Season 1 Episode 5. Release Date December 15, 2021
“So, for reasons I guess dual reasons, the first was as a judgment creditor, we had the ability to collect on the debt and secondly, as a strategic measure, essentially of getting the benefit of the bargaining, which was to make sure that our clients were not effectively… their interest were not eliminated through a bankruptcy process. We decided to go forward with the reach and apply by which we could auction off Mr. Barros interest, the 20% interest in Tozer, which would then make him a 0% holder of those whose interest make my clients 100% owners of Tozer interest and give them the entitlement, then to choose who would be Tozer’s manager and to dismiss the bankruptcy case.”
“We met the bankruptcy head on. Within the first few days, we filed the motion to dismiss the case, making several arguments, including among them, that it was a bad faith filing. One of the other points that we made, and this was crucial to the overall way in which the case played out, was that our execution of that purchase option for a dollar was directed towards Barros, not the debtor, not the LLC, which was in bankruptcy. And therefore, there was nothing about the automatic stay that applies in Tozer’s bankruptcy case that would prevent us from saying, “Barros, here’s our dollar. Give us your 80% ownership interest in Tozer.”
In the bankruptcy itself didn’t… there was no stay that reflect the change in ownership there. That was hotly contested in the bankruptcy, but with the bankruptcy court did effectively, it agreed with us and referred us to the to the Superior Court for it to determine who owned what percentage of Tozer, and once the Superior Court determined that we were to come back for further proceedings in the bankruptcy court.”
“It really only became scattershot when Mr. Barros decided to put the LLC into bankruptcy, and then it took on a different life, a life of its own, essentially, with myriad issues that needed to be researched, briefed, fought with, dealt with, appealed and so forth.”
“We were fortunate here under the circumstances and the facts of our case that it was an eloquent way for the court to resolve this, but as a practice point, you really need to think about that in terms of who else other than the parties that are in the litigation might be affected and how that might affect the relief that you’re requesting.”
Bass River Tennis Corp. v. Barros: https://law.justia.com/cases/massachusetts/supreme-court/2020/sjc-12748.html
Robert Stetson: In 2007, Manuel Barros purchased the Bass River Tennis Club in Beverly, Massachusetts. As with many business ventures, he placed the real estate in a single purpose limited liability company, and formed a corporation,
The Bass River Tennis Corporation to operate the business of the tennis club. Quickly, however, Barrels began losing money on the tennis club and a related golf course venture. By 2009, Barros financial problems became dire. He fell behind on mortgage payments and was in jeopardy of not making payroll.
Enter Mark Greenberg and Michael LaPierre. Barros repeatedly asked Greenberg and LaPierre for loans to bail out his companies. They agreed on condition that they would be paid back by the end of 2010.
Barros agreed to this condition. All told, Greenberg and LaPierre loaned Barros approximately $900,000. When Barros was unable to make the loan payments in 2010, the parties entered into a securities purchase agreement, the SPA. Whereby to satisfy certain portions of the outstanding debts, Barros, agreed to transfer 80% of his ownership interest in the tennis club to LaPierre and Greenberg and upon certain events happening, namely Greenberg and LaPierre satisfying certain additional debts of Barros and his companies. They would be entitled to 80% of Barros ownership interest in the real estate, a highly valuable piece of real estate. Barros breached the SPA and failed to pay back the loans. Therefore, Greenberg and LaPierre commenced the lawsuit against Barros and sought to exercise their right to purchase Barros is 80% of the real estate.
Thus began a nine-year litigation odyssey spanning five different cases, eleven different appeals and costing many hundreds of thousands of dollars in legal fees. This case proves that no good deed goes unpunished. This is Bass River Tennis Corp v. Barros.
Bob: Welcome to Legal Judg(e)ments, where we tackle litigation and trial strategy by analyzing and talking about real legal cases. I’m Bob Stetson, a Boston based trial lawyer at Bernkopf Goodman, which sponsors this podcast.
Today, we’re looking at Bass River Tennis Corp v. Barros, a business divorce case which, like so many pieces of commercial litigation, was filled with so many twists and turns. It’s hard to focus on just one, but with me today to narrow that focus is Joe Downes, a litigator and trial lawyer at Downs McMahon, who successfully represented Bass River Tennis, and LaPierre and Greenberg, on so many of these cases and appeals. Welcome, Joe. Thanks for joining us.
Joe Downes: Thanks, Bob. Great to be here.
Bob: Joe, let’s start with the appeals court decision from earlier this year, one of the many strategic decisions that you and your clients made this one some seven years into the litigation was to seek a reach and apply attachment on Barros remaining 20 ownership interest in the LLC that own the real estate. Now, a reach and apply attachment basically allows for a creditor like your clients to reach an intangible ownership interest, something that’s different from Real estate or a bank account.
Here Greenberg and LaPierre, who owned 80% of the tennis club at that point and after a series of court decisions, came to own 80% of the real estate at that point sought to force Barros to sell his remaining 20% interest in the real estate. The Superior Court approved the maneuver and appointed a special master to sell the interests through an auction. The appeals Court ultimately agreed for reasons which we’ll come back to in a few minutes. But, in the overall context of this litigation, the sale of this interest produced something like maybe $70,000 towards your client’s debt. Not a trifling sum, but perhaps not something worth spending years of litigation on.
So, Joe How did this reach and apply attachment and special master process fit into the overall strategy of this dispute?
Joe: Sure. Thanks, Bob. I guess going back to the 2012 case, which was the initial case that was filed, we obtained a judgment, a judgment that had remained unsatisfied for some time and we looked at Mr. Barro’s assets and his assets were limited other than his ownership interests, including the ownership interest in Tozer LLC, that’s the entity that own the real estate. At that point in time, he still held a 20% interest in that entity. And so, as judgment creditors, we were looking to collect on that interest. Separately, Mr. Barros was also remained the manager of the Tozer LLC and the operating agreement of Tozer LLC, which ultimately came to the surface about midway through the series of litigation, provided that Mr. Barros would remain the manager of the LLC unless 100% of the owners of the LLC voted to displace him. And so, at that point in time, my clients, although they were the 80% owners of the LLC, did not have the voting power to remove Mr. Barros. And so, we recognized that was going to be a problem for a number of reasons. One, Mr. Barros had put together LLC into bankruptcy and as the manager, he was then entitled to effectively to steer the ship through the bankruptcy process.
Number two, Mr. Barros, as the manager of the LLC, which owns the real estate, was threatening to basically evict Bass River as a tennis club, which obviously it’s difficult to operate a tennis club without a tennis facility. So, for reasons I guess dual reasons, the first was as a judgment creditor, we had the ability to collect on the debt and secondly, as a strategic measure, essentially of getting the benefit of the bargaining, which was to make sure that our clients were not effectively… their interest were not eliminated through a bankruptcy process. We decided to go forward with the reach and apply by which we could auction off Mr. Barros interest, the 20% interest in Tozer, which would then make him a 0% holder of those whose interest make my clients 100% owners of Tozer interest and give them the entitlement, then to choose who would be Tozer’s manager and to dismiss the bankruptcy case.
Bob: So, your clients bought back the interest at the auction?
Joe: They did. We had the special master appointed in the Superior Court case, and this is an important piece. We appointed obviously a disinterested person to do that. His name was Dave Madoff. He’s a Chapter Seven Trustee. He’s someone who is regularly involved with selling assets.
The other thing that we did is that we proposed detailed sale procedures, not unlike what you would see in a bankruptcy, what’s called the Section 363 Sale, which are put forth so that it’s clear as to what the special master is intended to do, what notices intending to provide minimum bids and so forth related to the sale. We put that all out there for the Superior Court. So as part of approving the special master, they also approved the detailed sale procedures pursuant to which Mr. Barros 20% ownership in the LLC could be sold.
Bob: It’s just so fascinating where, you know, you read the decision and there are all these legal issues surrounding reach and apply, but you don’t necessarily get the strategic implications. This wasn’t just about collecting on the dollars from the auction, this was about control of these companies. And that played a major role in the overall litigation strategy here. It’s fascinating.
Joe: Yeah, we were we were very fortunate, I guess, you know, to be able to… From a from a strategic standpoint is to kind of see the various moving parts and to really to execute them in a way that was going to give that was able that we were able to deliver to our clients and allow them to effectively invest control of the companies which they should have had back since 2012 took a little longer than I suppose they would like took a little. It probably cost them more. But ultimately, we we recalibrated the scales and we’re able to deliver to them precisely what they thought that they were getting back when they signed the SPA in 2010.
Bob: Right, right, right. Well, and you touched on the bankruptcy a little bit. You know, it seemed to me when I was reviewing the papers that Barros put the LLC into bankruptcy, essentially, and I think he even admitted this at one point, essentially to prevent your clients from exercising their right to purchase the 80% interest in the LLC. I guess the first question is, did I read that correctly? And then the second question is, you know, how did the bankruptcy play into the overall strategy and how was that ultimately resolved?
Joe: So yes, you’re absolutely right, Mr. Barros, what he did there effectively by putting the company in bankruptcy was an attempt to rewrite the SPA and essentially throw it away and not honor his obligations to my clients and kind of taking a step back the SPA that was signed in 2010, the intent was, my client’s, they’d know Mr. Bowers for a long time. They had the ability before that document was signed, essentially to become 100% owners of both entities pursuant to these secured convertible promissory notes that they had signed. They decided they didn’t want to do that. They wanted to keep them around, and they wanted him to have a minority interest in this company. So pursuant to the SPA, they became 80% owners of the club and Barrows became the 20% holder of of Bass River.
With respect to Tozer, though, there were a number of mortgages that were on the property and the story, as it goes, was from Mr. Barrow said to my clients, “If there’s a change in ownership for Tozer today, that’s going to trigger cross defaults under the mortgages, that’s going to cause problems.”
So, my client said, “Well, how about if we do it this way? There are three mortgages that are out there. Mr. Barros, you’re intending to go in to discharge those. When you do, we will then have the opportunity to pay you. We will then become the 80% owners. If you don’t pay them, however, we have the ability to pay them. And then once we do that, we can hand you a dollar and exercise our purchase option and we will automatically become the 80% owners.”
And that was the agreement. That was the deal. Not surprisingly, after the SPA was executed, Mr. Barry didn’t pay any of those mortgages off because when he did, he knew he was going to lose the 80% ownership interest.
So instead, my clients paid the first one off. Then the second one off. And then they called the meeting at Bass River to say, “We today are going to pay off the third mortgage and then we are going to exercise that option.”
That same day, Mr. Barros ran into the bankruptcy court and put Tozer in bankruptcy as part of the bankruptcy proceedings. He tried to reject that contract, effectively throwing it out the window and make my client the 0% owners of Tozer and 80% owners of Bass River in an entity that he was separately threatening to evict from the Tozer property.
Bob: So how so? You know, this is one of five cases the bankruptcy is one of five cases. How did you deal with those bankruptcy issues in the context of, you know, when you look at it, this is, you know, a business divorce or, you know, a promissory note type collection case? It’s also got elements of, you know, just a straight breach of contract case. Where does the bankruptcy fit in and how was that ultimately resolved?
Joe: So, we met the bankruptcy head on. Within the first few days, we filed the motion to dismiss the case, making several arguments, including among them, that it was a bad faith filing. One of the other points that we made, and this was crucial to the overall way in which the case played out, was that our execution of that purchase option for a dollar was directed towards Barros, not the debtor, not the LLC, which was in bankruptcy. And therefore, there was nothing about the automatic stay that applies in today’s bankruptcy case that would prevent us from saying, “Barros, here’s our dollar. Give us your 80% ownership interest in Tozer.”
In the bankruptcy itself didn’t… there was no stay that reflect the change in ownership there. That was hotly contested in the bankruptcy, but with the bankruptcy court did effectively. It agreed with us and referred us to the to the Superior Court for it to determine who owned what percentage of Tozer, and once the Superior Court determined that we were to come back for further proceedings in the bankruptcy court.
Bob: So, the court basically said, “Hey, this isn’t really an issue for the bankruptcy court who owns it. That’s more of an issue for you guys to figure out. So go back to the Superior Court and figure it out.”
Joe: That’s exactly right. It was a state law issue. The bankruptcy court, I think, also realized that this case was about a dispute between owners of closely held entities. The companies themselves had, apart from the banks that had secured mortgages and were really over secret, it really didn’t have any other creditors. So, this was a dispute between three or four, you know, five, involving five at most creditors and three of them were part. The three creditors and parties’ interests were the same people that were fighting here, which were the two owners and Mr. Barros.
Bob: So of course, we have the benefit now, nine years later of hindsight. Hindsight is always 20/20 in a case like this, but I want to go back to the beginning.
I want to go back to 2012. You know, Greenberg LaPierre, they walk into your office. They tell you a little bit about the situation and you look at the loan agreement, you look at the SPA, you see that Barros has some other business ventures, you know, outside of just the tennis club. But at least from what you can tell, the tennis club appears to be upside down. You know you, you put together a strategy here. And so, the question, I guess maybe it’s a two-part question.
The question is what did you see way back at the beginning of this? What was the strategy? And the second part is, would you have done anything different at the outset?
Joe: The case evolved from its… from the original complaint that we filed, which if my memory is correct, was just a straight suit on a note. There was a there was a note that that was, I think, referred to in the papers as the Robin Hood note, and it involved certain funds that Mr. Barros had withdrawn from the company and had agreed, had pledged as part of the SPA to pay back. And that’s how it started was essentially to recover this note, which was a relatively small amount in the grand scheme of things. It quickly evolved when other breaches of the SPA
were discovered shortly after that in the amended, the complaint was amended. And at that point in time, we also had a separate reach and apply our request in motion that was filed, and this is different from the reach and apply that we did post judgment to which effectively pursuant to which we sold the interest in the LLC. But this one, was targeted towards obtaining sale proceeds of a building that Mr. Barros owned in Cambridge. So, we caught wind that he was selling a building for a substantial amount. We were able to attach the sale proceeds because the dollar amount that we were looking for went up appreciably from the first iteration of the complaint. And so, we were able to sit there with that security, if my memory is… somewhere in the ballpark of six to $700,000 that we were able to attach to see what happened in this case. And we ultimately later on will be able to apply this to some of the various judgments that we that we obtained. But at the beginning, the strategy was really about trying to redress breaches of the SPA and that’s what we did, and it was limited to that. It really only became scattershot when Mr. Barros decided to put the LLC into bankruptcy, and then it took on a different life, a life of its own, essentially, with myriad issues that needed to be researched, briefed, fought with, dealt with, appealed and so forth.
Bob: You know, that’s it, that’s one of the reasons why this case is so interesting to me because you, you hit the nail on the head. It took on a life of its own, you said. And you know, any time you have a case like this in a, you know, sophisticated commercial litigation, it’s gone on for any length of time, particularly one with so many different cases and different appeals. What happens is, you know, you personally, your clients, you invest so much time, so much emotional capital, so much money, quite frankly. At some point, litigation fatigue kind of sets in or I call it litigation fatigue. And that can be, you know, hey, your clients lose their nerve or start to lose their nerve or, you know, you and your partner, you know, you get another hot case that you’re looking at and you want to devote more time to it. Maybe the courts are getting sick of seeing this case in front of them, you know, whatever it is in a case of this kind of complexity, litigation fatigue kind of creeps in
at some point and or at least that’s been my experience. So, my question is, did that happen at any point in this case?
And if it did, you know, how did how did you address it?
Joe: Well, I can say that litigation fatigue certainly didn’t settle in for Mr. Barros. I will say he did not quit. At no point in this process did he quit. Didn’t matter the strength of an argument that he might be raising, he didn’t quit, and I and I give him that. For my clients, this was this is this was their livelihood. This is what they plan to do for the rest of their lives and my clients… The other thing, too, is that my clients took an entity that from Mr. Barros essentially back in 2010 and turned it around completely.
It is a wonderful place. It’s a vibrant, thriving club. It is the envy of all other clubs around here. And they weren’t about to just give in to the kind of scheming that they were dealing with on a daily basis.
And so, they were equally up to the task. And they were also, I think, emboldened by the fact that they won at every turn. So that combination was able that we are able to keep things moving in the right direction throughout, certainly.
Unfortunately, sometimes the process. Through appeals and so forth, things can take a lot longer, and I don’t think anybody could have reasonably predicted that this would have been eight, excuse me, nine years saga involving eleven appeals and multiple court cases and going to virtually every court in the Commonwealth.
But ultimately, you know, my clients, they stay the course they trusted in our advice, and we’re thankful that they did. And we’ve had a wonderful relationship really from the get-go.
Bob: So, so that’s a really interesting point. So these guys, Greenberg and LaPierre, they weren’t just sort of, you know, investors who were looking at this from like, you know, a fiercely rational, you know, risk reward type analysis, they were actually participants in this company and they wanted to essentially be at this tennis club working this tennis club for the rest of their careers.
Joe: Yes, that’s correct.
Bob: Wow, that’s interesting, I did I didn’t pick that up from the briefing, you know, you did, however, mention in that last answer, I’ll call it “Barros’s determination” for lack of a better word. One thing that I did pick up from the papers is that Barros is… determination sometimes turned to being flat out aggressive and even obnoxious from some of the stuff that I could see to the point where I think even at his deposition made some ethnic slurs toward one of your toward one of your clients.
How did you deal with that or how did you how did you use that in your… to your advantage in this litigation, you know, whether it’s in the briefs or the advocacy piece? Because, you know, of course, it’s the type of thing that we as litigators, we see this, we see obnoxious litigants and you don’t get that in most decisions. You know, the courts, they just sort of, you know, they don’t want that stuff to really filter into their decision-making process. But how did you use it, and do you think it had an impact on any of these courts?
Joe: There were some unfortunate moments. He did say some things that I’m certain he would like to take back in and we certainly didn’t want to hear. There was no excuse for it, quite frankly. From a strategic standpoint, looking at what was in the deposition transcripts, what was said undeniably said, we decided to inform the court about it, and we did it as part of… As part of the background in some of the briefings and certainly in some of the appellate court decisions, or at least the last, at least the briefing, the last of the… I think it was the 11th appeal.
It wasn’t, for instance, the first thing we said because this this case is like every other case. It’s about the merits and that’s what the courts want to hear. But it is important, I think, in the context of someone who you’ve been trying to collect a judgment against since I think the first judgment entered in 2014, who hasn’t volunteered a single dime. And as a judgment predator, you’ve had to essentially go through multiple hoops to try to get anything. And the only time we’re able to collect here was pursuant to our attachments, our reach and apply attachments was whether it was the sale proceeds from that from the Cambridge sale back in 2012 that we were able to attach or later through the reach and apply auction. I think it’s important for the court to see that as part of the analysis, to say, OK, we’ve got someone who’s saying some pretty bad things and also not volunteering a dime in the context of a judgment creditor asking for equitable relief from the court to basically to collect on a judgment that it’s had for some time. I think it’s important for the court to see that. But again, it was it was not the first thing. We kept it to focus on the merits, but I think it does add color to the overall situation, which I’m sure the justices appreciate it.
Bob: Well, let’s get back then to kind of the equity piece here and the reach and apply attachment that was the subject of the most recent of, I guess, the 11th appeal. And the thing that, one of the things that was interesting about that appeals court decision is that it really demonstrates the full extent of the court’s equitable powers to see that its judgments are enforced, to see its judgments through. But it also clarified the intersection between equitable remedies like reach and apply, and some of the remedies that are specified right in the Massachusetts Limited Liability Act. And I know that Barros was arguing essentially, “Hey, you know, there is a remedy already provided for in the Limited Liability Act. It’s a charging order. And so, you don’t get to, you know, kind of go in equity and ask for the type of relief that that you’ve asked for. That reach and apply really shouldn’t apply here.”
Now, the courts disagreed, but, you know, there really isn’t any case law up to this point on that intersection between equitable remedies and the Massachusetts Limited Liability Act. So how did you approach that issue?
Joe: Yeah. In the last appeal, that really was the I think the only argument Barros had left it was the last arrow in his quiver, so to speak. And we approached it, I think. Looking at the arguments he was making, essentially, which was that the enactment of 156 C Section 40, the charging order for an LLC is the only remedy that can be used and more importantly, that it effectively abrogated the reach and apply statute as it relates to LLC. And we looked at that and as you noted, there’s scant case law, virtually no case law discussing the intersection here in Massachusetts and so we looked at it and said, “Well, you know, when it comes to abrogating statutes, there are only two ways that that happens. One is if it’s done explicitly and here, I think it was undisputed that there was not a mention of it anywhere in terms of the intent of the Massachusetts Legislature to abrogate the reach and apply statute when it passed Section 40 of the LLC statute. So that one was out the window and the other one is by clear implication, meaning that it’s so obvious here that that’s what they intended to do, and we looked at that and said, “Well, no, geez, you know what we have here is just another available remedy under the LLC. We have the reach and apply statutes that their centuries old like. This remedy has been around forever.”
And so, the idea that that the LLC, a statute intended to displace that bill, if that were the case, the Massachusetts Legislature of branch ought to have mentioned that, and they certainly knew how to do it if they wanted to be abrogated.
The other thing that Mr. Barros effectively argued was just because the LLC statute was passed more recently, that that automatically meant that they intended to displace the prior statute and we forcefully argued, I think there that that’s not the way it works here in Massachusetts and you presume that the Legislature is aware of the prior statutes when they enact a later statute. And since that’s the case, if they mean to displace it, they know how to do it. They would have said something. And the appeals court agreed with that. And I think that’s exactly the right and the way to look at it, and I think they got it right here.
Bob: Well, the appeals court agreed with you on this decision. And from my read of all these various dockets, the courts agreed with your positions on almost everything, including awarding, you know, attorneys’ fees in your client’s favor on multiple occasions.
So, I guess I have to ask as we’re wrapping up the interview, where does this, where does this case and all these various litigations…where is it right now?
Joe: So, I’m happy to report that the parties have settled recently, so it’s officially over. And one last thing that I would want to mention is, I guess, a practice tip to folks who might be confronted with a similar issue where they’re trying to reach and apply in interest in an LLC. One of the things that’s important here to here is that the only members of the LLC were Mr. Barros and my clients. Mr. Barros, at that point in time claimed he was the only member. My client’s claim well, we’ve already become 80% members, but either way, there aren’t any other third parties that were being affected by this. The outcome possibly could have been different if we were asking the court to sell Mr. Barros’ interest, and third parties who are resisting that effort was opposing that sale because they didn’t want to become partners with my clients. You could see a separate set of facts where that would happen and if that’s the case, the court might have looked at this, at least the trial court might have looked at this through a different lens. But what is nice about that is it’s that’s just one of the many equitable considerations that the trial court has to consider when granting the type of relief that we requested here.
And so we were fortunate here under the circumstances and the facts of our case that it was an eloquent way for the court to resolve this, but as a practice point, you really need to think about that in terms of who else other than the parties that are in the litigation might be affected and how that might affect the relief that you’re requesting.
Bob: That’s an excellent practice pointer for dealing with equitable remedies in this context.
That’s our show. Check out our show notes for more information on today’s case. Also, if you are involved in an interesting civil case or know about one that you think would be a good topic for the show. Reach out to me at firstname.lastname@example.org.
Joe: Thank you, Bob.
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