Superior Court of Massachusetts, Suffolk, Business Litigation Session
Bryan ABRANO et al.
v.
Frank ABRANO et al. Lymol Medical Corporation Bryan Abrano et al.; Bryan Abrano et al. on Behalf of Lymol Medical Corporation Frank Abrano et al.
File
Date: July 2, 2018
OPINION
Janet
L. Sanders, Justice of the Superior Court
These
three consolidated actions arise out of disputes among
members and former members of a closely held corporation. The
claims were tried to a jury which returned a verdict on
December 14, 2017. The parties first disagreed as to the form
of judgment. This Court resolved[1] those differences in a
Memorandum of Decision dated April 20, 2018. On June 8, 2018,
the parties were once again before this Court, this time for
rulings on fifteen postjudgment motions. This Court ruled
from the bench as to the majority of those motions. With
respect to those motions that this Court took under
advisement, my rulings and the reasons therefor are as
follows.
A.
Plaintiff Bridget Rodrigueâs and Bryan Abranoâs Motion to
Preclude Kim Abrano From Receiving Indemnity and Advancement
of Fees and for Reimbursement of Fees Paid to Date
Some
background is necessary for this motion. The first of these
actions was filed on November 7, 2014 by plaintiffs Bryan
Abrano (Bryan), Bridget Rodrigue (Bridget), and Bridgetâs
husband Dennon Rodrigue (Dennon). Civ. No. 2014-3509-BLS 2.
Bryan and Bridget owned 49 percent of Lymol. They and Dennon
also worked for Lymol until their terminations on different
dates within months of the time the first lawsuit was filed.
Among the named defendants were Lymolâs majority shareholder
Kim Abrano (Kim), Bryanâs and Bridgetâs mother, and Frank
Abrano (Frank), Kimâs husband and the company founder. Also
named as defendants were Edward Holzek and Gary Trainor who,
along with Kim, constituted Lymolâs Board of Directors) (the
Board).
In May
2015, Bryan and Bridget asserted a derivative claim on behalf
of Lymol against the same individual defendants, including
Kim and Frank. Civ. No. 2015-1367-BLS 2. Frank
counterclaimed, asserting that his children still owed him
money on a promissory note they had executed in connection
with Frankâs sale to them of his interest in the company in
2008. Finally, Lymol filed its own lawsuit naming Bryan,
Bridget and Dennon as defendants. Civ. No. 2015-1639-BLS 2.
In December 2016, the three actions were consolidated.[2]
On
December 10, 2014, one month after the first action was
filed, the Board voted to indemnify Kim for all attorneys
fees incurred in connection with the case (the December 2014
Vote). Minutes from that Board meeting state that Kim agreed
to reimburse Lymol in the event that "it is determined
that she did not act in good faith or in the best interests
of the Company." For the next three years, Kimâs legal
fees were paid by Lymol, pursuant to the December 2014 Vote.
Both Kim and Lymol were represented by the same legal
counsel, who took the position that their interests were
essentially the same.[1]
The
jury verdict reached in December 2017 was a mixed one. On
Bryanâs, Bridgetâs and Dennonâs claims asserted against Kim
under the Massachusetts Wage Act, the jury found that Kim had
not withheld their wages but had retaliated against them for
their assertion of a Wage Act claim in violation of G.L.c.
149, § 148A, entitling them to treble damages plus
attorneys fees. Kim was also found to have breached her
fiduciary duty to Bryan and Bridget by wrongfully withholding
payment of dividends and terminating them without any
legitimate business purpose. As to Dennon, who was not a
member of Lymol, Kim was found to have tortiously interfered
with his contractual relationship with Lymol by wrongfully
terminating him. Bryan and Bridget were unsuccessful on their
derivative claim that Kim had caused the company to lose
profits as a result of decisions she made that they alleged
were not in the best interest of Lymol. As to Lymolâs claim
against Bryan, the jury found that he breached his fiduciary
duty to the company, but awarded damages that were
substantially less than Lymol had sought.
Bryan
and Bridget now seek an order from this Court requiring Kim
to reimburse Lymol for the attorneys fees she incurred in
defending against the direct claims asserted against her.
As[3] part of that request, they ask that this Court order
that "the returned monies be distributed pro rata to
shareholders."[2] They argue that the jury necessarily
had to have found that Kim did not act in good faith and that
she is, as a consequence of this finding, required to
reimburse the company as a matter of contract law (given her
promise to repay Lymol) and pursuant to G.L.c. 156D,
§§ 8.51 et seq. This Court agrees with the
plaintiffs that the jury for all intents and purposes did
determine that Kim did not act in good faith. I am not
convinced, however, that I have the authority to grant Bryan
and Bridget the relief they request.
As is
clear from the order sought by the plaintiffs, any harm
suffered as a result of the decision to indemnify Kim for her
legal fees is one that was suffered by the corporation: Kim
must first reimburse Lymol, the entity that paid the fees to
begin with. Bryan and Bridget would benefit from the order
only to the extent of their ownership in the company-hence,
their request that this Court further order that Lymol
distribute the money it receives from Kim to
shareholder/members based on their ownership percentage, with
Bryan and Bridget to receive 49 percent of the total
recovered. However, where the harm suffered to the individual
shareholder is not distinct from the injury suffered
generally by all shareholders as owners of corporate stock,
then the claim is derivative. International Brotherhood
of Electr. Workers Local No. 129 Benefit Fund v. Tucci,
476 Mass. 553, 557-58 (2017). Bryan and Bridget did bring a
derivative complaint, but not included in that claim is any
assertion that Kim should not have been indemnified for her
legal expenses. See Complaint in Civ. No. 2015-01367.
Moreover, they did not make a demand on Lymol for recovery of
these legal expenses as required by G.L.c. 156, §
7.42.[3] [4]
In
support of their position, Bryan and Bridget rely on
Astra USA, Inc. v. Bildman, 19 Mass.L.Rptr. 368,
2005 WL 147747 (May 4, 2005), but that case is inapposite. In
Astra, plaintiff, a pharmaceutical corporation, sued
its former CEO claiming that he had defrauded the company and
had engaged in other conduct that breached his fiduciary duty
to it. The jury agreed and awarded the company damages. In
one of many post-trial decisions, the Superior Court judge
(Hinkle, J.) rejected the defendantâs request, made as part
of his counterclaim, that he was entitled to be indemnified
by the corporation for his legal fees pursuant to a provision
in his employment agreement. In so holding, the Court relied
in part on G.L.c. 156B, § 67 (the predecessor statute to
G.L.c. 156D, §§ 8.51 et seq.) which by its terms
prevents indemnification of a corporate officer who has been
adjudicated in any proceeding not to have acted in good
faith. Unlike Astra, no pleading in the instant case
raised the indemnification issue before now, even though
Bryan and Bridget were undisputedly aware of the December
2014 Vote at the time it was made. Moreover, the party that
argued against indemnification in Astra was the
plaintiff corporation-the entity that would have suffered
harm had indemnification been ordered. Here, Bryan and
Bridget are the parties seeking the relief, even though the
harm sought to be redressed was suffered by Lymol.
That
said, this Court does believe that it has the
authority to order Kim to provide an accounting of all legal
fees and expenses advanced to her by Lymol. The jury found
that she breached her fiduciary duty to her fellow
shareholders, tortiously interfered with Dennonâs employment
relationship with Lymol and, as an officer or agent of Lymol,
violated the Massachusetts Wage Act. Her defense of these
claims was effectively funded by Bryan and Bridget as 49
percent owners of Lymol. "Courts have broad equitable
power to fashion remedies for breaches of fiduciary duty in a
close corporation." Brodie v. Jordan, 447 Mass.
866, 871[5] (2006). Clearly, Bryan and Bridget have a valid
derivative claim to recoup these fees on behalf of Lymol-a
claim which arises precisely because of the verdict they were
able to obtain in the instant case. This Court sees no reason
why they should not get information about fees now rather
than after the formal assertion of any derivative claim.
Compliance with such an order should also not be unduly
burdensome, since the lawyers who represented both Kim and
Lymol informed plaintiffsâ predecessor counsel early on in
this litigation that his firm "was keeping separate
billing records" so as to distinguish what expenses were
incurred on behalf of Lymol and what expenses were incurred
on behalf of Kim individually. This Court therefore
ALLOWS this Motion insofar as it requests an
accounting but otherwise DENIES it. But see fn.2,
supra.
B.
Bridget Rodrigueâs and Bryan Abranoâs Motion for Further
Prospective Injunctive Relief in Light of Juryâs Verdict
Having
received a substantial damages award from the jury on their
direct claims against Kim, Bryan and Bridget now ask this
Court to order additional equitable relief. The request is
quite broad. For example, it asks that this Court remove Kim
from the Board and strip her of her position as officer of
the company. It seeks an order that the company adopt by-laws
and even suggests what those by-laws should say. It asks this
Court to order Lymol to obtain directors and officers
insurance and to establish a procedure "by which an
independent ...