonant with the general release provisions as a whole. See also Restatement (Second) of Contracts § 202(2) (1981) ("A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together."). In the first paragraph of the release provisions, the plaintiffs agree to release and discharge the defendants from any and all existing claims, except for "any claims arising under this Agreement or any agreement or instrument delivered in connection herewith." Defs.' Mem. Supp. Mot. for Judgment on the Pleadings, Ex. A, § 4(a)(1) at 2. In return, the Anapols release and discharge the plaintiffs from any and all existing claims, except for "any claims arising under this Agreement or any agreement or instrument delivered in connection herewith." Id. § 4(b)(i) at 3. These mirror-image provisions indicate that the parties were conscious of the potential that a claim might arise from the stock repurchase transaction when they drafted their contract, and that they determined that such liability would be left in place, not shifted to one side or the other. It appears that the language of the contract was carefully chosen, and the omission from the indemnification clause of language providing indemnification for claims arising out of the agreement or associated transactions, where such language was included in the release provisions, must be taken to have been deliberate.
There are two other exceptions, but they are not pertinent here.
The plaintiffs also assert that the Anapols have a common law duty to indemnify them for any damages assessed against them from the fraudulent transfer action. They contend that the Massachusetts courts have held that a duty to indemnify may exist when "the person seeking indemnification did not join in the [tortious] act of another but was exposed to liability because of that [tortious] act." Rathburn v. Western Mass. Elec. Co., 479 N.E.2d 1383, 1385 (Mass. 1985). The plaintiffs argue that because they are threatened with liability because of a transaction that was conceived and carried out entirely by the Anapols, they should have access to this common law rule of indemnification.
The Massachusetts cases cited by the plaintiffs are inapposite. They address the question whether, in a personal injury case, one tortfeasor may demand indemnification from a more culpable tortfeasor. The cases address neither a general rule of implied duty to indemnify nor the implication of such a duty in cases of an alleged fraudulent transfer. There are some general statements in the cited cases about the possibility that an implied duty to indemnify might arise in certain circumstances of a "special relationship" between the proposed indemnitees and indemnitors, see Decker v. Black and Decker Mfg. Co., 449 N.E.2d 641, 644 (Mass. 1983), but they explicitly prescind from general recognition of an implied duty to indemnify, even in ordinary tort cases, see id. at 644 n. 2. Seeking to invoke a rule of Massachusetts common law, the plaintiffs have an obligation, when challenged, to demonstrate that such a rule exists and that it applies in their circumstances. They have not done so.
C. Conclusion
The language of the contractual indemnification claim is unambiguous and, properly construed, does not require the defendants to indemnify the plaintiffs for claims arising from the Stock Purchase Agreement. The plaintiffs have not shown entitlement to the benefit of any common law principle of implied indemnification. Accordingly, the defendants' motion (docket no. 9) is
GRANTED. Judgment shall enter in their favor.
It is SO ORDERED.