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Petrucci v. Esdaile

Superior Court of Massachusetts, Suffolk, Business Litigation Session

May 31, 2017

Daniel Petrucci
v.
Charles Esdaile et al No. 137193

          Filed June 1, 2017

          MEMORANDUM AND ORDER ON THE INDIVIDUAL DEFENDANTS' MOTIONS TO DISMISS

          Kenneth W. Salinger, Justice of the Superior Court.

         This lawsuit arises from business dealings among four people who formed a Delaware limited liability company called Market Maker Solutions, LLC (" MMS"). Daniel Petrucci, Charles Esdaile, and Christopher Hayes each owned 30 percent of the company; Duncan McIntyre owned the remaining 10 percent. Petrucci's claims arise from the dissolution of MMS and the alleged theft of intellectual property and usurpation of business opportunities belonging to MMS. In essence, Petrucci claims that the individual defendants froze him out by claiming that MMS had no value as a going concern and that its assets were worthless, dissolving MMS and transferring its assets to a new entity, and leveraging Petrucci's contributions to MMS to develop a profitable new company in the same line of business that MMS had been pursuing.

         All the defendants served motions to dismiss Petrucci's first amended complaint. Petrucci addressed the issues raised by the two corporate defendants by moving for leave to file a proposed second amended complaint. No party opposed that motion, so it has been allowed. The parties agree that the pending motions to dismiss filed by Esdaile, Hayes, and McIntyre should be treated as motions to dismiss the claims against them as restated in the second amended complaint.

         The Court concludes that none of the claims against the individual defendants is clearly time-barred, but that part of the contract claim, one of the two claims for breach of fiduciary duty, and the claim under G.L.c. 93A must be dismissed under Mass.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. The Court will allow the motions to dismiss as to those claims and deny them with respect to all other claims.

         1. Legal Standards

         To survive a motion to dismiss under Rule 12(b)(6), a complaint must allege facts that, if true, would " plausibly suggest[] . . . an entitlement to relief." Lopez v. Commonwealth, 463 Mass. 696, 701, 978 N.E.2d 67 (2012), quoting Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, 888 N.E.2d 879 (2008), and Bell A. Corp. v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). For the purpose of deciding the pending motions to dismiss, the Court must assume that the factual allegations in the complaint and any reasonable inferences that may be drawn in Plaintiff's favor from the facts alleged are true. See Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 223, 950 N.E.2d 853 (2011). In so doing, however, it must " look beyond the conclusory allegations in the complaint and focus on whether the factual allegations plausibly suggest an entitlement to relief." Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 473 Mass. 336, 339, 42 N.E.3d 199 (2015), quoting Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676, 940 N.E.2d 413 (2011).

         2. Choice of Law as to Statute of Limitations

         The parties disagree as to whether the Massachusetts or Delaware statute of limitations applies to Petrucci's claims for breach of contract, unjust enrichment, and breach of fiduciary duty.

         The MMS operating agreement provided that " This Agreement and the application or interpretation hereof, shall be governed exclusively by the laws of the State of Delaware, and specifically the Act, " meaning the Delaware Limited Liability Company Act as amended.

         Esdaile and Hayes contend that this choice-of-law provision requires that the breach of contract, breach of fiduciary duty, and unjust enrichment claims be governed by the three-year Delaware statute of limitations; they agree with Petrucci that the fraud and conspiracy claims are subject to a three-year limitations period under Massachusetts law and that the claim under G.L.c. 93A is subject to a four-year limitations period under Massachusetts law. McIntyre generally agrees with Esdaile and Hayes.[1]

         Petrucci disagrees. He contends that the choice of law provision does not control which state's limitations period applies, that under the functional analysis required by Supreme Judicial Court precedent Massachusetts law governs with respect to all of the statutes of limitations, and as a result the six-year limitations period established by G.L.c. 260, § 2 governs his claims for breach of contract and unjust enrichment.

         The Court agrees with Mr. Petrucci on this choice-of-law issue. Specifically, it concludes that the Massachusetts statutes of limitations govern the timeliness of all claims, even though the MMS operating agreement provides that it is governed by Delaware law. As explained below, it also concludes that the six-year limitations period for contract claims applies to Petrucci's claims for unjust enrichment.

         Massachusetts no longer treats statutes of limitations as purely procedural rules, and thus no longer automatically applies Massachusetts limitations periods to all claims asserted in Massachusetts courts. Instead, the Supreme Judicial Court has adopted " a functional approach that treats the issue" of which State's statute of limitations governs " as a choice of law question, as stated in the Restatement (Second) of Conflict of Laws § 142." Nierman v. Hyatt Corp., 441 Mass. 693, 695, 808 N.E.2d 290; accord New England Tel. & Tel. Co. v. Gourdeau Constr. Co., 419 Mass. 658, 664, 647 N.E.2d 42 (1995).

         Although the parties agreed by contract that any disputes arising under the MMS operating agreement would be governed by Delaware law, their choice-of-law provision does not expressly address limitations periods and, for that reason, does not control which State's statute of limitations applies here. See Shamrock Realty Co., Inc. v. O'Brien, 72 Mass.App.Ct. 251, 257, 890 N.E.2d 863 & n.9 (2008) (distinguishing Newburyport Five Cents Sav. Bank v. MacDonald, 48 Mass.App.Ct. 904, 907, 718 N.E.2d 404 (1999), on the ground that it failed to apply § 142 of the Restatement and therefore is inconsistent with Nierman and Gourdeau ).[2]

         Massachusetts and Delaware law are the same in this respect. See Pivotal Payments Direct Corp. v. Planet Payment, Inc., Del.Sup.Ct. C.A. No. N15C-02-059 EMD CCLD, 2015 WL 11120934, *3 (Del.Super.Ct. Complex Comm'l Lit. Div. 2015) (" Under Delaware law, choice-of-law provisions in contracts do not apply to statutes of limitations, unless a provision expressly includes it").

         Indeed, it appears that the clear majority rule in other jurisdictions is that a contractual choice-of-law provision will usually only determine which forum's substantive law governs the contract, and will not affect which State's statute of limitations applies to claims under or arising from the contract unless the provision says so explicitly. See, e.g., Portfolio Recovery Assocs., LLC v. King, 14 N.Y.3d 410, 927 N.E.2d 1059, 1061, 901 N.Y.S.2d 575 (NY 2010); Smither v. Asset Acceptance, LLC, 919 N.E.2d 1153, 1158 (Ind.Ct.App. 2010); Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 199 Ill.2d 325, 770 N.E.2d 177, 194, 264 Ill.Dec. 283 (Ill. 2002); Western Video Collectors, L.P. v. Mercantile Bank of Kansas, 23 Kan.App.2d 703, 935 P.2d 237, 239 (Kan.Ct.App. 1997); Financial Bancorp, Inc. v. Pingree and Dahle, Inc., 880 P.2d 14, 16 n.2 (Utah Ct.App. 1994); Nez v. Forney, 1989- NMSC 074, 109 N.M. 161, 783 P.2d 471, 473 (N.M. 1989); U.S. Leasing Corp. v. Biba Info. Processing Svcs., Inc., 436 N.W.2d 823, 826 (Minn.Ct.App. 1989); Gluck v. Unisys Corp., 960 F.2d 1168, 1179-80 (3d Cir. 1992); Phelps v. McClellan, 30 F.3d 658, 662 (6th Cir. 1994); Berger v. AXA Network, LLC, 459 F.3d 804, 813 n.15 (7th Cir. 2006); In re Sterba, 852 F.3d 1175, 1178 (9th Cir. 2017); Federal Deposit Ins. Co. v. Petersen, 770 F.2d 141, 142-43 (10th Cir. 1985).[3]

         Massachusetts has a six-year limitations period for contract claims, while Delaware cuts off such claims after three years. The parties seem to agree that the same basic rules determine when a contract claim accrues in both states. As discussed below, the parties also agree that the contract claims are timely if the Massachusetts six-year limitations period applies; they disagree as to whether those claims are time-barred if the Delaware three-year limitations period governs because they disagree about when those claims first accrued.

         Since the Massachusetts statute of limitations would allow the contract claims to proceed and the Delaware statute may not, the choice-of-law between these two options is governed by the principles summarized in Restatement § 142(2). See Andersen v. Lopez, 80 Mass.App.Ct. 813, 815-16, 957 N.E.2d 726 (2011). Under § 142(2), " unless the exceptional circumstances of the case make such a result unreasonable, " the forum state will " apply its own statute of limitations permitting the claim unless: (a) maintenance of the claims would serve no substantial interest of the forum; and (b) the claim would be barred under the statute of limitations having a more significant relationship to the parties and the occurrence." Id. at 815, quoting Restatement § 142(2). " In other words, Massachusetts will apply its own statute of limitations to allow the action to proceed unless some exceptional circumstances about the case make it unreasonable to do so or unless, after analyzing the interests of Massachusetts and [Delaware], allowing the action to proceed would serve no substantial Massachusetts interest, and [Delaware] has a more significant relationship to the parties and the accident than does Massachusetts. In assessing those interests, we focus only on the interests that bear on the statute of limitations, " and not on the interests relevant to the merits of Petrucci's claims. Id. at 815-16; accord, e.g., Kahn v. Royal Ins. Co., 429 Mass. 572, 574, 709 N.E.2d 822 (1999).

         The Court concludes that, under this standard, the Massachusetts statutes of limitations governs whether Mr. Petrucci's claims are timely. Massachusetts has a substantial interest in the maintenance and resolution of these claims and a more significant relationship to the parties and to the facts giving rise to this dispute. According to the allegations of the second amended complaint, the four individual parties all lived and worked in Massachusetts during the relevant time, they all executed the MMS operating agreement in Massachusetts, and the contract was allegedly breached through conduct in Massachusetts, including through the creation of and transfer of assets to a Massachusetts corporate entity. In addition, the individual defendants all still live in Massachusetts, which therefore " has a significant interest in seeing that . . . that its resident defendant[s] . . . be held accountable for [their] conduct, which took place in Massachusetts, and which allegedly caused" Plaintiff's " injury." Dasha v. Adelman, 45 Mass.App.Ct. 418, 426, 699 N.E.2d 20 (1998), quoting Cosme v. Whitin Mach. Works, Inc., 417 Mass. 643, 649, 632 N.E.2d 832 (1994).

         In sum, the merits of Petrucci's claim for breach of the MMS operating agreement, as purportedly amended by a subsequent " Letter of Intent" is governed by Delaware law because that is what the parties agreed to in their contract. But the Massachusetts six-year statute of limitations governs whether the contract claim was filed on a timely basis.

         3. ...


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