## Facts

- Thomas Manfre and David, Jerome, and William May were shareholders of R & M Freight, Inc., a closely held S corporation.
- Manfre previously sued the May shareholders in a shareholder-dispute action.
- The parties resolved that dispute by entering a written agreement under which Manfre would terminate his ownership interest by selling his shares to the Mays.
- The agreement included a further-assurances clause requiring the parties to execute additional documents and take other reasonable actions that another party might request to carry out the agreement’s purposes, including effectuating Manfre’s termination.
- The agreement’s effective termination date was in March 2009.
- Because R & M Freight was an S corporation, corporate income flowed through to shareholders, who reported it on their individual tax returns.
- After the agreement was executed, Manfre sought the Mays’ consent to make an election under I.R.C. § 1377 that would “close the books” as of the effective termination date, so Manfre would recognize corporate income only through March 2009 and not for income earned after he ceased being an owner.
- The requested § 1377 election required consent from all affected shareholders, including the Mays, who refused to consent.
- Manfre sued, alleging that the refusal breached the agreement—particularly the further-assurances clause—because consenting to the § 1377 election was a reasonable act needed to effect his termination as of March 2009 and avoid ongoing tax liability tied to post-termination income.
- The defendants moved to dismiss under Rule 12(b)(6), arguing that the agreement did not obligate them to agree to the tax election and that Manfre failed to state a claim.

## Issues

1. Whether Manfre plausibly stated a breach-of-contract claim that the defendants violated the agreement’s further-assurances clause by refusing to consent to an I.R.C. § 1377 election fixing Manfre’s S-corporation income allocation through March 2009.
2. Whether the court could reject Manfre’s contract interpretation as a matter of law at the pleading stage.

## Decision

- The court denied the defendants’ Rule 12(b)(6) motion to dismiss.
- The court held that, taking the complaint’s allegations as true, it was plausible that the further-assurances clause required the defendants to accommodate Manfre’s request for a § 1377 election.
- The court explained that the motion-to-dismiss stage was not the place to resolve the ultimate meaning of the agreement or decide which side’s interpretation would prevail on a full record.
- The case proceeded past the pleading stage on Manfre’s contract theory.

## Legal Principles

- On a Rule 12(b)(6) motion, the court accepts well-pleaded factual allegations as true and draws reasonable inferences in the plaintiff’s favor; the question is plausibility, not proof.
- Contract claims may survive dismissal when the plaintiff alleges facts supporting a reasonable reading of the agreement and resulting breach and damages.
- A further-assurances clause requiring parties to take reasonable requested actions to carry out an agreement’s purpose can, depending on context, support an obligation to cooperate with follow-on steps tied to implementing the transaction.
- When contractual language can bear more than one reasonable meaning, courts generally do not choose between competing interpretations on a motion to dismiss.

## Conclusion

The district court denied the motion to dismiss because Manfre plausibly alleged that the agreement’s further-assurances clause required the Mays to take reasonable steps to carry out his March 2009 termination, which could include consenting to a § 1377 “closing of the books” election to prevent Manfre from bearing tax on corporate income earned after he exited the S corporation.


Manfre v. May, 2019 WL 1125813 (2019)