Baker v. Wilmer Cutler Pickering Hale & Dorr, LLP

33 Mass. L. Rptr. 267
CourtMassachusetts Superior Court
DecidedFebruary 22, 2016
Docket1584CV01586BLS2
StatusPublished

This text of 33 Mass. L. Rptr. 267 (Baker v. Wilmer Cutler Pickering Hale & Dorr, LLP) is published on Counsel Stack Legal Research, covering Massachusetts Superior Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Baker v. Wilmer Cutler Pickering Hale & Dorr, LLP, 33 Mass. L. Rptr. 267 (Mass. Ct. App. 2016).

Opinion

Salinger, Kenneth W., J.

This is the second lawsuit in which W. Robert Allison challenges an alleged conspiracy to freeze out the minority members of Applied Tissue Technologies, LLC (“ATT”). In the first action, Allison is suing the majority members of ATT, which are Elof Eriksson (“Eriksson”) and the two trustees of The Elof Eriksson Irrevocable Trust-2003 (“Eriksson Trust”), Gudren Eriksson and Karl Proppe, who is ATTs chief executive officer and was also sued individually (the “Eriksson Defendants”). In this second action, the other minority members of ATT—Christian Baker, individually, and Blake Allison, as trustee of The W. Robert Allison 2003 Irrevocable Trust (“Allison Trust”)—join Allison as plaintiffs. This complaint also adds claims against two lawyers and law firms that represented ATT and allegedly represented Eriksson. The new defendants are Wilmer Cutler Pickering Hale and Dorr, LLP (“WilmerHale”), Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP (“Gunderson”), Gaiy R. Schall, and Emma Eriksson Broomhead (the “Law Firm Defendants”). Defendants move to dismiss all claims in this action.

The Court will ALLOW all three motions to dismiss. It will order that the claims against the Eriksson Defendants be dismissed without prejudice under Mass.R.Civ.P. 12(b)(9), and that the claims against the Law Firm Defendants be dismissed with prejudice under Rule 12(b)(6).

With respect to the Eriksson Defendants, this action will be dismissed under Rule 12(b)(9) because there is a prior pending action against them that asserts the same claims. If Plaintiffs believe that the relief sought by Allison against the Eriksson Defendants in the 2013 Action cannot be granted unless Proppe and Gudren Eriksson join as plaintiffs, then they should move to add them as necessary parties to the prior action pursuant to Mass.R.Civ.P. 19(a).

With respect to the Law Firm Defendants, this action is not subject to dismissal under Rule 12(b)(9) because there is no prior pending action that will resolve the claims against them. The claims against these defendants must nonetheless be dismissed for failure to state any claim upon which relief can be granted. The facts alleged do not plausibly suggest that the Law Firm Defendants owed any fiduciary duly to the Plaintiffs, that they knowingly conspired with or aided and abetted Eriksson in breaching his fiduciary [268]*268duties to the minority shareholders, or that their provision of legal services in connection with an in-trafirm dispute constitutes “trade or commerce” that implicates G.L.c. 93A.

1. Factual Allegations

Plaintiffs’ first amended complaint alleges that the following facts are true.

Eriksson and Allison formed ATT in 2000 to develop, market, and sell wound therapy technologies. ATT was created as a Massachusetts limited liability company. ATT has always been a closely held corporation because it has a small number of members, there is no ready market for its membership interests, and members holding a substantial majority of the membership interest have actively participated in company management. Eriksson contributed three-quarters of the initial capital and received a 75 percent membership interest in ATT; Allison contributed one-quarter and received a 25 percent interest. The ownership percentages changed over time as a result of transactions that are not relevant here. As of May 2012, Eriksson owned 55.5% of ATT, the Eriksson Trust owned 20%, Allison owned 14.66%, the Allison Trust owned 7.84%, and Baker owned 2%.

ATT adopted an amended operating agreement in 2003 which provides, among other things, that; the members have exclusive management control over ATT, which they exercise by votes in proportion to their percentage interest in the company; the agreement cannot be amended unless both Eriksson and Allison agree in writing; the percentage interest of each member in net profits cannot be reduced or diluted without that member’s consent; if any member chooses to provide additional funds to the company, those advances are to be treated as loans for which ATT will pay interest at the prime rate; all members were entitled to examine ATTs books and records for purposes reasonably related to their interest in the company; and all members owed each other a duty of good faith.

By early 2012 ATT was facing financial difficulties. Although the company’s assets exceeded its liabilities, ATT was facing a cash crunch because its expenses continued to exceed its revenues. According to the complaint, “Allison and Eriksson held sharply divergent views as to how to proceed.” Eriksson offered to invest more money in ATT in exchange for additional equity, but was unwilling to loan the company money. Allison would not accept any dilution of his interest in ATT unless additional capital was provided by new, outside investors who brought new management to the company. Proppe, who was ATTs chief executive officer, urged Eriksson to take control of ATT.

Eriksson and Proppe retained lawyers to help Eriksson find a way to acquire a larger ownership interest in ATT in exchange for making additional capital contributions to the company. Eriksson reached out to Broomhead, his daughter, who was an associate at Gunderson. She introduced Eriksson to a second lawyer, Gary Schall, who was another Gunderson associate. Eriksson decided to hire them both. As a result, ATT (acting through Proppe) signed an engagement letter with Gunderson, specifying that the firm represented ATT and not any individual member. In early May 2012 Schall moved to WilmerHale, which was then also retained to represent ATT but no individual members.

Schall and Broomhead in fact represented both ATT and Eriksson. In early 2012 they arranged for an appraiser to value ATT, and obtained necessary financial information about the company through Proppe. Plaintiffs do not allege that the appraiser was given inaccurate or incomplete information, or that the completed appraisal was inaccurate. Based on the results of that appraisal, Schall drafted an offer by Eriksson to purchase the minority members’ ownership interests in ATT. Eriksson conveyed that offer to Allison on May 6, 2012, without revealing that he had been assisted by counsel. Allison rejected the offer on May 8, 2012. In response, Eriksson told Allison that he intended to dissolve and liquidate ATT.

In May 2012, Schall and Broomhead helped Eriksson restructure ATT by merging it into a new corporate entity. They first created a new Delaware limited liability company with the same name (referred to as “ATT Delaware” in this decision) but a new operating agreement that did not contain the same protections for minority interest holders. Among other changes, the operating agreement for ATT Delaware centralizes control in Eriksson and the Eriksson Trust, virtually eliminates the voting rights of ATTs minority members, and eliminates the explicit fiduciary duty that all members owed to each other. Eriksson and the trustees of the Eriksson Trust voted to merge ATT into ATT Delaware. They did so without informing Allison and the other minority owners and without holding a member meeting. Eriksson and Proppe informed Allison of this transaction on May 29, 2012.

Thereafter, Eriksson and the Eriksson Trust invested additional capital in ATT Delaware, increased their ownership interest in the parent, and substantially diluted the minority owners’ interests. These transactions would not have been allowed under ATTs original operating agreement without the consent of Allison and the other minority owners.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Watson v. Jones
80 U.S. 679 (Supreme Court, 1872)
Conley v. Gibson
355 U.S. 41 (Supreme Court, 1957)
Bell Atlantic Corp. v. Twombly
550 U.S. 544 (Supreme Court, 2007)
The Haytian Republic
154 U.S. 118 (Supreme Court, 1894)
Sutcliffe Storage & Warehouse Co. v. United States
162 F.2d 849 (First Circuit, 1947)
Spinner v. Nutt
631 N.E.2d 542 (Massachusetts Supreme Judicial Court, 1994)
Robertson v. Gaston Snow & Ely Bartlett
536 N.E.2d 344 (Massachusetts Supreme Judicial Court, 1989)
Srebnick v. Lo-Law Transit Management, Inc.
557 N.E.2d 81 (Massachusetts Appeals Court, 1990)
Mongeau v. Boutelle
407 N.E.2d 352 (Massachusetts Appeals Court, 1980)
Jacoby v. Babcock Artificial Kidney Center, Inc.
307 N.E.2d 2 (Massachusetts Supreme Judicial Court, 1974)
Zimmerman v. Bogoff
524 N.E.2d 849 (Massachusetts Supreme Judicial Court, 1988)
Augat, Inc. v. Aegis, Inc.
565 N.E.2d 415 (Massachusetts Supreme Judicial Court, 1991)
Aetna Casualty & Surety Co. v. Niziolek
481 N.E.2d 1356 (Massachusetts Supreme Judicial Court, 1985)
Home Owners Federal Savings & Loan Ass'n v. Northwestern Fire & Marine Insurance
238 N.E.2d 55 (Massachusetts Supreme Judicial Court, 1968)
Fassihi v. Sommers, Schwartz, Silver, Schwartz & Tyler, PC
309 N.W.2d 645 (Michigan Court of Appeals, 1981)
Van Brode Group, Inc. v. Bowditch & Dewey
633 N.E.2d 424 (Massachusetts Appeals Court, 1994)
Lamare v. Basbanes
636 N.E.2d 218 (Massachusetts Supreme Judicial Court, 1994)
Nader v. Citron
360 N.E.2d 870 (Massachusetts Supreme Judicial Court, 1977)
Harvard Community Health Plan, Inc. v. Zack
603 N.E.2d 924 (Massachusetts Appeals Court, 1992)

Cite This Page — Counsel Stack

Bluebook (online)
33 Mass. L. Rptr. 267, Counsel Stack Legal Research, https://law.counselstack.com/opinion/baker-v-wilmer-cutler-pickering-hale-dorr-llp-masssuperct-2016.