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Nahass v. Harrison

United States District Court, D. Massachusetts

September 13, 2016

PAUL NAHASS, Plaintiff
v.
JAMES HARRISON, GREGORY QUARLES, MITCHELL COGERT, AND LAWRENCE SIEGEL, Defendants.

          MEMORANDUM AND ORDER

          WOLF, D.J.

         I. SUMMARY

         In this removed case, plaintiff Paul Nahass, a shareholder and former director and officer of FlexLite Corporation ("FlexLite"), has sued defendants James Harrison, Gregory Quarles, Mitchell Cogert, and Lawrence Siegel, a group of other FlexLite shareholders, for terminating Nahass as an officer and director of FlexLite. Nahass alleges that his termination violated FlexLite's corporate bylaws (the "Bylaws") and defendants' fiduciary duties to Nahass as a minority shareholder in a close corporation. Defendants have moved to dismiss. They argue that: (1) Delaware law applies to the breach of fiduciary duty claim and, under Delaware law, shareholders in a close corporation do not have a fiduciary duty to each other; and (2) Nahass was removed properly by the holders of a majority of FlexLite's shares.

         The Motion to Dismiss is being allowed. Under Massachusetts choice-of-law rules, Delaware law applies to Nahass's breach of fiduciary duty claim. Nahass has not alleged sufficient facts to prove that defendants owed him a fiduciary duty under Delaware law. More specifically, he has not alleged that any of the defendants was individually a controlling shareholder or that the defendants formed a control group. Nahass also has not alleged sufficient facts to state a plausible claim that defendants breached the ByLaws. In particular, Nahass has alleged only that no shareholder vote was conducted on his removal as a director. He has not alleged that the defendants did not remove him by written consent, which the ByLaws would permit.

         II. PROCEDURAL HISTORY

         Nahass filed this case in the Superior Court for Middlesex County of the Commonwealth of Massachusetts. He asserts two counts against all defendants. Count I alleges that the defendants breached their fiduciary duty of "utmost good faith and loyalty" as shareholders in a close corporation by terminating Nahass in order to: (1) prevent him from continuing to receive money as a shareholder and employee of FlexLite; (2) pressure him into selling his unvested shares for less than their value; and (3) attempting to "freez[e] Nahass out of FlexLite." See id. ¶¶39-49. Count II alleges breach of contract, asserting that defendants violated FlexLite's Bylaws by removing Nahass as an officer and director without holding a shareholder vote. See id. ¶¶51-56.

         Defendants removed the case to this court. Defendants then filed a Motion to Dismiss and memorandum in support ("MTD Mem."). Defendants also filed the Affidavit of Frank N. Gaeta, attaching, among other things, the FlexLite Certificate of Incorporation, the Founder Stocker Purchase Agreement, and the ByLaws. On August 11, 2015, Nahass filed an opposition (the "Opposition").

         III. LEGAL STANDARDS

         Federal Rule of Civil Procedure 8(a)(2) requires that a complaint include a "short and plain statement of the claim showing that the pleader is entitled to relief." This pleading standard does not require "detailed factual allegations, " but requires "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A court may disregard "bald assertions, unsupportable conclusions, and opprobrious epithets." In re Citigroup, Inc., 535 F.3d 45, 52 (1st Cir. 2008); see also Penalbert-Roia v. Fortuno-Burset, 631 F.3d 592, 595 (1st Cir. 2011). "The plaintiff's factual allegations are ordinarily assumed to be true in passing on the adequacy of the complaint, which need not plead evidence." Penalbert-Roia, 631 F.3d at 595. "But 'ordinarily' does not mean 'always': some allegations, while not stating ultimate legal conclusions, are nevertheless so threadbare or speculative that they fail to cross 'the line between the conclusory and the factual.'" Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 n. 5 (2007))..

         A motion to dismiss should be denied if a plaintiff has shown "a plausible entitlement to relief." Twombly, 550 U.S. at 559. That is, the complaint "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "The plausibility standard is not akin to a 'probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. 556). "Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Id. (quoting Twombly, 550 U.S. at 557). "The relevant inquiry focuses on the reasonableness of the inferences of liability that the plaintiff is asking the court to draw from the facts alleged in the complaint." Ocasio-Hernandez, 640 F.3d at 13.

         "Under Rule 12(b)(6), the district court may properly consider only facts and documents that are part of or incorporated into the complaint." Rivera v. Centro Medico de Turabo, Inc., 575 F.3d 10, 15 (1st Cir. 2009); Rodi v. Southern New England School of Law, 389 F.3d 5, 15 (1st Cir. 2004) (considering letters attached to the complaint in evaluating a motion to dismiss). However, there are "narrow exceptions for documents the authenticity of which are not disputed by the parties; for official public records; for documents central to plaintiff['s] claim; or for documents sufficiently referred to in the complaint." Watterson v. Page, 987 F.2d 1, 3-4 (1st Cir. 1993). When "a complaint's factual allegations are expressly linked to-and admittedly dependent upon-a document (the authenticity of which is not challenged), that document effectively merges into the pleadings and the trial court can review it in deciding a motion to dismiss under Rule 12(b)(6)." Beddall v. State Street Bank and Trust Co., 137 F.3d 12, 17 (1st Cir. 1998). When such documents contradict an allegation in the complaint, the document trumps the allegation. See Clorox Co. P.R. v. Proctor & Gamble Consumer Co., 228 F.3d 24, 32 (1st Cir. 2000).

         IV. FACTS

         Unless otherwise indicated, the following facts are alleged in the Complaint. On December 20, 2013, Nahass, Harrison, Cogert, and Siegel incorporated FlexLite, a Delaware corporation with a principal place of business in Massachusetts. The company focuses on developing wearable light therapy devices to enable athletes to recover from exertion. Nahass was a member of the board of directors, as well as the Secretary and Chief Product Officer.

         On June 20, 2014, Nahass executed the Founder Stock Purchase Agreement pursuant to which he paid more than $31, 000 for up to 768, 000 shares of FlexLite stock. At the same ...


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