Superior Court of Massachusetts, Suffolk, Business Litigation Session
Christian Baker et al. as Trustee of the W. Robert Allison 2003 Irrevocable Trust
Wilmer Cutler Pickering Hale and Dorr, LLP et al. as Trustee of the Elof Eriksson Irrevocable Trust-2003; and Karl H. Proppe, Individually and as Trustee of the Elof Eriksson Irrevocable Trust-2003 No. 132898
Date February 22, 2016
MEMORANDUM AND ORDER ALLOWING DEFENDANTS' MOTIONS
Kenneth W. Salinger, J.
the second lawsuit in which W. Robert Allison challenges an
alleged conspiracy to freeze out the minority members of
Applied Tissue Technologies, LLC (" ATT"). In the
first action, Allison is suing the majority members of ATT,
which are Elof Eriksson (" Eriksson") and the two
trustees of The Elof Eriksson Irrevocable Trust-2003 ("
Eriksson Trust"), Gudren Eriksson and Karl Proppe, who
is ATT's chief executive officer and was also sued
individually (the " Eriksson Defendants"). In this
second action, the other minority members of ATT--Christian
Baker, individually, and Blake Allison, as trustee of The W.
Robert Allison 2003 Irrevocable Trust (" Allison
Trust")--join Allison as plaintiffs. This complaint also
adds claims against two lawyers and law firms that
represented ATT and allegedly represented Eriksson. The new
defendants are Wilmer Cutler Pickering Hale and Dorr, LLP
(" WilmerHale"), Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP ("
Gunderson"), Gary R. Schall, and Emma Eriksson Broomhead
(the " Law Firm Defendants"). Defendants move to
dismiss all claims in this action.
Court will ALLOW all three motions to dismiss. It will order
that the claims against the Eriksson Defendants be dismissed
without prejudice under Mass.R.Civ.P. 12(b)(9), and that the
claims against the Law Firm Defendants be dismissed with
prejudice under Rule 12(b)(6).
respect to the Eriksson Defendants, this action will be
dismissed under Rule 12(b)(9) because there is a prior
pending action against them that asserts the same claims. If
Plaintiffs believe that the relief sought by Allison against
the Eriksson Defendants in the 2013 Action cannot be granted
unless Proppe and Gudren Eriksson join as plaintiffs, then
they should move to add them as necessary parties to the
prior action pursuant to Mass.R.Civ.P. 19(a).
respect to the Law Firm Defendants, this action is not
subject to dismissal under Rule 12(b)(9) because there is no
prior pending action that will resolve the claims against
them. The claims against these defendants must nonetheless be
dismissed for failure to state any claim upon which relief
can be granted. The facts alleged do not plausibly suggest
that the Law Firm Defendants owed any fiduciary duty to the
Plaintiffs, that they knowingly conspired with or aided and
abetted Eriksson in breaching his fiduciary duties to the
minority shareholders, or that their provision of legal
services in connection with an intrafirm dispute constitutes
" trade or commerce" that implicates G.L.c. 93A.
first amended complaint alleges that the following facts are
and Allison formed ATT in 2000 to develop, market, and sell
wound therapy technologies. ATT was created as a
Massachusetts limited liability company. ATT has always been
a closely held corporation because it has a small number of
members, there is no ready market for its membership
interests, and members holding a substantial majority of the
membership interest have actively participated in company
management. Eriksson contributed three-quarters of the
initial capital and received a 75 percent membership interest
in ATT; Allison contributed one-quarter and received a 25
percent interest. The ownership percentages changed over time
as a result of transactions that are not relevant here. As of
May 2012, Eriksson owned 55.5% of ATT, the Eriksson Trust
owned 20%, Allison owned 14.66%, the Allison Trust owned
7.84%, and Baker owned 2%.
adopted an amended operating agreement in 2003 which
provides, among other things, that: the members have
exclusive management control over ATT, which they exercise by
votes in proportion to their percentage interest in the
company; the agreement cannot be amended unless both Eriksson
and Allison agree in writing; the percentage interest of each
member in net profits cannot be reduced or diluted without
that member's consent; if any member choose to provide
additional funds to the company, those advances are to be
treated as loans for which ATT will pay interest at the prime
rate; all members were entitled to examine ATT's books
and records for purposes reasonably related to their interest
in the company; and all members owed each other a duty of
early 2012 ATT was facing financial difficulties. Although
the company's assets exceeded its liabilities, ATT was
facing a cash crunch because its expenses continued to exceed
its revenues. According to the complaint, " Allison and
Eriksson held sharply divergent views as to how to
proceed." Eriksson offered to invest more money in ATT
in exchange for additional equity, but was unwilling to loan
the company money. Allison would not accept any dilution of
his interest in ATT unless additional capital was provided by
new, outside investors who brought new management to the
company. Proppe, who was ATT's chief executive officer,
urged Eriksson to take control of ATT.
and Proppe retained lawyers to help Eriksson find a way to
acquire a larger ownership interest in ATT in exchange for
making additional capital contributions to the company.
Eriksson reached out to Broomhead, his daughter, who was an
associate at Gunderson. She introduced Eriksson to a second
lawyer, Gary Schall, who was another Gunderson associate.
Eriksson decided to hire them both. As a result, ATT (acting
through Proppe) signed an engagement letter with Gunderson,
specifying that the firm represented ATT and not any
individual member. In early May 2012 Schall moved to
WilmerHale, which was then also retained to represent ATT but
no individual members.
and Broomhead in fact represented both ATT and Eriksson. In
early 2012 they arranged for an appraiser to value ATT, and
obtained necessary financial information about the company
through Proppe. Plaintiffs do not allege that the appraiser
was given inaccurate or incomplete information, or that the
completed appraisal was inaccurate. Based on the results of
that appraisal, Schall drafted an offer by Eriksson to
purchase the minority members' ownership interests in
ATT. Eriksson conveyed that offer to Allison on May 6, 2012,
without revealing that he had been assisted by counsel.
Allison rejected the offer on May 8, 2012. In response,
Eriksson told Allison that he intended to dissolve and
2012, Schall and Broomhead helped Eriksson restructure ATT by
merging it into a new corporate entity. They first created a
new Delaware limited liability company with the same name
(referred to as " ATT Delaware" in this decision)
but a new operating agreement that did not contain the same
protections for minority interest holders. Among other
changes, the operating agreement for ATT Delaware centralizes
control in Eriksson and the Eriksson Trust, virtually
eliminates the voting rights of ATT's minority members,
and eliminates the explicit fiduciary duty that all members
owed to each other. Eriksson and the trustees of the Eriksson
Trust voted to merge ATT into ATT Delaware. They did so
without informing Allison and the other minority owners and
without holding a member meeting. Eriksson and Proppe
informed Allison of this transaction on May 29, 2012.
Eriksson and the Eriksson Trust invested additional capital
in ATT Delaware, increased their ownership interest in the
parent, and substantially diluted the minority owners'
interests. These transactions would not have been allowed
under ATT's original operating agreement without the
consent of Allison and the other minority owners.
complaint alleges that Schall and Broomhead "
incorrectly advised" Eriksson and the Eriksson Trust
" that the merger could be accomplished without holding
a member meeting and without notice to the Minority
Members." It also alleges that these two lawyers
deliberately concealed their activities so that Eriksson
could accomplish the alleged freeze-out before Allison and
the other minority owners discovered what they had done.
Rule 12(b)(9) Motions
the Defendants have moved to dismiss this action under
Mass.R.Civ.P. 12(b)(9) on the ground that there is a prior
pending action arising from the identical facts and involving
the same basic claims.
Prior Civil Action
filed his first lawsuit against Eriksson, Proppe, and the
trustees of the Eriksson Trust in May 2013. See Allison
v. Eriksson et al., Suffolk Sup.Ct. no. 1384-01858-BLS1
(the " 2013 Action"). The complaint in the 2013
Action alleges that the Eriksson Defendants caused ATT to
merge into ATT Delaware, and that this was an unlawful freeze
out of ATT's minority members. Allison asserted claims
for breach of contract, intentional interference with
advantageous business relations, breach of fiduciary duty,
and civil conspiracy against each of the Eriksson Defendants.
Judge Kaplan granted partial summary judgment dismissing the
intentional interference claim, dismissing the fiduciary duty
claim as against Gudrun Eriksson and Proppe individually, and
dismissing the conspiracy claim as against the trustees of
the Eriksson Trust.
2013 Action, Allison seeks final judgment declaring that the
merger of ATT into ATT Delaware is unlawful, null, and void,
and ordering the Eriksson Defendants to take all actions
necessary to revive ATT and to transfer all of the
company's assets and business back ...