Mason v. Mazzei
| Decision Date | 17 March 2023 |
| Docket Number | 1:22CV00008 |
| Parties | RENEE MASON, DPM, Plaintiff, v. BRIAN MAZZEI, ET AL., Defendants. |
| Court | U.S. District Court — Western District of Virginia |
Kellie Budd and Alexander Castelli, Vasseghi Budd PLLC, Fairfax Virginia, for Plaintiff;
Dennis E. Jones, Dennis E. Jones, PLC, Abingdon, Virginia., for Defendants.
The plaintiff, Renee Mason, a Doctor of Podiatry, has sued her estranged husband Brian Mazzei, also a podiatrist and her former practice colleague, along with their professional corporation, Abingdon Foot and Ankle Clinic, PC (hereafter referred to as the Corporation). She asserts derivative claims on behalf of the Corporation, as well as an individual claim, all related to Mazzei's financial management. In addition to monetary damages, Mason seeks relief in the form of an accounting and a constructive trust. Based on the evidence presented at a bench trial, I will enter judgment partially in favor of the plaintiff and partially in favor of the defendants.
This action was filed pursuant to this court's diversity jurisdiction, 28 U.S.C. § 1332, asserting claims under Virginia law. Mason originally sued in her personal capacity for breach of fiduciary duty (Count One), conversion (Count Two), and tortious interference with a business expectancy (Count Four). She also asserted three counts seeking remedies - a constructive trust over the accounts and property of the Corporation and funds that Mazzei had transferred to his personal accounts (Count Three); an order directing Mazzei to allow Mason to inspect the corporate records (Count Five); and an accounting of the corporate financial records showing Mazzei's actions since July of 2021 (Count Six).
Mazzei and the Corporation moved to dismiss the Complaint on the ground that Virginia law requires that breach of fiduciary duty claims against corporate officers and directors be brought derivatively. Mason then amended her Complaint to indicate that it was “a derivative action brought against the Practice, its shareholder, and Officer Dr. Mazzei,” Am. Compl. ¶ 1, ECF No. 11, and I entered an order finding the defendants' Motion to Dismiss to be moot. However, the caption of the Amended Complaint continued to indicate that the suit was brought both individually and derivatively, and it remained unclear as to which claims were brought in which capacity.
The parties subsequently engaged in discovery, and several discovery-related motions were filed and resolved. The parties then filed partial cross-motions for summary judgment. At the hearing on the cross motions, Mason clarified that the breach of fiduciary claim (Count One) and conversion claim (Count Two) are derivative, while the tortious interference with a business expectancy claim (Count Four) is an individual claim. She also moved to voluntarily dismiss Count Five because the defendants had produced the business records she sought. I dismissed Count Five, but otherwise denied the cross motions, finding genuine disputes as to material facts. Mason v. Mazzei, No. 1:22CV00008, 2023 WL 234777 (W.D. Va. Jan. 18, 2023).
The parties waived a jury trial, and a two-day bench trial was held at which the parties presented testimony and exhibits. This Opinion represents the court's decision in the matter.
In accord with Federal Rule of Civil Procedure 52(a) and based on my opportunity to assess the credibility of the witnesses, the following are my findings of fact. In determining the facts, I have taken into account the rationality and internal consistency of the testimony, the extent of detail and coherent nature of the testimony, the manner of testifying by the witnesses, and the degree to which the subject testimony is consistent or inconsistent with other evidence in this case.
1. Mason and Mazzei are Doctors of Podiatric Medicine who married in 1993.
2. In November 1994, Mazzei established a sole proprietorship called Abingdon Foot and Ankle Clinic in Abingdon, Virginia, as a podiatry medical practice. At the time, Mason was completing an out-of-state residency program and had not yet begun her practice in Abingdon.
3. The practice was initially funded by a $50,000 loan from Mazzei's grandmother, money that was used to purchase equipment, pay for advertising, and otherwise finance the start-up costs of the practice. Mason contributed a small amount of her residency stipend, approximately $2,000, to pay for certain office furnishings.
4. Following the advice of an accountant, on July 21, 1995, the practice was incorporated under Virginia law as a professional corporation.
5. On that same date, the Corporation executed a lease agreement with Mazzei for the equipment Mazzei had purchased for the sole proprietorship.
6. Shortly thereafter, Mason began practicing with her husband.
7. Mason and Mazzei became the Corporation's sole officers and directors at the Corporation's initial organizational meeting in December 1995, titles they still hold.
8. At the initial meeting, the directors passed a resolution directing the officers to issue certificates showing that Mason and Mazzei had received certain shares of stock in the Corporation. No certificates were ever issued.
9. Mason and Mazzei submitted Letters of Intent to the Corporation's Board of Directors on the day of the initial organizational meeting, indicating that Mason intended to purchase 251 shares of stock and that Mazzei intended to purchase 249 shares of stock for certain amounts of money.[1]
10. The parties never paid into the corporation the purchase money described in the Letters of Intent.
11. In May 1996, Mason and Mazzei submitted additional stock subscription letters to the Board of Directors stating that they agreed and intended to purchase 127 shares of stock and 123 shares of stock, respectively, at $100.00 per share. This money was never paid, nor did the Board of Directors approve the stock subscriptions.
12. The Corporation, Mason, and Mazzei have consistently conducted themselves as if Mason and Mazzei are the Corporation's sole shareholders, with Mason having 50.2% ownership and Mazzei 49.8%.
13. The Corporation's medical practice is housed in an office building owned by Footsteps, LLC, a separate entity owned jointly by Mason and Mazzei.
14. Mason practiced full-time for the Corporation until Mason and Mazzei adopted their children in 2005 and 2013. She then worked three days a week until 2020, when she stepped aside for approximately six months during the COVID-19 pandemic. She returned to her three-day-a-week schedule around September 2020 and retained that schedule until July 2021.
15. Since the arrival of Mason and Mazzei's children, Mazzei has been the primary manager of the Corporation's practice, which includes overseeing the Corporation's finances and serving as the primary contact with the Corporation's accountant.
16. Mason and Mazzei have not followed corporate formalities with regard to the Corporation. For example, the separation between personal and business charges have not been maintained. Corporate credit cards and accounts have been used to pay personal expenses.
17. The Corporation has elected pass-through Subchapter S status for tax purposes, meaning that Mason and Mazzei personally owe taxes on the Corporation's taxable business income as allocated by their ownership interest and as reported on Mason and Mazzei's Schedule K-1 tax forms, regardless of how much of that income is distributed to them.
18. It was standard practice for the Corporation's accountant to reconcile Mason and Mazzei's joint personal expenses that were paid from Corporation funds by categorizing the personal expenses as either loans to shareholders or shareholder advances on accounting documents. Mazzei assisted the accountant in determining whether the expenses were corporate or personal. Mason did not question Mazzei's management of the Corporation's finances until August of 2021.
19. Through September of 2021, the Corporation regularly paid shareholder distributions by checks with memos of “K-1.” These checks were written as needed and not because of any formal vote by the directors. The checks were deposited in a joint personal bank account.
20. Mason and Mazzei also received relatively modest salaries from the Corporation.
21. Mason's and Mazzei's vehicles were paid for by the Corporation and considered part of their compensation for tax and accounting purposes.
22. The Corporation has had multiple bank accounts. One account is a deposit account, used for collecting payments from patients and insurance companies, and another is an operating account, used for paying payroll and bills. It has been standard practice for Mazzei to move money among these various accounts. For example, he commonly wrote checks to cash from the Corporation's deposit account and deposited those checks in the operating account.
23. In July of 2021, Mason and Mazzei's relationship deteriorated. Mason stepped away from the Corporation's practice after a confrontation with Mazzei. She lived in Maryland with family for approximately three weeks.
24. In August of 2021, Mason briefly returned. At this time, Mason asked Mazzei if she could manage the Corporation's finances after learning that Mazzei wanted to seek a debt consolidation loan. Mazzei initially agreed, but then changed his mind.
25. Mason left again for Maryland. She has not seen the practice's patients since July of 2021.
26. At some point thereafter and without Mason's consent, Mazzei discontinued Mason's electronic access to Corporation records, citing the additional costs associated with her access and the fact that she was no longer seeing...
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