Kensington v. Johnson

28 Mass. L. Rptr. 328
CourtMassachusetts Superior Court
DecidedApril 21, 2011
DocketNo. 102668BLS1
StatusPublished

This text of 28 Mass. L. Rptr. 328 (Kensington v. Johnson) 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
Kensington v. Johnson, 28 Mass. L. Rptr. 328 (Mass. Ct. App. 2011).

Opinion

Lauriat, Peter M., J.

These related actions arise out of a failed business relationship between plaintiff/attorney Nicolas Kensington (“Kensington”) and defendant Leopoldo Johnson (“Johnson”). The matters are before the court on the defendants’ motion to dismiss Counts III, IV, V, VT and VII of the complaint in Civil Action No. 10-2668-BLS1, and Rich May’s motion to dismiss the complaint in Civil Action No. 10-3622-BLS1. For the following reasons, the defendants’ motion to dismiss in Civil Action No. 10-2668-BLS1 is allowed in part and denied in part, and Rich May’s motion to dismiss in Civil Action No. 10-3622-BLS1 is denied.

BACKGROUND

The court takes the following facts from the parties’ complaints. C.L.H. Inc. (“C.L.H.”) is a Delaware corporation; defendant C.L. Hauthaway & Sons Corp. (“Hauthaway”) is a Massachusetts corporation. Both C.L.H. and Hauthaway (collectively “the Hauthaway companies”) are closely held corporations. Johnson is a majority owner of C.L.H. and an officer and director of the Hauthaway companies. Defendant Theodore Johnson (“Ted Johnson”), Johnson’s son, is Executive Vice President of C.L.H. and Hauthaway and serves on their boards of directors. The court will refer to Johnson, Ted Johnson, C.L.H. and Hauthaway collectively as the Hauthaway parties. Kensington, an attorney, is a [329]*329shareholder and Managing Director of the law firm Rich May, P.C. (“Rich May”), the defendant in Civil Action No. 10-3622-BLS1.

In the early 1980s, Kensington began representing Johnson and his business partner, William G. Watson (“Watson”) in connection with their acquisition of all the shares of Hauthaway, which in 1984 became a wholly owned subsidiary of the newly formed C.L.H. For the next three decades, Kensington and Rich May advised Johnson and the Hauthaway companies on various corporate, taxation, litigation, employment and environmental matters. Kensington and Rich May also assisted Johnson in creating the Leopoldo A. Johnson Irrevocable Trust Agreement (“the Trust”), an inter-vivos trust with Johnson’s wife, Cecile, and Ken-sington as co-trustees, that was created for the benefit of Cecile and Johnson’s issue, including Ted Johnson. Of note, the Trust granted Kensington broad discretionary powers, and provided that, although he could resign as trustee, no other party had the power to remove him.

During the 1980s and 1990s, Johnson and Watson repeatedly asked Kensington to serve on the boards of directors of the Hauthaway companies. Kensington maintains that he declined those invitations out of concern for any potential conflict of interest. In 1994, however, Kensington agreed to join the boards with, he asserts, the understanding that he would receive shares in the Hauthaway companies. Kensington was to be paid $1500 for every directors’ meeting that he attended. He and Rich May continued to provide and be compensated for legal services. Kensington asserts that he did not bill for time spent at directors’ meetings or on business matters related to those meetings.

Relevant to the motions before the court is Article VII, Section 7(a) of the C.L.H. by-laws, which provides that:

[t]he corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding ... by reason of the fact that he or she is or was a director ... or is or was serving at the request of the corporation as a director . . . against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation . . .

Article VII, Section 7(d) states that:

[a]ny indemnification . . . (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director ... is proper in the circumstances because he or she has met the applicable standard of conduct set forth in such paragraphs (a) . . .

Although the parties present decidedly different versions of the process,1 it is not disputed that at the December 4, 1997, director/shareholder meeting, the relevant directors, officers and shareholders approved a stock option agreement (“the Option Agreement” or “the Agreement”), drafted by Kensington and Rich May, granting Kensington the right to buy nine shares of common stock of C.L.H. for one dollar per share.2 The options vested over four years and expired on July 31, 2007. Section 2 of the Agreement provides that “CLH shall proceed with reasonable promptness to issue the shares so purchased upon such exercise of the Stock Option . . .” Section 5 of the Option Agreement provides that:

Optionee shall have no rights as a stockholder with respect to the Common Stock covered by this Stock Option until the date of the issuance of a stock certificate or stock certificates to him.

Upon the execution of the documents, Kensington told Johnson that he would voluntarily forego his $1,500 director’s fee.3 At no time subsequent to the execution of the Option Agreement did the defendants contest its validity. To the contrary, according to Kensington’s complaint, financial statements and capitalization tables of the Hauthaway companies acknowledged the existence and validity of the Agreement.

The relationship between Kensington and the Johnsons began to deteriorate sometime in 2005 and 2006. The Hauthaway parties take the position that Kensington was reluctant to accept the emerging role of Ted Johnson in the day-to-day management of the companies, and preferred to communicate only with Johnson. Legal bills from Rich May, according to the Hauthaway complaint, were late and did not contain a full description of services performed.

By letter dated June 6, 2007, with an enclosed check for $9.00, Kensington sought to exercise his options. According to the Hauthaway parties’ complaint, Ted Johnson and other executives had become concerned that Kensington’s conduct revealed a conflict of interest with respect to his roles as director, legal advisor, trustee and putative shareholder; they thus “sought the assistance of outside counsel in evaluating the appropriateness of the transactions Kensington had orchestrated between himself and the Companies.” Complaint, para. 46. Kensington responded by email dated June 21, 2007, that he often found himself in situations where there could be potential conflicts of interest, but that he was often better able to advise clients from “multiple positions of Trust.” Complaint, para. 47.

[330]*330The Hauthaway parties then proposed to buy out Kensington’s options. Kensington asserts that he agreed to the request provided there was a prompt valuation of the shares and that the transaction conclude within a month or two. On January 27, 2009,4 over nineteen months later, the Hauthaway companies offered $80,000 for his options, dramatically lower, he contends, than their objective value. He rejected the offer. In the interim, he received no dividends as had been distributed to other shareholders, and no offer to pay interest on the amount resulting from the delay.

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

Related

Bell Atlantic Corp. v. Twombly
550 U.S. 544 (Supreme Court, 2007)
McMullen v. Sevigny (In Re McMullen)
386 F.3d 320 (First Circuit, 2004)
Kaung v. Cole National Corp.
884 A.2d 500 (Supreme Court of Delaware, 2005)
Shearin v. E.F. Hutton Group, Inc.
652 A.2d 578 (Court of Chancery of Delaware, 1994)
Cantu v. St. Paul Companies
514 N.E.2d 666 (Massachusetts Supreme Judicial Court, 1987)
Bowen v. Eli Lilly & Co.
557 N.E.2d 739 (Massachusetts Supreme Judicial Court, 1990)
Pelletier v. Chouinard
534 N.E.2d 813 (Massachusetts Appeals Court, 1989)
Gentile v. SinglePoint Financial, Inc.
788 A.2d 111 (Supreme Court of Delaware, 2001)
Gamble v. Penn Valley Crude Oil Corp.
104 A.2d 257 (Court of Chancery of Delaware, 1954)
Homestore, Inc. v. Tafeen
888 A.2d 204 (Supreme Court of Delaware, 2005)
International Mobiles Corp. v. Corroon & Black/Fairfield & Ellis, Inc.
560 N.E.2d 122 (Massachusetts Appeals Court, 1990)
Massachusetts Electric Co. v. Fletcher, Tilton & Whipple, P.C.
475 N.E.2d 390 (Massachusetts Supreme Judicial Court, 1985)
Murphy v. Smith
579 N.E.2d 165 (Massachusetts Supreme Judicial Court, 1991)
Simons v. Cogan
549 A.2d 300 (Supreme Court of Delaware, 1988)
Gentile v. SinglePoint Financial, Inc.
787 A.2d 102 (Court of Chancery of Delaware, 2001)
Williams v. Ely
423 Mass. 467 (Massachusetts Supreme Judicial Court, 1996)
Harrison v. NetCentric Corp.
744 N.E.2d 622 (Massachusetts Supreme Judicial Court, 2001)
Lyons v. Nutt
436 Mass. 244 (Massachusetts Supreme Judicial Court, 2002)
Sharon v. City of Newton
769 N.E.2d 738 (Massachusetts Supreme Judicial Court, 2002)
MCI WorldCom Communications, Inc. v. Department of Telecommunications & Energy
442 Mass. 103 (Massachusetts Supreme Judicial Court, 2004)

Cite This Page — Counsel Stack

Bluebook (online)
28 Mass. L. Rptr. 328, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kensington-v-johnson-masssuperct-2011.