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Stewart v. Stewart

United States District Court, M.D. Pennsylvania

August 12, 2019

TERRENCE S. STEWART, Plaintiff
v.
ROBERT H. STEWART, JR.; KARYL STEWART GILBERT, a/k/a KARYL L. GILBERT; and GARY A. STEWART, Defendants

          MEMORANDUM

          Christopher C. Conner, Chief United States District Judge

         This litigation represents one of several chapters in a longstanding internecine dispute concerning certain business and real estate interests owned by the Stewart family. Plaintiff Terrence S. Stewart asserts a single claim for breach of contract against defendants Robert H. Stewart, Jr.; Karyl Stewart Gilbert; and Gary A. Stewart. Defendants move to strike certain matter alleged in Stewart's complaint as immaterial, impertinent, and scandalous pursuant to Federal Rule of Civil Procedure 12(f).

         I. Factual Background & Procedural History

         Robert Stewart, Sr., the late patriarch of the Stewart family, died in 1989 and left various business and real estate assets to his heirs. (Doc. 1 ¶ 15). Disputes over these assets arose between two blocs of the Stewart family-plaintiff and his children (referred to by the parties as “the Stewart Family Minority”) and defendants and their children (referred to by the parties as “the Stewart Family Majority”). (Id.) These disputes eventually resulted in a settlement agreement executed on July 9, 2011, between the Stewart Family Minority and the Stewart Family Majority (“the 2011 Settlement Agreement”). (Id. ¶ 16; see Doc. 1-2). The 2011 Settlement Agreement established a framework through which the Stewart Family Majority would buy out the interests of the Stewart Family Minority over a period of years. (Doc. 1 ¶ 18; see Doc. 1-2 at 1-22). The 2011 Settlement Agreement has been amended several times in the past eight years. (See Doc. 1 ¶¶ 21, 23, 25, 27, 29, 31).

         The 2011 Settlement Agreement, as amended, is a lengthy and complex document with voluminous exhibits and myriad defined terms. (See Docs. 1-1 to 1-7). Assets and interests in which the Stewart Family Minority has an ownership stake are divided into two categories. The “Minority 8(b) Interests” are partnership interests owned by the Stewart Family Minority in Principio Iron Company L.P., Sunrise Holdings, L.P., and Bob-Bob Associates L.P., together with the Stewart Family Minority's equity interest in Principio Iron Company LLC and South York Development Company. (Doc. 1-8 at 1; see also Doc. 1 ¶ 32). The “Keeper Assets” are certain real estate assets owned by each of these five entities. (Doc. 1-8 at 1; see also Doc. 1 ¶ 32).

         The 2011 Settlement Agreement establishes three ways by which the Stewart Family Majority can acquire an interest of the Stewart Family Minority: (1) direct purchase by the Stewart Family Majority, (2) sale to a third party, and (3) disposition pursuant to a plan of liquidation. (Doc. 1 ¶ 38; see Doc. 1-2 at 10-14). The 2011 Settlement Agreement provides that, upon sale of a covered asset or interest, the Stewart Family Minority is responsible for its “pro rata share” of accrued “Carry Costs” associated with the asset. (Doc. 1 ¶ 39; Doc. 1-2 at 13). Amendment No. 3 to the 2011 Settlement Agreement defines “Carry Costs” to include . . .

all carry, maintenance, repair and construction costs and expenses relative to the Keeper Assets, said Carry Costs being substantially consistent with carry costs that were charged to the Keeper Assets over the four year period beginning January 1, 2007 ending December 31, 2010, to include but not be limited to internal Stewart Family Majority management and development fees (charged and allocated in a manner substantially similar with the historical charging and allocation practices of The Stewart Companies, but not to include success fees), maintenance and repair costs, property taxes, governmental assessments and impact fees, utility access and connection fees, Debt payments (including interest expenses), insurance expenses, and general development costs (said development costs to include but not be limited to any and all costs associated with rezoning, entitlements, subdivision, land development, permitting and approvals, site work construction and installation of utilities, roads and other infrastructure).

(Doc. 1 ¶ 39; Doc. 1-8 at 3). Amendment No. 3 further provides that the payout to the Stewart Family Minority at closing shall be reduced by the Minority's share of “Approved Costs, ” defined to mean

. . . (a) associated Carry Costs, if any, that accrue prior to the final closing of the sale of the relevant Keeper Asset, to the extent not yet paid, in accordance with the terms of Section 8(b)(iii) of the Agreement and paragraph 3 of the Joe Clark Letter, (b) the reasonable and documented actual out-of-pocket closing costs payable to independent third parties incurred by the Stewart Family Majority or any of their Affiliates (but without duplication), in connection with the Disposing of a Keeper Asset, including but not limited to advertising costs, sales commissions, title insurance premiums, recording fees, transfer taxes, escrow fees, and any other expenses that the seller is contractually obligated to incur pursuant to a binding real estate sales agreement or Auction Agreement, (c) any Debt payoff associated with a Debt and/or Encumbrance on any Keeper Asset and identified on Exhibit C attached hereto (as it may be updated from time to time in accordance with the terms of this Amendment), to the extent not previously discharged, and (d) the reasonable and documented costs and expenses payable to independent third parties incurred by the Stewart Family Majority in connection with any acquisition by the Stewart Family Majority of the Minority 8(b) Interests or Keeper Assets.

(Doc. 1 ¶ 41; Doc. 1-8 at 3).

         The instant matter concerns the Stewart Family Majority's sale of “Lot D, ” a 67.25-acre parcel of land in Principio Business Park in Cecil County, Maryland. (Doc. 1 ¶¶ 1, 60). Plaintiff has a 25% membership interest in Principio Iron Company LLC, which, until the Majority's sale of Lot D, owned a 43.438-acre portion of the lot. (Id. ¶¶ 4, 7). The Stewart Family Majority elected to sell Lot D to a third party as permitted under the 2011 Settlement Agreement. (Id. ¶ 60). On May 21, 2018, the Majority sold Lot D to a third party for $5 million. (Id. ¶¶ 61-62). According to plaintiff, the portion of the proceeds allocable to the 43.438-acre portion of Lot D was $3, 232, 000. (Id. ¶ 63). By plaintiff's calculation, his 25% pro rata share, after deductions for brokerage fees, taxes, and other closing costs, should have been more than $700, 000. (Id.)

         The Stewart Family Majority sent a letter to the Stewart Family Minority on June 19, 2018, enclosing a check for plaintiff's share of the proceeds in the amount of $149, 629.18. (Id. ¶ 64). According to the letter, the majority deducted $2, 129, 000 from the Lot D sale proceeds for “payment on the loan to Sunrise Holdings L.P., ” which the letter describes as “the operating loan for the project costs.” (Id. ¶¶ 66- 67). Plaintiff disagrees that these costs are deductible under Amendment No. 3's definition of “Approved Costs” and disputed the deductions in letters to the Stewart Family Majority's counsel. (See Id. ¶¶ 68-80). To date, plaintiff has not negotiated the $149, 629.18 check. (See Id. ¶ 81).

         Plaintiff commenced this case asserting a single breach-of-contract claim on December 13, 2018. Defendants move the court to strike certain allegations from the complaint pertaining to past disputes between the Stewart Family Majority and the Stewart Family Minority arising under the 2011 Settlement Agreement. The motion is fully briefed and ripe for disposition.

         II. ...


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