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16-P-639 Appeals Court
CHRISTIAN BAKER & others1 vs. WILMER CUTLER PICKERING HALE AND DORR LLP & others.2
No. 16-P-639.
Suffolk. February 13, 2017. - July 21, 2017.
Present: Kafker, C.J., Carhart, & Desmond, JJ.3
Limited Liability Company. Fiduciary. Corporation, Stockholder, Close corporation. Attorney at Law, Fiduciary duty, Attorney-client relationship. Conspiracy. Consumer Protection Act, Trade or commerce. Practice, Civil, Motion to dismiss, Consumer protection case.
Civil action commenced in the Superior Court Department on May 28, 2015.
Motions to dismiss were heard by Kenneth W. Salinger, J.
Dana Alan Curhan for the plaintiffs.
1 W. Robert Allison and Blake P. Allison, as trustee of the W. Robert Allison 2003 Irrevocable Trust. 2 Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP, Gary R. Schall, and Emma Eriksson Broomhead. 3 Justice Carhart participated in the deliberation on this case prior to his retirement. 2
Erin K. Higgins (Kathleen R. O'Toole also present) for Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP & another. Richard M. Zielinski for Wilmer Cutler Pickering Hale and Dorr LLP & another.
KAFKER, C.J. Minority members of a Massachusetts limited
liability company seek to hold the company's attorneys liable
for their involvement in an alleged "freeze-out" orchestrated by
and on behalf of the majority members. According to the
minority members, the majority members secretly retained the
attorneys, one of whom is the daughter of a majority member, to,
at least ostensibly, represent the closely held company. The
attorneys then worked behind the scenes to assist the majority
in merging the company with and into a newly created Delaware
limited liability company, all for the purpose of eliminating
significant protections afforded minority members under the
Massachusetts company's operating agreement. By the time the
attorneys' involvement came to light, the majority members had
unfettered control of the resulting entity, with a new operating
agreement that extinguished the minority's rights to, among
other things, participate in management, access the company's
records, and prevent dilution of their interests. The minority
members, the plaintiffs in this action, responded by asserting
claims against the attorneys and their respective law firms for
breach of fiduciary duty, aiding and abetting tortious conduct, 3
civil conspiracy, and violation of G. L. c. 93A. The matter now
comes before this court for de novo review after a judge of the
Superior Court, acting on motions filed by the defendants,
dismissed the plaintiffs' claims against the attorneys and their
law firms for failure to state a claim upon which relief can be
granted. See Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974). For
the reasons discussed below, we reverse the portion of the
judgment dismissing those claims.
The Supreme Judicial Court has stated that counsel for a
close corporation can owe a fiduciary duty to individual
shareholders. See Schaeffer v. Cohen, Rosenthal, Price, Mirkin,
Jennings & Berg, P.C., 405 Mass. 506, 513 (1989) (Schaeffer).
Whether such a fiduciary relationship exists in a particular
case is largely a question of fact. Here, taking the facts
alleged as true, and drawing all reasonable inferences therefrom
in favor of the plaintiffs as nonmoving parties, we conclude
that they have alleged enough to plausibly suggest that the
defendants, acting as counsel for a limited liability company
governed by an operating agreement providing significant
minority protections, owed them a fiduciary duty. As the
plaintiffs further allege that the defendants secretly worked to
eliminate those protections, we conclude that they have done
"enough to raise a right to relief [on their claim for breach of
fiduciary duty] above the speculative level." Iannacchino v. 4
Ford Motor Co., 451 Mass. 623, 636 (2008), quoting from Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). We reach the
same conclusion as to the claims alleging that, by their
actions, the defendant attorneys knowingly aided and abetted and
conspired with the majority members in breaching the majority's
fiduciary duties to the plaintiffs. We also conclude that the
G. L. c. 93A claim was dismissed prematurely.
Background. The following facts are derived from the first
amended complaint (complaint) filed by the plaintiffs, W. Robert
Allison (Allison), Christian Baker (Baker), and Blake P.
Allison, as trustee of the W. Robert Allison 2003 Irrevocable
Trust (Allison family trust). On January 28, 2000, Allison and
Elof Eriksson (Eriksson) organized Applied Tissue Technologies,
LLC, as a Massachusetts limited liability company (ATT-MA or
company) for the purpose of developing and marketing wound
therapy technologies. At the time of formation, Allison and
Eriksson acquired twenty-five and seventy-five percent
membership interests in the company, respectively.
Subsequently, Allison and Eriksson both created, and assigned a
portion of their interests to, trusts for the benefit of their
families -- the Allison family trust and the Elof Eriksson
Irrevocable Trust-2003 (Eriksson family trust). By the time of
the events at issue, Allison and the Allison family trust owned
a combined 22.5% interest in ATT-MA, Eriksson and the Eriksson 5
family trust a combined 75.5% interest, and Baker, a former key
employee of the company, a 2% interest. Given their combined
24.5% interest, the plaintiffs are collectively referred to in
the complaint, and at times herein, as the "minority members."
At the time ATT-MA was formed, Allison and Eriksson also
adopted an operating agreement to govern the company's affairs
(ATT-MA agreement), which provided, in pertinent part, that:
1. All members have exclusive discretion in the management and control of ATT-MA's business;
2. All members are entitled to participate in management of ATT-MA by a vote proportionate to their interest;
3. The agreement cannot be amended without the unanimous written consent of Eriksson and Allison;
4. The agreement cannot be amended to alter the percentage interest of any member without the consent of each member adversely affected by such an amendment;
5. Members are entitled to examine ATT-MA's books and records at reasonable times;
6. Once having paid an initial capital contribution, no member could be required to make any further capital contributions or loans to the company; and
7. To the extent that any member did advance any further funds, it was to be treated as a loan.
The ATT-MA agreement further provided that each member owed a
duty of utmost loyalty and good faith in the conduct of ATT-MA's
affairs.4
4 There is no copy of the ATT-MA agreement in the record. 6
By early 2012, ATT-MA was facing a financial shortfall, but
Allison and Eriksson could not agree how to address it.
Eriksson was prepared to contribute additional funds to the
company, but while he had done so in the past in the form of
loans, he was now demanding additional equity in return. Under
the ATT-MA agreement, such a contribution would require the
consent of Allison and any other members whose interests would
be diluted. Allison, meanwhile, believed the company would be
better served by hiring new management and developing a business
plan. Thus, he was prepared to agree to dilute his interest
only if the additional capital was provided by outside investors
who were bringing new management to the company.
Around this time, Eriksson, with ATT-MA's chief executive
officer, Karl Proppe, privately urging him to gain "control" of
the company, reached out to the defendant Emma Eriksson
Broomhead (Broomhead), an attorney at the defendant law firm of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP
(Gunderson). Broomhead is also Eriksson's daughter, and the two
had a longstanding attorney-client relationship. Broomhead, in
turn, introduced her father to another attorney at Gunderson,
the defendant Gary Schall (Schall), who had experience working
with emerging companies. On February 14, 2012, Proppe, in his
capacity as chief executive officer (CEO), signed an agreement
engaging Gunderson as counsel for the company. The agreement 7
expressly provided that Gunderson would not represent any
individual members of ATT-MA. Approximately two months later,
Schall relocated his practice to the defendant law firm Wilmer
Cutler Pickering Hale and Dorr LLP (WilmerHale). At that time,
WilmerHale, like Gunderson, provided in its engagement agreement
with ATT-MA that the firm would be representing only the
company.
According to the complaint, Broomhead and Schall were aware
that ATT-MA was a closely held company, whose members owed each
other the duty of utmost loyalty and good faith. They were also
familiar with the ATT-MA agreement and the protections it
afforded to minority members. Indeed, they immediately set
about devising and presenting a plan to Eriksson to both
circumvent those protections and eliminate the minority members.5
All the while, according to the complaint, Broomhead and Schall
deliberately concealed their engagement by ATT-MA, as well as
their actions on behalf of Eriksson, from Allison and the other
minority members.
Broomhead's and Schall's original plan was for Eriksson to
offer to buy Allison's membership interest in ATT-MA, and if
that failed, to sell the company to a new entity controlled by
5 Broomhead's handwritten notes from an early meeting with Eriksson and Schall reflect that they discussed two options: (1) "get rid of [Allison and Baker]"; or (2) "liquidate/sell" ATT-MA and start the company anew. 8
Eriksson. In furtherance of that plan, Broomhead, Schall,
Eriksson, and Proppe secretly hired and worked with an appraiser
to put a value on ATT-MA that could be used as the basis for the
buyout offer. Schall then drafted an electronic mail message
(e-mail) for Erikson to send to Allison, detailing the offer.
Noting that the draft was written in his "style," Schall advised
Eriksson to change it to reflect his own style before sending it
to Allison. Eriksson did so and on May 6, 2012, e-mailed the
offer to Allison and suggested they meet on May 10 to discuss
it.
Allison responded to Eriksson's offer by e-mail on May 8,
2012, copying Proppe and Eriksson's wife, Gudrun Eriksson, who
were the trustees of the Eriksson family trust. Allison, who
remained unaware of Broomhead's and Schall's involvement,
declined the offer and expressed a desire to work to maximize
ATT-MA's value so that he could sell his interest at a later
time, under more favorable circumstances. Allison further
reminded the majority members of several of the minority
protections in the ATT-MA agreement and suggested that all
members meet to address the issues facing the company. In
response, Eriksson cancelled the proposed May 10 meeting and
threatened to dissolve ATT-MA.
Eriksson then began working in secret with Proppe,
Broomhead, and Schall to effectuate an alternative plan that was 9
outlined in a written memorandum drafted by Schall on May 9,
2012. The plan relied upon the provisions of G. L. c. 156C,
§ 60, which authorizes a Massachusetts limited liability company
to merge with another business entity upon the vote of members
owning more than fifty percent of the company, unless the
company's operating agreement provides otherwise. Since the
ATT-MA agreement was silent on the issue of mergers, the plan
called for Eriksson to use his majority position and merge ATT-
MA into a new entity. As detailed in Schall's memorandum, the
merger would also allow the majority to, among other things,
terminate the ATT-MA agreement; install Eriksson and Proppe as
the board of directors of the "new" entity; convert Eriksson's
outstanding loans to ATT-MA into preferred stock in the new
entity, while simultaneously converting all existing membership
interests into common stock; and allow Eriksson to make future
contributions in return for additional preferred stock.
Regarding Allison, the memorandum suggested that the merger
would eliminate his "ability to interfere with company
operations" and, as additional funds were invested in the new
entity over time, reduce him to "a smaller and smaller ownership
position."
On May 25, 2012, Eriksson, Proppe, Broomhead, and Schall
created a new Delaware limited liability company, also called
Applied Tissue Technologies, LLC (ATT-DE). Then, without 10
holding a meeting or securing the unanimous written consent of
all members, as required under the ATT-MA agreement,6 Eriksson,
Proppe, and Gudrun Eriksson executed various documents prepared
by the attorneys to effectuate the merger. One of the documents
was a new operating agreement (ATT-DE agreement), which
eliminated all of the minority protections provided in the ATT-
MA agreement, including the minority's rights to participate in
management, access information, and prevent dilution of their
interests. The ATT-DE agreement further eliminated the
provision requiring members to act with utmost good faith and
loyalty in the conduct of ATT-DE's affairs.7
On the evening of May 29, 2012, Eriksson and Proppe, having
accomplished everything necessary to effectuate the plan, met
with Allison and informed him for the first time about the
merger. They further advised Allison to contact Schall, who was
identified for the first time, if he wanted copies of the new
ATT-DE agreement and other documents. Only after Allison
secured copies from Schall a few days later did he learn of the
full extent of the actions that had been taken. Over the
6 According to the complaint, the ATT-MA agreement provided that a meeting could be held only after five days' advance notice to all members, unless members waived notice in writing or executed a written consent approving of the actions to be taken at the meeting. 7 There is no copy of the ATT-DE agreement in the record. 11
ensuing months, ATT-DE issued additional preferred shares to
Eriksson, Proppe, and Broomhead's husband. As anticipated in
Schall's memorandum, the transactions substantially reduced the
interests of Allison and the other minority members.
Allison initially responded by filing a civil action
against Eriksson, Proppe, and Gudrun Eriksson in May, 2013,
asserting claims for breach of contract, intentional
interference with advantageous business relations, breach of
fiduciary duty, and civil conspiracy (2013 action). Then, on
May 28, 2015, while the 2013 action was still pending, Allison
and the other minority members commenced the present action.8
Standard. In reviewing the allowance of a motion to
dismiss pursuant to Mass.R.Civ.P. 12(b)(6), we proceed de novo
and consider the same pleadings as the motion judge. Dartmouth
v. Greater New Bedford Regional Vocational Technical High Sch.
Dist., 461 Mass. 366, 373 (2012). In so doing, we accept as
true all factual allegations in the complaint and draw any
reasonable inferences therefrom in the plaintiffs' favor. See
Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 223 (2011).
"The ultimate inquiry is whether the plaintiffs alleged such
8 The plaintiffs also asserted claims in this action against Eriksson, Proppe, and Gudrun Eriksson, which were dismissed pursuant to Mass.R.Civ.P. 12(b)(9), as amended, 450 Mass. 1403 (2008), due to the pendency of the 2013 action. The plaintiffs have not challenged that portion of the judgment. 12
facts, adequately detailed, so as to plausibly suggest an
entitlement to relief." Greenleaf Arms Realty Trust I, LLC v.
New Boston Fund, Inc., 81 Mass. App. Ct. 282, 288 (2012).
Discussion. 1. Breach of fiduciary duty by attorneys. To
prevail on their claim for breach of fiduciary duty against
Broomhead, Schall, Gunderson, and WilmerHale, the plaintiffs
must show: (1) the existence of a fiduciary duty; (2) breach of
that duty; (3) damages; and (4) a causal connection between
breach of the duty and the damages. See Hanover Ins. Co. v.
Sutton, 46 Mass. App. Ct. 153, 164 (1999). The defendants
maintain that the plaintiffs have failed to clear the first
hurdle and plead sufficient facts to plausibly suggest the
existence of a fiduciary duty. We disagree.
"[T]he relationship between attorney and client, like those
between trustee and beneficiary, director and corporation,
guardian and ward, is fiduciary as matter of law." Markell v.
Sidney B. Pfeifer Foundation, Inc., 9 Mass. App. Ct. 412, 442
(1980) (Markell). The plaintiffs, however, do not allege that
they had an express or implied attorney-client relationship with
Broomhead, Schall, Gunderson, or WilmerHale.9 To the extent the
9 An attorney-client "relationship may be, but need not be, express; the relationship can be implied from the conduct of the parties." Page v. Frazier, 388 Mass. 55, 62 (1983). 13
defendants may have owed the plaintiffs a fiduciary duty,
therefore, it did not arise from such a relationship.
Instead, the plaintiffs argue that a fiduciary duty arose
from the defendants' engagement as counsel for ATT-MA, a closely
held company10 in which, by law, the shareholders owed each other
a fiduciary duty of utmost good faith and loyalty. See Donahue
v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 593
(1975) (Donahue); Pointer v. Castellani, 455 Mass. 537, 549
(2009) (Pointer).11 To that end, the Supreme Judicial Court has
acknowledged, albeit in dictum, that "there is logic in the
proposition that, even though counsel for a closely held
corporation does not by virtue of that relationship alone have
an attorney-client relationship with the individual
shareholders, counsel nevertheless owes each shareholder a
fiduciary duty." Schaeffer, 405 Mass. at 513 ("Just as an
10 "A close corporation is typified by a small number of shareholders, no ready market for the corporate stock, and substantial majority shareholder participation in the management, direction, and operations of the corporation." Merriam v. Demoulas Super Mkts., Inc., 464 Mass. 721, 726 n.12 (2013). 11 "Although the corporate form provides . . . advantages for the stockholders (limited liability, perpetuity, and so forth), it also supplies an opportunity for the majority stockholders to oppress or disadvantage minority stockholders. The minority is vulnerable to a variety of oppressive devices, termed 'freeze-outs,' which the majority may employ." Donahue, 367 Mass. at 588. "Unscrupulous minority shareholders also may do damage to the interests of the majority." Pointer, 455 Mass. at 551 n.19. 14
attorney for a partnership owes a fiduciary duty to each
partner, it is fairly arguable that an attorney for a close
corporation owes a fiduciary duty to the individual
shareholders").12 See Cacciola v. Nellhaus, 49 Mass. App. Ct.
746, 752 (2000) (Cacciola) (discussing Schaeffer and holding
that claim for breach of fiduciary duty against counsel for
partnership had been sufficiently pleaded to survive motion to
dismiss).13
In Schaeffer, supra, the court took particular note of what
it described as the "well-reasoned opinion" in Fassihi v.
Sommers, Schwartz, Silver, Schwartz & Tyler, P.C., 107 Mich.
App. 509 (1981) (Fassihi). There, Fassihi, a fifty percent
shareholder in a closely held professional corporation, brought
a claim for breach of fiduciary duty against counsel for the
corporation for allegedly assisting the other fifty percent
shareholder in ousting him from the corporation. In addressing
the claim, the Michigan court first noted:
"Although we conclude that no attorney-client relationship exists between plaintiff and defendant, this does not necessarily mean that defendant had no fiduciary duty to
12 The court in Schaeffer ultimately concluded that it was not necessary to determine whether such a fiduciary duty existed in that case. 405 Mass. at 513. 13 In Kurker v. Hill, 44 Mass. App. Ct. 184, 187 (1998), this court held that an attorney for an individual shareholder in a close corporation does not owe a fiduciary duty to the other shareholders. 15
plaintiff. The existence of an attorney-client relationship merely establishes a per se rule that the lawyer owes fiduciary duties to the client.
"A fiduciary relationship arises when one reposes faith, confidence, and trust in another's judgment and advice. Where a confidence has been betrayed by the party in the position of influence, this betrayal is actionable, and the origin of the confidence is immaterial. . . . Furthermore, whether there exists a confidential relationship apart from a well defined fiduciary category is a question of fact."
(Footnote omitted.) 107 Mich. App. at 514-515. The court then
went on to note
"the difficulties in treating a closely held corporation with few shareholders as an entity distinct from the shareholders. Instances in which the corporation attorneys stand in a fiduciary relationship to individual shareholders are obviously more likely to arise where the number of shareholders is small. In such cases . . ., the corporate attorneys, because of their close interaction with a shareholder or shareholders, simply stand in confidential relationships in respect to both the corporation and individual shareholders."
Id. at 515-516. Based on Fassihi's assertion that he had
reposed trust and confidence in the defendant attorney, whose
only prior involvement with the corporation had been drafting
the membership agreements, the court held that the claim for
breach of fiduciary duty was sufficient to survive a motion for
summary judgment.14
14 See Brennan v. Ruffner, 640 So. 2d 143, 146-147 (Fla. Dist. Ct. App. 1994) (suggesting minority shareholders may maintain claim for breach of fiduciary duty against counsel for close corporation under certain circumstances not presented in that case); Collins v. Telcoa Intl. Corp., 726 N.Y.S.2d 679, 684 (N.Y. App. Div. 2001) (minority shareholder in close corporation adequately stated claim for breach of fiduciary duty against 16
As was the case in Michigan according to Fassihi, the
determination of whether a fiduciary relationship exists outside
one of the well-defined relationships is largely a question of
fact in Massachusetts. See Collins v. Huculak, 57 Mass. App.
Ct. 387, 395 (2003).15 In the present case, the factual
allegations regarding the significant protections afforded to
minority members under the ATT-MA agreement loom large in that
analysis.16 According to the complaint, the ATT-MA agreement
required management decisions to be made collectively, even if
each member's vote was limited by their proportionate interest
in the company. The agreement also provided that it could not
company counsel for failing to inform him of impending sale of company). 15 In Doe v. Harbor Schs., Inc., 446 Mass. 245, 252 (2006), the court, reviewing the trial judge's allowance of motions for summary judgment, stated that "[w]here the fiduciary relationship is not one created by law, the existence of the relationship ordinarily is a mixed question of law and fact for which the party asserting the relationship bears the burden." 16 General Laws c. 156C, the Massachusetts Limited Liability Company Act, defines an "operating agreement" as a "written or oral agreement of the members as to the affairs of a limited liability company and the conduct of its business." G. L. c. 156C, § 2(9), inserted by St. 2003, c. 4, § 33. The cochair of the task force that drafted the act described it as "the document which sets forth specifically how the [limited liability company] is organized, how it will operate, and how its economic results will be shared. A[ limited liability company] operating agreement is roughly analogous to a partnership agreement or a corporation's articles of organization and by-laws." Parker, The Limited Liability Company: An Introduction, 39 Boston Bar J. 8, 9 (November/December 1995). 17
be amended without the unanimous written consent of both
Eriksson and Allison. Still further, the agreement provided
that no member's interest in the company could be diluted
without that member's consent. In the context of these
allegations, we can see the "logic" in imposing a fiduciary duty
on counsel for this closely held company to protect minority
rights. See Schaeffer, 405 Mass. at 513.
For their part, the defendants maintain that there are two
important caveats in the case law that suggest no fiduciary duty
should be imposed in the instant case. First, they note that
there is no allegation that the minority members reposed trust
or confidence in, or even interacted with, Broomhead, Schall,
Gunderson, or WilmerHale. Second, they suggest that there was
an actual or potential conflict between ATT-MA and the minority
members.
Regarding the defendants' first argument, it is true in
Massachusetts that, outside one of the well-defined
relationships where the duty arises as a matter of law, "a
fiduciary duty exists when one reposes faith, confidence, and
trust in another’s judgment and advice." Doe v. Harbor Schs.,
Inc., 446 Mass. 245, 252 (2006) (Doe) (quotation omitted). At
the same time, "[t]he circumstances which may create a fiduciary
relationship are so varied that it would be unwise to attempt
the formulation of any comprehensive definition that could be 18
uniformly applied in every case." Ibid., quoting from Warsofsky
v. Sherman, 326 Mass. 290, 292 (1950). It is for this reason
that, as noted above, the determination of whether a fiduciary
duty exists is largely fact specific. And the factual inquiry
here is particularly complicated due to the alleged covert
nature of counsel's actions. On the one hand, there are no
allegations in the complaint of any personal history or
interaction between counsel for the company and the minority
members, but on the other, the complaint does allege that
counsel should have communicated with the minority members,
particularly given the terms of the ATT-MA agreement providing
strong protections of minority rights. Instead of communicating
with minority members about the proposed actions, counsel
allegedly took purposeful steps to conceal their activities
undermining the ATT-MA agreement. Given the protections
contained in the ATT-MA agreement, the minority members should
have been able to repose trust and confidence that any counsel
hired by the company would have communicated and consulted with
them prior to undoing those protections. See generally Doe,
supra. In light of those allegations, we cannot conclude, as a
matter of law, that company counsel did not owe a fiduciary duty
to the minority members because of the lack of a prior
relationship and interaction. 19
As to the defendants' second argument, it is also true that
while an attorney in Massachusetts may owe a duty to a nonclient
whom the attorney knows, or reasonably should foresee, will rely
on his or her services, such a duty is less likely to be imposed
"where an attorney is also under an independent and potentially
conflicting duty to a client." Robertson v. Gaston Snow & Ely
Bartlett, 404 Mass. 515, 524 (1989), quoting from Page v.
Frazier, 388 Mass. 55, 63 (1983). The defendants maintain that
such an actual or potential conflict existed here between their
client, ATT-MA, and the minority members due to the disagreement
between Allison and Eriksson over how to address the company's
potential financial shortfall.17 Once again, however, the
analysis in this case is complicated by the significant minority
protections in the ATT-MA agreement, including, for example, the
requirements that the agreement could not be amended without the
unanimous written consent of Eriksson and Allison, and that the
agreement could not be amended to alter the percentage interest
of any member without the consent of each member adversely
affected by such an amendment. Consensual decision-making was
17 "As a general proposition, a lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents." Clair v. Clair, 464 Mass. 205, 215-216 (2013) (quotation omitted). In such a case, the attorney "owe[s] a duty to act according to the interests of the corporation and not in the interests of a nonclient stockholder, director, officer, employee, or other representative of the corporation." Id. at 216 (quotation omitted). 20
thereby imposed on important matters despite the obvious
potential for conflict. The defendants are also alleged to have
undertaken representation of the company with full knowledge of
those protections. Accordingly, it can plausibly be inferred
that the defendants knew, or should have reasonably foreseen,
that anyone who served as counsel for the company was
constrained by the operating agreement, and the consensual
decision-making it imposed on important matters, or at least
could not act covertly, in concert with the majority members,
for the very purpose of eliminating those protections. Cf.
Zimmerman v. Bogoff, 402 Mass. 650, 657 (1988) (Zimmerman)
("Where the alleged wrongdoer can demonstrate a legitimate
business purpose for his action, no liability will result unless
the wronged shareholder succeeds in showing that the proffered
legitimate objective could have been achieved through a less
harmful, reasonably practicable, alternative mode of action").
Under these circumstances, the potential for conflict does not
serve as a sufficient basis for us to conclude, as a matter of
law, that the defendants did not owe a fiduciary duty to ATT-
MA's minority members.
2. Aiding and abetting; civil conspiracy. The plaintiffs
also asserted claims for aiding and abetting a breach of
fiduciary duty and civil conspiracy against Broomhead, Schall,
Gunderson, and WilmerHale for their participation in the alleged 21
freeze-out of the minority members by the majority. The
elements of the tort of aiding and abetting a breach of
fiduciary duty are: (1) there must be a breach of fiduciary
duty; (2) the defendants must know of the breach; and (3) the
defendants must have actively participated or substantially
assisted in or encouraged the breach to such a degree that they
could not reasonably have been acting in good faith. Arcidi v.
National Assn. of Govt. Employees, 447 Mass. 616, 623-624
(2006). The claim for civil conspiracy, meanwhile, similarly
requires a showing that the defendants (1) knew that the conduct
of Eriksson and the other majority members of ATT-MA constituted
a breach of fiduciary duty and (2) substantially assisted in or
encouraged that conduct. See Kurker v. Hill, 44 Mass. App. Ct.
184, 189 (1998) (Kurker).18 The defendants now challenge the
knowledge and substantial assistance elements common to both
claims and argue that the complaint suggests, at most, that the
attorneys provided Eriksson and the other majority members with
legal advice that turned out to be wrong.19 Once again, we
disagree.
18 Massachusetts recognizes two forms of civil conspiracy, one requiring independent tort liability, the other coercion. See Kurker, 44 Mass. App. Ct. at 188-189. The plaintiffs have asserted the former. 19 The defendants do not contend, at least at this stage, that the alleged conduct of the majority members did not rise to the level of a breach of fiduciary duty. In the 2013 action, a 22
"An allegation that the [majority members] acted under the
legal advice of the defendants, without more, is insufficient to
give rise to a claim that [the] attorney[s are] responsible to
third persons for the . . . acts of [their] clients." Spinner
v. Nutt, 417 Mass. 549, 556 (1994). The plaintiffs here,
however, have alleged that Broomhead and Schall (1) were aware
that they were representing a closely held company where
majority and minority members owed each other a fiduciary duty;
(2) were aware of the ATT-MA agreement and the minority rights
therein; (3) were aware that those rights precluded the majority
members from taking the steps they desired in connection with
the company; (4) devised a plan to allow the majority to
"circumvent" and "evade" those rights; and (5) did so with full
knowledge that the plan violated not only the operating
agreement, but also the majority's fiduciary duty to the
minority. While the facts eventually may establish that the
defendant attorneys had a good faith belief that the merger they
devised was well-grounded in the law,20 these allegations are
judge, after a jury waived trial, concluded that, in fact, Eriksson had breached his fiduciary duty to Allison. The judge also noted, however, that it did not appear that Allison had acted consistently with his own fiduciary duties to Eriksson. In any event, the judgment in the 2013 action is now on appeal before this court. See Allison vs. Eriksson, Appeals Court no. 2017-P-0126. 20 It is worth noting that even a merger that is in technical compliance with the relevant statute can be subject to 23
sufficient at this stage to suggest that they acted with
knowledge that the majority members were breaching their
fiduciary duty to the minority members and substantially
assisted in the breach. See Mass.R.Civ.P. 9(b), 365 Mass. 751
(1974) (knowledge, like other conditions of mind, can be averred
generally).
As noted above, the plaintiffs also allege that the
defendant attorneys devised and carried out this plan covertly,
in their capacity as counsel for the company, without ever
communicating with the minority members, even though the ATT-MA
agreement, among other things, (1) afforded all members the
right to participate in management, (2) allowed action to be
taken only after holding a meeting with advance notice to all
members, and (3) required Allison's approval for any amendment
to the ATT-MA agreement. The complaint goes even further,
alleging that the lack of communication was purposeful and
identifying affirmative steps the defendant attorneys took to
conceal their involvement from the minority members. Still
further, the alleged acts and omissions of the defendant
attorneys are colored by the fact that one of them, Broomhead,
judicial review in the context of a freeze-out, "and the dissenting stockholders are not limited to the statutory remedy of judicial appraisal where violations of fiduciary duties are found." Coggins v. New England Patriots Football Club, Inc., 397 Mass. 525, 533 (1986). 24
is the daughter of the primary beneficiary of the plan,
Eriksson. Her husband also allegedly benefited from the plan by
securing preferred shares in ATT-DE after the merger. At the
rule 12(b)(6) stage, with all reasonable inferences drawn in the
plaintiffs' favor, the allegations are sufficient to suggest
that the defendant attorneys did not merely provide routine
legal services but rather substantially assisted the majority in
their breach of fiduciary duty.
3. Chapter 93A. Finally, the plaintiffs allege that by
participating in the alleged freeze-out of the minority members,
the defendant attorneys and law firms engaged in unfair or
deceptive acts or practices in violation of G. L. c. 93A, §§ 9
and 11. The defendants argue, however, that the claim should be
dismissed because they were not involved in "trade or commerce,"
a requisite element under both §§ 9 and 11. See G. L. c. 93A,
§ 2(a) ("[U]nfair or deceptive acts or practices in the conduct
of any trade or commerce are hereby declared unlawful").21
"Trade or commerce refers to transactions in a business context,
which, in turn, is determined by the facts of each case, on
consideration of the nature of the transaction, the character of
21 While only the defendants need be engaged in "trade or commerce" under G. L. c. 93A, § 9, the plaintiffs and defendants must be engaged in "trade or commerce" to sustain a claim under § 11. See Frullo v. Landenberger, 61 Mass. App. Ct. 814, 821 (2004). The defendants have not addressed whether the plaintiffs were engaged in trade or commerce. 25
the parties and their activities, and whether the transaction
was motivated by business or personal reasons." Feeney v. Dell
Inc., 454 Mass. 192, 212 (2009) (quotations and citations
omitted). This determination is typically for the trier of fact
and is preferably decided on a fuller record rather than on a
motion to dismiss. See Brown v. Gerstein, 17 Mass. App. Ct.
558, 570-571 (1984) (Gerstein); Schinkel v. Maxi-Holding, Inc.,
30 Mass. App. Ct. 41, 50 (1991). With this in mind, we conclude
that while the "trade or commerce" determination is a novel and
close question in this context, the plaintiffs have alleged
sufficient facts to plausibly suggest an entitlement to relief.
See generally Ritchie v. Department of State Police, 60 Mass.
App. Ct. 655, 663 n.14 (2004) (faced with fact intensive and
novel theory of recovery, better practice is to deny motion to
dismiss and allow parties to develop facts through discovery).
In general terms, "the practice of law constitutes 'trade
or commerce' for purposes of liability under c. 93A." Gerstein,
17 Mass. App. Ct. at 570. See G. L. c. 93A, § 1(b) ("trade" or
"commerce" includes the "distribution of any services").
Ordinarily, however, "the proper party to assert a c. 93A claim
against an attorney is a client or someone acting on a client's
behalf." Tetrault v. Mahoney, Hawkes & Goldings, 425 Mass. 456,
462 (1997). And, as noted above, the plaintiffs do not claim to
have had an attorney-client relationship with the defendants. 26
With that said, the defendants, in the course of their business
as attorneys, agreed to represent ATT-MA. Integral to that
engagement was an alleged fiduciary duty owed to the plaintiff
minority members. While that alleged duty is not the equivalent
of an attorney-client relationship, we cannot say, especially at
this early stage, that it is not sufficiently akin to one for
purposes of satisfying the "trade or commerce" requirements of
c. 93A. See McCarthy v. Landry, 42 Mass. App. Ct. 488, 491
(1997) (reversing dismissal of c. 93A claim against attorney for
estate where nonclient plaintiff-beneficiary of estate
"allege[d] the existence of at least a duty akin to that in an
attorney-client relationship").
The defendants suggest that the unfair or deceptive acts or
practices they are alleged to have engaged in, namely, assisting
the majority members of ATT-MA in freezing out the plaintiffs,
involved "principally a private grievance," Zimmerman, 402 Mass.
at 663, or an "internal business dispute," First Enterprises,
Ltd. v. Cooper, 425 Mass. 344, 348 (1997) (Cooper), which fall
outside the conduct of any "trade or commerce" for purposes of
c. 93A. See, e.g., Linkage Corp. v. Trustees of Boston Univ.,
425 Mass. 1, 23 n.33 (1997) ("intra-enterprise" disputes, which
include "disputes stemming from an employment relationship,
disputes between individual members of a partnership arising
from partnership business, and transactions and disputes between 27
parties to a joint venture and between fellow shareholders," are
excluded from c. 93A); Newton v. Moffie, 13 Mass. App. Ct. 462,
467 (1982) ("trade or commerce" requirement is "intended to
apply only to dealings between legally separate 'persons'
engaged in arm's-length transactions, and not to dealings
between members of a single legal entity like a partnership"
[footnote omitted]). The defendants, however, were not members
of the entity at issue, ATT-MA, and the fiduciary duty they are
alleged to have owed the plaintiffs arose from their engagement
as counsel for the company. The "intra-enterprise" exception to
the application of c. 93A, therefore, does not readily apply.
The defendants further argue that, even if the "intra-
enterprise" exception does not apply directly, it applies
derivatively because they are alleged to have injected
themselves into an intra-enterprise dispute, not into trade or
commerce. The cases they cite in support of this proposition,
however, are distinguishable. See Cooper, 425 Mass. at 347-348;
Kurker, 44 Mass. App. Ct. at 190-191. Unlike in the present
case, the defendant attorneys in Cooper and Kurker represented
other parties and were not deemed to have owed any duty to the
plaintiffs. Here, once again, the defendants, in the ordinary
course of their business as attorneys, accepted an engagement as
counsel for the company, as a result of which they are alleged
to have owed a fiduciary duty to the plaintiff minority members. 28
In so doing, it is arguable that the defendants did not merely
inject themselves into a private dispute, but, rather, engaged
in unfair or deceptive acts or practices in connection with
professional services they sold in the marketplace. See Quinton
v. Gavin, 64 Mass. App. Ct. 792, 799 (2005). As such, the
allegations in the complaint are sufficient to suggest that the
defendants were engaged in "trade or commerce."
Those portions of the judgment dismissing the plaintiffs'
claims against WilmerHale, Gunderson, Schall, and Broomhead are
reversed. The judgment is otherwise affirmed.
So ordered.