Mark Butts et al.
Arnold E. Freedman et al
October 27, 2017
MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS'
MOTION FOR SUMMARY JUDGMENT
L. Sanders, Justice
1999, the plaintiff Mark Butts and the defendant Arnold
Freedman joined together to form Boston Equity Advisors, LLC
(BEA), a limited liability company in the business of
providing advice on matters of corporate finance,
particularly in connection with the medical device business.
Freedman and Butts each held a fifty percent interest. The
defendant Oded Ben-Joseph worked for BEA beginning in 2010.
In July 2012, Freedman and Ben-Joseph left BEA and joined the
defendant Outcome Capital, LLC (Outcome), a BEA competitor.
This lawsuit alleges various claims against the defendants,
the primary ones being a breach of their fiduciary
obligations and breach of contract. Specifically, the
Complaint alleges that the defendants took with them certain
confidential information of BEA and engaged in other actions
harmful to BEA and to Butts, the sole member of BEA after
case is now before the Court on the defendants' Motion
for Summary Judgment. In essence, the defendants argue that
the plaintiffs have no reasonable expectation of proving any
of their claims. See Kourouvacilis v. General Motors
Corp., 410 Mass. 706, 711, 575 N.E.2d 734 (1991). After
review of a voluminous summary judgment record, this Court
concludes that there are genuine disputes of material fact
that make summary judgment inappropriate.
detailing all the facts (both disputed and undisputed) in the
parties' submissions, this Court would highlight the
following evidence which, if believed, could provide a basis
for plaintiffs to recover on one or more of their
a closely held boutique investment banking firm that operated
for many years with good success. Freedman focused on sales
and business generation whereas Butts handled the legal and
financial end of the business. In 2010, Freedman recruited
Ben-Joseph to assist him on the sales end. Ben-Joseph joined
the firm with the expectation of becoming a member. Although
he never obtained an equity interest in BEA, he did receive
an interest in receiving a percentage of the profits and was
negotiating with Butts to become an equity member of BEA into
2012. Ben-Joseph worked closely with Freedman until his
departure from BEA.
this same time period (August 2011 into early 2012), Freedman
and Ben-Joseph were engaged in secret discussions with a BEA
competitor, WWC Securities, LLC (WWC) to merge the two
companies. Freedman and Ben-Joseph did not inform Butts about
these negotiations. These discussions were extensive and are
supported in the summary judgment record by defendants'
own interrogatory answers as well as numerous emails and
other documents. A merger did not take place, but shortly
after these discussions, both Freedman and Ben-Joseph left
BEA and joined WWC, which then changed its name to Outcome
Capital, LLC (Outcome). On March 13, 2012 and March 19, 2012,
respectively, Ben-Joseph and Freedman each informed Butts
that they would be leaving the firm. Both continued to work
at BEA until July 2012.
plaintiffs allege that during these secret negotiations and
while both Freedman and Ben-Joseph still worked at BEA, they
stopped seeking new business for BEA and started directing
prospective clients away from BEA to Outcome (then WWC). In
particular, Ben-Joseph, with Freedman's knowledge and
assistance, commenced discussions in February 2012 with
Sirius Implantable Systems, Ltd., which was developing a
medical device that fell directly in line with the types of
investments that BEA promoted within the health care
industry. In June 2012, Sirius became a client of Outcome.
Freedman also had some dealings with Leading Indicator
Systems in April 2012 but instead of soliciting the company
as a client of BEA, he referred it to Outcome. Finally, the
summary judgment record contains evidence regarding a third
potential client, Nano MR. A reasonable inference can be
drawn from this evidence that, while they were still working
for BEA, the defendants diverted these prospective clients
away from BEA to Outcome, precisely because they intended to
leave BEA and join Outcome and wished to reap the benefit of
also allege that the defendants took confidential and
proprietary information from BEA, including its client
databases, business files and contacts (including deal
history, financing and investing sources), marketing
materials and other information. Here, the summary judgment
record is much thinner. There is evidence, however, that the
defendants did take certain information from BEA's "
Goldmine" database for their use at Outcome. They also
provided Outcome with a list of BEA past transactions and
when the two joined Outcome, Outcome promoted these in
marketing materials as deals that Outcome, not BEA, had
performed. Freedman took certain other BEA files, which BEA
maintains contained confidential client information.
support of their motion, the defendants makes two principal
arguments. First, they contend that the plaintiffs
will be unable to show that the defendants did anything
wrong. Neither defendant was bound by any noncompete
agreement. Indeed, Ben-Joseph was not even a member of BEA
and thus (it is argued) had no fiduciary obligation to Butts
or the company. As to confidential information, defendants
maintain that the plaintiffs cannot specifically identify
what was taken, much less prove that it was entitled to legal
protection; at most, defendants took with them their own
skills and experience, which they were free to do.
Second, defendants argue that there is no causal
connection between any alleged wrongdoing by the defendants
and any harm to the plaintiffs. Even if there were
discussions regarding a merger, no merger occurred. As to
clients, the only existing client BEA had at the time the
defendants left the firm was Histogenics. As to Leading
Indicators, Sirius, and Nano MR, defendants assert that these
entities would not have become clients of BEA. According to
defendants, BEA failed as a business following the
defendants' departure because Butts himself abandoned it.
problem with both of these arguments is that they are
fact-intensive and do not lend themselves well to resolution
by way of summary judgment. In determining whether
information is entitled to protection as confidential or
proprietary, for example, this Court applies the
multi-factored test set forth in Jet Spray Cooler v.
Crampton, 361 Mass. 835, 840, 282 N.E.2d 921 (1972).
Those factors include, among other things: a) the extent to
which plaintiff took steps to keep the information
confidential; b) the value of the information to plaintiff
and its competitors; and c) the extent to which the
information is already in the public domain. That is a
factual inquiry which is extremely difficult to decide based
simply on affidavits and deposition testimony. The same is
true with regard to whether there is a causal connection
between the acts that the plaintiffs have identified as
unlawful and the harm for which they seek compensation.
Determining why BEA failed and why certain clients went to
Outcome requires an assessment regarding the credibility of
certain testimony, for example, and then a determination as
to what weight to accord that evidence if it is believed.
Plaintiffs may very well be unable to prove that BEA would
have gotten certain business that ultimately went to Outcome,
but the fact that defendants were engaged in discussion with
Outcome at the same time that they were in contact with these
prospective clients, coupled with the fact that these
entities ultimately did go to Outcome (and thus
benefited the defendants), provides some basis to infer such
a causal connection. In short, plaintiffs may have very weak
case, but that is not the test on a motion for summary
it was not emphasized at the hearing on this motion, one of
the arguments that the defendants make is less fact specific,
concerning whether either defendant owed any fiduciary or
contractual duty to BEA or Butts. As to Freedman, defendants
contend that BEA's Operating Agreement (OA) specifically
renounces the existence of any fiduciary duties. This Court
disagrees. A limited liability company is like a close
corporation: the relationship among its members must be one
of trust, confidence and absolute loyalty if the enterprise
is to succeed. See Donahue v. Rodd Electrotype Co.,
367 Mass. 578, 592-93, 328 N.E.2d 505 (1975). It is true that
a contract (like an operating agreement) can limit or even
eliminate these fiduciary obligations. See, e.g., Chokel
v. Genzyme Corp., 449 Mass. 272, 278, 867 N.E.2d 325
(2007) (" When a director's contested action falls
entirely within the scope of a contract between the
director and the shareholders, it is not subject to question
under fiduciary duty principles" ) (italics supplied);
see also Blank v. Chelmsford Ob/Gyn, P.C., 420 Mass.
404, 408, 649 N.E.2d 1102 (1995). On the other hand, the SJC
has made it clear that " the presence of a contract will
not always supplant a shareholder's fiduciary duty,"
see Merriam v. Demoulas Super Mkts., Inc., 464 Mass.
721, 727-28, 985 N.E.2d 388 (2013), and that, " unless
the contract clearly and expressly indicates a departure from
those obligations, general fiduciary principles apply."
Selmark Associates, Inc. v. Ehrlich, 467 Mass. 525,
537-38, 5 N.E.3d 923 (2014). Here, the OA provided that the
LLC " is not intended to be a general partnership,
limited partnership or joint venture, and no Member shall be
considered to be a partner or joint venture of any other
Member for any purposes other than foreign, domestic, federal
and provincial local income tax purposes, and this Agreement
shall not be construed to suggest otherwise." Section
1.07 of OA, Exhibit 3 of Appendix. This Court does not regard
this provision as a clear and unequivocal elimination of one
member's fiduciary responsibility to another. ...