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Beninati v. Borghi

Appeals Court of Massachusetts, Suffolk

October 24, 2016

ELIZABETH BENINATI & another [1]
v.
STEVEN BORGHI & others[2] (and a consolidated case[3]).

          Heard: May 16, 2016.

         Civil actions commenced in the Superior Court Department on May 24, 2012, and May 14, 2013.

         After consolidation, the case was heard by Janet L. Sanders, J.; a motion for attorney's fees and costs was heard by her; and entry of final judgment was ordered by her.

          John W. Moran (Michael T. Grant with him) for Elizabeth Beninati.

          Charles R. Bennett, Jr., for Steven Borghi.

          Max D. Stern for Harold Dixon & others.

          Michael S. Marino, for Joseph Masotta & others, was present but did not argue.

          Present: Agnes, Massing, & Kinder, JJ.

          MASSING, J.

         The plaintiffs, Elizabeth Beninati and Joseph Masotta, together with defendants Steven Borghi and Linda Borghi, owned and operated a chain of fitness clubs licensing the "Work Out World" (WOW) trade name (collectively, WOW New England).[4]While actively involved in the management of WOW New England, Steven, working with an outside partner, defendant Harold Dixon, and using WOW New England's inside information and resources, formed Blast Fitness Group, LLC (Blast), and opened a chain of similar clubs in the same geographic area, some using the WOW name, others using the name "Blast Fitness." (We refer to the defendant clubs that Dixon and Steven controlled as the Blast clubs or, together with Blast, as the Blast defendants). After a jury-waived trial on two consolidated complaints, [5] a Superior Court judge found the Borghis and Dixon liable to Elizabeth, Masotta, and the other WOW New England owners for breach of fiduciary duty on the plaintiffs' derivative claims and awarded approximately $4 million in damages. The judge held as a matter of law, however, that Dixon and the Blast defendants could not be liable for unfair competition under G. L. c. 93A because their misconduct involved only aiding and abetting Steven in the breach of his fiduciary duties. The judge also upheld corporate votes of the WOW New England companies removing the Borghis from management, and awarded attorney's fees to Elizabeth under G. L. c. 156C, § 57, but not Masotta.

         On Elizabeth and Masotta's appeal from the judge's ruling in favor of Dixon and the Blast defendants on the c. 93A claim, we vacate and remand for further proceedings. On Masotta's appeal from the denial of his request for reimbursement of attorney's fees and expenses, and on the Borghis' cross appeal from the enforcement of their removal, we affirm.

         Background.

         We state the uncontested facts as set forth in the judge's thoughtful and comprehensive memorandum of decision, based on the testimony she heard and the nearly one thousand exhibits she reviewed during a twenty-day bench trial. We reserve some disputed factual issues for later discussion.

         WOW New England began as a single club in Randolph in 1999. Elizabeth's husband, Anthony Beninati (Tony), and Steven opened the first club, with Masotta receiving an ownership interest in exchange for doing the build-out work. A year later, the trio opened a second club in Norwood. Early on, they decided to license the WOW name from WOW Licensing LLC (WOW Licensing). The licensing agreement, with a stated term of five years, specified that WOW Licensing would not grant the rights to the WOW name to any other entity within five miles of the WOW New England clubs.

         Between 1999 and Tony's untimely death from a rare and apparently incurable disease in 2005, Tony, Steven, and Masotta opened ten more health clubs in New England, eight of which were still in operation at the time of trial. Each club entered into the same licensing agreement with WOW Licensing. Steven was responsible for scouting new locations, Masotta oversaw construction of the new clubs, and Tony ran the day-to-day business. Steven's wife Linda took an active role in running the clubs as a salaried employee. While Tony was alive, Elizabeth did not actively participate in the management of the clubs.

         Each club was owned and operated through a separate limited liability company, with discrete operating agreements and varying ownership percentages allocated among the three majority owners, as well as assorted minority investors. However, attention to corporate niceties was lax, and eight of the clubs were opened without written operating agreements. In December, 2004, just a month before Tony's death, WOW New England's accountant drew up written operating agreements for the eight LLCs, and an updated agreement for one of the other clubs. The eight new agreements referred to "Anthony (Elizabeth) Beninati" as one of the members. For the first time, the agreements included noncompetition clauses -- Tony, Steven, and Masotta would open new clubs either together or not at all.

         After Tony's death in 2005, Elizabeth began to play an active role in the management of WOW New England. By 2006, she was signing equipment finance agreements, advertising contracts, and leases; handling personnel matters such as schedules and pay, employment policies, and approval of employees' expenditures; and helping to develop the clubs' Web site. For all major decisions, Elizabeth and Steven were equals, with Masotta casting the deciding vote on upper management decisions when the two disagreed.

         For three years following Tony's death, no new clubs were opened. Then, between 2008 and 2010, four new health clubs were launched. Following the template of the original clubs, each was owned by a separate corporation and each paid an annual fee to WOW Licensing, though neither the operating nor licensing agreements were ever committed to writing. During this time, the five-year licensing agreements between the original clubs and WOW Licensing began to expire. Although the licensing agreements were never renewed in writing, both WOW Licensing and WOW ...


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