648 F.Supp.3d 230
D. Mass.2022Background:
- Grant W. Armstrong and Armstrong RX GP, LLC (the Armstrong Parties) bought two pharmacies (Plano and Dallas) financed by White Winston Select Asset Funds, LLC (WW). Loans included a Dallas Loan Agreement, a $1M term note, and a $500K (later $750K) revolving note; Armstrong executed a Limited Guaranty with a "Good Guy" release clause.
- Transition Services Agreements (TSAs) with QVL contemplated lockbox receivables and vendor payments; disputes arose over access to lockbox funds and vendor payments, and inventory problems allegedly tied to QVL/ABDC indebtedness.
- Parties executed a First Amendment in Oct. 2014 that included a broad general release (the "Dallas Release"); Armstrong previously executed a Plano Release in Sept. 2014 whose scope remained ambiguous.
- AGP II defaulted on the Dallas loan; Armstrong notified WW in Dec. 2015 that he transferred his Dallas interests under the Good Guy Clause and closed the Dallas pharmacy; he and AGP then sued WW.
- WW moved for summary judgment seeking dismissal of many TAC counts and partial summary judgment on its counterclaims and third-party claims; the magistrate judge allowed some claims and denied others, reserving damages for trial.
Issues:
| Issue | Plaintiff's Argument (Armstrong) | Defendant's Argument (WW) | Held |
|---|---|---|---|
| Validity/effect of Dallas Release (First Amendment) | Release was fraudulently induced because WW promised access to lockbox funds; release therefore invalid | Release is valid; Armstrong knew or should have known promises were not honored for months before executing amendment | Held: Dallas Release valid; fraudulent-inducement claim fails (reliance unreasonable). WW wins; fraud-based TAC counts dismissed. |
| Scope/enforceability of Plano Release | Plano Release limited to Plano transaction only | Release is broad and covers claims related to both pharmacies | Held: Plano Release ambiguous on record; court declined to resolve as matter of law. |
| Meaning/enforceability of Good Guy Clause (entitlement to release under guaranty) | Armstrong complied by transferring interests and cooperating; entitled to release | WW exercised good-faith discretion to deny release because Armstrong failed to protect collateral (diverted prescriptions, closed store, filed suit) | Held: Genuine factual dispute exists whether WW reasonably/faithfully denied release; declaratory claim and related implied-covenant claim survive summary judgment. |
| Breach of contract re: Dallas Loan / access to lockbox funds | WW breached Dallas Loan by starving Dallas pharmacy and withholding lockbox funds | Dallas Loan contains no express right to lockbox access; integration clause bars parol evidence | Held: Armstrong’s breach claim fails as matter of law; summary judgment for WW. |
| Tortious interference with TSAs/Side Agreement | WW prevented QVL from remitting TSA receivables and caused false TSA invoices; interfered with Side Agreement funding PRM | WW acted within lender rights; Armstrong lacks evidence of improper motive or means; Side Agreement does not give Armstrong direct reimbursement right | Held: Summary judgment for WW on tortious interference claims (Counts 13–14). |
| Fiduciary duty (lender-borrower) | WW controlled lockbox and operations, so owed fiduciary duty to Armstrong | Lender-borrower relationship alone (including lockbox control) does not create fiduciary duty absent unusual day-to-day control or accepted trust | Held: No triable evidence WW exercised requisite control or accepted trust; summary judgment for WW on fiduciary claim. |
| WW's breach/promissory-note actions and covenants claims | Armstrong defenses (fraud) avoid enforcement | Dallas Release released fraud defenses; defaults undisputed; notes signed by AGP II/ALP II | Held: Summary judgment for WW on breach of Dallas Loan and on enforcement of $1M and $500/750K notes; WW not entitled to summary judgment on its good-faith covenant claims against Armstrong (genuine disputes). |
| Chapter 93A claims by WW | (WW) Armstrong engaged in unfair/deceptive conduct in MA | Armstrong’s alleged deceptive acts occurred in Texas; WW cannot show the conduct occurred primarily in Massachusetts | Held: WW not entitled to summary judgment on its 93A claims; factual inquiry remains. |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary-judgment standard and burdens)
- Farmers Ins. Exch. v. RNK, Inc., 632 F.3d 777 (1st Cir. 2011) (contract ambiguity and extrinsic evidence on summary judgment)
- General Hosp. Corp. v. Esoterix Genetic Laboratories, LLC, 16 F.4th 304 (1st Cir. 2021) (enforcement of broad general releases)
- Kenda Corp. v. Pot O’Gold Money Leagues, Inc., 329 F.3d 216 (1st Cir. 2003) (elements of fraudulent inducement claim)
- Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43 (Mass. 2004) (fraud: reliance is usually a jury question)
- FAMM Steel, Inc. v. Sovereign Bank, 571 F.3d 93 (1st Cir. 2009) (when lender-borrower relationship may create fiduciary duties)