Abrano v. Abrano

          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 Rodrigue’s and Bryan Abrano’s 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 Bridget’s 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 Lymol’s majority shareholder Kim Abrano (Kim), Bryan’s and Bridget’s mother, and Frank Abrano (Frank), Kim’s husband and the company founder. Also named as defendants were Edward Holzek and Gary Trainor who, along with Kim, constituted Lymol’s 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 Frank’s 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, Kim’s 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 Bryan’s, Bridget’s and Dennon’s 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 Lymol’s 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 defendant’s 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 Dennon’s 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 plaintiffs’ 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 Rodrigue’s and Bryan Abrano’s Motion for Further Prospective Injunctive Relief in Light of Jury’s 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 ...