Mahoney v. Bernat, 102519 MASUP, 1984CV00846BLS1

Docket Nº:1984CV00846BLS1
Opinion Judge:Brian A. Davis Associate Justice of the Superior Court
Party Name:Paul E. Mahoney v. Eugene N. Bernat et al.
Judge Panel:Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Davis, Brian A., J.
Case Date:October 25, 2019
Court:Superior Court of Massachusetts
 
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Paul E. Mahoney

v.

Eugene N. Bernat et al.

No. 1984CV00846BLS1

Superior Court of Massachusetts, Department of Trial Court, Suffolk

October 25, 2019

Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Davis, Brian A., J.

DECISION AND ORDER REGARDING: (1) DEFENDANT KENNETH A. FOLEY’S MOTION TO DISMISS COMPLAINT (DOCKET ENTRY NO. 35); (2) DEFENDANT JAN C. TRUDELL’S MOTION TO DISMISS COMPLAINT (DOCKET ENTRY NO. 37); AND (3) MOTION OF ATTORNEY EDWARD V. SABELLA AND SABELLA HOGAN, P.C. TO DISMISS (DOCKET ENTRY NO. 39)

Brian A. Davis Associate Justice of the Superior Court

Procedural Background

Plaintiff Paul E. Mahoney ("Plaintiff" or "Mr. Mahoney") is a minority shareholder of Cover Technologies, Inc. ("CTI" or the "Company"), a closely-held Massachusetts corporation. Mr. Mahoney brought this action in December 2018 claiming that defendants Eugene N. Bernat ("Mr. Bernat") and Kenneth A. Foley ("Mr. Foley"), CTI’s directors and two majority shareholders, engaged in various misdeeds, discussed more fully below. Mr. Mahoney further claims that defendant Jan C. Trudell ("Ms. Trudell"), CTI’s controller/Chief Financial Officer and a director of CTI, violated her fiduciary duties and engaged in a civil conspiracy with the other named defendants. Lastly, Mr. Mahoney claims that defendants Attorney Edward V. Sabella and his law firm, Sabella Hogan P.C. (collectively, the "Sabella Defendants" or, with all of the other defendants, simply the "Defendants"), violated fiduciary duties they allegedly owed to him while serving as CTI’s outside legal counsel.

Mr. Mahoney filed his sixty-page Complaint and Jury Demand (not counting the several hundred pages of attached exhibits) (collectively, the "Complaint") in December 2018. The Complaint asserts claims against the various Defendants for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, respondeat superior, civil conspiracy, aiding and abetting breach of fiduciary duty, and violation of G.L.c. 93A, § § 2, 11. It also includes a demand for an accounting and a request for preliminary injunctive relief.1

Mr. Foley, Ms. Trudell, and the Sabella Defendants responded to Mr. Mahoney’s Complaint by filing motions to dismiss pursuant to Mass.R.Civ.P. 12(b)(6) (the "Motions to Dismiss").2 The Court conducted a hearing on the pending Motions to Dismiss on July 10, 2019. All parties attended and argued. Upon consideration of the written submissions of the parties and the oral arguments of counsel, Mr. Foley, Ms. Trudell, and the Sabella Defendants’ Motions to Dismiss will be ALLOWED, in their entirety, for the reasons discussed, briefly, below.

Factual Background

The Court assumes the following facts, which are taken or derived from Mr. Mahoney’s Complaint, to be true for purposes of resolving the pending Motions to Dismiss.

CTI is in the business of, among other things, managing and closing landfills, reusing and recycling organic and inorganic waste into marketable products, and researching and developing recycling opportunities and technologies. Complaint, ¶15. Mr. Bernat and Mr. Foley co-founded CTI in 1993. Id., ¶14. Mr. Mahoney joined the Company in 1999 as an employee and minority shareholder. Id., ¶26.

At or around the time Mr. Mahoney joined CTI, he, Mr. Bernat, and Mr. Foley executed a written "Shareholders’ Agreement of Cover Technologies, Inc." (the "Shareholders’ Agreement," a true copy of which is appended to the Complaint as Exhibit 3 ). Id., ¶27. The Shareholders’ Agreement gives Mr. Bernat and Mr. Foley each forty-five percent (45%) of CTI’s shares, and gives the remaining ten percent (10%) of CTI’s shares to Mr. Mahoney. Shareholders’ Agreement, § 2. The Shareholders’ Agreement also provides for the following distributions from the Company’s "free cash flow" for the calendar years 2000 through 2002, [t]he Stockholders hereby agree that, in calendar year 2000, the first Three Hundred Seventy-five Thousand ($375,000.00) of free cash flow of [CTI] shall be applied to equal compensation distributions to the undersigned Stockholders, in their capacities as employees of [CTI] (pursuant to the terms and conditions of Employment Agreements of even date herewith), at the rate of One Hundred Twenty-five Thousand Dollars ($125,000.00) each. In calendar year 2001, the first Four Hundred Twelve Thousand Five Hundred Dollars ($412,500.00) of free cash flow of [CTI] shall be applied to equal compensation distributions to the undersigned Stockholders, in their capacities as employees of [CTI] (pursuant to the terms and conditions of Employment Agreements of even date herewith), at the rate of One Hundred Thirty-seven Thousand Five Hundred Dollars ($137,500.00) each. In calendar year 2002, the first Four Hundred Fifty Thousand Dollars ($450,000.00) of free cash flow of [CTI] shall be applied to equal compensation distributions to the undersigned Stockholders, in their capacities as employees of [CTI] (pursuant to the terms and conditions of Employment Agreements of even date herewith), at the rate of One Hundred Fifty Thousand Dollars ($150,000.00) each.

Id., § 3.3. The Shareholders’ Agreement says nothing, however, as to how the Company’s "free cash flow" was or is to be distributed in the years after 2002.

At the same time they executed the Shareholders’ Agreement, Mr. Bernat, Mr. Foley, and Mr. Mahoney also signed nearly identical Employment Agreements with CTI (the "Employment Agreements"). See Complaint, Exhibits 4, 5, & 6 . Each Employment Agreement has an identical provision giving Mr. Bernat, Mr. Foley, and/or Mr. Mahoney an "annual base salary" of $125,000, with the express proviso, however, that "[s]uch salary shall be in addition to any other payments specified...

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