Finnegan, et al. v. Baker, et al. (Lawyers Weekly No. 11-111-15)
NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us 13-P-1995 Appeals Court J. BRENT FINNEGAN & others[1] vs. RICHARD BAKER & others.[2] No. 13-P-1995. Suffolk. January 6, 2015. – August 14, 2015. Present: Grainger, Brown, & Milkey, JJ. Corporation, Close corporation, Stock. Loan. Civil action commenced in the Superior Court Department on September 4, 2009. The case was heard by Peter M. Lauriat, J., and entry of separate and final judgment was ordered by him. Ilyas J. Rona for the plaintiffs. David B. Chaffin for the defendants. BROWN, J. This is a shareholder dispute over control of VBenx Corporation (VBenx), a closely held Delaware corporation that has depended largely on financing from its shareholders to stay afloat, some of which was in the form of promissory notes convertible to shares of VBenx stock. The plaintiffs appeal from a Superior Court judgment dismissing their claims for breach of fiduciary duty, unjust enrichment, and rescission, stemming from the defendants’ conversion of their notes to VBenx stock, pursuant to which the defendants gained a majority interest in the company. Following a jury-waived trial, the judge upheld the validity of the loan transactions. The issues on appeal involve Delaware law as it applies to the convertible notes, which were issued to VBenx shareholders without formal director approval and often without contemporaneous documentation, and the question whether the notes were void, or merely voidable and thus subject to ratification. The judge determined that the loan transactions were not void but were, at most, voidable, and that the VBenx board of directors had impliedly ratified the convertible nature of the loans. We affirm. 1. Background. We summarize the facts relevant to this appeal from the judge’s very thorough October 18, 2012, “Findings of Fact, Rulings of Law and Order for Entry of Judgment.” The plaintiffs, J. Brent Finnegan (Finnegan), Kenneth F. Phillips, and Karen W. Finnegan, seek to invalidate shares of VBenx stock issued to the defendants, principally Walter Smith and Peter Marcia, who made convertible loans to VBenx and subsequently converted their notes to stock. Other defendants include Richard Baker, a VBenx director and chief financial officer, and D. Michael Sherman, a VBenx shareholder as of 2010. All of the parties are shareholders in VBenx.[3] VBenx was formed by Finnegan, Phillips, Salvatore Percia, Baker, and Marcia in 2004, with its headquarters in Duluth, Georgia, […]