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Beninati v. Borghi

Superior Court of Massachusetts, Suffolk, Business Litigation Session

June 30, 2017

Elizabeth Beninati et al.
v.
Steven Borghi et al

          Filed July 3, 2017

          MEMORANDUM OF DECISION AND ORDER ON VARIOUS MOTIONS

          Janet L. Sanders, Justice

         This is an action primarily derivative in nature brought on behalf of fourteen limited liability companies that operate health clubs under the trade name " Work out World" in the New England area (collectively, WOW New England or WOW), Following a jury-waived trial, this Court on July 9, 2014 issued findings and rulings that ultimately resulted in a $4.1 million award of damages to the plaintiffs on those counts against the defendants alleging breach of fiduciary duty (the July 2014 Decision). As to the count against the defendant Harold Dixon alleging a violation of G.L.c. 93A, § 11, this Court ruled that he could not be held liable under that statute as a matter of law. The plaintiffs appealed from that ruling. In a rescript opinion dated October 24, 2016, the Appeals Court affirmed the judgment in all respects except for this Court's ruling on the 93A claim against Dixon. Beninati v. Borghi, 90 Mass.App.Ct. 556, 61 N.E.3d 476 (2016). It remanded the case for further proceedings.

         The case is now before the Court on two sets of motions. The first set of motions addresses the question of Dixon's liability under G.L.c. 93A. As to that issue, plaintiffs have moved for further findings and more specifically ask this Court to conclude that the 93A violation was willful and knowing, warranting multiple damages. Dixon has filed an opposition and has further asked to supplement the trial record. The second set of motions concerns the extent to which the defendants Steven and Linda Borghi should be required to contribute to the damages award on the non-93A claims. These motions also raise the question of whether and to what extent this Court can or should take steps to prevent the Borghis, as members of WOW England, from sharing in the award of 93A damages. This Court will discuss each set of motions in turn.

         A. Liability of Dixon under G.L.c. 93A

         The factfindings underlying this Court's July 2014 Decision were extensive. They detailed a course of conduct whereby Dixon, a businessman with no prior experience in the fitness industry, allied himself with the defendants, Steven and Linda Borghi, both members of WOW New England, to open a chain of competing health clubs in the same geographic area operated through Dixon-controlled entities (collectively, Blast). Dixon accomplished this, with the Borghis' assistance, by misappropriating WOW's confidential information, using WOW's resources, and engaging in other activity that promoted the interest of Blast at the expense of WOW New England. Based on these findings, this Court concluded that this provided ample factual basis for an award of damages against Dixon for breach of fiduciary duty; although, unlike the Borghis, he was not himself a member of WOW New England and thus would not otherwise have any fiduciary obligations to those entities, he had aided and abetted the Borghis in breaching their obligations and therefore, was jointly and severally liable to the plaintiffs for the damages that flowed from that breach. As to the 93A claim, however, this Court concluded that, because the Borghis themselves could not be held liable under that statute (Chapter 93A being inapplicable to intra-corporate disputes), neither could Dixon. It was: on this point that the Appeals Court disagreed and reversed. The Appeals Court noted that, having erroneously determined that Chapter 93A was inapplicable, this Court had not attempted to asses Dixon's level of culpability under Chapter 93A. It therefore remanded the matter " for a determination whether Dixon and the Blast defendants violated c. 93A and, if so, whether single or multiple damages are warranted." 90 Mass.App.Ct. at 567. The Appeals Court left undisturbed this Court's factfindings and otherwise affirmed my rulings in the case.

         In opposing plaintiffs' request for entry of judgment against him on the 93A count, Dixon makes several arguments as to why the elements of a 93A claim have not been established. First, he contends that his actions were not sufficiently egregious to constitute the kind of unfair and deceptive conduct prohibited by G.L.c. 93A, § 2. This Court disagrees. Contrary to Dixon's contention that all he gained was a " head start, " this Court found that Dixon aided and encouraged the Borghis in misappropriating WOW New England club membership data, revenue information, reports that analyzed the demographics of the WOW New England membership base, employee training manuals, payroll data, and a list of the clubs' vendors. Dixon accomplished this by infiltrating WOW New England under the guise of being a consultant; he knew of the Borghis' fiduciary obligations to other WOW members, who were left in the dark about Dixon's role until it was too late. Dixon also used WOW assets to open up competing clubs, piggybacked on WOW advertising and marketing efforts, and used his knowledge of the arrangement by which WOW New England obtained permission to use the WOW name in order to obtain unfair advantage for himself and his companies. All of these facts were laid out in the Court's July 2014 Decision. If that was not clear enough, the Court was explicit in a later decision on plaintiff's Motion for Reconsideration, stating that " Dixon's conduct was--standing alone--unfair and deceptive as defined by G.L.c. 93A, § 2." See page 8 of Memorandum of Decision and Order on various Post-trial Motions, dated October 17, 2014 (the October 2014 Decision). This Court continues to adhere to this conclusion.

         Dixon's second argument is that the Court's fact. findings fail to demonstrate that WOW New England suffered some loss of money or property" within the meaning of 93A, § 11. Instead. they show only that Blast unfairly benefited; this unfair benefit (it is argued) is not enough to trigger the statute. This Court concludes that Dixon reads too much into that phrase; that is, he construes Section 11 to be more restrictive in its reach than it actually is. Although it is certainly true that Dixon unfairly benefited from his wrongful acts, that benefit also came at WOW New England's expense. Precisely what monetary loss WOW New England sustained may be difficult to quantify, but that does not mean that Chapter 93A is inapplicable.

         The Appeals Court recognized as much in Specialized Tech. Res., Inc. v. JPS Elastomerics Corp., 80 Mass.App.Ct. 841, 957 N.E.2d 1116 (2011), in upholding a judge's Chapter 93A award of damages against a defendant who, like Dixon, had misappropriated plaintiff's confidential information. Although the Court acknowledged that the plaintiff's monetary loss was difficult to determine with any specificity, it was fair to infer that the plaintiff suffered some loss of sales when it faced competition from another entity using plaintiff's trade secrets. The same can be inferred here. " Having satisfied the requirement that it demonstrate some monetary loss, the use of disgorgement of profits to compensate [the plaintiff] for the defendant's misuse of the trade secret was entirely appropriate." 80 Mass.App.Ct. at 850. In other words, damages that are based on the benefit that defendant received could be awarded on a claim brought under Section 11 once the threshold requirement of some monetary harm (however imprecise) was established. That threshold requirement was met in the instant case.[1]

         Dixon argues more generally that this Court must separately analyze each and every act by Dixon, and assess the particular damages attributable to that specific act rather than simply use the same $4.1 million figure as the basis for a damages award. This Court disagrees. In its July 2014 decision, this Court carefully analyzed the evidence presented at trial and concluded that plaintiffs had proved that the defendants caused harm to WOW New England in an amount totaling $4.1 million. Dixon's conduct when considered as a whole amounted to unfair and deceptive conduct within the meaning of 93A and supports the same $4.1 million damages award. In short, there is no basis to award anything less than that same amount on the 93A claim.

          Third, Dixon contends that the conduct at issue did not occur in the course of " trade or commerce" as required by G.L.c. 93A, § 11. The basis for this position is Dixon's claim that Blast and WOW New England are not separate and distinct entities engaged in arm's length transactions but are intertwined by virtue of their overlapping ownership and control. Although maintaining that this is " another, different argument" from the one that Dixon made before the Appeals Court as to why he could not be held liable under 93A, this Court agrees with the plaintiffs that it is in fact the same. Clearly, the Appeals Court would not have rejected this Court's conclusion on the 93A count and remanded for further findings regarding the nature of the conduct at issue if Chapter 93A were inapplicable.

         What the Appeals Court could not decide and quite properly remanded to this Court to determine was whether this Court regarded Dixon's conduct as " unfair" or " deceptive" and if so, whether the damages award should be multiplied. The factfindings that this Court made in its July 2014 Decision amply support the conclusion not only that Dixon's conduct was unfair and deceptive but also that it was intentional and willful, justifying an award of multiple damages. Plaintiffs have accurately cited those portions of the trial record that support this conclusion. See Memorandum in Support of Further Findings at pages 4 through 7, together with Appendix submitted in support. To the extent that such evidence consisted of witness testimony, this Court finds that testimony to be credible.[2]

         In reaching the conclusion that multiple damages are warranted, this Court has not considered Dixon's affidavit, where he claims to have lost millions on the Blast business. That affidavit was submitted in support of Defendant's Motion to Supplement the Record, which is Denied . This Court's award of damages is factually supported and is not subject to revision based on events taking place after the trial was over, nor does this Court have any desire to reopen the evidence.

         As to whether to double or treble the damages, this Court concludes that doubling the damages is sufficiently punitive at the same time that it is proportional to the wrongdoing at issue. In so concluding, this Court takes into account the fact that Dixon was acting in concert with the Borghis. Had it not been for the Borghis' willful breach of their own fiduciary obligations, Dixon would not have had the access he did to WOW New England confidential information or have been able to use that information as effectively had he been acting on his own. Certainly, Dixon is culpable, but ...


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