Stone v. Remillard (Lawyers Weekly No. 09-014-17)
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, so SUPERIOR COURT
CIVIL ACTION
NO. 2017-02864 BLS 2
ERIC STONE, derivatively on behalf of
TWIN COAST METROLOGY, INC.
Plaintiff
vs.
JASON REMILLARD,
Defendant
And
TWIN COAST METROLOGY, INC.,
Nominal Defendant
MEMORANDUM OF DECISION AND ORDER ON
PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION
This is a shareholder derivative action brought on behalf of Twin Coast Metrology (TCM or the Company). Plaintiff Eric Stone is the President of TCM. At least until April of this year, the defendant Jason Remillard was its Treasurer. Stone and Remillard each hold a fifty percent interest in the Company. The lawsuit alleges that Remillard has engaged in various acts constituting breach of his fiduciary obligations, including siphoning off TCM funds, making unauthorized payments, negotiating with third parties to sell TCM without Stone’s knowledge, disclosing proprietary information, and exercising control over TCM assets in a way that has made it impossible for the plaintiff to operate and manage the Company. The case is now before the Court on the plaintiff’s Motion for Preliminary Injunction.
The request asks first that Remillard return TCM assets consisting of various accounts over which he maintains exclusive administrative privileges. Second, the Motion asks that Remillard be enjoined from communicating with others regarding TCM proprietary and
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confidential information or from otherwise holding himself out as a representative of TCM. At the second day of hearing on this Motion, the plaintiff made additional requests, based on testimony from the defendant presented at the first day of hearing. To prevail on his motion, the plaintiff bears the burden of demonstrating that: 1) he is reasonably likely to succeed on the merits of his claims; and 2) he will suffer irreparable harm if the injunction is denied that outweighs any harm to the defendant in the injunction issues. Packaging Industries v. Cheney, 380 Mass. 609, 616-617 (1980). This Court concludes that the plaintiff has satisfied his burden and that an injunction should issue, pending further order.
In determining whether plaintiff has shown a reasonable likelihood of success on the merits, the Court reviewed the Verified Complaint, which includes thirty exhibits. The Court on September 22, 2017 also heard a full day of testimony from the defendant, who essentially admitted to most of the acts outlined in the Verified Complaint that form the basis for plaintiff’s claim that Remillard breached his fiduciary duties. Because of counsel’s and the Court’s schedules, this Court was unable to continue the hearing to the following week, but gave defense counsel the opportunity to make an offer of proof on September 25, 2017 as to what additional evidence he intends to present once the hearing resumes. This Court has also considered the defendant’s affidavit. Based on these submissions, this Court bases its decision on the following facts.
TCM is in the business or providing sophisticated measurement products and services to the aerospace and automotive industries. Stone and Remillard formed TCM in 2008. In addition to being co-equal shareholders, they are the two directors that constitute TCM’s Board. The Corporate By-Laws spell out the roles of each of them as officers of the Company. As President, Stone is the “principal executive officer” who, “subject to the control of the board of directors,
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shall in general supervise and control all of the business and affairs of the corporation.” See Section 4.5 of By-Laws, Exhibit A to Verified Complaint. As Treasurer, Remillard was in charge of TCM’s finances and was also to perform “such other duties as from time to time may be assigned to him by the President or by the Board of Directors.” Section 4.8 of By-Laws. In terms of day to day operations, Stone was generally responsible for sales and marketing, whereas Remillard ran the Company’s Acton office.
Beginning around 2015, TCM began to experience financial difficulties, and there were increasing disagreements between the two men concerning how to run TCM. Both Stone and Remillard pumped more money into the Company by making loans to it, a consultant was hired to give them management advice, and employees were laid off. Remillard became convinced that Stone was underpricing TCM products and questioned his ability to service customers. The conflicts between the two reached a head in September 2016, when Millard wrote an angry email to Stone outlining various “options.” He described the first option as follows:
“I am going to get TCM debt-free, resign, and start my on [sic] company and rewrite the software. I am giving you zero support when I leave….I am not selling you my shares. In two years TCM will be dead and I will not need to deal with you anymore.
A few days later, Remillard apologized. Seven months later, he would essentially follow through on his threats.
On March 3, 2017, Remillard sent Stone an email which announced: “I am going to be ending my day to day involvement in TCM starting April 15th.” He promised to complete certain work “before I leave” (although Remillard admitted in his testimony that he failed to fulfill this promise). The email continued: “After April 15th, I will be charging TCM $ 85/hr. for any activities” beyond the projects he pledged to complete and after that date, “all accounts will be handed over to you.” The email concluded: “I will stay out of your hair if you stick to the current
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cash flow spreadsheet that has both of us getting 90K paid back this year, killing the TCM credit card and keeping the Eastern bank loan payments going.” Based on the credible evidence presented thus far, this Court finds that this was a resignation letter so that, as of April 15, 2017, Remillard’s only position with TCM was as fifty percent shareholder.
Between March 3 and April 15, 2017, Remillard (by his own admission), did the following, all without notice to Stone, much less with his permission:
1. He wrote over $ 15,000 in checks payable to himself on TCM’s bank account. Although these checks have various dates on them, with some dating back to January 2017, they were all cashed in April 2017. Remillard admitted to backdating some of them. This Court is not convinced at this point that these withdrawals were justified. At the very least, however, they should have been made only after consulting with Stone, and it is undisputed that this did not happen.
2. Remillard scheduled a $ 65,000 payment from TCM’s Bank of America (BOA) account toward an outstanding credit balance on TCM’s credit card. This amount represented half of TCM’s total working capital. Remillard was a personal guarantor for that credit card debt. This payment was therefore clearly in his own interest but (given how large it was compared to available capital) not necessarily in the interest of TCM. When Stone found out about the payment, he told to BOA stop it (apparently believing it was fraudulent). Remillard then called the Bank and, using his position as signatory on the account, insisted that it make the payment, which it did.
3. On March 6, 2017, Remillard signed a severance agreement with a departing employee, Andrew Benn, that released Benn entirely from the terms of an employment agreement which prevented him from disclosing TCM’s confidential information or from
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working for a TCM competitor. Benn also received $ 15,000 in severance pay. Remillard signed the severance agreement (which was drafted entirely by Benn’s lawyer) without consulting any lawyer himself and without Stone’s knowledge.
4. Most significantly (at least for purposes of the instant motion), Stone refused to relinquish his administrator privileges on various TCM accounts. Such privileges allowed him to prevent others at TCM from accessing the accounts. Although Stone had “user’ privileges” for some of these accounts, Remillard could revoke those privileges as administrator, and did exactly that when Stone did not accede to some demand that Remillard made. Access to these accounts is critical for the operation of the business. They include TCM QuickBooks and social media accounts, the TCM DropBox account, and the “Beanstalk” account, which is the storage place for the Company’s source code.
After April 15, 2017, Remillard (consistent with this Court’s finding that he had effectively resigned from his positions with TCM), went to work with another company, Inspectrology. He also did work for a second company, Harvest Automation. Remillard continued to hold himself out to TCM customers and vendors as a TCM representative, however. By his own admission, he also approached third parties about buying TCM and shared with these third parties certain proprietary and confidential information of the Company. Purporting to act on behalf of TCM, he executed Nondisclosure Agreements with these entities in connection with these negotiations. He did not inform Stone about these efforts, much less receive his consent.
In August 2017, Remillard filed suit in this Court seeking involuntary dissolution of the Company, and unsuccessfully sought to impound the entire Complaint. As the Court recalls it, the basis for the impoundment request was that he did not want the public to be able to access it because it could affect his ongoing effort to sell TCM – action which the evidence shows was
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completely unilateral and wholly unauthorized. When this Court denied injunctive relief, Remillard voluntarily dismissed the case.
Currently, Remillard maintains a server in his home which gives him access to TCM confidential information. He also admits to having used his administrative privileges with the Company’s gmail account to access all employee emails, including those of Stone, and has made copies of these emails for himself. Remillard offered no legitimate reason for making these copies, much less accessing the account as he did. Moreover, these emails contain customer names, together with other confidential TCM information.
As to the requirement that the plaintiff show irreparable harm, that has been more than satisfied here, based on the evidence that the Court has heard thus far. Remillard has used his access to TCM’s accounts to maintain a stranglehold on the Company. His threats to sell TCM and his disclosure of confidential information in connection with his attempts to carry out those threats puts TCM’s very existence in danger. He has exploited his access to certain Company bank amounts by siphoning off funds and otherwise disrupting the TCM’s finances. Conversely, the harm suffered to Remillard is negligible. Although he will no longer have direct access to the inner workings of TCM, he has no legal basis to demand such access. He remains a shareholder of TCM and is entitled to certain records, but his rights to those records are circumscribed by statute. To be sure, the injunctive relief that plaintiff seeks is quite broad but – under the unique circumstances of this case – is wholly justified.
The Motion for a Preliminary Injection is therefore ALLOWED in the form proposed by the plaintiff on September 25, 2017. Further hearing is scheduled for October 12, 2017.
_____________________________
Dated: September 26, 2017 Janet L. Sanders
Justice of the Superior Court
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