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Turner v. Cheffers

Superior Court of Massachusetts, Suffolk, Business Litigation Session

December 19, 2017

Edward S. TURNER, Individually and as a Designee of Shareholders Comprising more than 15% of Issued and Outstanding Shares of IVES Group, Inc., a Nevada Corporation
Mark L. CHEFFERS et al.

          Caption Date: December 18, 2017


          Janet L. Sanders, Justice

         Plaintiff Edward S. Turner, a minority shareholder of IVES Group, Inc. (IVES), brings this action individually and as designee of certain other minority shareholders against defendants Mark Cheffers and Christine Renda, both of whom are directors and shareholders of IVES. IVES is a closely-held Nevada corporation. Turner alleges that Cheffers and Renda engaged in transactions that diverted certain corporate assets and opportunities to themselves. He further alleges that Cheffers removed him from the IVES Board of Directors and terminated his employment with IVES in retaliation for seeking information related to the value of his investment and his efforts to improve the company’s corporate governance procedures. The defendants now seek summary judgment on Counts III, IV, and V of Turner’s Complaint, each of which is based on the alleged diversion of corporate assets and opportunities. Specifically, defendants contend that these claims are derivative under Nevada law, and that the shareholders have since voted to terminate those claims. For the reasons that follow, this Court concludes that the Motion must be Allowed.


         The relevant facts in the summary judgment record are as follows. In May 2000, Cheffers and Turner founded IVES, a closely-held corporation, and incorporated the company in Nevada. Cheffers became the company’s President and Treasurer, while Turner became its Chief Information Officer and later its Chief Technology Officer. Renda became IVES’s Chief Administrative Officer (CAO) and later its General Counsel. Each of them is presently an IVES shareholder along with Michael Nohrden, Joseph Cyr, Joseph Kellner, Donald Whalen, Jeffrey Bourassa, and Turner’s wife and children. Cheffers is by far the company’s largest shareholder, owning 53.6156% of all outstanding shares. The next largest shareholder is Nohrden, who owns 14.0200% of all outstanding shares.

         In 2007, Cheffers founded Allen David Press, Inc. (ADP) and IVES began a business relationship with the company soon thereafter. This relationship was reduced to writing in a Memorandum of Understanding dated September 15, 2010 (the 2010 MOU) pursuant to which IVES agreed to " license ADP content, corporate positioning and its independence abilities on a retainer basis totaling up to $10, 000 a month." The MOU also provided, however, that the extent to which compensation would be actually paid depended on whether IVES had sufficient funds. Renda was the President of ADP at the time IVES and ADP entered into the 2010 MOU.

         At some point, Cheffers began an extramarital affair with Renda. After the affair was discovered, Cheffers, on behalf of IVES, entered into a MOU with Renda placing her on " administrative leave" from her position as CAO and General Counsel effective August 31, 2012 (the 2012 MOU). That agreement provided that Renda would receive full salary and benefits until December 31, 2016. It also provided that Cheffers would temporarily transfer his ownership of ADP to Renda for $1.00 " [a]s security for [her] agreement to the terms of [the MOU]" until such time that IVES completed its obligations under the MOU.[1] Turner maintains that this transaction " had no business purpose and was instead designed to provide Defendant Renda with income at the expense of other IVES Group shareholders." Complaint at ¶ 37. He further asserts that ADP " properly belongs to IVES Group" and that " Cheffers wrongfully usurped ADP and sold ADP to Renda." Complaint at ¶ 41. Renda subsequently rejoined the company as its Interim CFO.

         In May 2015, Cheffers removed Turner from the Board without a shareholder vote and terminated his employment with IVES. Turner claims these actions were taken in retaliation for the efforts he undertook, with assistance from Cheffers’ ex-wife (an IVES director) to improve IVES’s corporate governance and to obtain access to certain financial and corporate records. The defendants contend that the decision was made primarily because of concerns over Turner’s managerial competence.

         In October 2015, Turner, along with Keufler, Bourassa, and Turner’s wife and children, sent IVES a written demand to inspect the company’s books and records pursuant to Nev. Rev. Stat. § 78.257. IVES denied the request a month later and stopped sending Turner certain severance payments Cheffers had agreed to provide him. Turner maintains that Cheffers prevented him from accessing the company’s books and records because they would potentially reveal " years of financial mismanagement, including the comingling of personal and corporate finances, diversion of corporate opportunities and corporate waste insofar as Cheffers was diverting corporate assets to Renda and ... dissipating corporate assets to minimize the value of IVES Group while [Cheffers] was divorcing his then-wife." Complaint at ¶ 6.

         In January 2016, Turner, individually and as designee for his wife, children and Keufler, filed the present action and brought six claims against Cheffers and Renda. Counts I and II seek access to certain financial and corporate records pursuant to Nev. Rev. Stat. § 78.257. Count III seeks an accounting " of the business operations and accounts of IVES Group, including, but not limited to, funds that have been wrongly received by Defendants and transfers of Company property to the Defendants." Complaint at ¶ 60. Count IV asserts a claim for breach of fiduciary duty, alleging that Renda and Cheffers breached their fiduciary duties by entering into the MOU, usurping ADP and transferring it to Renda, and also by refusing to provide financial information to IVES shareholders. Count V is a claim for unjust enrichment, alleging that Renda and Cheffers were unjustly enriched " at the expense of and to the detriment of IVES Group" as a result of their wrongful conduct. Id. at ¶ 67. Both Counts IV and V are asserted by Turner " as a shareholder and representative of IVES Group." Id. at ¶¶ 65, 68. Count VI alleges that Cheffers abused his power as the largest shareholder by wrongfully removing Turner as a director and terminating him from his employment with IVES (among other things). Turner purports to assert each of these counts directly.

         Soon after Turner filed his Complaint, the defendants brought a motion to dismiss all the claims against them, a motion to strike Paragraph 26 from the Complaint, and a motion to require Turner to furnish security. In the motion to dismiss, the defendants argued, among other things, that Counts III, IV, and V were derivative (i.e., that they belonged to IVES) and that Turner had failed to comply with Nev. Rev. Stat. § 42.520, which governs the pleading requirements for derivative claims asserted against Nevada corporations. While the three motions were pending, IVES issued a Notice of Special Meeting in Lieu of Annual Meeting of Shareholders to be held on April 28, 2016. The notice indicated that several proposals would be considered at the meeting, including termination of Counts III, IV, and V of the lawsuit as well as ratification of the 2010 and 2012 MOUs.

         A day after sending the notice, IVES sent each shareholder a package containing Turner’s Complaint, the defendants’ Answer, and the papers filed by the parties in connection with the defendants’ three motions. The package also included letters from Cheffers, Nohrden, and Donald Whalen as well as IVES’s 2015 and 2016 financial statements (reviewed by independent CPAs) and an independent appraisal of the company’s value. The letter from Cheffers provided his view on the state of IVES’s business. The letter from Nohrden, the company’s COO, analyzed both the propriety of the 2012 MOU and the relationship between ADP and IVES. The letter from Whalen, the company’s General Counsel, commented on the company’s duty to indemnify officers and directors under Nevada law, a plaintiff’s burden of proof in connection with claims against officers and directors, and certain defenses asserted by the defendants. In particular, Whalen opined that the possibility that IVES would benefit from Counts III, IV, and V was " remote" and in any event would outweigh the cost of defending Cheffers and Renda, who had a right to be indemnified for their legal fees and, unless the plaintiff can show intentional misconduct, for any damages awarded against them. The lawsuit could also damage IVES’s reputation at a time when it was attempting to grow. Both Nohrden and Whalen recommended that Counts III, IV, and V be terminated.

         On April 28, 2016, the special meeting was held as scheduled and the shareholders voted for the proposals. Each proposal was approved by 13, 651, 809 out of the 16, 226, 809 shares present at the meeting in person or by proxy. The shareholders voting for the proposals included Cheffers, Renda, Nohrden, Cyr, Whalen, and Bourassa; the shareholders voting against included Keufler, Turner, and Turner’s wife and children. A few days later, the Court (Frison, J.) ...

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