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Francassa v. Bertolino

Superior Court of Massachusetts, Suffolk

August 2, 2019

Terence FRANCASSA, Derivatively ON BEHALF OF COMMONWEALTH PAIN MANAGEMENT CONNECTION, LLC
v.
Leo BERTOLINO et al.; Terence Fracassa
v.
Kettle Black of MA, LLC et al. Terence Francassa, Derivatively on Behalf of Commonwealth Pain Management Connection, LLC
v.
Leo Bertolino et al.; Terence Fracassa
v.
Kettle Black of MA, LLC et al.

          MEMORANDUM OF DECISION AND ORDER ON PLAINTIFFS’ AND THIRD-PARTY DEFENDANT EDWARD MAGGIACOMO’S MOTION TO DISMISS

          Janet L. Sanders, Justice

          This action arises out of plaintiffs’ investment in a Delaware limited liability company called Kettle Black of MA, LLC (Kettle Black) formed for the purpose of funding Commonwealth Pain Management Connection, LLC (CPMC), a planned medical marijuana service company. Plaintiffs allege that defendants Terence Fracassa and Frederick McDonald, CPMC principals, actively assisted in selling membership units in Kettle Black to plaintiffs and other investors and in so doing, made misleading misrepresentations and/or material omissions in violation of the Massachusetts Uniform Securities Act, G.L.c. 110A, § 410 (the Securities Act). Fracassa asserted a counterclaim against the plaintiffs and against Kettle Black, alleging (in Counts V and VI) conversion and "money had and received." He has also asserted a claim for contribution (Count I) against plaintiff Edward Hanrahan and third party defendant Edward Maggiacomo.[1] Plaintiffs together with Maggiacomo now move to dismiss those counts, pursuant to Rule 12(b)(6), Mass.R.Civ.P. After hearing, the Court concludes that the Motion to Dismiss Counts V and VI must be ALLOWED, but must be DENIED as to Count I.

          The allegations relevant to this motion are as follows. There are 32 named plaintiffs. Each of them bought and owns Class A units in Kettle Black. Kettle Black used the money raised from plaintiffs to purchase Class B units in CPMC. CPMC in turn was to provide financing and services to a nonprofit entity called Wellness Connection, an entity which planned to acquire and own up to three licenses to operate registered marijuana dispensaries.

          Defendants McDonald and Fracassa were and are the managers of CPMC; McDonald was CPMC President charged with responsibility for its day-to-day operations. Central to the plaintiffs’ Securities Act claim is their allegation that Fracassa had signed a "secret side agreement" with Matthew Philbin, who was Wellness’s landlord. Because of this agreement, it is alleged that Philbin obtained rights in CPMC inconsistent with what had been disclosed to plaintiffs and, when he insisted on those rights, the entire enterprise failed.

         In his Answer, Counterclaim and Third-Party Complaint (referenced herein as the Counterclaim) Fracassa denies that he was involved in the marketing and sale of Kettle Black units and thus cannot be liable under the Securities Act. Count I of the Counterclaim alleges that if he were found to have such involvement, however, others- including plaintiff Hanrahan and third-party defendant Maggiacomo- are jointly and severally liable. In opposing Hanrahan’s and Maggiacomo’s motion to dismiss that count as to them, Fracassa relies on allegations set forth in various paragraphs of the Counterclaim In particular, Paragraph 87 alleges that Hanrahan and Maggiacomo (together with others) worked with third-party defendant Robert Quinn, the primary placement agent and broker for Kettle Black, to sell the Kettle Black units to the plaintiffs. See also ¶¶100, 103, and 126 of Counterclaim. Paragraph 88 alleges that at the time of these marketing efforts, Quinn was aware of the Philbin-Fracassa Agreement and "on information and belief," so too were Hanrahan and Maggiacomo, who worked closely with Quinn. This Court concludes that these allegations, albeit skimpy, are sufficient to state a claim for contribution pursuant to G.L.c. 110A, § 410(b).

          This Court reaches a different result with respect to Count V for conversion and Count VI for "money had and received."[2] Those two counts rest on the following allegations in the Counterclaim. In December 2016, CPMC had in its bank account over $5 million raised from the sale to the plaintiffs of Kettle Black units. When it became clear that the deal with respect to the medical marijuana dispensaries was unraveling, John McLaughlin (named as a third-party defendant in this case) demanded that McDonald, in his capacity as CPMC manager, transfer this money to Kettle Black. McDonald did so without Fracassa’s knowledge or his approval. There is no allegation that plaintiffs played any part in this transfer. McLaughlin and McDonald both had check writing authority over Kettle Black’s bank account. In July or August 2017, plaintiffs came into possession of the transferred money. See ¶¶168-74 of Counterclaim. There is no allegation that plaintiffs, as passive investors in Kettle Black, played any role in causing this second transfer to come about.

         A claim of conversion requires that the party against whom the claim is asserted be shown to "intentionally or wrongfully exercise acts of ownership, control or dominion over personal property to which he has no right of possession at the time." ZVI Constr. Co., LLC v. Levy, 90 Mass.App.Ct. 412, 419 (2016), quoting Grand P. Fin. Corp. v. Brauer, 57 Mass.App.Ct. 407, 412 (2001). The Counterclaim does appear to state a claim for conversion on behalf of CPMC against McDonald and possibly McLaughlin: it alleges that McDonald, because of demands and threats by McLaughlin, unlawfully transferred money from CPMC to Kettle Black. It does not follow that CPMC has a claim against the plaintiffs, however, where there is no allegation that the plaintiffs caused that initial transfer to happen. At some point many months later, the money in Kettle Black’s account was transferred to plaintiffs. Fracassa contends that plaintiffs have no legal right to that money, particularly since they have not relinquished their Kettle Black units. That could possibly sustain a claim asserted by Kettle Black against the plaintiffs. That is not the claim being asserted here.

          For similar reasons, Count VI also fails to state a claim. "An action for money had and received lies to recover money which should not in justice be retained" by the party in possession of it. Stone & Webster Engineering Corp. v. First Nat’l Bank & Trust Co. of Greenfield, 345 Mass. 1, 4 (1962), quoting Cobb v. Library Bureau, 268 Mass. 311, 316 (1929). It is essentially a claim for unjust enrichment, which requires proof among other things that one party conferred a benefit on the other and that retention of that benefit would be inequitable. Here, plaintiffs received the money in question from Kettle Black, not from CPMC; thus, it was not CPMC (on whose behalf Fracassa asserts this claim) that conferred the benefit at issue. Moreover, the money that was ultimately returned to plaintiffs actually originated with them, since it was their investment in Kettle Black which was used to fill CPMC’s coffers. Thus, even ignoring the fact that CPMC and Kettle Black are legally distinct entities, it is difficult to see how CPMC conferred a benefit on the plaintiffs that it would be unjust for them to retain, since this money was theirs to begin with. Accordingly, Counts V and VI are hereby DISMISSED as to plaintiffs.[3]

          SO ORDERED.

---------

Notes:

[1] Fracassa’s third-party claim names other third-party defendants, including Richard Vitale, John McLaughlin and Robert Quinn. Quinn, Vitale and McLaughlin have separately moved for dismissal of the claims against them. That motion was heard on July 29, 2019 and will be decided in a separate memorandum of decision.

[2] Fracassa asserts these two counts derivatively, on behalf of CPMC.

[3] It should be noted that Count V is also asserted against Kettle Black. Although this Court has received notice that Kettle Black intends to file a motion to dismiss, that motion has not yet been filed and so this ...


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