In re Tri-Star Technologies Co., Inc.
| Decision Date | 24 January 2001 |
| Docket Number | Bankruptcy No. 98-46124. Adversary No. 98-4260. |
| Citation | 257 BR 629 |
| Parties | In re TRI-STAR TECHNOLOGIES COMPANY, INCORPORATED, Debtor. Tali Tomsic, Chapter 7 Trustee, Plaintiff in Counterclaim, v. Anthony F. Lautieri, Sr., Accelerated Technologies, Inc., and Anthony F. Lautieri, Jr., Defendants in Counterclaim. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Bruce F. Smith, Steven C. Reingold, Jager, Smith & Stetler, Boston, MA, for Tali Tomsic, Chapter 7 Trustee.
James M. Bowers, Law Offices of James M. Bowers, Lawrence, MA, for Anthony F. Lautieri, Sr., Accelerated Technologies, Inc., and Anthony F. Lautieri, Jr.
Remaining before the Court in this Adversary Proceeding are counterclaims by Tali Tomsic ("Trustee" or "Plaintiff"), as Chapter 7 trustee in bankruptcy of Tri-Star Technologies Company, Incorporated (the "Debtor") against Anthony F. Lautieri, Sr. ("Lautieri, Sr."), Accelerated Technologies, Inc. ("Accelerated") and Anthony F. Lautieri, Jr. ("Lautieri, Jr.") (collectively the "Defendants"). The Trustee's claims are based on account of Lautieri, Sr.'s alleged breach of fiduciary duty, breach of an implied covenant of good faith and fair dealing, deceit, and violation of Mass.Gen.L. ch. 93A; and the Defendants' alleged violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), and civil conspiracy.
The following constitute this Court's findings of fact and conclusions of law, pursuant to Fed.R.Bankr.P. 7052.
In October of 1992, Michael Downes ("Downes"), Louis Pitocchelli, Lautieri, Sr., and Robert Perrault resolved to form a printed circuit board manufacturing business. Some or all were or had been employed by Wang Laboratories, Inc. ("Wang") and they believed they could fashion a profitable enterprise by purchasing Wang's circuit board facility in Methuen, Massachusetts. The investors formed a new company and entered into an initial Memorandum of Understanding, setting forth, inter alia, their respective ownership interests therein and in a real estate trust to be formed to purchase the underlying real estate (the "Real Estate Trust").1 It was agreed that Downes would be sole stockholder, President, and Treasurer of this new company until the necessary financing was obtained and the acquisition completed with Wang. Once the acquisition was completed, the investors would acquire stock and interests in the new enterprise in the percentages set forth in their agreement. Lautieri, Sr.'s shares were described as being of those of his son Lautieri, Jr.2
The hoped for financing did not materialize. Apparently, institutional financiers were not comfortable with Lautieri involvement. Accordingly, on May 6, 1993, the parties entered into a Settlement Agreement terminating and rescinding the original Memorandum of Understanding. Some or all of Robert Perrault's capital contribution was returned and his involvement ended. A new corporation — now the Debtor — was formed. Downes was represented to be the sole principal of the new enterprise, and subsequently, in September of 1993, the financing went through and the Wang facility and Methuen real estate were purchased. Not unexpectedly, on October 1, 1993, the remaining investors entered into a new Memorandum of Understanding. Again, Mr. Downes was listed as the President, Treasurer and sole shareholder. But this time, the interests of the other investors were represented by their beneficial interests in the Real Estate Trust and so-called "entitlements" to a bonus pool, equity appreciation and "other benefits" associated with the Debtor company. The percentages were set as approximately fifty (50%) percent for Downes, fifteen (15%) percent for Louis Pitocchelli, and twenty-five (25%) percent for Lautieri, Jr. Ten (10%) percent was to be set aside for later distribution to other key employees. Again, Lautieri, Jr.'s interest was really that of his father.
Lautieri, Sr. acted as sales coordinator for the new company. His job was to supervise outside sales representatives, manage the account base, and provide technical assistance with respect to board fabrication and testing. As compensation, Lautieri, Sr. was to receive $100,000.00 a year,3 plus health benefits, life insurance, and a car allowance. However, that compensation had an odd configuration. From October, 1993 through December, 1997, Lautieri, Sr. received $3,000.00 per month directly from the Debtor and $5,333.33 per month through Accelerated, purportedly owned by Lautieri, Jr. At some point, the Debtor also began paying additional sums to Lautieri, Sr. through Upson Service Corp., an affiliated company. At Lautieri, Sr.'s request, all payments to him were reported to taxing authorities not as W-2 income, but as Form 1099 non-employee compensation.
Accelerated became one of the Debtor's independent sales representatives soon after the Debtor's formation. Accelerated and the Debtor entered into an Independently Contracted Sales Representative Printed Circuit Board Agreement on September 28, 1993. That agreement prohibited any payments from Accelerated to employees of the Debtor. From October 1993 to June 1997, the Debtor paid to Accelerated a total of $672,160.37 in commissions. It is undisputed that Lautieri, Jr., unbeknownst to Downes, turned over much of those commissions to his father.
Coincident with the appointment of Accelerated as the Debtor's sales representative, Lautieri, Sr. recommended to Downes that the Debtor contract with a company named Jeti, Inc. ("Jeti") for board testing services.4 Soon thereafter, the Debtor began its business relationship with Jeti and, for approximately four years, the Debtor purchased from Jeti approximately nine hundred thousand ($900,000.00) dollars in testing services. However, again unbeknownst to Downes, Jeti had entered into a secret agreement with the Lautieris approximately a year after beginning its relationship with the Debtor. Pursuant to that agreement, Jeti paid to Accelerated approximately ten (10%) percent of the sales price of its services to the Debtor. It is stipulated that Accelerated received $89,247.18 in these payments. Lautieri, Jr. also turned over most of these payments to his father.
In or about June, 1997, Downes learned of the secret payments from Jeti to Accelerated. Angered, he terminated Accelerated and Lautieri, Sr. However, interestingly, the Debtor continued its relationship with Jeti after Downes exacted a five (5%) percent price reduction on Jeti's future services.5
Shortly thereafter, Lautieri, Sr. filed suit in state court against Downes, the Debtor, and the Real Estate Trust. In that suit, Lautieri, Sr. sought, inter alia, recognition of his alleged twenty five percent (25%) ownership interest in the Debtor (ironically after his earlier attempt to keep it hidden) and an injunction against any attempt by Downes to encumber, transfer, sell, assign, dissipate, or otherwise dispose of his interest in the Debtor.
On August 14, 1998, an involuntary Chapter 11 petition was filed against the Debtor. The Court entered the order for relief under Chapter 11, by consent, on August 21, 1998, but the Chapter 11 case was short-lived. The Debtor sought conversion to Chapter 7 on November 20, 1998.
Before the Chapter 7 conversion, the aforesaid state court action was removed to this Court, and the Debtor counter-claimed, alleging Lautieri, Sr.'s breach of fiduciary duty (Count I); breach of implied covenant of good faith and fair dealing (Count II); deceit (Count III); and violation of Mass.Gen.L. ch. 93A (Count IV). After conversion to Chapter 7, the Trustee was designated as the proper plaintiff. The Trustee added counterclaims under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962(c) and (d) (Count V & VI); and for common law civil conspiracy (Count VII). Accelerated and Lautieri, Jr. were also added by the Trustee as defendants with respect to the RICO and civil conspiracy counts.
At trial, Lautieri, Sr. voluntarily dismissed his claims against the Debtor, Downes, and the Real Estate Trust. Remaining only are the Trustee's counterclaims. They were fully tried before this Court and the decision taken under advisement.
The Trustee argues that Lautieri, Sr. breached his fiduciary duty to the Debtor by accepting unauthorized commissions and kickbacks from Accelerated and Jeti. In order to resolve this question, the Court needs to first determine Lautieri, Sr.'s relationship to the Debtor. Lautieri, Sr. contends that he was only an independent contractor and that payments to him from the Debtor were only on account of his consulting services. However, Downes testified that Lautieri, Sr. acted, more or less, as the Debtor's executive vice president.
Based on the evidence presented, this Court finds that Lautieri, Sr. was one of the Debtor's key employees and not an independent contractor.6 Lautieri, Sr. invested in the business,7 had the opportunity to share in its profits, had a permanent office on the premises, was paid a base salary,8 had real and apparent authority to bind the Debtor with respect to third parties, and was involved in all aspects of the Debtor's manufacturing business. The Debtor deposited in Lautieri, Sr. its trust and confidence and he was its fiduciary.
Lautieri, Sr. then argues that even if he had a fiduciary duty toward the Debtor, that duty was not breached when, unbeknownst to the Debtor, he shared in its commission payments to Accelerated or the payments from Jeti to Accelerated. This Court strongly disagrees.
Under Massachusetts law, employees occupying a position of trust and confidence owe to their employer a duty of loyalty and an obligation to act in good faith with respect to their employer's business....
To continue reading
Request your trial