Superior Court of Massachusetts, Suffolk, Business Litigation Session
Dylan Penebre et al.
Daniel Kurland et al No. 135213
MEMORANDUM AND ORDER ON PRELIMINARY
P. Leibensperger, Justice
Dylan Penebre, holds a 20% member interest in a Florida LLC
called Shakensoft, LLC. Defendants, Daniel Kurland and Scott
Kurland, hold member interests of 57% and 20%,
respectively. This case concerns the power and
authority of defendants, as majority owners of the LLC, to
effect the termination of the business, or at least a major
part of the business, that constitutes the source of
plaintiffs' economic interest. Whether defendants possess
the power and authority to terminate the business must be
analyzed under the Operating Agreement ("
Agreement") of the LLC, as well as under principles of
common-law fiduciary duties. Penebre moves for a preliminary
injunction to preserve the status quo ante of the
business on the date before defendants took steps to
terminate the business.
sells a point-of-sale software product designed for bars and
restaurants. The product, PointOS, allows customers to
process multiple orders from waiters at multiple terminals,
as well as to perform other services and reports for the
customer. Shakensoft has a Boston office from which nine (9)
salespersons operate to sell PointOS. Penebre is the
Executive Vice President of the LLC. His duties, as described
in the Agreement, are " [o]versees operations, sales,
marketing, company strategy and personnel."
Penebre's compensation is based entirely upon commissions
earned. He receives a percentage of " Net Sales" (a
defined term) accomplished by him and his sales force in
Boston. The other salespersons are also compensated only on a
September 1, 2016, following unsuccessful attempts to resolve
disputes between Penebre and defendants, defendants caused a
vote of the members of the LLC to be taken. Defendants
exercised their combined 77% ownership interest to vote to
shut down immediately the Boston office of the LLC. All nine
salespersons, including Penebre, were terminated from
employment. Defendants proceeded immediately to dismantle
telephones, office equipment and computers. They eliminated
access by Penebre and the other former salespersons to
Shakensoft's email server and a database, called CRM,
necessary to service customers and potential customers.
According to Penebre, more than $1 million of potential sales
to customers were in the pipeline on that date. Penebre
protested the vote as not being in accordance with the
Agreement and objected to the immediate termination of the
Boston office. Penebre asserts that he and the other
salespersons are unable to complete sales and service
customers as a result of the termination of their employment
and the denial of access, all to the detriment of the
goodwill of Shakensoft.
September 6, 2016, Penebre commenced this action by verified
complaint and moved for a preliminary injunction. Service on
defendants was accomplished on September 8, 2016. The motion
for preliminary injunction was heard on September 13, 2016.
Defendants, through counsel, appeared at the hearing.
Defendants presented argument against the issuance of a
preliminary injunction but filed no affidavits or memorandum.
familiar standards for a preliminary injunction are that the
moving party must show (1) a likelihood of success on the
merits; (2) that irreparable harm will result from denial of
the injunction; and (3) that, in light of the plaintiff's
likelihood of success on the merits, the risk of irreparable
harm to the plaintiff outweighs the potential harm to the
defendant in granting the injunction. Tri-Nel Management,
Inc. v. Board of Health of Barnstable, 433 Mass. 217,
219, 741 N.E.2d 37 (2001), citing Packaging Industries
Group, Inc. v. Cheney, 380 Mass. 609, 617, 405 N.E.2d
106 (1980). In applying these standards the court applies a
balancing test: " What matters as to each party is not
the raw amount of irreparable harm the party might
conceivably suffer, but rather the risk of such harm in light
of the party's chance of success on the merits. Only when
the balance between these risks cuts in favor of the moving
party may a preliminary injunction properly issue."
Id. In an appropriate case, " the risk of harm
to the public interest also may be considered."
Brookline v. Goldstein, 388 Mass. 443, 447, 447
N.E.2d 641 (1983).
contends that the vote to terminate the Boston office was in
violation of the Agreement. Thus, the vote is a nullity and
the Boston office should be restored.
Agreement provides that certain actions affecting the LLC are
deemed " Major Decisions" and such actions require
unanimous written consent of the members or a vote of a
" Super-Majority-In-Interest" of the members.
Agreement, § 4.12. Among the actions described as a
" Major Decision" is a decision to " amend,
enforce or terminate any agreement with a Member . . . or
grant approvals or waivers under any such agreement
(including setting the salary or changing or [sic]
compensation and benefits of any Member or related parties
who are employees) . . ." Agreement, § 4.12(g).
While all the other described " Major Decisions" in
subparagraphs (a) through (m) of § 4.12 of the Agreement
require a Super-Majority-In-Interest vote of 75% of member
interests, § 4.12(g) is the exception. In order to
effect a decision covered by subparagraph (g), the vote of
member interests must be 85%.
reasonable inference from the difference in percentage vote
required for effecting a Major Decision directly affecting a
member, like Penebre, as opposed to all other Major Decisions
is that the higher percentage vote was intended to give a
type of veto power to a minority member. From the outset of
the LLC, the respective interests in the LLC were held as
described above. Daniel Kurland, who is the manager of the
LLC and the holder of a 57% interest, has broad authority to
conduct the business of the LLC. See § 4.1 of the
Agreement. But when it comes to Major Decisions, he needs the
alignment of at least one of the 20% holders to reach the 75%
vote requirement. The 85% vote requirement for a Major
Decision under § 4.12(g) protects a minority member
when, for example, the Kurlands align against another
minority member such as Penebre. Thus, from the beginning,
the Agreement expresses and guarantees a valuable protection
against tyranny by the majority.
vote by defendants on September 1, 2016, to close the Boston
office and terminate the employment of Penebre and the other
salespersons was a Major Decision under § 4.12(g) of the
Agreement. There is no question that the decision terminated
an agreement with a member (Penebre and Macomber) that
provided his compensation. Moreover, the decision affected
the compensation of " related parties who are
employees." § 4.12(g). Penebre's compensation
was directly tied to sales made by all of the salespersons
who were terminated. Because the vote to terminate the Boston
office and fire employees failed to obtain an 85% vote of the
members the vote was a nullity. Accordingly, Penebre and
Macomber have demonstrated a reasonable likelihood of success
on their claims of breach of the Agreement.
addition, Penebre and Macomber demonstrate a likelihood of
success on their claim of breach of fiduciary duty. What the
majority members did by their unauthorized, self-help conduct
was to deny plaintiffs the fruits of their employment and
member interests. This is a classic example of a corporate
" freeze out" of a minority shareholder. This is
particularly so where the Agreement provides another, express
remedy for resolution of a dispute among members regarding
the future of the business. Section 6.7 of the Agreement
states that if a Super-Majority-In-Interest fails to reach
agreement regarding a Major Decision " then an impasse
(" Impasse") shall be deemed to exist." Upon
such Impasse, a member may initiate a buy-sell process that
will result in the acquisition of the minority member's
interest or the majority members' interest by the
minority. Defendants violated this section of the Agreement
by implementing the disputed Major Decision to close the