Daniel Petrucci and three other individuals formed Market Maker Solutions, LLC (MMS) to develop renewable energy technology. Petrucci owned 30 percent, as did Charles Esdaille and Christopher Hayes, while Duncan McIntyre held the remainder. Petrucci alleges the other members misrepresented MMS’s value, dissolved the company, transferred its assets to a new entity that became Altenex, LLC, and froze him out of any recovery.
Petrucci sued under Massachusetts consumer protection law (Chapter 93A), bringing a claim against Altenex for unfair and deceptive practices. Altenex moved to dismiss. The court granted the motion, holding that the claim fails as a matter of law. Disputes among members of the same business venture do not constitute commercial transactions within the scope of Chapter 93A. The wrongdoing alleged here occurred while all parties were co-members of MMS, and Altenex’s formation was simply the product of that intra-venture misconduct. Though Altenex is technically a separate entity, it cannot be sued under Chapter 93A when the underlying conduct arises from the defendants’ fiduciary obligations to Petrucci as a fellow member.
The court distinguished cases where an outsider conspired with insiders or where misconduct occurred after a business relationship ended. Here, the alleged wrongdoing flowed directly from the members’ special relationship within MMS.
The full text of the opinion follows below. Slip opinions are subject to formal revision; the official version is published in the official reports.
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
SUCV2016-03998-BLS2
DANIEL P. PETRUCCI,
Plaintiff
vs.
CHARLES ESDAILLE, CHRISTOPHER HAYES,
DUNCAN MCINTYRE, and ALTENEX, LLC
Defendants
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANT ALTENEX, LLC’S MOTION TO DISMISS COUNT VII
This case arises from business dealings among four people who formed a company called Market Maker Solutions, LLC (MMS), a business venture intended to utilize information technology in the area of renewable energy and carbon emissions abatement. Plaintiff Daniel Petrucci and defendants Charles Esdaile and Christopher Hayes each owned 30 percent of MMS; defendant Duncan McIntyre owned the remainder. The Second Amended Complaint (the Complaint) alleges that, after extracting from Petrucci his knowledge and expertise, the defendants froze him out by falsely telling him that MMS was worthless, dissolving the company, and then transferring MMS’s assets to a new entity, which ultimately became the defendant Altenex, LLC (Altenex). On July 1, 2017, this Court (Salinger, J.) dismissed the 93A claim asserted against the three individual defendants, concluding that it arose from an intra-corporate dispute to which Chapter 93A does not apply. The case is now before the Court on Altenex’s Motion to Dismiss the 93A claim against it. This Court concludes that the Motion must be ALLOWED, essentially for the same reasons articulated by Judge Salinger.
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Count VII of the Complaint is brought pursuant to G.L.c. 93A § 11, which requires that both the plaintiff and the defendant be engaged in the conduct of “trade or commerce.” “It is well established that disputes between parties in the same venture do not fall within the scope of G.L.c. 93A section 11.” Szalla v. Locke, 421 448, 451 (1995) and cases cited therein. “’Intra-enterprise’ disputes, including those…between or among fellow shareholders are essentially private in nature, and thus not considered ‘commercial transactions’ within the meaning of c. 93A.” Selmark Associates, Inc. v. Ehrlich, 467 Mass. 525, 549 (2014), quoting Milliken & Co., v. Duro Textiles, LLC, 451 Mass. 547, 563 (2008). It was for this reason that Judge Salinger dismissed the 93A claim against the three individual defendants. Plaintiff argues that, because Altenex is a separate and distinct entity, there was no “intramural relationship” between him and Altenex, putting the claim against Altenex on a different footing. This Court disagrees.
Count VII alleges that Altenex is “vicariously liable” for the unfair and deceptive acts and practices of the individual defendants and itself engaged in unfair and deceptive conduct. But the wrongdoing described in the Complaint is based entirely on the conduct of the individual defendants at a time when they, together with Petrucci, were members of MMS: they misrepresented its value, then transferred its assets and misappropriated property jointly owned with Petrucci, thus breaching fiduciary and contractual obligations to him. The formation of Altenex was a direct result of this wrongful conduct. Indeed, the only post-dissolution conduct described in the Complaint has to do with the individual defendants’ concealment of what business Altenex was engaged in – allegations that may be relevant to tolling of the applicable statute of limitations but which are not themselves sufficient to support a 93A claim against the company.
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The two cases upon which the plaintiff relies are clearly distinguishable. The first case is Beninati v. Borghi, 90 Mass.App.Ct. 556, 557 (2016). In that case, the defendant Harold Dixon was an outsider who aided and abetted one member of a close corporation to divert corporate opportunities to a business that he and that member separately formed to compete with the company, on whose behalf the claim was brought. Although the member could not be sued under Chapter 93A, the Appeals Court held that Dixon could. In the instant case, in contrast, Altenex consisted only of the individual defendants and was the product of their wrongdoing, not a separate entity that conspired with the defendants. The second case is Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass.App.Ct. 937, 940 (1984). The focus of that case was on the question of whether a cookie recipe qualified as a trade secret. The defendant, a former employee of the plaintiff, had gone back to the company offices and stolen the cookie recipe. The Appeals Court held that both the former employee and his current employer could be sued under G.L.c. 93A § 11 because the theft of the recipe occurred after the employment relationship with the plaintiff had ended. Here, the wrongdoing stemmed from the special relationship that the individual defendants had with the plaintiffs when they were all members of the same LLC. These individuals then formed Altenex as a way of freezing plaintiff out of sharing in the assets and property of MMS.
_________________________________
Janet L. Sanders
Justice of the Superior Court
Dated: November 13, 2017
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