Posts tagged "0901017"

O’Donnell v. Davidson, et al. (Lawyers Weekly No. 09-010-17)

COMMONWEALTH OF MASSACHUSETTS SUFFOLK, ss. SUPERIOR COURT CIVIL ACTION No. 2017-001 BLS 1 JOSEPH O’DONNELL vs. BERT B. DAVIDSON, JR., JEREMIAH S. HUBENY and DAVIDSON HUBENY COMPANIES, INC. MEMORANDUM AND ORDER ON DEFENDANTS’ MOTION TO DISMISS In this action by a minority shareholder against the majority shareholders of a closely-held corporation, defendants move to dismiss on the ground that all of plaintiff’s claims must be brought as a derivative action on behalf of the corporation. The motion will be allowed, in part, and denied, in part, as described below. BACKGROUND The following facts are taken from the First Amended Complaint (“FAC”). Plaintiff, Joseph O’Donnell, is the holder of 400 shares of Davidson Hubeny Brands, Inc. (“DH Brands”), a Massachusetts corporation. O’Donnell’s shares constitute 5% of the issued and outstanding shares of DH Brands. Defendants, Bert B. Davidson and Jeremiah S. Hubeny, each own 2,800 shares of DH Brands. The 2,800 shares constitute 35% of the issued and outstanding shares of DH Brands. Davidson is the president of DH Brands and Hubeny is the treasurer and secretary of the company. Davidson and Hubeny are both directors of DH Brands. At relevant times, until November 2014, Davidson and Hubeny were the only directors. On a date “shortly after” 1 November 21, 2014, a third director was elected. DH Brands is a closely-held corporation formed in 1988. In addition to the 70% of shares owned collectively by Davidson and Hubeny, approximately seven other individuals, including O’Donnell, own or owned shares. It is alleged that Davidson and Hubeny as majority shareholders, directors and officers of DH Brands control the management, direction and operations of the company. There is no ready market for the shares of DH Brands. DH Brands’ financial statement for the fiscal year ended June 30, 2014 described “related party transactions.” The financial statement disclosed that DH Brands paid management services costs of over $ 1.7 million and commissions of over $ 1.8 million to a company owned by the two majority stockholders. O’Donnell avers that while he had received “limited disclosure” of payments by DH Brands for management service costs and commissions to a marketing and management company owned by Davidson and Hubeny, he received no details of the transactions or explanation of why the costs were being incurred. In September 2014, Davidson and Hubeny offered to purchase the shares of non-active shareholders, including the shares owned by O’Donnell. The offer calculated a purchase price based on the income and cash flow of the company discounted by the lack of marketability of the minority shares and the lack of control of the business by the minority shareholders. O’Donnell alleges that the offer did not disclose that the company’s expenses were vastly […]

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Posted by Massachusetts Legal Resources - October 5, 2017 at 12:57 pm

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