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Formally Ending Business Arrangements in Massachusetts
Things can get ugly when a business relationship breaks down. To avoid problems, when parties decide to stop doing business together, it is best for them to formally terminate any agreements, dissolve any businesses, and try to reach a formal agreement on the terms of those terminations and dissolutions. Parties who fail to do so may find themselves before the Massachusetts court, as in the recent case of Beliveau v. Ware.
Since the appeals court was reviewing a denial of a motion for judgment notwithstanding the verdict, the opinion stated the facts in the light most favorable to Ware. According to the opinion, Beliveau and Ware formed a limited liability company in 2005 to subcontract work for their respective companies. Pursuant to the operating agreement, each would own 50% of Massachusetts Property Maintenance, LLC (“MPM”). The agreement did not state an end date.
In November 2006, Ware told Beliveau that he wanted to end the business. Beliveau provided a written agreement terminating the operating agreement. According to the termination agreement, Beliveau’s company Plymouth County Paving, LLC (“Plymouth”), would take over the duties MPM had been performing under a particular snowplowing contract, until the end of that contract in April 2007. Plymouth would invoice Ware. The parties executed the agreement and orally agreed to meet after the end of the snowplowing season to sell equipment and divide the proceeds.
When MPM’s books closed in February 2007, it had no outstanding debt. Plymouth had been fully compensated for the services it provided. Beliveau stopped responding to Ware’s attempts to contact him and, according to the opinion, changed the locks to MPM’s property. The parties did not formally dissolve MPM or sell the equipment. Instead, the equipment continued to be used for Plymouth’s benefit.
The parties ended up in litigation, with Beliveau, individually and derivatively on behalf of MPM and Plymouth (“defendants”), on one side, and Ware, doing business as Mass Sealcoat and Maintenance (“plaintiff”) on the other. The opinion did not provide detailed information on all of the claims in the original action, but Beliveau filed the appeal after the jury returned a verdict in favor of Ware on his counterclaims of conversion and breach of fiduciary duty. The jury awarded $40,000 to Ware on the conversion claim, and the defendants appealed the trial court’s denial of their postjudgment motions. Although the defendants appealed the judgment, they failed to file a notice of appeal after the orders addressing the postjudgment motions, so the court did not consider this portion of the appeal.
On appeal, the defendants argued that there was no evidence that Beliveau personally controlled the equipment in question. He argued that the evidence presented had shown that Plymouth had used MPM’s equipment and that Plymouth signed the termination agreement. The appeals court did not accept this argument, pointing partly to the jury’s verdict on the evidence.
To prove conversion, the plaintiff must show that the defendant exercised ownership, control, or dominion over personal property he or she does not have a right to possess and that he or she acted intentionally or wrongfully in doing so. The defendants argued that the termination of the operating agreement did not dissolve MPM. Furthermore, they argued that the plaintiff did not own or have a right to possess the MPM property.
Massachusetts law provides that an LLC is dissolved upon the written consent of its members. The appeals court found that the termination agreement modified the operating agreement by specifying when MPM would cease to exist. The oral agreement also modified the operating agreement. The appeals court, considering the operating agreement, the termination agreement, and the oral agreement, found that Ware became a 50% owner in MPM’s equipment when the snowplowing season ended. Beliveau was obligated to sell the equipment and give Ware his share.
The court also noted that, while Beliveau argued that the LLC had not properly been dissolved under the law, he had prevented Ware from formalizing the termination further when he failed to respond to attempted contact and changed the locks.
The jury could have found that the defendants had converted the property, based on Beliveau changing the locks and using the equipment for Plymouth’s benefit. The court also found no error in the damages verdict and affirmed the orders denying the postjudgment motions.
In this case, the parties executed a termination of the operating agreement and orally agreed to meet at a later date to sell off the equipment and divide the proceeds. One party stopped communicating before that meeting could occur. A written agreement clearly setting out the dissolution of the business and the division of assets could have prevented the conversion and resulting litigation in this case. It would have at least set out the rights and obligations of the parties and provided more certainty.
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