RICE v. NATHAN RICE, INC., 2:21-cv-00090

Background

In 2014 Herbert and Sidney Rice executed a Shareholder Agreement creating two divisions within Nathan Rice, Inc. (NRI): HR (Herbert) and SR (Sidney), allocating assets and making each shareholder responsible for liabilities of his division.
On June 24, 2018 Herbert sent a written letter stating he was terminating the Shareholder Agreement and requesting transfer of his division’s assets; Walnut Capital thereafter retitled Hempstead Road distributions to Herbert and Suezette as joint tenants and paid distributions through Nov. 2020.
Defendants stopped distributions in Nov. 2020 and placed funds in escrow; Hempstead Road Associates (HRA) refinanced and encumbered property in Dec. 2020, with Edward Rice executing the HRA consent and altering a signature block related to Herbert/Suezette’s interest.
Edward Rice (as trustee of the Sidney David Rice Irrevocable Trust) did not execute a joinder to the Shareholder Agreement until Dec. 2021; no corporate minutes or shareholder meetings were held between 2015 and the present.
Plaintiff Suezette filed a motion for summary judgment seeking declaratory relief that Herbert’s June 24, 2018 letter terminated the Agreement, entitlement to withheld distributions, voiding of later encumbrances on her interest, and dismissal of the Trust’s counterclaim; she also moved to strike two unsolicited defendant supplements.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Herbert’s June 24, 2018 written notice terminated the Shareholder Agreement	Herbert’s letter effectuated automatic termination under ¶8(A); termination date is the letter date	Termination not effective because Herbert failed to account for or prepay division liabilities; liabilities create a disputed issue	Court: Termination occurred on June 24, 2018; assets transferred are subject to HR liabilities as of that date; liability amounts remain disputed and reserved for trial
Whether withheld distributions (escrowed funds) must be paid to Suezette	Suezette entitled to distributions as HR assets after termination; Defendants’ withholding is wrongful	Distributions must be offset by HR division liabilities (taxes, NOLs, accounting costs); escrow is needed to satisfy those liabilities	Court: Plaintiff entitled to distributions only to extent they exceed HR liabilities as of June 24, 2018; determination of amounts is a factual dispute for trial
Validity of HRA’s Dec. 2020 encumbrance of Hempstead Road interest owned by HR division	Encumbrance is ineffective as to Herbert/Suezette’s 5.993% interest because Shareholder Agreement had terminated in 2018 and HR owned that interest outright	Defendants contend NRI/HRA could encumber property and corporate assent not required from minority after 2018	Court: Because termination date is June 24, 2018, Defendants’ authority to encumber HR’s interest is highly questionable; court reserves declaratory relief on encumbrance pending trial
Whether the Trust may seek indemnification under ¶7 given delay in joinder and termination	Plaintiff: Trust and Edward did not join Agreement until Dec. 2021; ¶7 indemnity cannot apply to events after termination; counterclaim fails	Trust: Paragraph 14’s first sentence binds successors and transferees; Trust may enforce ¶7 despite delayed joinder; Herbert remains liable	Court: ¶7 indemnity does not survive termination to cover post-termination lawsuit costs; trust’s amended counterclaim dismissed with prejudice (indemnity claim barred); joinder delay undermines Trust’s position

Key Cases Cited

Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard and burden shifting)
Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (materiality and reasonable jury standard at summary judgment)
Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133 (2000) (court not to weigh credibility at summary judgment)
Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79 (3d Cir. 2001) (written contract controls parties’ intent)
Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69 (3d Cir. 2011) (contract interpretation principles under Pennsylvania law)
Murphy v. Duquesne Univ. of the Holy Ghost, 777 A.2d 418 (Pa. 2001) (whole instrument and plain-language contract construction)
Litton Fin. Printing Div. v. NLRB, 501 U.S. 190 (1991) (contracts ordinarily terminate obligations on expiration absent explicit survival language)
M&G Polymers USA, LLC v. Tackett, 574 U.S. 427 (2015) (do not infer post-termination vesting absent explicit language)
Glenn Distributors Corp. v. Carlisle Plastics, Inc., 297 F.3d 294 (3d Cir. 2002) (four-corners rule for clear and unambiguous contracts)