Superior Court of Massachusetts, Suffolk, Business Litigation Session
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
MEMORANDUM OF DECISION AND ORDER ON DEFENDANTSâ
MOTION FOR PARTIAL SUMMARY JUDGMENT ON COUNTS III, IV, AND
L. Sanders, Justice
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 companyâs corporate governance
procedures. The defendants now seek summary judgment on
Counts III, IV, and V of Turnerâs 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.
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 companyâs President and Treasurer, while Turner
became its Chief Information Officer and later its Chief
Technology Officer. Renda became IVESâs 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 Turnerâs wife and children. Cheffers is by far the
companyâs largest shareholder, owning 53.6156% of all
outstanding shares. The next largest shareholder is Nohrden,
who owns 14.0200% of all outstanding shares.
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.
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. 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 Â¶ 37. He further asserts that ADP " properly belongs
to IVES Group" and that " Cheffers wrongfully
usurped ADP and sold ADP to Renda." Complaint at Â¶ 41.
Renda subsequently rejoined the company as its Interim CFO.
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 Cheffersâ ex-wife
(an IVES director) to improve IVESâs 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 Turnerâs managerial competence.
October 2015, Turner, along with Keufler, Bourassa, and
Turnerâs wife and children, sent IVES a written demand to
inspect the companyâs books and records pursuant to Nev. Rev.
Stat. Â§ 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 companyâs 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 Â¶ 6.
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. Â§ 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 Â¶ 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 Â¶ 67. Both Counts IV and V are asserted by
Turner " as a shareholder and representative of IVES
Group." Id. at Â¶Â¶ 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.
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. Â§
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.
after sending the notice, IVES sent each shareholder a
package containing Turnerâs Complaint, the defendantsâ
Answer, and the papers filed by the parties in connection
with the defendantsâ three motions. The package also included
letters from Cheffers, Nohrden, and Donald Whalen as well as
IVESâs 2015 and 2016 financial statements (reviewed by
independent CPAs) and an independent appraisal of the
companyâs value. The letter from Cheffers provided his view
on the state of IVESâs business. The letter from Nohrden, the
companyâs COO, analyzed both the propriety of the 2012 MOU
and the relationship between ADP and IVES. The letter from
Whalen, the companyâs General Counsel, commented on the
companyâs duty to indemnify officers and directors under
Nevada law, a plaintiffâs 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 IVESâs reputation
at a time when it was attempting to grow. Both Nohrden and
Whalen recommended that Counts III, IV, and V be terminated.
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 Turnerâs wife
and children. A few days later, the Court (Frison, J.) ...