Paasch, et al. v. INVO Bioscience, Inc., et al. (Lawyers Weekly No. 12-150-16)
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
NO. 2009-05519-BLS1
RONALD PAASCH & others1
vs.
INVO BIOSCIENCE, INC. & others2
MEMORANDUM OF DECISION AND ORDER ON
PLAINTIFFS’ MOTION FOR ENTRY OF DEFAULT JUDGMENT AND ASSESSMENT
OF DAMAGES AGAINST MEDELLE CORPORATION PURSUANT TO RULES 54
AND 55 AND DEFENDANTS’ MOTION FOR ENTRY OF FINAL JUDGMENT
OF DISMISSAL OF INVO BIOSCIENCE, INC., BIO-X-CELL, INC., AND
KATHELEEN KARLOFF
This case arises out of the 2006 auction of the assets of the Medelle Corporation
(Medelle), a Delaware business corporation formed in or about 1996 to develop and market
products to treat human infertility. Plaintiffs Ronald Paasch, Francis G. Gleason, Jr., and Jo Ann
Gorge, minority shareholders of Medelle, claimed that the sale was improper and filed the
present lawsuit against Medelle, INVO Bioscience, Inc. (INVO), Bio-X-Cell, Inc. (Bio-X-Cell)3
Claude Ranoux, and Katheen Karloff. Medelle never appeared and was defaulted under Mass.
R. Civ. P. 55(a). Plaintiffs subsequently moved for an assessment of damages and default
judgment under Rule 55(b)(2) but the court deferred a hearing on the motion. As the case
1 Francis G. Gleason, Jr. and Jo Ann Gorge.
2 Medelle Corp., Bio-X-Cell, Inc., Claude Ranoux, and Katheen Karloff.
3 Bio-X-Cell is a wholly-owned subsidiary of INVO. Plaintiffs asserted that INVO and Bio-XCell
were successors to Medelle by de facto merger and therefore subject to successor liability.
proceeded, the other defendants filed motions to dismiss, which the court granted in full as to
INVO, Bio-X-Cell, and Karloff but only in part as to Ranoux. Plaintiffs now renew their motion
for entry of default judgment and assessment of damages against Medelle. In response, INVO
and Bio-X-Cell have filed an opposition to plaintiffs’ renewed motion and have also filed, along
with Karloff, a motion seeking an entry of final judgment of dismissal as to the claims asserted
against them. For the reasons that follow, plaintiffs’ motion is DENIED and defendants’ motion
is ALLOWED.
BACKGROUND
For several years, Medelle sought FDA approval for an intra-vaginal incubation device
invented by Claude Ranoux, Medelle’s founder, president, chief scientist, and a director of the
company. This effort, however, proved unsuccessful and by the autumn of 2006, the company
was heavily in debt, almost out of cash, and unable to raise additional capital. As a result, in
November 2006, Medelle’s directors voted unanimously to assign the company’s assets for the
benefit of creditors.
An auction was held on December 22, 2006, during which time Ranoux, the only bidder,
submitted the winning bid. Ranoux subsequently conveyed the assets to Bio-X-Cell, a
corporation that Ranoux had formed following the auction. Bio-X-Cell eventually became a
wholly-owned subsidiary of INVO. INVO (through Bio-X-Cell) continued to develop Ranoux’s
device. Ranoux is currently INVO’s president and an INVO director.
In December 2009, plaintiffs brought this action against INVO, Bio-X-Cell, Medelle,
Ranoux, and Kathleen Karloff (Medelle’s former vice president and INVO’s current CEO). They
claimed that defendants purposely failed to inform them of the auction in order to prevent them
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from participating in it. Plaintiffs asserted claims for: successor liability against INVO (Count
I); breach of fiduciary duty against Ranoux (Count II); aiding and abetting breach of fiduciary
duty against Karloff, Medelle, INVO, and Bio-X-Cell (Count III); fraud against Ranoux, Karloff,
Medelle, INVO, and Bio-X-Cell (Count IV); civil conspiracy against Ranoux, Karloff, Medelle,
INVO, and Bio-X-Cell (Count V); and violation of G. L. c. 93A against Medelle, INVO, and
Bio-X-Cell (Count VI). Plaintiffs’ claims against INVO and Bio-X-Cell were premised solely on
their contention that INVO and Bio-X-Cell were the successors to Medelle by de facto merger
and therefore they had successor liability for Medelle’s alleged wrongful conduct.
In Spring 2010, plaintiffs requested and obtained a Mass. R. Civ. P. 55(a) entry of default
against Medelle, which was no longer an operating company, for failure to appear in this case.
They subsequently moved for an assessment of damages and default judgment against Medelle
pursuant to Mass. R. Civ. P. 55(b)(2), but the court (Hinkle, J.) deferred a decision on the motion
after INVO argued that no assessment of damages should be made prior to its pending motion to
dismiss was decided. In opposing the motion to assess damages, INVO contended that because it
asserted legal defenses in its motion to dismiss that were equally applicable to Medelle, an
assessment of damages would risk premature and inconsistent judgments. The court agreed.
A few months later, in November 2010, the court (Hinkle, J.) ruled on defendants’
motions to dismiss. The court allowed Ranoux’s motion in connection with plaintiffs’ civil
conspiracy and c. 93A claims but denied his motion with regard to plaintiffs’ fraud and breach of
fiduciary duty claims. The court allowed the motions to dismiss of Karloff, INVO, and Bio-XCell
in their entirety. With regard to INVO and Bio-X-Cell, who were being sued on a theory of
successor liability of Medelle, the court concluded that plaintiffs’ claim for fraudulent
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nondisclosure (Count IV) failed because Medelle had no fiduciary duty with respect to informing
shareholders of the auction, the c. 93 claim (Count VI) failed because the allegations involved the
internal affairs of Medelle, and the aiding and abetting and civil conspiracy claims (Counts III
and V) failed because the allegations used to support them were too conclusory.4
Following the court’s ruling, defendants moved to vacate the entry of default against
Medelle and substitute dismissal of all counts against Medelle based upon the court’s
determination that the complaint failed to state a claim against INVO and Bio-X-Cell. The court
(Lauriat, J.) denied the motion in May 2011, concluding that, as defendants’ and their counsel did
not represent Medelle, they had no standing to assert the motion. A subsequent motion to
reconsider was also denied.
As their trial date approached, Ranoux and plaintiffs jointly moved for leave to pursue
binding arbitration in connection with the remaining claims against Ranoux (fraud and breach of
fiduciary duty), which the court allowed. The claims were subsequently arbitrated at the JAMS
Boston office. After five days of hearings, the arbitrator issued an Award dated February 15,
2013, in favor of Ranoux and against plaintiffs. In the Award, the arbitrator concluded that: (1)
although Gleason and Jorge did not receive notice of the auction in advance, Paasch did receive
notice; (2) Section 271 of the Delaware Corporations Act did not apply to an assignment for the
benefit of creditors and therefore, no notice, meeting, or shareholder’s vote was required; (3) the
board acted reasonably, independently and in good faith in deciding to undertake an assignment
for the benefit of creditors; and (4) Jorge and Gleason would not have been able to
4 Although the court did not specifically mention Bio-X-Cell when rendering its ruling on these
claims, it is evident that the same reasoning applies to the identical claims against Bio-X-Cell
and served as the basis for dismissing the claims against it.
4
commercialize and gain market acceptance of Medelle’s technology had they acquired it, and it
was doubtful that they would have wanted to make the additional investment required.
In April 2013, plaintiffs filed a motion to vacate the arbitration award and, in response,
Ranoux filed a motion to confirm the award. This court (Billings, J.) denied plaintiffs’ motion
and confirmed the award in an August 2013 decision. Shortly thereafter, the clerk, without
motion from either party, entered a final judgment under Rule 58(a) (the 2013 Judgment). The
judgment states:
JUDGMENT CONFIRMING ARBITRATION AWARD For reasons set forth in the
Memorandum and Order on cross-motions regarding Arbitrations [sic] Award dated Aug
21, 2013 plffs motion to vacate Arbitration Award is DENIED and deft Claude Renoux’s
motion to confirm Arbitration Award and for entry of Judgment is ALLOWED Judgment
to enter enforcing Award entered on docket pursuant to Mass R Civ P 58(a) and notice
sent to parties pursuant to Mass R Civ P 77 (d)
Plaintiffs then appealed the 2013 Judgment to the Appeals Court. The Appeals Court,
ruling pursuant to its Rule 1:28, affirmed the judgment. The Appeals Court did not specify
whether it considered plaintiffs’ appeal to be plenary or interlocutory.
ANALYSIS
Plaintiffs now renew their motion for entry of default judgment and assessment of
damages against Medelle pursuant to Mass. R. Civ. P. 54 and 55. In response, INVO and Bio-XCell
have filed an opposition and have also moved, along with Karloff, for entry of final
judgment on the claims against them that were dismissed in November 2010. As discussed
below, plaintiffs are not entitled to a default judgment against Medelle. The claims against
Medelle must be dismissed. In addition, INVO, Bio-X-Cell, and Karloff are entitled to final
judgment on the claims asserted against them.
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A. Claims Against Medelle
As an initial matter, the 2013 Judgment and plaintiffs’ subsequent appeal created some
confusion as to the procedural status of this case. A judgment dismissing fewer than all of the
claims or parties in an action involving multiple claims and multiple parties is interlocutory.
Harrison v. Roncone, 447 Mass. 1001, 1001 (2006). Under Rule 54(b), interlocutory judgments
are “not immediately appealable absent a ‘determination [by a judge in the trial court] that there
is no just reason for delay and upon an express direction for the entry of [final] judgment.’” Id. at
1001-1002, quoting Mass. R. Civ. P. 54(b) (alterations in original). Defendants contend that
because of the absence of a Rule 54(b) determination, the clerk’s entry of judgment under Rule
58(a)must be viewed as constituting a judgment as to all parties and all claims. Therefore,
plaintiffs, following the entry of the 2013 Judgment, were required to raise on appeal all issues
that had been decided against plaintiffs, including the dismissal of the claims against INVO, Bio-
X-Cell, and Karloff. Moreover, the default entered against Medelle, defendants argue, was
waived by plaintiffs proceeding on the appeal and raising only their objections to the
confirmation of the arbitration award. Defendants contend that plaintiffs should be estopped
from returning to this court to pursue claims because they effectively abandoned their claims.5
5 Plaintiffs argue that INVO has no standing to assert this argument or any argument in
connection with their motion, and points to this court’s May 2011 ruling, which denied INVO’s
motion to vacate the default on standing grounds. The court, however, need not determine
whether INVO has standing to oppose the motion as the considerations INVO highlights are
properly addressed by this court on its own accord. See Multi Multi Tech., Inc. v. Mitchell Mgt.
Sys., Inc., 25 Mass. App. Ct. 333, 335 (1988) (“Upon default under Mass. R. Civ. P. 55(b) . . .
the factual allegations of a complaint are accepted as true for purposes of establishing liability;
the question whether an adequate statement of a claim for relief has been made, however,
remains open.”).
6
The second sentence of Rule 54(b) provides that “[i]n the absence of [a determination
that there is no just reason for delay and an express direction for entry of judgment], any order or
other form of decision however designated, which adjudicates fewer than all the claims or the
rights and liabilities of fewer than all the parties shall not terminate the action as to any of the
claims or parties, and the order or other form of decision is subject to revision at any time before
the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.”
(Emphasis added). The 2013 Judgment is expressly restricted to the claims that were taken to the
arbitration with Ranoux. Because there was no Rule 54(b) determination, it cannot be said that
the 2013 Judgement was a final judgment as to all claims and parties (i.e., Medelle, INVO, Bio-
X-Cell, Karloff, and Ranoux). See Shawmut Community Bank, N.A. v. Zagami, 419 Mass. 220,
224 (1994) (“A judgment ‘will be treated on the footing of its substance and not of its name.’ . . .
‘Finality does not hinge on the label that is placed on the judge’s action.’”). Accordingly,
plaintiffs’ appeal was, effectively, interlocutory in nature (addressing only the claims against
Ranoux resolved in arbitration). The appeal does not preclude plaintiffs’ current efforts to
proceed against all defendants except for Ranoux.6
That said, plaintiffs cannot, as a matter of law, proceed against Medelle given this court’s
dismissal of the identical claims against INVO and Bio-X-Cell. It is a well established principle
that, in order to avoid inconsistent or contradictory findings of liability, a court should not enter a
default judgment against one of two defendants “where the theory of recovery is one of true joint
6 Typically, the Appeals Court would not decide an interlocutory appeal where there has been no
Rule 54(b) determination. For reasons that are not specifically addressed, the court proceeded to
hear and decide the appeal of the Ranoux arbitration confirmation. Significantly, in its decision
the court noted that a “default judgment” had entered against Medelle even though this was not
the case. See 2015 Mass. App. Unpub. LEXIS 986 at n.2 (Oct. 20, 2015).
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liability, such that, as a matter of law, [neither] defendant may be liable unless [both] are liable.”
Gangl v. Ford Motor Credit Co., 37 Mass. App. Ct. 561, 562 (1994), quoting 6 Moore’s Federal
Practice par. 55.06, at 55-49 (2d ed. 1994) (alterations in original); see also Floors-N-More, Inc.
v. Freight Liquidators, 142 F. Supp. 2d 496, 502-503 (S.D.N.Y. 2001) (where complaint failed to
state a claim, dismissing claims against defaulting defendants who did not join in co-defendant’s
motion to dismiss). This rule applies broadly and several “courts have extended [the rule’s] application beyond true joint liability situations ‘where the identical nature of the claims, facts,
and legal issues relative to each defendant make it logically inconsistent to rule in favor of some
defendants but not others.’” Goguen v. Textron, Inc., 2006 U.S. Dist. LEXIS 11647 at *6-7 (D.
Mass. Mar. 10, 2006), quoting Shanghai Automation Instrument Co. v. Kuei, 194 F. Supp. 2d
995, 1008 (N.D. Cal. 2001). See, e.g., Nielson v. Chang (In re First T.D. & Inv. Inc.), 253 F.3d
520, 532 (9th Cir. 2001); Gulf Coast Fans v. Midwest Electronics Importers, 740 F. 2d 1449,
1512 (11th Cir. 1984); see also 10A Charles Alan Wright et al., Federal Practice and Procedure §
2690 (3d ed. 1998) (observing rule “probably can be extended to situations in which several
defendants have closely related defenses). In the present case, default judgment against Medelle
and a potential award of any damages to plaintiffs would be a result that is entirely inconsistent
with this court’s prior determinations in favor of INVO and Bio-X-Cell.
In her November 2010 decision, Judge Hinkle expressly concluded that plaintiffs’ fraud
claim against INVO and Bio-X-Cell failed because Medelle owed no fiduciary duty to inform the
shareholders of the auction.7 She further concluded that plaintiffs’ c. 93A claim against INVO
7 A few months after Judge Hinkle’s decision, an arbitrator, addressing the breach of fiduciary
duty claim against Ranoux, similarly found no misconduct because Medelle was not required to
notify its shareholders of the auction under the Delaware General Corporation Law.
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and Bio-X-Cell failed because the allegations underlying the claim concerned Medelle’s internal
affairs and therefore did not implicate the statute. She also determined that the civil conspiracy
and aiding and abetting claims failed because the allegations supporting them were too
conclusory.
Plaintiffs’ claims against Medelle are identical to the claims against INVO and Bio-XCell.
In fact, INVO and Bio-X-Cell were sued only on a theory of successor liablity. Therefore,
a default judgment against Medelle would be wholly inconsistent with Judge Hinkle’s decision as
it would establish that Medelle is liable for fraud, aiding and abetting a breach of fiduciary duty
by Ranoux, civil conspiracy, and violation of G. L. c. 93A despite the decision indicating
thatsuch claims should be dismissed. Accordingly, the claims against Medelle must be dismissed.
In any event, a second reason why plaintiffs are not entitled to a hearing and assessment
of damages against Medelle is because, as plaintiffs concede in their response to defendants’
opposition, their Amended Complaint only seeks equitable relief against Medelle. Specifically, in
the Amended Complaint the relief sought from Medelle was to require an unwinding of the
auction and the subsequent asset transfers. Rule 54(c) provides that “[a] judgment by default
shall not be different in kind from that prayed for in the demand for judgment.” Accordingly,
plaintiffs cannot seek monetary damages against Medelle as that would be “different in kind”
from what is sought in their Amended Complaint. Cf. Hermanson v. Szafarowicz, 457 Mass. 39,
45-46 (2010) (concluding that default judgment did not violate Rule 54(c) because plaintiff
specifically sought damages). Plaintiffs argue that the inclusion of a request that the court
“[o]rder such other further relief as is just” in their prayer for relief permits this court to award
damages. Such boilerplate language, however, is insufficient to overcome the limitation in Rule
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54(c). Cf. Silge v. Merz, 510 F.3d 157, 160 (2d Cir. 2007) (noting that generic request for such
other and further relief which the court deemed just and proper “is mere boilerplate” and “cannot
substitute for the meaningful notice called for by [Fed. R. Civ. P] 54(c), which anticipates that
defendants will look to the demand clause to understand their exposure in the event of default.”)
B. Entry of Final Judgment of Dismissal of INVO, Bio-X-Cell, and Karloff
Plaintiffs do not oppose entry of final judgment on the claims they asserted against
Karloff. However, plaintiffs argue that judgment in favor of INVO and Bio-X-Cell is
inappropriate. Specifically, they contend that Judge Hinkle’s November 2010 decision was not
correctly decided with respect to the claims asserted against INVO and Bio-X-Cell in Count IV
(fraud) and Count VI (violation of G. L. c. 93A) and that therefore these claims should not have
been dismissed. The court declines to disturb her ruling, particularly where plaintiffs only now,
nearly six years after the decision, complain that it was incorrectly decided. See Serody v.
Serody, 19 Mass. App. Ct. 411 , 412 (1985) (“A judge should be reluctant to undo the work of
another judge”). At the time the court issued the decision, plaintiffs took no action to challenge
it either by way of reconsideration or supplemental pleadings. To the extent plaintiffs seek to
challenge the decision, this is now best done on appeal, which an entry of final judgment may
facilitate.
CONCLUSION
For the reason stated above:
1. Plaintiffs’ Motion for Entry of Default Judgment and Assessment of Damages Against
Medelle Corporation Pursuant to Rules 55 and 54 is DENIED;
2. Defendants’ Motion for Final Entry of Judgment of Dismissal of INVO Bioscience, Inc. Bio-
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X-Cell, Inc., and Kathleen Karloff is ALLOWED; and
3. It is hereby ORDERED that final judgment shall enter dismissing all claims against all
defendants.
By the Court,
________________________
Edward P. Leibensperger
Justice of the Superior Court
October 17, 2016
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