Mooney v. Diversified Business Communications

• Decision Date: 02 March 2018
• Docket Number: 1684CV03726BLS2
• Parties: John J. Mooney et al. v. Diversified Business Communications et al.
• Court: Massachusetts Superior Court

John J. Mooney et al. v. Diversified Business Communications et al.

No. 1684CV03726BLS2

Superior Court of Massachusetts, Suffolk

March 2, 2018

File Date: March 5, 2018

Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Salinger, Kenneth W., J.

MEMORANDUM AND ORDER ON DEFENDANTS’ MOTIONS TO DISMISS FIVE OF SIX CLAIMS IN EACH ACTION

Kenneth W. Salinger Justice of the Superior Court

The four Plaintiffs are former minority members of a closely-held Delaware company called DBC Pri-Med, LLC. The majority member is and was defendant Diversified Business Communications. The three individual defendants are all managers of Pri-Med; none of them has any ownership interest in the company.^[1]

In January 2017 Pri-Med called Plaintiffs’ shares, as expressly permitted in Pri-Med’s operating agreement. This LLC Agreement provides that an appraisal firm to be selected by the parties shall determine the value of any called (or put) shares, based on a valuation of Pri-Med as a going concern and without discounting that value for the illiquidity or minority nature of any shares.

Plaintiffs allege that Defendants carried out a scheme to artificially deflate the value of Pri-Med in order to avoid paying Plaintiffs a fair and proper price for redeeming their shares. According to Plaintiffs, this scheme involved artificially decreasing Pri-Med’s assets by selling off its major subsidiary (a company called Amazing Charts) and artificially increasing the company’s liabilities by inflating its expenses and debt.

Each set of Plaintiffs asserts six claims.^[2] Count One seeks a declaratory judgment that the sale of Amazing Charts violated the LLC Agreement, and therefore is null and void, because Defendants did not obtain Plaintiffs’ approval. The other claims are for breach of the LLC Agreement, breach of the implied covenant of good faith and fair dealing in the same contract, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, and certain equitable relief.

Defendants have moved to dismiss all of the claims under Mass.R.Civ.P 12(b)(6) except for the claims in Count Two for breach of contract. The Court will order that declaratory judgment enter in Defendants’ favor on Count One of each complaint, deny the motions with respect to the claim for breach of the implied covenant of good faith and fair dealing in Count Three, dismiss with prejudice the claims for breach of fiduciary duty and aiding and abetting a breach of fiduciary duty in Counts Four and Five, and dismiss without prejudice the separate claim for equitable relief in Count Six.

1. Alleged Implausibility of Claims

Defendants make an overarching argument that Plaintiffs’ basic theory of their claims- which that Defendants deliberately stripped Pri-Med of value in order to avoid paying Plaintiffs the proper redemption price- is " absurd" and " nonsensical." Defendants contend that the complaints must therefore be dismissed because they fail to allege facts plausibly suggesting any entitlement to relief. See generally Lopez v. Commonwealth, 463 Mass. 696, 701 (2012) (to survive a motion to dismiss under Mass.R.Civ.P. 12(b)(6), a complaint or counterclaim must allege facts that, if true, would " plausibly suggest[ ] ... an entitlement to relief" ) (quoting Iannacchino v Ford Motor Co., 451 Mass. 623, 636 (2008), and Bell A. Corp. v. Twombly, 550 U.S. 544, 557 (2007)).

This argument is unavailing. Defendants misconstrue Twombly and Iannacchino . A trial court judge cannot dismiss claims because it considers the underlying factual allegations to be unbelievable. To the contrary, in deciding a Rule 12(b)(6) motion, a court must " accept as true the allegations in the complaint, draw every reasonable inference in favor of the plaintiff, and determine whether the factual allegations plausibly suggest an entitlement to relief under the law." Barbuto v. Advantage Sales & Mktg., LLC, 477 Mass. 456, 457-58 (2017). The Court must assume " that all the allegations in the complaint are true" even they are " doubtful in fact." Iannacchino, 451 Mass. at 636, quoting Twombly, 550 U.S. at 555.

So long as the facts alleged in a complaint plausibly suggest that the plaintiffs may be able to prove their claims, the complaint is not subject to dismissal even if the allegations appear to be " nonsensical," " extravagantly fanciful," " unrealistic," or otherwise " improbable." See Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009) (" To be clear, we do not reject these bald assertions on the ground that they are unrealistic or nonsensical ... It is the conclusory nature of [the plaintiff’s] allegations, rather than their extravagantly fanciful nature, that disentitles them to the presumption of truth" ); Twombly, 550 U.S. at 556 (" [A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of the facts alleged is improbable" ).

" Put another way, Twombly and Iqbal expressly declined to exclude even outlandish allegations from a presumption of truth except to the extent they resembled a ‘formulaic recitation of the elements of a ... claim’ or other legal conclusion." Connelly v. Lane Const. Corp., 809 F.3d 780, 789 (3d Cir. 2016), quoting Iqbal, supra, quoting in turn Twombly, 550 U.S. at 555. And Iannacchino adopted the same standard under Massachusetts law.

2. Delaware Law Governs

The substantive claims in this case are governed by Delaware law. Pri-Med was formed under the Delaware Limited Liability Act. The breach of fiduciary duty claims are therefore governed by Delaware law. See Harrison v. NetCentric Corp., 433 Mass. 465, 469-72 (2001). In addition, the parties’ LLC Agreement provides that it " shall be construed and enforced in accordance with the laws (other than the law governing conflict of law questions) of the State of Delaware. This provision is enforceable. See Hodas v. Morin, 442 Mass. 544, 549-50 (2004) (" As a rule, ‘[w]here the parties have expressed a specific intent as to the governing law, Massachusetts courts will uphold the parties’ choice as long as the result is not contrary to public policy’ " ) (quoting Steranko v. Inforex, Inc., 5 Mass.App.Ct. 253, 260 (1977)).

3. Declaratory Judgment- Count One

Defendants are entitled to judgment in their favor on the claims for declaratory judgment as to whether Pri-Med could sell its Amazing Charts subsidiary, or the InLight assets of that subsidiary, after January 1, 2017, without the prior written consent of the Plaintiffs.

3.1. Construing the Contract

Section 7.9 of the LLC Agreement provided that certain corporate actions required prior consent of at least three of the four Plaintiffs, while they still owned the B-1 Shares of the company. This provision states, in relevant part, that " without the prior written consent of the Members holding a majority of the Series B-1 Shares, the Company and the Series A Members agree that they shall not:

(a) materially change the business focus of the Company;

* * *

or

(e) prior to January 1, 2017, sell all or substantially all of the Company’s business whether by asset sale, stock sale or merger."

It is undisputed that Pri-Med did not sell Amazing Charts or the InLight assets before January 1, 2017. Pri-Med represents, and it appears to be undisputed, that it sold Amazing Charts in September 2017. Pri-Med did not seek or obtain the approval of the Plaintiffs, as the B-1 shareholders, before selling this subsidiary. Plaintiffs allege that this sale materially changed the business focus of the Company by eliminating the health records part of the business. It is undisputed that the sale of Amazing Charts constituted the sale of substantially all of Pri-Med’s business.

The controversy at issue in the declaratory judgment claims turns on a question of contract interpretation. Defendants contend that Pri-Med could sell Amazing Charts without the B-1 shareholders’ approval pursuant to § 7.9(e) because the sale of substantially all of Pri-Med’s business did not require such approval after January 1, 2017. In response, Plaintiffs say that they " do not rely on § 7.9(e)," but instead are entitled to challenge the sale of Amazing Charts on the ground that it was a material change in the business focus of Pri-Med and therefore B-1 shareholder approval was required under § 7.9(a).

The proper interpretation of an unambiguous written contract is a question of law that may be resolved on a motion to dismiss or a motion for judgment on the pleadings. See, e.g., Gershen, Strougo v. Hollander, 111 A.3d 590, 594 (Del.Ch. 2015); Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1030 (Del.Ch. 2006). " Contract language is not ambiguous merely because the parties dispute what it means." Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012). To the contrary, " [a] determination of whether a contract is ambiguous is a question for the court to resolve as a matter of law." Kelly v. Blum, civ. action 4516-VCP, 2010 WL 629850, at *7 n.43 (Del.Ch. 2010), quoting HIFN, Inc. v. Intel Corp., civ. action 1835-VCS, 2007 WL 2801393, at *9 (Del.Ch. 2007).

To make sense of the disputed provisions, the Court must consider the contract as a whole and construe each provision in context, not in isolation. Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co., 996 A.2d 1254 (Del. 2010). And it must interpret the contract in a manner that gives " meaning and effect" to each word and provision, under the reasonable assumption " that the parties would not include superfluous verbiage in their agreement." Zimmerman v. Crothall, 62 A.3d 676, 691 (Del.Ch. 2013). In sum, the Court must " reconcile or harmonize all of the contract’s provisions." Hampton v. Turner, civ. action 8963-VCN, 2015 WL 1947067, at *3 (Del.Ch. 2015).

The Court...