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WeCare Holdings, LLC v. Bedminster International Limited

March 9, 2009

WECARE HOLDINGS, LLC AND C. WESLEY GREGORY, III, PLAINTIFFS,
v.
BEDMINSTER INTERNATIONAL LIMITED, DEFENDANT.



The opinion of the court was delivered by: Michael A. Telesca United States District Judge

DECISION and ORDER

INTRODUCTION

Plaintiffs WeCare Holdings, LLC ("WeCare Holdings") and C. Wesley Gregory, III ("Gregory") (collectively "plaintiffs") bring this action against defendant Bedminster International Limited ("Bedminster" and/or "defendant") for breach of contract. Plaintiffs allege that in May 2006, the parties reached an agreement regarding the terms by which defendant would acquire a limited liability company known as WeCare Environmental, LLC (the "Company" and/or the "Target") as referred to in the Purchase and Sale Agreement. Plaintiffs claim that Bedminster subsequently breached the Purchase and Sale Agreement by refusing to satisfy its terms of acquiring the remaining 50% interest in the Company.

Plaintiffs now bring a motion for summary judgment under Federal Rules of Civil Procedure 56*fn1 and defendant cross-moves for a stay of this action pending the outcome of an arbitration it brought against plaintiffs for violations of an Amended and Restated Operating Agreement (the "Operating Agreement") reached by the parties in May 2006.*fn2 For the reasons outlined below, the Court denies Bedminster's motion for a stay and grants plaintiffs' motion for summary judgment.

BACKGROUND

The following facts, viewed in a light most favorable to the non-movant, are undisputed unless otherwise noted. Plaintiffs and Bedminster entered into a written agreement (the "Purchase and Sale Agreement") on May 10, 2006 pursuant to which Bedminster would acquire all of WeCare Holdings interest in the Company. Prior to May 10, 2006, WeCare Holdings owned 100% of the outstanding interest in the Company. At all times relevant, the Company maintained a composting facility located at 856 Boston Post Road East, Marlborough, MA (the "Project"). In addition, at all times relevant, the Project was a regulated waste disposal facility operated under permit issued by the Massachusetts Department of Environmental Protection.

Pursuant to the Purchase and Sale Agreement, on May 10, 2006 Bedminster acquired from WeCare Holdings 50% of the outstanding interest in the Company. Moreover, Article 6 of the Purchase and Sale Agreement provides for Bedminster's acquisition of the balance of the 50% interest in the Company (the "Remaining Interest"). Under Article 6.1, Bedminster had the option of acquiring from WeCare Holdings the Remaining Interest for a price calculated in accordance with a formula set forth in the agreement. The purchase option was effective "any time from ... [May 10, 2006] until the date that is thirty months from the date hereof (the "Expiry Date"). Bedminster agreed, however, that "[i]f the Buyer has not exercised the Purchase Option prior to the Expiry Date Buyer shall purchase the Remaining Interest from Seller on the Epiry Date. The consideration for such purchase pursuant to this Section 6.2 shall be U.S. $3,000,000 in cash." Under the Purchase and Sale Agreement, "Remaining Interest" means the remaining fifty percent (50%) of the membership interests in the company, which the Seller will continue to hold following the closing.*fn3 Accordingly, plaintiffs claim that pursuant to the terms of the Purchase and Sale Agreement, including § 6.2, Bedminster agreed and undertook the unqualified obligation to acquire from WeCare Holdings its Remaining Interest in the Company. However, defendant argues that before acquiring the Remaining Interest, plaintiffs had to adhere to certain conditions before the closing date. Defendant also claims that the Purchase and Sale Agreement must be read in conjunction with the Operating Agreement. Thus, Bedminster contends that it had no "unqualified obligation" because plaintiffs were obligated to comply with the provisions of the Purchase and Sale Agreement and the Operating Agreement and failed to do so.

Plaintiffs claim that during a meeting held on November 24, 2007 between Bedminster and WeCare Holdings executives, Bedminster announced that it would not acquire the Remaining Interest under the terms set forth in the Purchase and Sale Agreement but would negotiate for terms substantially reduced from the $3,000,000 purchase price agreed upon. According to plaintiffs, Bedminster proposed new terms on December 4, 2007 that were less favorable to plaintiffs than what was agreed upon in the Purchase and Sale Agreement. In addition, plaintiffs claim that the December 4 offer was presented in the form of an ultimatum that, if not accepted, would result in Bedminster's withdrawal from further negotiations.

Defendant contends that during this time the parties were engaged in settlement negotiations concerning Bedminster's acquisition of the Remaining Interest at a reduced cost. The negotiations continued beyond November, 2007. Defendant further asserts that by offering a reduced amount for the Remaining Interest, plaintiffs confirmed the decline in value and their own culpable conduct. Plaintiffs contend that on April 22, 2008, Bedminster announced that it was "walking away from the deal" and would have "nothing more to do with it." See Affidavit of C. Wesley Gregory ("Gregory Aff.") ¶ 16. Accordingly, plaintiffs contend that Bedminster repudiated the contract as of April 22, 2008. Defendant disputes this assertion and claims that the parties were in the process of settlement negotiations.*fn4

Before May 10, 2006, Gregory provided a personal guaranty of certain amounts owed by the Company to Citizen's Bank, N.A., which totaled in excess of $1.3 million (the "Bank Debt"). In addition, Bedminster agreed "if Gregory is required to make any payment with respect to that portion of the Bank Debt attributable to the Company as a guarantor thereof prior to the Remaining Interest Closing Date, Buyer shall indemnify and hold Gregory harmless for fifty percent (50%) of the amounts paid or otherwise incurred by Gregory with respect to such guaranty. If Gregory is required to make any payment with respect to that portion of the Bank Debt attributable to the Company as a guarantor thereof after the Remaining Interest Closing Date, Buyer shall indemnify and hold Gregory harmless for the full amount paid or otherwise incurred by Gregory with respect to such guaranty." See Gregory Aff. Ex. A. Defendant does not dispute this provision but claims that reference to other governing provisions of the Purchase and Sale Agreement as well as the Operating Agreement is necessary.

Before entering into the Purchase and Sale Agreement, defendant:

completed all audits, assessments, reviews, investigations, tests and studies of the environmental and physical condition of the Project ("the Investigations") which Buyer deem[ed] necessary and appropriate and [was] satisfied in all respects with the findings of such audits, assessments, reviews, investigations, tests and studies.

See Gregory Aff. Ex. A. Moreover, prior to entering into the Purchase and Sale Agreement Bedminster had: an adequate opportunity to ask questions and receive answers from the Managers of the [Company] concerning any and all matters relating to the transactions described herein including, without limitation, the background and experience of the current and proposed Managers of the [Company], the plans for operations of the business of the [Company], the business, operations and financial condition of the [Company], and any plans for additional development projects and the like. Such Member acknowledges that he or his purchaser representative has had an adequate opportunity to ask questions and receive answers from the Managers of the [Company] pertaining to the [Company] and the Projects. Such Member further acknowledges that he is relying on his own independent investigation and analysis to determine whether or not to purchase the Membership Interests.

See Gregory Aff. Ex. B. Defendant does not dispute these provisions but argues that reference to other governing provisions of the Purchase and Sale Agreement and the Operating Agreement is necessary. In addition, as part of Bedminster's investigation, it had to rely upon budgets and forecasts of plaintiffs which defendant claims proved to be grossly inaccurate.

It is undisputed that the Purchase and Sale Agreement provided that "no party will attempt to deny or defeat such personal jurisdiction and hereby unconditionally waives and agrees not to plead or claim any such action or proceeding brought in any such court has been brought in an inconvenient forum. All parties hereto agree that they will not bring an action relating to this Agreement or any transaction contemplated by this Agreement in any court other than the state and federal courts situated in Monroe County, New York." See Gregory Aff. Ex A. However, defendant agreed that any dispute arising out of the Operating Agreement would be subject to arbitration and that "no action at law or in equity based upon any claim arising out of or related to the [Operating] Agreement shall be instituted in any court by any Member except (a) an action to compel arbitration pursuant to this Section or (b) an action to enforce an award obtained in an arbitration proceeding in accordance with the Section." See Gregory Aff. Ex. B. In this regard, plaintiffs assert that the Complaint alleges causes of action arising only out of Bedminster's breach of the Purchase and Sale Agreement and no cause of action in the Complaint arises out of the Operating Agreement. Defendant does not dispute these assertions but claims that its defenses arise in part out of plaintiffs' breach of the Operating Agreement which was executed at the same time.

Defendant's Third Counterclaim seeks an accounting concerning the alleged failure to provide monthly financial records. The Fourth Counterclaim asserts that plaintiffs have managed the day-to-day operations of the Company so as to have placed the Company in financial jeopardy. In addition, the Fifth Counterclaim alleges mismanagement relating to the day-to-day operations. Plaintiffs contend that the Third, Fourth and Fifth Counterclaims assert matters arising solely under the Operations Agreement. Further, plaintiffs claim that defendants Third, Fourth and Fifth Counterclaims may only be arbitrated and may not be litigated before this Court. Defendant argues that plaintiffs breached both the Purchase and Sale Agreement and the Operating Agreement, which were executed at the same time and thus are part of the same transaction.

DISCUSSION

I. Motion to Stay Action Pending Arbitration

Defendant seeks a stay of this action pending the completion of the arbitration arising out of disputes under the Operating Agreement. In the action pending before this Court, the agreement to arbitrate is contained in the Operating Agreement but not in the Purchase and Sale Agreement. A court, "despite the inapplicability of the FAA, may stay a case pursuant to 'the power inherent in every court to control the disposition of the causes on its docket with economy of time and offset for itself, for counsel, and for litigants.'" See Worldcrisa Corp. v. Armstrong, 129 F.3d 71, 76 (2d Cir.1997) (quoting Nederlandse Erts-Tankersmaatschappij, N.V. v. Isbrandtsen Co., 339 F.2d 440, 441 (2d Cir.1964)); see also Landis v. North Am. Co., 299 U.S. 248, 254 (1936). "It is appropriate, as an exercise of the district court's inherent powers, to grant a stay where the pending arbitration is an arbitration in which issues involved in the case may be determined." See Sierra Rutile Ltd. v. Katz, 937 F.2d 743, 750 (2d Cir.1991); see also Orange Chicken, L.L.C. v. Nambe Mills, Inc., 2000 WL 1858556, at *9 (S.D.N.Y.2000) (finding a stay appropriate where "the claims in the instant action and those being adjudicated in arbitration arise out of the same series of alleged acts"); Midland Walwyn Capital Inc. v. Spear, Leeds & Kellogg, 1992 WL 249914, at *2 (S.D.N.Y.1992) ("Courts in this district have repeatedly granted stays pending arbitration where the nonarbitrable issues overlap the arbitrable issues, thus minimizing inconsistent results and conserving judicial resources."); Hikers Indus., Inc. v. William Stuart Indus. Ltd., 640 F.Supp. 175, 178 (S.D.N.Y.1986) ("A ...


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