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Mooney v. Diversified Business Communications

Superior Court of Massachusetts, Suffolk

March 2, 2018

John J. Mooney et al.
v.
Diversified Business Communications et al.

          File Date: March 5, 2018

          Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Salinger, Kenneth W., J.

          MEMORANDUM AND ORDER ON DEFENDANTS’ MOTIONS TO DISMISS FIVE OF SIX CLAIMS IN EACH ACTION

          Kenneth W. Salinger Justice of the Superior Court

         The four Plaintiffs are former minority members of a closely-held Delaware company called DBC Pri-Med, LLC. The majority member is and was defendant Diversified Business Communications. The three individual defendants are all managers of Pri-Med; none of them has any ownership interest in the company.[1]

         In January 2017 Pri-Med called Plaintiffs’ shares, as expressly permitted in Pri-Med’s operating agreement. This LLC Agreement provides that an appraisal firm to be selected by the parties shall determine the value of any called (or put) shares, based on a valuation of Pri-Med as a going concern and without discounting that value for the illiquidity or minority nature of any shares.

         Plaintiffs allege that Defendants carried out a scheme to artificially deflate the value of Pri-Med in order to avoid paying Plaintiffs a fair and proper price for redeeming their shares. According to Plaintiffs, this scheme involved artificially decreasing Pri-Med’s assets by selling off its major subsidiary (a company called Amazing Charts) and artificially increasing the company’s liabilities by inflating its expenses and debt.

         Each set of Plaintiffs asserts six claims.[2] Count One seeks a declaratory judgment that the sale of Amazing Charts violated the LLC Agreement, and therefore is null and void, because Defendants did not obtain Plaintiffs’ approval. The other claims are for breach of the LLC Agreement, breach of the implied covenant of good faith and fair dealing in the same contract, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, and certain equitable relief.

         Defendants have moved to dismiss all of the claims under Mass.R.Civ.P. 12(b)(6) except for the claims in Count Two for breach of contract. The Court will order that declaratory judgment enter in Defendants’ favor on Count One of each complaint, deny the motions with respect to the claim for breach of the implied covenant of good faith and fair dealing in Count Three, dismiss with prejudice the claims for breach of fiduciary duty and aiding and abetting a breach of fiduciary duty in Counts Four and Five, and dismiss without prejudice the separate claim for equitable relief in Count Six.

         1. Alleged Implausibility of Claims

         Defendants make an overarching argument that Plaintiffs’ basic theory of their claims- which that Defendants deliberately stripped Pri-Med of value in order to avoid paying Plaintiffs the proper redemption price- is " absurd" and " nonsensical." Defendants contend that the complaints must therefore be dismissed because they fail to allege facts plausibly suggesting any entitlement to relief. See generally Lopez v. Commonwealth, 463 Mass. 696, 701 (2012) (to survive a motion to dismiss under Mass.R.Civ.P. 12(b)(6), a complaint or counterclaim must allege facts that, if true, would " plausibly suggest[ ] ... an entitlement to relief" ) (quoting Iannacchino v Ford Motor Co., 451 Mass. 623, 636 (2008), and Bell A. Corp. v. Twombly, 550 U.S. 544, 557 (2007)).

         This argument is unavailing. Defendants misconstrue Twombly and Iannacchino . A trial court judge cannot dismiss claims because it considers the underlying factual allegations to be unbelievable. To the contrary, in deciding a Rule 12(b)(6) motion, a court must " accept as true the allegations in the complaint, draw every reasonable inference in favor of the plaintiff, and determine whether the factual allegations plausibly suggest an entitlement to relief under the law." Barbuto v. Advantage Sales & Mktg., LLC, 477 Mass. 456, 457-58 (2017). The Court must assume " that all the allegations in the complaint are true" even they are " doubtful in fact." Iannacchino, 451 Mass. at 636, quoting Twombly, 550 U.S. at 555.

         So long as the facts alleged in a complaint plausibly suggest that the plaintiffs may be able to prove their claims, the complaint is not subject to dismissal even if the allegations appear to be " nonsensical," " extravagantly fanciful," " unrealistic," or otherwise " improbable." See Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009) (" To be clear, we do not reject these bald assertions on the ground that they are unrealistic or nonsensical ... It is the conclusory nature of [the plaintiff’s] allegations, rather than their extravagantly fanciful nature, that disentitles them to the presumption of truth" ); Twombly, 550 U.S. at 556 (" [A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of the facts alleged is improbable" ).

         " Put another way, Twombly and Iqbal expressly declined to exclude even outlandish allegations from a presumption of truth except to the extent they resembled a ‘formulaic recitation of the elements of a ... claim’ or other legal conclusion." Connelly v. Lane Const. Corp., 809 F.3d 780, 789 (3d Cir. 2016), quoting Iqbal, supra, quoting in turn Twombly, 550 U.S. at 555. And Iannacchino adopted the same standard under Massachusetts law.

         2. Delaware Law Governs

         The substantive claims in this case are governed by Delaware law. Pri-Med was formed under the Delaware Limited Liability Act. The breach of fiduciary duty claims are therefore governed by Delaware law. See Harrison v. NetCentric Corp., 433 Mass. 465, 469-72 (2001). In addition, the parties’ LLC Agreement provides that it " shall be construed and enforced in accordance with the laws (other than the law governing conflict of law questions) of the State of Delaware. This provision is enforceable. See Hodas v. Morin, 442 Mass. 544, 549-50 (2004) (" As a rule, ‘[w]here the parties have expressed a specific intent as to the governing law, Massachusetts courts will uphold the parties’ choice as long as the result is not contrary to public policy’ " ) (quoting Steranko v. Inforex, Inc., 5 Mass.App.Ct. 253, 260 (1977)).

         3. Declaratory Judgment- Count One

         Defendants are entitled to judgment in their favor on the claims for declaratory judgment as to whether Pri-Med could sell its Amazing Charts subsidiary, or the InLight assets of that subsidiary, after January 1, 2017, without the prior written consent of the Plaintiffs.

         3.1. Construing the Contract

         Section 7.9 of the LLC Agreement provided that certain corporate actions required prior consent of at least three of the four Plaintiffs, while they still owned the B-1 Shares of the company. This provision states, in relevant part, that " without the prior written consent of the Members holding a majority of the Series B-1 Shares, the Company and the Series A Members agree that they shall not:

(a) materially change the business focus of the Company;

         * * *

or ...

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