TIMOTHY J. WALSH v. MARK D. WALSH

INTRODUCTION

This partition proceeding was commenced with the filing of a petition on November 18, 2019 in which the petitioner, Timothy J. Walsh ("Timothy"), alleged that he and Mark D. Walsh ("Mark") were the owners as tenants in common, each with a 50% interest, in property located at 73 Beverly Road, Brookline, Massachusetts ("the Premises"). Title was alleged to derive from a deed from Timmark, LLC ("the LLC") dated November 8, 2019 and registered in the Norfolk County Registry District ("the 2019 Deed"). Before the court now are Respondent's Motion To Amend Answer ("Motion To Amend"), in which Mark seeks to amend his answer to contest the validity of the 2019 Deed, and Motion For Summary Judgment Of The Defendant Mark Walsh ("Summary Judgment Motion"), in which Mark contends that, because the 2019 Deed is invalid, title to the Premises remains in the LLC and, as a result of that, the partition proceeding should be dismissed, presumably because partition is not available to members of an LLC. For the reasons set forth below, both motions are ALLOWED.

THE MOTION TO AMEND

Procedural History

Because Timothy's arguments against the Motion To Amend are largely based on Mark's changing positions during the course of these proceedings, a detailed review of that procedural history is necessary. Service was effectuated on Mark on November 21, 2019 and the return of service was docketed on November 29, 2019. On December 27, 2019, Mark filed an answer in which he admitted that he and Timothy were tenants in common, that the Premises could not be advantageously divided, that the Premises should be sold by private sale, but that, because he lived at the Premises, Mark would require a reasonable amount of time to relocate. Mark also claimed compensation for improvements made by him to the Premises.

A case management conference was held on January 2, 2020 at which counsel appeared for both parties. The docket entry for that event states that the parties agreed that the property could not be advantageously divided, that the market value of the property was between $1.2 and $1.4 million, that the parties were engaged in negotiations regarding the terms of a sale, and that the court had determined not to appoint a commissioner at that time. The parties were to provide a report to the court on February 3, 2020 as to the status of the sale of the Premises. A Joint Case Management Conference Statement filed by the parties states, among other things, that "Mark Walsh understands his brother has a right to seek this partition and agrees in principle that the Premises should be sold" and that "[t]he Defendant agrees that the property should be sold and the proceeds divided appropriately. He seeks to remain in residence for a reasonable time in order to secure other accommodations."

Discussion

In the Motion To Amend, Mark seeks to amend his answer (1) to allege that Timothy does not own the Premises as a cotenant or in any other capacity and that the 2019 Deed is null and void and did not serve to transfer title to Timothy and Mark, and (2) to request that the petition be dismissed. Mark relies on well-established law that leave to amend "shall be freely given when justice so requires." Mass. R. Civ. P. 15(a); Foman v. Davis, 371 U.S. 178, 182 (1962); Castellucci v. United States Fid. & Guar. Co., 372 Mass. 288 , 290 (1977). Timothy opposes the Motion To Amend on the grounds that Mark is judicially estopped from making new claims and arguments contrary to his prior positions in this proceeding and that the proposed amendment is futile, there being no evidence that Mark "has suffered any harm or had any fewer rights as an owner individually or as an owner of an LLC."

Judicial estoppel is not applicable here. "Judicial estoppel, or 'preclusion by inconsistent positions,' is an equitable doctrine which precludes a party from asserting a position in one legal proceeding which is contrary to a position that it has already asserted in another." Fay v. Federal Nat'l Mortgage Ass'n, 419 Mass. 782 , 787 (1995), quoting Patriot Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208, 212 (1st Cir. 1987). "The purpose of the doctrine [of judicial estoppel] is to prevent the manipulation of the judicial process by litigants." Commonwealth v. DiBenedetto, 458 Mass. 657 , 671 (2011), quoting Canavan's Case, 432 Mass. 304 , 308 (2000). "[T]he doctrine is properly invoked whenever a 'party is seeking to use the judicial process in an inconsistent way that courts should not tolerate.'" Id. quoting East Cambridge Sav. Bank v. Wheeler, 422 Mass. 621 , 623 (1996).

In DiBenedetto, 458 Mass. at 671, quoting Otis v. Arbella Mut. Ins. Co., 443 Mass. 634 , 640 (2005), which in turn quotes and cites Alternative Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 33 (1st Cir. 2004), the court stated that:

"two fundamental elements are widely recognized as comprising the core of a claim of judicial estoppel. First, the position being asserted in the litigation must be 'directly inconsistent,' meaning 'mutually exclusive' of, the position asserted in a prior proceeding[;] . . . [and] [s]econd, the party must have succeeded in convincing the court to accept its prior position."

And, in Otis, the Supreme Judicial Court quoted New Hampshire v. Maine, 532 U.S. 742, 750 (2001), for the proposition that "[a]pplication of the equitable principle of judicial estoppel to a particular case is a matter of discretion." 443 Mass. at 640. "Because of its equitable nature, the 'circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle.'" Id. The Otis court did, however, recognize two circumstances where judicial estoppel might not apply: (1) "when a party's prior position was based on inadvertence or mistake," id. at 642, quoting New Hampshire v. Maine, supra at 753; and (2) where "the new, inconsistent position is the product of information neither known nor readily available to [the party] at the time the initial position was taken." Id. quoting Alternative Systems Concepts, Inc., supra at 35.

As an initial matter, it bears noting that Mark's earlier position was not one that favored him in any respect: he was conceding, against his own interest, that partition was appropriate here. This is not a case where a party took one position perceived to be advantageous to him, only to change position to gain advantage later. In addition, at this early stage in the proceedings, Mark has not "succeeded in convincing the court to accept [his] prior position." Moreover, as set forth in the Further Affidavit Of Joel Z. Eigerman, Esq., dated March 10, 2020, Mark did not understand the niceties of how title was held and understood instead that he had always held title to the Premises with his brother as tenants in common; that his lawyer, Mr. Eigerman, did not have cause to examine how title to the Premises was held initially; that it was only at the end of January 2020, that Mr. Eigerman learned that the Premises had been held by the LLC from 2008 until November 2019, four days before this action was brought; and that Mr. Eigerman immediately raised his concerns regarding the validity of the 2019 Deed with Timothy's counsel. It also bears noting that Mr. Eigerman acted promptly: the original answer was filed on December 27, 2019 and Mr. Eigerman discovered his error within a month, by late January 2020. On this record, even if the doctrine were otherwise applicable, this court would conclude that Mark's prior position was based on inadvertence or mistake and so would decline to exercise its discretion to apply the doctrine here.

In addition, the Motion To Amend is not futile. There is a substantial difference between the parties' positions as tenants in common and their positions as members of a limited liability company holding record title to the Premises. Partition is only available to parties holding a present possessory interest in land. Bernat v. Kivior, 22 Mass. App. Ct. 957 , 958-959 (1986) ("The right to partition presupposes a present, possessory interest in land. G. L. c. 241, §1. Towle v. Wingate, 229 Mass. 566 , 567 (1918)."); G.L. c. 241, §1 ("Any person, except a tenant by the entirety, owning a present undivided legal estate in land, not subject to redemption, shall be entitled to have partition in the manner hereinafter provided."). Partition is not available to members of a limited liability company. G.L. c. 156C, §38 ("A limited liability company interest is personal property. A member has no interest in specific limited liability company property."). If the 2019 Deed is invalid and title to the Premises remains in the LLC, then partition is not available here.

THE SUMMARY JUDGMENT MOTION [Note 1]

Undisputed Facts

With respect to the Summary Judgment Motion, the following facts are either undisputed in the record [Note 2] or are matters of public record of which the court takes judicial notice: [Note 3]

1. Timothy and Mark are brothers. M-SOMF ¶ 1.

2. In 2004, the Premises were conveyed from a trust, of which Timothy and Mark were the sole beneficiaries, to the two of them as tenants in common. M-SOMF ¶ 2.

3. In 2008, the parties formed the LLC and conveyed the Premises to it. M-SOMF ¶ 3.

4. The Premises were the sole asset of the LLC. Id.

5. Timothy and Mark are each a member and a 50% owner of the LLC. M-SOMF ¶ 5.

6. The Operating Agreement for the LLC states that Timothy and Mark are the sole members of the LLC and that the LLC shall be managed by its members, but does not provide for the voting rights of members other than in the case of dissolution, Art. 1.4(a); in case of death of a member, Art. 1.5; or in case of the admission of additional members, Art. 1.9. M-SOMF Ex. 3.

7. The Limited Liability Company Operating Agreement For Timmark, LLC ("the Operating Agreement") provides for distribution of the net cash of the LLC annually or more frequently as the members shall determine, and for distribution in liquidation of the LLC or in liquidation of a member's interest "in accordance with the positive capital account balances pursuant to Treasury Regulation 1.704-1(b)(2)(ii)(b)(2)." It does not otherwise provide for distributions. Id.

8. The first annual report of the LLC filed with the Commonwealth of Massachusetts Secretary of State, dated April 1, 2009 and signed by Timothy, states in conformity with the Operating Agreement that there are no managers of the LLC. Commonwealth of Massachusetts Secretary of State, Corporations Division, Filing No. 200967665920.

9. Timothy and Mark are both listed as the persons authorized to execute and file documents with the Secretary of State and to execute any recordable instruments purporting to affect an interest in real property, although there is no "and" or "or" between their names to indicate whether they can act singly or must act jointly. Id.

10. The second annual report of the LLC filed with the Secretary of State on October 27, 2010 contains the same information regarding managers and persons authorized to execute documents on behalf of the LLC. Commonwealth of Massachusetts Secretary of State, Corporations Division, Filing No. 201015776070.

11. The LLC neglected to file annual reports or pay annual excise taxes due for several years, as a result of which it was administratively dissolved by the Secretary of State on June 30, 2013. M-SOMF ¶ 9.

12. As a result of Timothy's filing of missing annual reports and payment of outstanding annual taxes, M-SOMF ¶ 12, the LLC was reinstated on November 7, 2019. Commonwealth of Massachusetts Secretary of State, Corporations Division, Filing No. 201938160600.

13. The records of the Secretary of State reflect that, on November 7, 2019, annual reports for the years 2011 through 2019 were filed with the Secretary of State, each with an indecipherable signature, and each indicating changes to paragraphs 6, 7 and 8. Commonwealth of Massachusetts Secretary of State, Corporations Division, Filing Nos. 201938191460, 201938191280, 201938190760, 201938190580, 201938219470, 201938190490, 201938190300, 201938189610, 201938189160.

14. Paragraph 6 now lists Timothy and Mark as managers, paragraph 7 now lists no one as authorized to execute and file documents with the Secretary of State, and paragraph 8 lists new addresses for Timothy and Mark.

15. On the same date, the records of the Secretary of State indicate that the LLC was reinstated following administrative dissolution. Commonwealth of Massachusetts Secretary of State, Corporations Division, Filing No. 201938160600.

16. On November 8, 2019, Timothy executed a deed of the Premises from the LLC to Timothy and Mark as tenants in common. M-SOMF ¶ 13.

17. Mark was not consulted with respect to this conveyance and did not agree to it. M- SOMF ¶ 14.

18. The 2019 Deed was registered at the Norfolk County Registry District on November 14, 2019. M-SOMF ¶ 13.

19. Mark has lived at the Premises continuously since 2009. M-SOMF ¶ 6.

20. Timothy has not lived at the Premises since a period of several weeks in 1995 and has lived in Florida since 2004. Id.

21. Since relocating to Florida in 2004, Timothy has sought to have the Premises sold and the proceeds divided, but the parties were never able to reach an agreement on the sale of the Premises. M-SOMF ¶ 10. [Note 4]

Discussion

Chapter 156C of the General Laws governs limited liability companies. Section 21 provides that, "[i]f an operating agreement does not provide for the voting rights of members, the decision of members who own more than fifty percent of the unreturned contributions of the limited liability company determined in accordance with section twenty-nine shall be controlling." Here, the parties do not dispute that they each own a 50% interest in the LLC. Section 24(a) provides that, "[u]nless otherwise provided in the operating agreement, the management of a limited liability company shall be vested in its members." While section 24(d) allows members to delegate some or all of their rights and powers, there is no evidence that any such delegation occurred here, either by Timothy or by Mark. Section 31 provides, with exceptions not relevant here, that "a member is entitled to receive distributions from a limited liability company only to the extent and at the times or upon the happening of the events specified in the operating agreement or, if the operating agreement does not so specify, as determined by the members . . . pursuant to section twenty-one," i.e. by a decision of members who own more than fifty percent of the unreturned contributions of the LLC.

Here, whether the Operating Agreement is read to expressly address the distribution of the LLC's sole asset or not, the result is the same. Distributions are determined by the members pursuant to Art. 3.2. Management of the LLC generally, including "the disposition of the Company's assets," Art. 4.3(a) and "the management of all or any part of the Company's assets," Art. 4.3(c), also vests in the members. Art. 4.1. Because the Operating Agreement does not set forth the voting rights of members in any of those circumstances, G.L. c. 156C, §21 applies and requires a decision by members owning more than fifty percent of the LLC. Since Timothy only holds a 50% interest in the LLC, he could not make the decision to convey the Premises out of the LLC without Mark's agreement. And because Timothy did not have Mark's agreement, he lacked authority to execute the 2019 Deed on behalf of the LLC. G.L. c. 156C, §21; see Sullivan v. Kondaur Capital Corp., 85 Mass. App. Ct. 202 , 211-212 (2014) ("Ordinarily, under Massachusetts law, an instrument transferring an interest in land held by a business corporation and executed by an individual officer will bind the corporation only if the officer is authorized or directed by the board of directors so to do. See G. L. c. 156D, §8.41."). As a result, the 2019 Deed is voidable by Mark. Bank of N.Y. Mellon Corp. v. Wain, 85 Mass. App. Ct. 498 , 504 (2014) (recorded conveyances that, on their face, comport with statutory requirements are voidable based on latent technical defects, such as an agent's lack of authority).

In opposition to the Summary Judgment Motion, Timothy argues that Mark's motion is really one to dismiss for failure to state a claim upon which relief may granted pursuant to Mass. R. Civ. P. 12(b)(6), and that Mark waived that affirmative defense when he did not assert it in his answer or during the case management conference. Because a defense under Rule 12(b)(6) can be raised at any time, including at the time of trial, that argument fails. Mass. R. Civ. P. 12(h)(2) ("A defense of failure to state a claim upon which relief can be granted . . . may be made in any pleading permitted or ordered under Rule 7(a), or by motion for judgment on the pleadings, or at the trial on the merits.").

In addition, Timothy argues that the provision of G.L. c. 156C, §24(c) applies and authorized Timothy to act alone. That section provides:

If a limited liability company has at least 1 manager, then unless otherwise provided in the operating agreement, each manager may execute documents and act for the limited liability company and no member shall execute documents or act for the limited liability company. If a limited liability company has no manager then, unless otherwise provided by the operating agreement, each member may execute and act for the limited liability company.

According to Timothy, the statute "clearly anticipates that any member may execute documents on behalf of the LLC." While that is true, it fails to address the larger issue of who has decision-making authority over whether documents should be executed or acts undertaken on behalf of the LLC. Under §21, a majority is required to make the decision, while under §24(c), either Timothy or Mark acting alone can implement it.

Finally, Timothy argues that, because Mark "still owns 50% of the Premises," "[t]here has been no credible claim that he has been deprived of any right or remedy by the change of the form of ownership." For the reasons set forth above, the conveyance from the LLC to Timothy and Mark as tenants in common has an immediate impact on Mark: the Premises are now subject to a partition proceeding.

CONCLUSION

For the reasons set forth above, the Motion To Amend and the Summary Judgment Motion are both ALLOWED. Unless objection thereto is filed within thirty days of the date of this memorandum of decision, judgment shall enter pursuant to G.L. c. 185, §114 (1) cancelling Certificate of Title 201532 standing in the names of Mark D. Walsh, 73 Beverly Road, Brookline, MA 02467 and Timothy J. Walsh, 397 Southwest 14th Court, Pompano Beach, FL 33060, and (2) reviving Certificate of Title 176401, with all outstanding encumbrances, standing in the name of Timmark, LLC, a Massachusetts limited liability company, of Ft. Lauderdale in the State of Florida, 3430 North West 20th Avenue, Ft. Lauderdale, FL 33309. This action will be dismissed without prejudice in order to allow either party to again seek partition if and when they hold title as tenants in common.

SO ORDERED.