Horbal ex rel. ion Health Holdings, Inc. v. Cannizzaro

23 Mass. L. Rptr. 380
CourtMassachusetts Superior Court
DecidedDecember 3, 2007
DocketNo. 054513BLS1
StatusPublished
Cited by1 cases

This text of 23 Mass. L. Rptr. 380 (Horbal ex rel. ion Health Holdings, Inc. v. Cannizzaro) 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
Horbal ex rel. ion Health Holdings, Inc. v. Cannizzaro, 23 Mass. L. Rptr. 380 (Mass. Ct. App. 2007).

Opinion

van Gestel, Allan, J.

This matter is before the Court on the Defendants’ Motion to Dismiss Second Amended Complaint With Prejudice, Paper #20. The motion is opposed. The motion is grounded on Mass.RCiv.P. Rule 12(b)(6).

BACKGROUND

This is a derivátive action filed by Anthony Horbal (“Horbal”) on behalf of the nominal defendant ion Health Holdings, Inc. (“Holdings”), against Holdings’ majority shareholder, J.W. Childs Equity Partners III, L.P. (“J.W. Childs”), and certain members of Holdings’ Board of Directors — Michael N. Cannizzaro (“Can-nizzaro”), Mark J. Tricolli (“Tricolli”) and Edward D. Yun (“Yun”) (collectively the “Director Defendants).

Horbal is a shareholder, director and the founder of Holdings. He describes himself as a pioneer in developing managed healthcare programs in the United States.

Holdings is a Delaware corporation formed in February 2004, to act as a holding company for healthcare plans in multiple states, including plans in Pennsylvania, Ohio and Michigan. Holdings is based in Erie, Pennsylvania.

J.W. Childs is a Delaware limited partnership based in Boston, Massachusetts. J.W. Childs is an investment fund controlled by J.W. Childs Associates, L.P. (“JWC”), a private equity firm, also based in Boston, specializing in leveraged buyouts and recapitalizations of middle-market growth companies. JWC invests through J.W. Childs.

The Director Defendants are members of Holdings’ four-person Board of Directors. They also have financial interests in J.W. Childs. Cannizzaro and Yun are partners of JWC. Tricolli is a Vice President of JWC. The Director Defendants are based in Boston at J.W. Childs’ place of business.

At the center of this action are allegations that J.W. Childs breached an express'contractual commitment to provide, or cause to be provided, to Holdings $180 million in additional funding to enable Holdings to achieve its strategic objectives of acquiring medical managed healthcare plans in Pennsylvania, Ohio and Michigan.

The complaint also charges the Director Defendants with breaches of fiduciary duties to Holdings and its shareholders.

The case turns on an elaborate “Series A Preferred Stock Purchase Agreement" (the “Agreement”)2 entered into as of November 15, 2004. The Agreement is between and among Holdings (called the “Company” therein) and J.W. Childs (by its general partners, called the “Investors” therein), and Horbal (solely for Sections 3, representations and warranties, and Section 8.2, indemnity) thereof.

Because of its dominance in this case the following sections of the Agreement are quoted in whole or in part here.

1.2 Sale and Purchase. Upon the terms and subject to the conditions contained herein, and in reliance on the representations and warranties set forth in Section 2, each of the Investors shall purchase from the Company, and the Company shall issue and sell to each of the Investors at the Closing (as defined below), the number of shares of Series A-1 Preferred Stock set forth opposite the name of each such Investor in Exhibit A for the purchase price of $10.00 per share, or an aggregate of 2,000,000 shares of Series A-l Preferred Stock for an aggregate purchase price of $20,000,000 (the “Investment Amount’) 3
* * * * *
1.5 Additional Purchase Commitment Following the Closing, J.W. Childs Equity Partners III, L.P. [“J.W. Childs Equity Partners”) commits to provide, or cause to be provided, to the Company $180,000,000 in additional funding to enable the Company to achieve its strategic objectives in accordance with and subject to the following terms and conditions:
* * * * *
(4) On the Triggering Event [calling for additional funding], J.W. Childs Equity Partners shall purchase, or cause one of its Affiliates to purchase the number of additional shares of Series A Preferred Stock for an aggregate purchase price as set forth in the Triggering Event Notice; provided, that the obligations to purchase Series A Preferred Stock is subject to the (i) the consent of J.W. Childs Equity Partners which may be withheld for any reason or for no reason;
10.1. Amendments, Waivers and Consents. For the purposes of this Agreement and all agreements executed pursuant hereto, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the hereof or thereof. No provision hereof may be waived otherwise than by a written instrument signed by the party or parties so waiving such covenant or other provision. No amendment to this Agreement may be made without the written consent of the Company and the Investors (in accordance with the immediately succeeding sentence). Any action required to be taken or consents, [382]*382approvals, votes or waivers required or contemplated to be given by the Investors herein shall require a vote of a majority of the investors based on the relative holdings of capital stock of the Company of the Investors as a group at the relevant time and any such percentage of Investors shall bind all of the Investors. The Company agrees to pay the reasonable fees and out-of-pocket expenses of the Investor’s counsel in connection with the waiver or amendment of any provision of this Agreement and any agreement executed pursuant thereto.
* * * * *
10.3 Governing Law. This Agreement shall be deemed to be a contract made under, and shall be construed in accordance with, the laws of the State of Delaware, without giving effect to the conflict of laws principles thereof.
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10.8 Integration. This Agreement, including the Exhibits, schedules, documents and instruments referred to herein, constitute the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

After the closing of the Agreement, J.W. Childs never made any additional investments in Holdings; and the three Director defendants, according to the allegations in the complaint, effectively caused Holdings to fail in its strategic plans and fold as an entity.

The Second Amended Complaint has five separate counts: Count One for breach of contract against J.W. Childs; Count Two for breach of the implied covenant of good faith and fair dealing, also against J.W. Childs; Count Three for breach of fiduciary duty of loyalty, good faith and care, against the Director Defendants; Count Four for civil conspiracy, apparently against all defendants; and Count Five for tortious interference with a contract, against the Director Defendants.

DISCUSSION

While Delaware law applies to substantive aspects of what the parties did and what the Agreement mandates, it is Massachusetts Rule of Civil Procedure 12(b)(6) that governs this Court’s actions on the motion to dismiss.

When discussing its own duties regarding a motion to dismiss, the Supreme Judicial Court has reminded this Court that:

The standard of review for a motion to dismiss pursuant to rule 12(b)(6) is well settled.

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Related

Horbal v. Cannizzaro
26 Mass. L. Rptr. 388 (Massachusetts Superior Court, 2009)

Cite This Page — Counsel Stack

Bluebook (online)
23 Mass. L. Rptr. 380, Counsel Stack Legal Research, https://law.counselstack.com/opinion/horbal-ex-rel-ion-health-holdings-inc-v-cannizzaro-masssuperct-2007.