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Shea v. Millett

United States District Court, D. Massachusetts

January 14, 2019

JOSEPH B. SHEA, Plaintiff,
v.
PETER MILLETT and ALM RESEARCH LLC, Defendants.

          MEMORANDUM AND ORDER ON MOTION TO DISMISS

          ALLISON D. BURROUGHS U.S. DISTRICT JUDGE.

         On October 17, 2017, Plaintiff Joseph B. Shea filed a Complaint against Defendants Peter Millett (“Millett”) and ALM Research LLC (“ALM”) in Middlesex Superior Court, seeking recovery of unpaid royalties for services rendered. [ECF No. 1-1]. Defendants jointly removed the state court action to this Court on November 13, 2017. [ECF No. 1]. On May 3, 2018, the Court granted Defendants' Partial Motion to Dismiss without prejudice and granted Shea leave to file an amended pleading. [ECF No. 14 (“Motion to Dismiss Order”)]. On May 21, 2018, Shea filed his First Amended Complaint, which asserts claims against Millett for breach of contract, promissory estoppel, declaratory judgment or injunctive relief, and a violation of Mass. Gen. Laws ch. 93A. [ECF No. 15 (“Amended Complaint” or “Am. Compl.”)]. Now pending is ALM's Motion to Dismiss. [ECF No. 17]. For the reasons set forth below, the Court GRANTS ALM's motion.

         I. FACTS ALLEGED IN THE COMPLAINT[1]

         Millett, an orthopedic surgeon residing in Colorado, contributed to the development of medical products related to shoulder surgery. See Am. Compl. ¶¶ 2, 5, 17-18. Millett unsuccessfully sought for years to obtain a royalty agreement with Arthrex, Inc. (“Arthrex”), a medical device and research company. Id. ¶ 20. In 2010, Millett approached Shea, a Massachusetts resident and former sales representative of Arthrex, to request Shea's assistance in brokering a royalty agreement between Millett and Arthrex. Id. ¶¶ 1, 21-22. Millett offered Shea 15% of any royalties paid by Arthrex for five years in exchange for Shea's services. Id. ¶ 22. Shea responded that he would only accept an arrangement in which he would be compensated throughout the life of any royalty agreement he brokered, and proposed instead that he receive 10% of all royalties over the life of any potential royalty agreement between Arthrex and Millett. Id. ¶ 23. Millett accepted Shea's proposal, and Shea proceeded to market Millett's product to several medical device firms that were competitors of Arthrex. Id. ¶¶ 23, 32-36. Ultimately, as a result of Shea's efforts, Arthrex entered into a royalty agreement with Millett. Id. ¶ 42.

         Millett then began to remit to Shea 10% of the quarterly royalty payments that he received from Arthrex, as agreed. Id. ¶ 45. Two years into the agreement, however, Millett failed to timely submit Shea's quarterly payment. Id. ¶ 47. After Shea called Millett about the missed payment and insisted that he honor their agreement, Millett resumed making payments to Shea. Id. ¶ 47-49. In 2013, Millett transmitted a “Release” to Shea purporting to impose a term limitation on the parties' agreement for no consideration. Id. ¶¶ 49-50. Shea rejected the Release, and Millett continued to make payments until October 2014, when Millett delayed payment of the third quarter royalty payment while attempting to extract a significant reduction in the amount of compensation due to Shea. Id. ¶¶ 51-52. Shea rebuffed those efforts, and Millett eventually paid him his full quarterly payment. Id. ¶ 52. In or around December 2015, Millett claimed that his royalty agreement with Arthrex was scheduled to end during the first quarter of 2016, but he failed to provide any documentation of the contract termination to Shea in response to his requests. Id. ¶ 53. The last quarterly payment that Millett made to Shea was in the second quarter of 2016. Id. ¶ 56. In 2017, Shea learned that Millett's contract with Arthrex was never terminated and that Arthrex has continued to make ongoing royalty payments him. Id. ¶ 55. When Shea confronted Millett about his continued receipt of payments from Arthrex, Millett responded that he did not “deserve” any further payments for his work. Id.

         II. STANDARD OF REVIEW

         On a motion to dismiss for failure to state a claim, the Court accepts as true all well-pleaded facts in the complaint and draws all reasonable inferences in the light most favorable to the plaintiff. United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 383 (1st Cir. 2011). While detailed factual allegations are not required, the complaint must contain “factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory.” Gagliardi v. Sullivan, 513 F.3d 301, 305 (1st Cir. 2008) (citations omitted). The facts alleged, taken together, must “state a claim to relief that is plausible on its face.” A.G. ex rel. Maddox v. Elsevier, Inc., 732 F.3d 77, 80 (1st Cir. 2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim is facially plausible if supported by ‘factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Eldredge v. Town of Falmouth, 662 F.3d 100, 104 (1st Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

         When assessing the sufficiency of a complaint, the Court first “separate[s] the complaint's factual allegations (which must be accepted as true) from its conclusory legal allegations (which need not be credited).” Maddox, 732 F.3d at 80 (quoting Morales-Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012)). Next, the Court “determine[s] whether the remaining factual content allows a ‘reasonable inference that the defendant is liable for the misconduct alleged.'” Maddox, 732 F.3d at 80 (quoting Morales-Cruz, 676 F.3d at 224). “[T]he court may not disregard properly pled factual allegations, ‘even if it strikes a savvy judge that actual proof of those facts is improbable.'” Ocasio-Hernandez v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011) (quoting Twombly, 550 U.S. at 556). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, ” however, a claim may be dismissed. Iqbal, 556 U.S. at 679.

         III. DISCUSSION

         ALM seeks dismissal of Shea's Amended Complaint as to ALM on the ground that it fails to allege that ALM committed any wrongdoing or otherwise assert any claims against it. [ECF No. 18 at 3]. Shea responds that, drawing all inferences in his favor, he has stated claims against ALM as Millett's alter ego under a reverse corporate veil piercing theory. [ECF No. 22 at 3].

         Under Massachusetts and Colorado law, a party may seek to pierce a corporate veil under an alter ego theory which is equitable in nature.[2] “Traditional” piercing of the corporate veil occurs when a court “imposes liability on individual shareholders for the obligations of the corporation.” In re Phillips, 139 P.3d 639, 644 (Colo. 2006). Shea seeks to proceed under a reverse veil piercing theory, whereby a court “disregard[s] the corporate fiction and allow[s] liability to be imposed on the corporation for acts of a dominant shareholder or other corporate insider.” Id. at 644. Under Colorado law, “[a] court may reverse pierce the corporate veil and obtain the assets of a corporation for the obligations of a controlling shareholder or other corporate insider only upon a clear showing that (1) the controlling insider and the corporation are alter egos of each other, [3] . . . (2) justice requires recognizing the substance of the relationship over the form because the corporate fiction is utilized to perpetuate a fraud or defeat a rightful claim, . . . and (3) an equitable result is achieved by piercing.” Id. at 646 (citations omitted).

         The Massachusetts Supreme Judicial Court “has never explicitly, or even inferentially, adopted reverse veil piercing in any form.” In re Raymond, 529 B.R. 455, 475-76 (Bankr. D. Mass. 2015) (noting that “[t]here are few reported decisions addressing the availability of the reverse veil piercing doctrine under Massachusetts law, and those that do, reject reverse veil piercing when insiders attempt to reverse pierce corporate veils” (collecting cases)). In the context of traditional corporate veil piercing, under Massachusetts law, courts holistically consider twelve factors when determining whether piercing the corporate veil is appropriate:

(1) common ownership; (2) pervasive control; (3) confused intermingling of business assets; (4) thin capitalization; (5) nonobservance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends; (8) insolvency at the time of the litigated transaction; (9) siphoning away of corporation's funds by dominant shareholder; (10) nonfunctioning of officers and directors; (11) use of the corporation for transactions of the dominant shareholders; and (12) use of the corporation in promoting fraud.

Att'y Gen. v. M.C.K., Inc., 736 N.E.2d 373, 380 n.19 (Mass. 2000). “These factors are not simply added up, but rather are considered in an integrated manner based on all of the facts presented.” Lothrop v. N. Am. Air ...


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