Natale v. Espy Corp.

2 F. Supp. 3d 93, 2 F. Supp. 2d 93, 2014 U.S. Dist. LEXIS 30610, 2014 WL 930861
CourtDistrict Court, D. Massachusetts
DecidedMarch 10, 2014
DocketC.A. No. 13-CV-30008-MAP; Dkt. No. 8
StatusPublished
Cited by6 cases

This text of 2 F. Supp. 3d 93 (Natale v. Espy Corp.) is published on Counsel Stack Legal Research, covering District Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Natale v. Espy Corp., 2 F. Supp. 3d 93, 2 F. Supp. 2d 93, 2014 U.S. Dist. LEXIS 30610, 2014 WL 930861 (D. Mass. 2014).

Opinion

MEMORANDUM AND ORDER REGARDING DEFENDANTS’ MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO TRANSFER VENUE

PONSOR, District Judge.

I. INTRODUCTION

Plaintiff, administratrix of her deceased husband’s estate, brought suit against Defendants for, inter alia, diluting the value of the estate’s stock in Defendant Espy Corporation (“Espy”). Defendants are Mark E. Smith, a resident of Texas and President and Treasurer of Espy; Thomas W. Potthast, Jr., a resident of Florida and Vice-President of Espy; Whitney E. Harris, a resident of Texas and Secretary of Espy; and Espy, a closely held S-corporation incorporated in Texas with its principal place of business in Austin, Texas.

Plaintiff has asserted six common law claims against Defendants — unjust enrichment, breach of fiduciary duty, conversion, civil conspiracy, fraud, and theft — and two counts under the federal civil RICO statute. 18 U.S.C. §§ 1961-1965. Defendants have moved to dismiss the complaint. (Dkt. No. 8.) In the alternative, Defendants request that the case be transferred to the Western District of Texas.

Because Plaintiff successfully crosses the “plausibility” threshold with respect to her breach of fiduciary duty, unjust enrichment, and civil conspiracy claims, but fails to do so with respect to the others, the court will allow Defendants’ Motion to Dismiss in part. Given the hardship a change of venue would create for Plaintiff, the court will also deny Defendants’ Motion to Transfer Venue.

II. BACKGROUND1

Plaintiff Suzanne M. Natale, widow of Richard Natale (“Richard”), was the ad-ministratrix of her deceased husband’s estate. She was also the representative for Richard’s two beneficiaries, their sons. While he was alive, Richard helped develop Espy Corporation and served as its Chief Software Engineer. He worked from his home in Massachusetts.

On July 26, 2006, Richard unexpectedly died in a car accident. At the time of his death, he owned 300 shares of common stock in Espy, or roughly 24% of all issued and outstanding shares. The remainder of the company was owned by Defendants Smith, Potthast, and Harris. Richard’s shares in Espy were the only asset in his estate.

[99]*99Since Richard’s death, Defendants have allegedly engaged in a pattern of wrongful conduct. First, Defendants deliberately diluted Plaintiffs ownership in Espy by issuing new stock to every other shareholder. In 2008 and 2009, the individual Defendants provided themselves new shares, but they failed to distribute any additional ones to the estate. Further, Defendants refused to turn over minutes of the “rump” meeting where this decision was made.

As a result of that dilution, Defendants have allegedly misrepresented the estate’s share of ownership in yearly IRS Schedule K-l filings. (“K-ls”) After the issuance of the new stock, the 2009 K-ls incorrectly valued the estate’s ownership at 12%. The K-ls were sent to Plaintiff via U.S. mail.

Finally, Defendants have failed to pay any dividends to Plaintiff since Richard’s death. They also have failed to provide Plaintiff advance notice that no dividends would be paid. This occurred at the same time Defendants decided to reward themselves with increased salaries and bonuses.

The absence of any payments burdened Richard’s estate severely. The K-ls allocated income to its shares and thus created a substantial tax burden. In total, the estate has been responsible for over $227,000 in taxes for the years 2006, 2009, 2010, and 2011, despite the absence of any financial distribution from the corporation during this time. The K-ls for those years were also distributed via U.S. mail.

Given these events, Plaintiff has asserted two federal claims against Defendants: a violation of civil RICO, 18 U.S.C. §§ 1961-1965 (Count VII), and a claim for injunctive relief under RICO, 18 U.S.C. § 1964(a) (Count VIII). She has, as noted above, also raised six common law claims: unjust enrichment (Count I); breach of fiduciary duty (Count II); conversion (Count III); civil conspiracy (count TV); fraud (count V); and, theft (Count VI). The case falls under both federal question, 28 U.S.C. § 1381, and diversity jurisdiction, 28 U.S.C. § 1332.

III. DISCUSSION

A. Motion to Dismiss

A motion to dismiss will be denied if Plaintiffs complaint contains “sufficient factual matter” to sustain a claim for relief that is actionable as a matter of law and “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 668, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Fed. R.Civ.P. 12(b)(6). If a complaint fails to set forth “factual allegations, either direct or inferential, respecting each element necessary to sustain recovery under some actionable legal theory,” then dismissal is appropriate. Centro Medico del Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 6 (1st Cir.2005) (internal citations omitted).

For claims where “fraud lies at the core of the action,” Rule 9(b) renders the pleading requirement more stringent. In these cases, the plaintiff must usually specify the “who, what, where and when of the allegedly false or fraudulent representation.” Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 29 (1st Cir.2004) (citations omitted). Plaintiff must also plead specific facts establishing intent— that is, evidence demonstrating that the defendant knew the alleged representation was false or misleading. N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir.2009).

The parties spend a significant amount of their effort disputing Plaintiffs federal RICO claims. Given this, the court will first address those claims, before turning to Plaintiffs common-law contentions.

[100]*1001. Federal RICO claims: Counts VII and VIII

Plaintiff brings one substantive count under RICO, 18 U.S.C. §§ 1961— 1965, and seeks injunctive relief under 18 U.S.C. § 1964.2 Civil RICO is a “quasi-criminal” remedy that permits a plaintiff to recover from defendants who commit particularly reprehensible acts. Figueroa Ruiz v. Alegria,

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Bluebook (online)
2 F. Supp. 3d 93, 2 F. Supp. 2d 93, 2014 U.S. Dist. LEXIS 30610, 2014 WL 930861, Counsel Stack Legal Research, https://law.counselstack.com/opinion/natale-v-espy-corp-mad-2014.