STATE OF MAINE BUSINESS AND CONSUMER COURT CUMBERLAND, ss Location: Portland Docket No.: BCD-CV-12-28 BCD-CV-12-51 ' J I
,-. }' -~ r{\ 0\ t:.-' r. / { . -·( \}.t ~- \/1 ) JAMES C. EBBERT, Court-appointed ) Receiver for Associated Grocers of Maine, ) Inc., ) ) Plaintiff, ) ) V. ) ) JOSEPH SLEEPER & SONS, INC., et al. ) ) Defendants ) ) ) ORDER ) (Motion for Attachment) JAMES C. EBBERT, Court-appointed ) Receiver for Associated Grocers of Maine, ) Inc., ) ) Plaintiff, ) ) V. ) ) JOE'S COUNTRY STORE, INC. and ) JOSEPH P. KELLY, ) ) Defendants ) )
Plaintiff James C. Ebbert, the court-appointed Receiver for the Associated Grocers of
Maine, Inc. (AGME), 1 moves, pursuant to M.R. Civ. P. 4A and 4B, for attachment and
attachment on trustee process of the real and personal property of Defendants Joseph P. Kelly
1 Ebbert was appointed receiver of AGME by consent, see Savings Bank of Me. v. Assoc. Grocers of Me., Inc., KENSC-CV-11-92 (Me. Super. Ct., Ken. Cty., Apr. 27, 2011), prior to that case's transfer to the Business and Consumer Court on October 5, 2011, see Savings Bank of Me. v. Assoc. Grocers of Me., Inc., BCD-CV -JJ-36 (Me. Super. Ct., Cum. Cty., Oct. 5, 2011). and Joe's Country Store, Inc. (JCS), jointly and severally, in the amount of $3,853, plus all
allowable pre- and post-judgment interest and other recoverable costs and expenses.
Plaintiff filed this motion along with the complaint in this matter, in which complaint
Plaintiff asserts four causes of action against JCS: 1) breach of contract for failure to pay
amounts due on account (Count I); 2) action on account annexed, pursuant to 16 M.R.S. § 355
(2011) (Count II); 3) unjust enrichment (Count III); and 4) quantum meruit (Count IV). Plaintiff
also asserts a claim against Kelly personally for breach of guarantee (Count V). In each count,
Plaintiff seeks payment of $3,853, the balance of the JCS's customer account with AGME.
(Ebbert Aff. Exh. E.) Plaintiff's attachment motion is supported by the affidavit of the Receiver
and accompanying affidavits through which the Receiver asserts that it is more likely than not
that the Receiver will prevail on one of his theories of recovery against Defendants in the amount
of the account balance. Defendants filed a motion to dismiss in which they assert the defense of
recoupment.
AGME distributed and delivered produce, groceries, and related items to independent
retailers throughout northern New England. (Ebbert Aff. ,- 3 .) JCS, like other members, entered
into an agreement with AGME whereby AGME extended credit terms to JCS for the purchase
and delivery of products, and JCS became a member of AGME. (Ebbert Aff. ,- 7; Ebbert Aff.
Exh. B.) Pursuant to the agreement, JCS also purchased 3 shares of stock: one share of Class A
voting common stock due and payable at the time the agreement was executed, with a stated
value of $2,527; and two shares of Class B preferred stock, due and payable through a minimum
1% invoice surcharge, with a stated value of $2,500 per share. (Ebbert Aff. ,- 9.) Also pursuant
to the agreement and the by-laws of AGME, JCS made payments via the 1% invoice surcharge
2 to fund a capital account. (Ebbert Aff.' 10.) The balance of JCS's capital account on April 27,
2011, was $1,743. (EbbertAff., 10.)
AGME supplied JCS with products, which JCS accepted, and for which AGME billed
JCS. (Ebbert Aff." 18-20.) Kelly executed a personal guarantee for the obligations of JCS.
(Ebbert Aff. ' 22.) Despite demand, both JCS and Mr. Kelly have failed to pay AGME the
amounts due on the account: $3,853. (Ebbert Aff." 21, 27 .)
The primary issues in this case, and in all of the similar cases filed by the Receiver
against former AGME members, are the nature of the relationship between AGME and its
members, and whether the amount owed can be reduced by the value of the members' capital
accounts. 2 Defendants maintain that under the doctrine of recoupment, Defendants should
receive a credit in the amount of the value of their account, which credit would reduce the
amount Defendants might be obligated to pay to Plaintiff for products received.
The Receiver first asserts that the amounts owed on the account cannot be set off or
subject to recoupment because JCS's interest in the capital account and stock is equitable in
nature. The Receiver argues that equity cannot be set off by debt because there is no mutuality
in the quality of right. Second, the Receiver argues that the capital account is equivalent to
retained funds in a cooperative association, which can only be distributed at the discretion of the
board or upon the member's exit from the association. Third, pursuant to AGME's agreement
with JCS, AGME- not the members- has the exclusive right to set off the book balance of the
capital account against the debt of a member. Finally, the Receiver argues that JCS agreed that
the book balance of the capital account would be subordinate to amounts due to the Bank of
Maine or other lending institutions, thus waiving any right to setoff or recoupment.
2 AGME is insolvent and, therefore, the members' capital accounts are unfunded. The issue thus focuses on the value of the various accounts rather than the actual funds in the accounts.
3 Defendants characterize the capital accounts as security deposits for amounts due on a
member's account, thus making AGME a secured creditor subject to Article 9 of the Uniform
Commercial Code. According to Defendants, because the Receiver has possession of the
collateral, 11 M.R.S. § 9-1207(3)(b) (2011) requires the Receiver to use the capital account
balance to reduce the obligation, even after default by a member. Defendants argue that the debt
and the capital account arise out of the same transaction: the contract granting JCS credit with
AGME in exchange for pledging his stock and capital account as security for the obligation?
Pursuant to M.R. Civ. P. 4A and 4B, the Court may approve an order of attachment or
trustee process after notice to the defendant, a hearing, and
upon a finding by the court that it is more likely than not that the plaintiff will recover judgment, including interest and costs, in an amount equal to or greater than the aggregate sum of the attachment and any liability insurance, bond, or other security, and any property or credits attached by other writ of attachment or by trustee process shown by the defendant to be available to satisfy the judgment.
M.R. Civ. P. 4A(c); see M.R. Civ. P. 4B(c) (containing nearly identical language regarding
trustee process). The "more likely than not" standard is "greater than 50% chance of prevailing."
Richardson v. McConologue, 672 A.2d 599, 600 (Me. 1996) (quotation marks omitted). An
attachment motion or motion for trustee process must be supported by affidavits setting "forth
specific facts sufficient to warrant the required finding and shall be made upon the affiant's own
knowledge, information or belief." M.R. Civ. P. 4A(c), (i); see M.R. Civ. P. 4B(c) (requiring a
motion for trustee process to be supported by affidavits meeting the requirements set forth in
Rule 4A(i)). In determining whether to grant a motion to attach, the court "assesses the merits of
3 Defendants raise additional objections to the attachment motion.
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STATE OF MAINE BUSINESS AND CONSUMER COURT CUMBERLAND, ss Location: Portland Docket No.: BCD-CV-12-28 BCD-CV-12-51 ' J I
,-. }' -~ r{\ 0\ t:.-' r. / { . -·( \}.t ~- \/1 ) JAMES C. EBBERT, Court-appointed ) Receiver for Associated Grocers of Maine, ) Inc., ) ) Plaintiff, ) ) V. ) ) JOSEPH SLEEPER & SONS, INC., et al. ) ) Defendants ) ) ) ORDER ) (Motion for Attachment) JAMES C. EBBERT, Court-appointed ) Receiver for Associated Grocers of Maine, ) Inc., ) ) Plaintiff, ) ) V. ) ) JOE'S COUNTRY STORE, INC. and ) JOSEPH P. KELLY, ) ) Defendants ) )
Plaintiff James C. Ebbert, the court-appointed Receiver for the Associated Grocers of
Maine, Inc. (AGME), 1 moves, pursuant to M.R. Civ. P. 4A and 4B, for attachment and
attachment on trustee process of the real and personal property of Defendants Joseph P. Kelly
1 Ebbert was appointed receiver of AGME by consent, see Savings Bank of Me. v. Assoc. Grocers of Me., Inc., KENSC-CV-11-92 (Me. Super. Ct., Ken. Cty., Apr. 27, 2011), prior to that case's transfer to the Business and Consumer Court on October 5, 2011, see Savings Bank of Me. v. Assoc. Grocers of Me., Inc., BCD-CV -JJ-36 (Me. Super. Ct., Cum. Cty., Oct. 5, 2011). and Joe's Country Store, Inc. (JCS), jointly and severally, in the amount of $3,853, plus all
allowable pre- and post-judgment interest and other recoverable costs and expenses.
Plaintiff filed this motion along with the complaint in this matter, in which complaint
Plaintiff asserts four causes of action against JCS: 1) breach of contract for failure to pay
amounts due on account (Count I); 2) action on account annexed, pursuant to 16 M.R.S. § 355
(2011) (Count II); 3) unjust enrichment (Count III); and 4) quantum meruit (Count IV). Plaintiff
also asserts a claim against Kelly personally for breach of guarantee (Count V). In each count,
Plaintiff seeks payment of $3,853, the balance of the JCS's customer account with AGME.
(Ebbert Aff. Exh. E.) Plaintiff's attachment motion is supported by the affidavit of the Receiver
and accompanying affidavits through which the Receiver asserts that it is more likely than not
that the Receiver will prevail on one of his theories of recovery against Defendants in the amount
of the account balance. Defendants filed a motion to dismiss in which they assert the defense of
recoupment.
AGME distributed and delivered produce, groceries, and related items to independent
retailers throughout northern New England. (Ebbert Aff. ,- 3 .) JCS, like other members, entered
into an agreement with AGME whereby AGME extended credit terms to JCS for the purchase
and delivery of products, and JCS became a member of AGME. (Ebbert Aff. ,- 7; Ebbert Aff.
Exh. B.) Pursuant to the agreement, JCS also purchased 3 shares of stock: one share of Class A
voting common stock due and payable at the time the agreement was executed, with a stated
value of $2,527; and two shares of Class B preferred stock, due and payable through a minimum
1% invoice surcharge, with a stated value of $2,500 per share. (Ebbert Aff. ,- 9.) Also pursuant
to the agreement and the by-laws of AGME, JCS made payments via the 1% invoice surcharge
2 to fund a capital account. (Ebbert Aff.' 10.) The balance of JCS's capital account on April 27,
2011, was $1,743. (EbbertAff., 10.)
AGME supplied JCS with products, which JCS accepted, and for which AGME billed
JCS. (Ebbert Aff." 18-20.) Kelly executed a personal guarantee for the obligations of JCS.
(Ebbert Aff. ' 22.) Despite demand, both JCS and Mr. Kelly have failed to pay AGME the
amounts due on the account: $3,853. (Ebbert Aff." 21, 27 .)
The primary issues in this case, and in all of the similar cases filed by the Receiver
against former AGME members, are the nature of the relationship between AGME and its
members, and whether the amount owed can be reduced by the value of the members' capital
accounts. 2 Defendants maintain that under the doctrine of recoupment, Defendants should
receive a credit in the amount of the value of their account, which credit would reduce the
amount Defendants might be obligated to pay to Plaintiff for products received.
The Receiver first asserts that the amounts owed on the account cannot be set off or
subject to recoupment because JCS's interest in the capital account and stock is equitable in
nature. The Receiver argues that equity cannot be set off by debt because there is no mutuality
in the quality of right. Second, the Receiver argues that the capital account is equivalent to
retained funds in a cooperative association, which can only be distributed at the discretion of the
board or upon the member's exit from the association. Third, pursuant to AGME's agreement
with JCS, AGME- not the members- has the exclusive right to set off the book balance of the
capital account against the debt of a member. Finally, the Receiver argues that JCS agreed that
the book balance of the capital account would be subordinate to amounts due to the Bank of
Maine or other lending institutions, thus waiving any right to setoff or recoupment.
2 AGME is insolvent and, therefore, the members' capital accounts are unfunded. The issue thus focuses on the value of the various accounts rather than the actual funds in the accounts.
3 Defendants characterize the capital accounts as security deposits for amounts due on a
member's account, thus making AGME a secured creditor subject to Article 9 of the Uniform
Commercial Code. According to Defendants, because the Receiver has possession of the
collateral, 11 M.R.S. § 9-1207(3)(b) (2011) requires the Receiver to use the capital account
balance to reduce the obligation, even after default by a member. Defendants argue that the debt
and the capital account arise out of the same transaction: the contract granting JCS credit with
AGME in exchange for pledging his stock and capital account as security for the obligation?
Pursuant to M.R. Civ. P. 4A and 4B, the Court may approve an order of attachment or
trustee process after notice to the defendant, a hearing, and
upon a finding by the court that it is more likely than not that the plaintiff will recover judgment, including interest and costs, in an amount equal to or greater than the aggregate sum of the attachment and any liability insurance, bond, or other security, and any property or credits attached by other writ of attachment or by trustee process shown by the defendant to be available to satisfy the judgment.
M.R. Civ. P. 4A(c); see M.R. Civ. P. 4B(c) (containing nearly identical language regarding
trustee process). The "more likely than not" standard is "greater than 50% chance of prevailing."
Richardson v. McConologue, 672 A.2d 599, 600 (Me. 1996) (quotation marks omitted). An
attachment motion or motion for trustee process must be supported by affidavits setting "forth
specific facts sufficient to warrant the required finding and shall be made upon the affiant's own
knowledge, information or belief." M.R. Civ. P. 4A(c), (i); see M.R. Civ. P. 4B(c) (requiring a
motion for trustee process to be supported by affidavits meeting the requirements set forth in
Rule 4A(i)). In determining whether to grant a motion to attach, the court "assesses the merits of
3 Defendants raise additional objections to the attachment motion. Defendants argue that equitable estoppel prohibits the Receiver from asserting that the capital deposits are not security for the balance due on accounts receivable. Defendants also challenge the existence and applicability of the subordination agreement with the Bank of Maine. Finally, Defendants argue that the Receiver's recovery is barred by the doctrine of unclean hands.
4 the complaint and the weight and credibility of the supporting affidavits." Porrazzo v. Karofsky,
1998 ME 182, ~ 7, 714 A.2d 826 (citing Plourde v. Plourde, 678 A.2d 1032, 1035 (Me. 1996)).
Based upon the affidavit of the Receiver, the exhibits filed with the attachment motion,
and the arguments of counsel, the Court is satisfied that the Receiver will recover judgment
against JCS and Kelly and, therefore, an attachment is warranted. Defendants have asserted the
defense of recoupment. As explained by the Law Court, "[i]f the applicability of an affirmative
defense is clear, then a court can consider the application of the defense in its determination
whether the requirements of Rules 4A(c) and 4B(c) have been met." Porrazzo, 1998 ME 182,
~ 7, 714 A.2d 826. The only "affidavit" filed by Defendants is ostensibly that of Mr. Kelly, but
the affidavit filed is neither signed nor attested. Defendants have thus failed to submit any
record evidence to support their defense of recoupment. See Herrick v. Theberge, 474 A.2d 870,
874-75 (Me. 1984) (denying a motion to dissolve an attachment because the non-moving party's
assertion of the affirmative defense of comparative fault was not supported by the affidavits).
The Court is, therefore, prepared to authorize an attachment of Defendants' property in
the amount of $3,853. However, the Court is not convinced that both an attachment and an
attachment on trustee process are necessary to provide Plaintiff with sufficient security should
Plaintiff ultimately prevail in this matter. The Court will limit the attachment to specific
property, in accordance with M.R. Civ. P. 4A(d), if Defendants demonstrate that certain property
available for attachment "would, if sold to satisfy any judgment obtained in the action, yield to
the plaintiff an amount at least equal to" $3,853. If Defendant would like the Court to consider
an attachment on specific property, on or before October 8, 2012, Defendants shall submit the
request with reliable proof of value of the property that Defendants propose for attachment.
Upon receipt of Defendants' request, the Court will decide whether an attachment limited to
5 specific property is appropriate. If Defendants do not submit the request, the Court will issue an
order granting to Plaintiff an attachment and attachment on trustee process.
Pursuant to M.R. Civ. P. 79(a), the clerk shall incorporate this Order into the docket by
reference.
Dated:
6 BCD-CV -12-51
James C. Ebbert, Court-Appointed Receiver for Associated Grocers of Maine, Inc., Plaintiff
v.
Joe's Country Store., et al Defendant( s)
Plaintiffs Attorney:
Fred Bopp, Esq Perkins Thompson One Canal Plaza PO Box 426 Portland ME 04112
Defendant's Attorney
Joseph Goodman, Esq. The Goodman Law Firm 537 Congress St PO Box 7523 Portland ME 04112 BCD-CV-12-28
James C. Ebbert, Court-Appointed Receiver for Associated Grocers of Maine, Inc., Plaintiff
Joseph Sleeper & Sons, Inc., et al Defendant( s)
Fred Bopp, Esq Perkins Thompson One Canal Plaza PO Box 426 Portland ME 04112
George Marcus, Esq. Marcus Clegg & Mistretta One Canal Plaza Ste 600 Portland ME 04101-4035