Petrucci v. Esdaile, et al. (Lawyers Weekly No. 12-063-17)

This lawsuit arises from business dealings among four people who formed a Delaware limited liability company called Market Maker Solutions LLC (“MMS”). Daniel Petrucci, Charles Esdaile, and Christopher Hayes each owned 30 percent of the company; Duncan McIntyre owned the remaining 10 percent. Petrucci’s claims arise from the dissolution of MMS and the alleged theft of intellectual property and usurpation of business opportunities belonging to MMS. In essence, Petrucci claims that the individual defendants froze him out by claiming that MMS had no value as a going concern and that its assets were worthless, dissolving MMS and transferring its assets to a new entity, and leveraging Petrucci’s contributions to MMS to develop a profitable new company in the same line of business that MMS had been pursuing.
All the defendants served motions to dismiss Petrucci’s first amended complaint. Petrucci addressed the issues raised by the two corporate defendants by moving for leave to file a proposed second amended complaint. No party opposed that motion, so it has been allowed. The parties agree that the pending motions to dismiss filed by Esdaile, Hayes, and McIntyre should be treated as motions to dismiss the claims against them as restated in the second amended complaint.
The Court concludes that none of the claims against the individual defendants is clearly time-barred, but that part of the contract claim, one of the two claims for breach of fiduciary duty, and the claim under G.L. c. 93A must be dismissed under Mass. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. The Court will allow the motions to dismiss as to those claims and deny them with respect to all other claims.
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1. Legal Standards. To survive a motion to dismiss under Rule 12(b)(6), a complaint must allege facts that, if true, would “plausibly suggest[] … an entitlement to relief.” Lopez v. Commonwealth, 463 Mass. 696, 701 (2012), quoting Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007). For the purpose of deciding the pending motions to dismiss, the Court must assume that the factual allegations in the complaint and any reasonable inferences that may be drawn in Plaintiff’s favor from the facts alleged are true. See Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 223 (2011). In so doing, however, it must “look beyond the conclusory allegations in the complaint and focus on whether the factual allegations plausibly suggest an entitlement to relief.” Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 473 Mass. 336, 339 (2015), quoting Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676 (2011).
2. Choice of Law as to Statute of Limitations. The parties disagree as to whether the Massachusetts or Delaware statute of limitations applies to Petrucci’s claims for breach of contract, unjust enrichment, and breach of fiduciary duty.
The MMS operating agreement provided that “This Agreement and the application or interpretation hereof, shall be governed exclusively by the laws of the State of Delaware, and specifically the Act,” meaning the Delaware Limited Liability Company Act as amended.
Esdaile and Hayes contend that this choice-of-law provision requires that the breach of contract, breach of fiduciary duty, and unjust enrichment claims be governed by the three-year Delaware statute of limitations; they agree with Petrucci that the fraud and conspiracy claims are subject to a three-year limitations period under Massachusetts law and that the claim under G.L. c. 93A is subject to a four-year limitations period under Massachusetts law. McIntyre generally agrees with Esdaile and Hayes.1
Petrucci disagrees. He contends that the choice of law provision does not control which state’s limitations period applies, that under the functional analysis
1 The minor disagreement among the three individual defendants makes no practical difference. McIntyre contends that the unjust enrichment claim is subject to the Massachusetts three-year limitations period that applies to tort claims, rather than to the Delaware three-year limitations period that applies to contract claims.
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required by Supreme Judicial Court precedent Massachusetts law governs with respect to all of the statutes of limitations, and as a result the six-year limitations period established by G.L. c. 260, § 2, governs his claims for breach of contract and unjust enrichment.
The Court agrees with Mr. Petrucci on this choice-of-law issue. Specifically, it concludes that the Massachusetts statutes of limitations govern the timeliness of all claims, even though the MMS operating agreement provides that it is governed by Delaware law. As explained below, it also concludes that the six-year limitations period for contract claims applies to Petrucci’s claims for unjust enrichment.
Massachusetts no longer treats statutes of limitations as purely procedural rules, and thus no longer automatically applies Massachusetts limitations periods to all claims asserted in Massachusetts courts. Instead, the Supreme Judicial Court has adopted “a functional approach that treats the issue” of which State’s statute of limitations governs “as a choice of law question, as stated in the Restatement (Second) of Conflict of Laws § 142.” Nierman v. Hyatt Corp., 441 Mass. 693, 695; accord New England Tel. & Tel. Co. v. Gourdeau Constr. Co., 419 Mass. 658, 664 (1995).
Although the parties agreed by contract that any disputes arising under the MMS operating agreement would be governed by Delaware law, their choice-of-law provision does not expressly address limitations periods and, for that reason, does not control which State’s statute of limitations applies here. See Shamrock Realty Co., Inc. v. O’Brien, 72 Mass. App. Ct. 251, 257 & n.9 (2008) (distinguishing Newburyport Five Cents Sav. Bank v. MacDonald, 48 Mass. App. Ct. 904, 907 (1999) on the ground that it failed to apply § 142 of the Restatement and therefore is inconsistent with Nierman and Gourdeau).2
2 Although Esdaile and Hayes cite several Superior Court decisions to the contrary, those opinions were issued before and thus were not informed by the Appeals Court’s decision in Shamrock Realty. Cf. Nahill v. Raytheon Co., No. 0684CV03883-BLS2, 24 Mass. L. Rptr. 417, 2008 WL 4107330, *4 (Mass. Super. Ct. 2008) (Neel, J.); Formato v. Protonex Technologies Corp., No. WOCV2005-00037-C, 22 Mass. L. Rptr. 116, 2006 WL 4114292, *4 (Mass. Super. Ct. 2006) (Billings, J.).
In Gourdeau, the question of whether a contractual choice of law provision dictates that the chosen State’s statute of limitations must be used was waived and therefore not addressed by the SJC. See 419 Mass. at 662.
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Massachusetts and Delaware law are the same in this respect. See Pivotal Payments Direct Corp. v. Planet Payment, Inc., Del. Sup. Ct. C.A. No. N15C-02-059 EMD CCLD, 2015 WL 11120934, *3 (Del. Super. Ct. Complex Comm’l Lit. Div. 2015) (“Under Delaware law, choice-of-law provisions in contracts do not apply to statutes of limitations, unless a provision expressly includes it.”).
Indeed, it appears that the clear majority rule in other jurisdictions is that a contractual choice-of-law provision will usually only determine which forum’s substantive law governs the contract, and will not affect which State’s statute of limitations applies to claims under or arising from the contract unless the provision says so explicitly. See, e.g., Portfolio Recovery Assocs., LLC v. King, 927 N.E.2d 1059, 1061 (NY 2010); Smither v. Asset Acceptance, LLC, 919 N.E.2d 1153, 1158 (Ind. Ct. App. 2010); Belleville Toyota, Inc., v. Toyota Motor Sales, U.S.A., Inc., 770 N.E.2d 177, 194 (Ill. 2002); Western Video Collectors, L.P. v. Mercantile Bank of Kansas, 935 P.2d 237, 239 (Kan. Ct. App. 1997); Financial Bancorp, Inc. v. Pingree and Dahle, Inc., 880 P.2d 14, 16 n.2 (Utah Ct. App. 1994); Nez v. Forney, 783 P.2d 471, 473 (N.M. 1989); U.S. Leasing Corp. v. Biba Info. Processing Svcs., Inc., 436 N.W.2d 823, 826 (Minn. Ct. App. 1989); Gluck v. Unisys Corp., 960 F.2d 1168, 1179-1180 (3d Cir. 1992); Phelps v. McClellan, 30 F.3d 658, 662 (6th Cir. 1994); Berger v. AXA Network LLC, 459 F.3d 804, 813 n.15 (7th Cir. 2006); In re Sterba, 852 F.3d 1175, 1178 (9th Cir. 2017); Federal Dep. Ins. Co. v. Peterson, 770 F.2d 141, 142-143 (10th Cir. 1985).3
Massachusetts has a six-year limitations period for contract claims, while Delaware cuts off such claims after three-years. The parties seem to agree that the same basic rules determine when a contract claim accrues in both states. As discussed below, the parties also agree that the contract claims are timely if the Massachusetts six-year limitations period applies; they disagree as to whether those claims are time-
3 At least one court has adopted a different rule holding that, since contractual choice-of-law provisions adopt the entire substantive law of specified jurisdiction, such provisions require application of the specified jurisdiction’s statutes of limitations where that jurisdiction treats limitations periods as substantive rather than procedural. See Ekstrom v. Value Health, Inc., 68 F.3d 1391, 1395 (D.C. Cir. 1995). The rule adopted in Ekstrom would not make any difference here because Delaware treats its statutes of limitations as procedural rules. See Cheswold Volunteer Fire Co. v. Lambertson Const. Co., 489 A.2d 413, 421 (Del. 1984).
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barred if the Delaware three-year limitations period governs because they disagree about when those claims first accrued.
Since the Massachusetts statute of limitations would allow the contract claims to proceed and the Delaware statute may not, the choice-of-law between these two options is governed by the principles summarized in Restatement § 142(2). See Andersen v. Lopez, 80 Mass. App. Ct. 813, 815-816 (2011). Under § 142(2), “unless the exceptional circumstances of the case make such a result unreasonable,” the forum state will “apply its own statute of limitations permitting the claim unless: (a) maintenance of the claims would serve no substantial interest of the forum; and (b) the claim would be barred under the statute of limitations having a more significant relationship to the parties and the occurrence.” Id. at 815, quoting Restatement § 142(2). “In other words, Massachusetts will apply its own statute of limitations to allow the action to proceed unless some exceptional circumstances about the case make it unreasonable to do so or unless, after analyzing the interests of Massachusetts and [Delaware], allowing the action to proceed would serve no substantial Massachusetts interest, and [Delaware] has a more significant relationship to the parties and the accident than does Massachusetts. In assessing those interests, we focus only on the interests that bear on the statute of limitations,” and not on the interests relevant to the merits of Petrucci’s claims. Id. at 815-816; accord, e.g., Kahn v. Royal Ins. Co., 429 Mass. 572, 574 (1999).
The Court concludes that, under this standard, the Massachusetts statutes of limitations governs whether Mr. Petrucci’s claims are timely. Massachusetts has a substantial interest in the maintenance and resolution of these claims and a more significant relationship to the parties and to the facts giving rise to this dispute. According to the allegations of the second amended complaint, the four individual parties all lived and worked in Massachusetts during the relevant time, they all executed the MMS operating agreement in Massachusetts, and the contract was allegedly breached through conduct in Massachusetts, including through the creation of and transfer of assets to a Massachusetts corporate entity. In addition, the individual defendants all still live in Massachusetts, which therefore “has a significant interest in seeing that … that its resident defendant[s] … be held
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accountable for [their] conduct, which took place in Massachusetts, and which allegedly caused” Plaintiff’s “injury.” Dasha v. Adelman, 45 Mass. App. Ct. 418, 426 (1998), quoting Cosme v. Whitin Mach. Works, Inc., 417 Mass. 643, 649 (1994).
In sum, the merits of Petrucci’s claim for breach of the MMS operating agreement, as purportedly amended by a subsequent “Letter of Intent” is governed by Delaware law because that is what the parties agreed to in their contract. But the Massachusetts six-year statute of limitations governs whether the contract claim was filed on a timely basis.
3. Claim-by-Claim Analysis.
3.1. Breach of Contract. Count III of the second amended complaint alleges that the three individual defendants breached the MMS operating agreement in two ways. First, it alleges that these defendants breached a contractual duty not to transfer assets out of MMS and not to dissolve MMS. Second, it alleges that the operating agreement was amended by a subsequent Letter of Intent, that this amendment barred the individual defendants from competing with MMS, and that these defendants breached that part of their agreement.
These contract claims are not time barred. Even assuming that the first part of this contract claim regarding the transfer of assets out of MMS accrued at some point in early 2011, as the individual defendants assert, the claim would still be timely. For the reasons discussed above, this claim is governed by the Massachusetts six-year statute of limitations for contract claims. Petrucci filed this action on December 30, 2016, which is less than six years after the earliest date that any part of his contract claim arguably accrued.
However, the second part of this contract claim, which alleges that the individual defendants breached a non-competition agreement, fails to state a claim upon which relief can be granted.
Petrucci cannot sue Esdaile, Hayes, or McIntyre for competing in violation of the original MMS operating agreement because that contract expressly permitted each member of that LLC to “conduct or participate in any business or activity whatsoever,” even if they did so in direct competition with MMS, and expressly waived any liability to MMS or to any other member of the company for engaging in
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a competing business or activity. Provisions like this, that limit the fiduciary duties that LLC members owe to one another and that waive liability for actions permitted by contract, are enforceable under Delaware law. See generally Wood v. Baum, 953 A.2d 136, 141-142 (Del. 2008); 6 Del. Code § 18-1101(e) (“A limited liability company agreement may provide for the limitation or elimination of any and all liabilities for breach of contract and breach of duties (including fiduciary duties) of a member,” except for liability for “a bad faith violation of the implied contractual covenant of good faith and fair dealing”).
Nor may Petrucci sue these defendants for competing against MMS in violation of their November 29, 2010, Letter of Intent to combine the assets of MMS and Altenex LLC into a new entity. In relevant part, the Letter of Intent provides that “[a]ll managing members of the newly formed entity will sign a non-compete agreement.” Such an agreement to enter into a non-compete agreement in the future is not an enforceable contract; since all material terms of the purported non-compete agreement are unspecified, this provision is merely an unenforceable “agreement to agree” in the future. See, e.g., Aveta Inc. v. Bengoa, 986 1166, 1186 (Del. Ch. 2009); Hammond & Taylor, Inc. v. Duffy Tingue Co., 161 A.2d 238, 239-240 (Del. Ch. 1960).4 Petrucci alleges no facts plausibly suggesting that the new entity was ever formed, that any of the individual defendants ever became a managing member of the new entity contemplated in the Letter of Intent, or that the material terms of any non-compete agreement were ever spelled out and accepted by the individual defendants.
3.2. Unjust Enrichment. Count IV alleges that Petrucci contributed his knowledge, expertise, time, and energy to the MMS business venture, that the individual defendants took Petrucci’s contributions to a different business entity where they profited from them without compensating Petrucci, and that the individual defendants would be unjustly enriched if they kept the benefit of Petrucci’s contributions without paying for them.
4 The same is true under Massachusetts law. See Air Tech. Corp. v. Gen. Elec. Co., 347 Mass. 613, 626 (1964) (“A purported contract which is no more than an agreement to agree in the future on essential terms, or one which does not adequately specify essential terms, ordinarily will be unenforceable.”).
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This claim is not time barred. Petrucci’s claim for unjust enrichment is a quasi-contract claim, and is therefore governed by Massachusetts’ six-year limitations period, because it alleges that Petrucci contributed valuable information and work effort for which he was entitled to be compensated. See Lipsitt v. Plaud, 466 Mass. 240, 251-252 (2013) (six-year limitations period applies to quasi-contractual claims seeking compensation for services rendered); G.L. c. 260, § 2 (six-year limitations period for contract claims applies to actions “founded upon contracts or liabilities, express or implied”). For the reasons discussed above, it appears to be undisputed that this action was filed less than six years after the earliest moment when Petrucci’s claims could have first accrued.
Nor is Petrucci’s claim for unjust enrichment barred by the fact that the parties entered into an express contract, the MMS operating agreement, that governed how Petrucci was supposed to be compensated for contributing his knowledge to the parties’ business venture.
“Ordinarily, a claim of unjust enrichment will not lie ‘where there is a valid contract that defines the obligations of the parties.’ ”Metropolitan Life Ins. Co. v. Cotter, 464 Mass. 623, 641 (2013), quoting Boston Med. Ctr. Corp. v. Secretary of Executive Office of Health & Human Servs., 463 Mass. 447, 467 (2012). That is because “[a] valid contract defines the obligations of the parties as to matters within its scope, displacing to that extent any inquiry into unjust enrichment.” Boston Med. Ctr. Corp., 463 Mass. at 467, quoting Restatement (Third) of Restitution and Unjust Enrichment § 2 (2011).
The MMS operating agreement only addressed Petrucci’s right to a share of any profits generated by MMS, however. It did not contemplate that the individual defendants might improperly transfer the assets of MMS to a new entity and freeze Petrucci out of its future profits, as alleged in the second amended complaint.
Since the complaint alleges facts plausibly suggesting that Petrucci is entitled to quasi-contractual compensation based on circumstances not addressed or contemplated in the parties’ contract, it states a viable claim for unjust enrichment. See Kennedy v. B.A. Gardetto, Inc., 306 Mass. 212, 216-217 (1940) (existence of
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express contract does not bar implied contract claim concerning “distinct and independent matters”) (quoting Gage v. Tirrell, 91 Mass. (9 Allen) 299, 306 (1864)).
The same rule would apply under Delaware law. See Seiden v. Kaneko, Del. Ch. C.A. No. 9861-VCN, 2015 WL 7289338, *12 (Del. Ch. 2015). But Petrucci’s claim for unjust enrichment is governed by Massachusetts law. The parties agreed by contract that Delaware law would govern the “application or interpretation” of the MMS operating agreement. Petrucci’s claim for unjust enrichment “is a claim independent of an assertion for damages under the contract[.]” J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 793 (1986). For the reasons discussed above, under the functional choice of law rules that apply here, Massachusetts law governs Petrucci’s claims other than his claim for breach of contract.
3.3. Fraud. Count I asserts a claim for intentional fraud. The second amended complaint expressly alleges (in paragraphs 97 and 123) that, during a telephone call that took place in February 2012, Esdaile—acting on behalf of himself, Hayes, and McIntyre—falsely told Petrucci that the business and assets of MMS were worthless, that the individual defendants no longer wanted to be in business with Petrucci, and that the individual defendants planned to pursue a different business and no longer continue with the line of business they had been working on with Petrucci. Other allegations of the complaint plausibly suggest that Petrucci reasonably relied upon Esdaile’s misrepresentations by allowing the new venture to proceed without challenge, and that Petrucci suffered economic harm as a result.
These allegations state a viable claim for fraud because they plausibly suggest that Esdaile knowingly made false statements of fact, for the purpose of inducing Petrucci to refrain from challenging the dissolution of MMS, and that Petrucci relied upon those misrepresentations to his detriment. See Masingill v. EMC Corp., 449 Mass. 532, 540 (2007) (elements of fraud); Stevens v. Nagel, 64 Mass. App. Ct. 136, 138 (2005) (claim for fraud may be based on allegation that false statement was made for purpose of inducing plaintiff “to refrain from” doing something, rather than inducing plaintiff to take affirmative action). Petrucci need not allege or prove that Esdaile made the alleged misstatements “with the specific purpose of inducing … reliance” by Petrucci; it is sufficient to allege and later prove that Esdaile “had reason
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to expect” that Petrucci “would rely upon [his] statements.” Reisman v. KPMG Peat Marwick LLP, 57 Mass. App. Ct. 100, 110 (2003).
The further allegation that Esdaile was acting as an agent of Hayes and McIntyre plausibly suggests that these defendants are vicariously liable for Esdaile’s alleged deceit. “A principal is liable for the fraud committed by his agent or servant acting within the scope of his employment,” even if the principal received no benefit from the fraud. McCarthy v. Brockton Natl. Bank, 314 Mass. 318, 325 (1943); accord Patsos v. First Albany Corp., 433 Mass. 323, 337 (2001). McIntyre’s assertion that he cannot be sued for fraud based on statements that Esdaile allegedly made on McIntyre’s behalf is therefore incorrect.
These allegations state the fraud claim with enough particularity to meet the requirements of Mass. R. Civ. P. 9(b). This rule “heightens the pleading requirements placed on plaintiffs who allege fraud and deceit.” Equipment & Systems for Industry, Inc. v. NorthMeadows Constr. Co., Inc., 59 Mass. App. Ct. 931, 932 (2003) (rescript). Thus, “at a minimum,” Petrucci must support any claim of fraud by specifically alleging “the identity of the person(s) making the” allegedly fraudulent “representation, the contents of the misrepresentation, and where and when it took place,” and must also “specify the materiality of the misrepresentation, [his] reliance thereon, and resulting harm.” Id. at 931-932. By alleging the substance of the challenged statements, who made them, “the period during which they were made,” to whom the statements were made, and the manner in which Petrucci relied upon the statements to his detriment, the complaint is sufficiently detailed to allow the individual defendants to conduct discovery and prepare their defense. See Friedman v. Jablonski, 371 Mass. 482, 488-489 (1976).
Whether the claim for fraud is barred by the three-year statute of limitations cannot be resolved on a motion to dismiss. Petrucci has alleged facts plausibly suggesting that the individual defendants fraudulently concealed until sometime after December 2013 that the assets they took from MMS had value and that they were using them to pursue the very line of business that Esdaile had falsely said the defendants were abandoning. If Petrucci can prove those allegations, then he may be
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able to show that his claim for fraud did not accrue and the statutory limitations period did not begin to run until 2014 or later. See G.L. c. 260, § 12
3.4. Civil Conspiracy. Count II alleges that the individual defendants engaged in a civil conspiracy to defraud Petrucci and steal the assets of MMS. To state a viable claim for conspiracy, Petrucci must allege facts plausibly suggesting that the individual defendants acted together either (1) to exercise some power of coercion over the plaintiff that they would not have had if they had acted independently, or (2) pursuant to “a common plan to commit a tortious act.” Kurker v. Hill, 44 Mass. App. Ct. 184, 188-189 (1998); accord Aetna Cas. Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1563-1564 (1st Cir. 1994) (applying Massachusetts law).
Petrucci alleges the second kind of civil conspiracy, involving a purportedly tortious “common plan.” With respect to second kind of civil conspiracy, “the plaintiffs must show an underlying tortious act in which two or more persons acted in concert and in furtherance of a common design or agreement.” Bartle v. Berry, 80 Mass. App. Ct. 372, 383-384, rev. denied, 460 Mass. 1116 (2011). Thus, “[k]ey to this cause of action is a defendant’s substantial assistance, with the knowledge that such assistance is contributing to a common tortious plan.” Kurker, supra, at 189.
The second amended complaint states a viable claim for civil conspiracy. The facts alleged plausibly suggest that Esdaile, Hayes, and McIntyre acted together to commit the underlying tort of fraud, pursuant to a common plan to defraud Petrucci of assets he had contributed to MMS. For the reasons discussed above, Petrucci also adequately alleges that the individual defendants fraudulent concealed their scheme and how they had harmed Petrucci until well after December 2013, which means that the individual defendants are not entitled to have this claim dismissed under the three-year statute of limitations.
3.5. Breach of Fiduciary Duty by Fraud. Count V appears to restate the fraud claim under a different label. It survives the motions to dismiss for much the same reasons that the fraud claim survives.
This claim is governed by Delaware law because MMS was a Delaware limited liability company. See Harrison v. NetCentric Corp., 433 Mass. 465, 469-472 (2001).
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Under Delaware law, members of a limited liability company owe each other fiduciary duties of care any loyalty except to the extent restricted or eliminated by the company’s operating agreement. See 6 Del. Code § 18-1101(c) and § 18-1104. Defendants have not identified any provision of the MMS operating agreement that allowed them to defraud Mr. Petrucci.
3.6. Breach of Fiduciary Duty by Misappropriation of Opportunities. Count VI alleges that the individual defendants breached the fiduciary duties they owed as members of MMS by misappropriating corporate opportunities that belonged to MMS and competing against MMS for business. As noted above, this claim is governed by Delaware law because MMS was a Delaware limited liability company. See Harrison, 433 Mass. at 469-472.
“Delaware law does not impose a heightened fiduciary duty on shareholders in a close corporation;” it differs from Massachusetts law on this point. Id. at 472, citing Riblet Prods. Corp. v. Nagy, 683 A.2d 37, 39 (Del. 1996) (noting that Delaware has not adopted duty of utmost good faith and loyalty established in Wilkes v. Springside Nursing Home, Inc., 370 Mass. 842, 848-849 (1976)), and Nixon v. Blackwell, 626 A.2d 1366, 1380-1381 (Del. 1993) (declining “to fashion a special judicially-created rule for minority investors”). “Instead, under Delaware law, minority shareholders can protect themselves by contract (i.e., negotiate for protection in stock agreements or employment contracts) before investing in the corporation” and “founding shareholders can [also] elect to incorporate the company as a statutory close corporation under Delaware law, which provides special relief to shareholders of such corporations.” Id. at 469-470.
Nixon and Nagy confirm that Delaware law does not recognize that a majority stockholder has a special fiduciary duty to minority stockholders in a closely-held corporation. Delaware courts have declined to follow other jurisdictions which have adopted such a doctrine. Thus, the fiduciary duties that a controlling stockholder owes to minority stockholders are those duties that the directors of a publicly-held corporation owe to all shareholders generally[.] Blaustein v. Lord Baltimore Capital Corp., Dec. Ch. C.A. 6685-VCN, 2013 WL 1810956 (Del. Ch. 2013).
This claim fails and must be dismissed for the same reason that the claim for a breach of a contractual obligation not to compete with MMS must be dismissed.
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As explained above, the MMS operating agreement expressly allowed Petrucci and the individual defendants, as the members of MMS, to engage in any kind of business or activity in competition with MMS. The individual defendants cannot be sued for a breach of fiduciary duty that Petrucci expressly disclaimed when he executed the MMS operating agreement. See Wood, 953 A.2d at 141-142; 6 Del. Code § 18-1101(e).5
3.7. G.L. c. 93A, § 11. Count VII alleges that the individual defendants committed unfair or deceptive acts in violation of G.L. c. 93A by fraudulent telling Petrucci that the assets of MMS had no value, transferring those assets to a separate entity, dissolving MMS, and using its former assets to develop a profitable business without compensating Petrucci for his contributions.
The individual defendants contend that their alleged misconduct did not take place in trade or commerce and thus did not implicate c. 93A. Cf. Office One, Inc. v. Lopez, 437 Mass. 113, 125 (2002) (“Violations of G.L. c. 93A require unfair or deceptive acts or practices ‘in the conduct of any trade or commerce.’”) (quoting G.L. c. 93A, § 2).
“[D]isputes between parties in the same venture do not fall within the scope of G.L. c. 93A, § 11.” Selmark Assocs., Inc. v. Ehrlich, 467 Mass. 525, 549 (2014), quoting Szalla v. Locke, 421 Mass. 448, 451 (1995). “ ‘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.” Id. at 550, quoting Milliken & Co. v. Duro Textiles, LLC, 451 Mass. 547, 563 (2008).
The court agrees with the individual defendants that the second amended complaint alleges no facts plausibly suggesting that the alleged misconduct of the individual defendants took place in “trade or commerce,” rather than as part of a
5 Indeed, under Delaware law this claim for breach of fiduciary duty would have to be dismissed even if Petrucci had a viable claim that the same competitive conduct constituted a breach of the MMS operating agreement; Petrucci could sue for breach of contract under those circumstances, but could not also sue for breach of fiduciary duty. See AM General Holdings LLC on behalf of Ilshar Capital LLC v. Renco Group, Inc., Del. Ch. C.A. No. 7639-VCN, 2013 WL 5863010, *10 (Del. Ch. 2013) (“ ‘[W]here a dispute arises from obligations that are expressly addressed by contract, that dispute will be treated as a breach of contract claim’ and thus ‘any fiduciary claims arising out of the same facts that underlie the contract obligations would be foreclosed as superfluous.’ ”) (quoting Nemec v. Shrader, 991 A.2d 1120, 1129 (Del. 2010)).
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purely private, intra-business dispute. Petrucci’s claims that he was improperly frozen out of the business that had been run in part through MMS, and that assets and opportunities belonging to MMS had improperly been transferred to another business entity, constitutes the kind of “private grievance” or intra-enterprise dispute that does not implicate c. 93A. Kurker v. Hill, 44 Mass. App. Ct. 184, 190-191 (1998) (c. 93A inapplicable to alleged freeze-out of shareholder in closely-held corporation and alleged improper sale of corporate assets), quoting Zimmerman v. Bogoff, 402 Mass. 650, 663 (1988) (c. 93A inapplicable to disputes among shareholders in close corporation).
Petrucci argues that, even if the transfer of assets from MMS is part of a private dispute and not within public trade or commerce, any conduct by the individual defendants that took place after the dissolution of MMS by definition is not part of an intracompany dispute. The problem with this legal argument is that they only way that any post-dissolution actions by the defendants could violate c. 93A is if the prior transfer of assets from MMS to the other entity was an unfair or deceptive practice, and those prior transfers cannot give rise to a c. 93A claim. Merely competing to convince customers to do business with a different company is perfectly legal and does not violate c. 93A. See, e.g., Synergistics Technology, Inc. v. Putnam Investments, LLC, 74 Mass. App. Ct. 686, 689-691, rev. denied, 455 Mass. 1102 (2009) (reversing denial of motion for judgment notwithstanding the verdict).6
6 The Appeals Court’s decision in Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 940 (1984), is distinguishable on this ground. Peggy Lawton holds that misuse of a former employer’s trade secrets after the defendant is no longer employed by the plaintiff can violate G.L. c. 93A even though that statute does not apply to disputes arising from a private employer-employee relationship, because the misuse of the trade secret is an independently unfair trade practice that occurs after the employment relationship has been terminated. Here, in contrast, Petrucci alleges no facts plausibly suggesting that the individual defendants did anything after MMS was dissolved that would be unlawful if it did not violate some duty owed to Petrucci while MMS was still in existence.
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The motions to dismiss the claims against Charles Esdaile, Christopher Hayes, and Duncan McIntyre in the Second Amended Complaint are ALLOWED IN PART to the extent they seek dismissal of so much of the part of Count III claiming that Esdaile, Hayes, and McIntyre breached a contractual duty not to compete with Market Maker Solutions, LLC (“MMS”), the claim in Count VI for breach of fiduciary duties by misappropriating corporate opportunities, and the claim in Count VII for violation of G.L. c. 93A, § 11.
These motions to dismiss are DENIED IN PART to the extent they seek dismissal of the claim in Count I for fraud, the claim in Count II for civil conspiracy, the part of Count III that claims that Esdaile, Hayes, and McIntyre breached a contractual duty not to transfer asserts out of MMS or not to dissolve MMS, the claim in Count IV for unjust enrichment, or the claim in Count V for breach of fiduciary duties by engaging in fraud.
May 31, 2017
Kenneth W. Salinger
Justice of the Superior Court

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