Summary
aiding and abetting breach of fiduciary duty
Summary of this case from Saunwin Int'l Equities Fund LLC v. Donville Kent Asset Mgmt. Inc.Opinion
No. 15–P–1180.
05-27-2016
The C COMPANY, INC., & another v. Michael R. HACKEL & others.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Plaintiff The C Company, Inc. (C Co.), appeals from a separate and final judgment entered pursuant to Mass.R.Civ.P. 54(b), 365 Mass. 820 (1974), for defendants James J. Crowley (Crowley) and Coles & Bodoin, LLP (C & B) (collectively, the accounting defendants), after their motion pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974), to dismiss the claims against them was allowed. The claims that were dismissed against the accounting defendants, which are the subject of this appeal, are: count V, fraud and deceit; count VI and count VII, aiding and abetting a breach of fiduciary duty; count VIII, G.L. c. 93A; and count X and count XI, Federal civil RICO Act arising under 18 U.S.C. §§ 1962(b) and 1962(c).
Background. Pursuant to the Transaction Agreement, a written contract, C Co. and Dining–In, respectively, agreed to merge their existing restaurant food marketing and delivery businesses into a combined business, MN Restaurant Marketing, LLC (MN), on or about September 26, 2008. C Co. transferred its assets to MN in exchange for loans from Dining–In to pay off and restructure C Co.'s prior debts. These loans were memorialized by promissory notes which were secured by C Co.'s membership interest in MN as collateral. C Co. had a 49.9 percent membership interest and a 50 percent profits interest in MN. However, any profits due to C Co. would not be paid directly to it.
These notes were due on November 13, 2011.
The first seventy percent of any such profits would go to the promissory notes and the remaining thirty percent would be held in escrow to pay taxes on these funds.
Over the next several years, the defendants provided the plaintiffs with several accountings of the performance of MN and filed tax returns on behalf of MN. On April 16, 2014, Dining–In sent C Co. a demand letter for the promissory notes that came due on November 13, 2011. An attorney for Dining–In also sent C Co. a notice of public sale under the security agreement. On May 13, 2014, Dining–In purchased C Co.'s interest in MN at a public auction. The plaintiffs allege that had the defendants accurately reflected MN's performance and correctly reported their tax income, the promissory notes would have been paid off with the profits of MN and Cercone's former interest in MN would not have been sold.
The plaintiffs, in their suit against the defendants underlying this appeal, challenge the accuracy of the accountings and tax returns the defendants provided.
Discussion. 1. Standard of review. “We review the allowance of a motion to dismiss de novo.” Curtis v. Herb Chambers I–95, Inc., 458 Mass. 674, 676 (2011). “We accept as true the allegations in the complaint and draw every reasonable inference in favor of the plaintiff.” Ibid. In making the determination whether relief can be granted under rule 12(b)(6), “we look beyond the conclusory allegations in the complaint and focus on whether the factual allegations plausibly suggest an entitlement to relief.” Ibid.
2. Fraud and deceit. C Co. argues that the motion judge erred when he granted the accounting defendants' motion to dismiss count V, which alleged a claim for fraud and deceit. For this fraud and deceit action, the plaintiff must plead facts establishing that the accounting defendants “made a false representation of a material fact with knowledge of its falsity for the purpose of inducing the plaintiff to act thereon, and that the plaintiff relied upon the representation as true and acted upon it to [its] damage.” Danca v. Taunton Sav. Bank, 385 Mass. 1, 8 (1982) (quotation omitted). The motion judge correctly stated that “in [the] absence of any specific evidence or allegation that Crowley's responsibilities went beyond calculating MN's tax liability based on data provided to him by Hackel and Dining–In, any misrepresentations regarding MN's financial data must be chargeable to Hackel and Dining–In.” See Ainslie Corp. v. Commissioner of Rev., 38 Mass.App.Ct. 360, 364 (1995) ( “[T]he taxpayer is chargeable with errors ... of the preparer who made out the return on its behalf”). Here, C Co.'s first amended complaint failed to allege facts suggesting the accounting defendants were aware of any inaccuracies in MN's financial information or that they knowingly or intentionally created or disseminated false information. See Equipment & Sys. for Indus., Inc. v. Northmeadows Constr. Co., 59 Mass.App.Ct. 931, 931 (2003) (“Mass.R.Civ.P. 9 [b], 365 Mass. 751 [1974], ... requires that allegations of fraud and deceit must be pleaded with particularity”).
3. Aiding and abetting a breach of a fiduciary duty. C Co. maintains that the motion judge erred when he granted the accounting defendants' motion to dismiss count VI and count VII, which alleged aiding and abetting a breach of fiduciary duty. In order for C Co.'s claim to survive a rule 12(b)(6) motion to dismiss, C Co. must plead facts, with particularity, establishing that the accounting defendants aided and abetted in the alleged breaches of fiduciary duty by Hackel and Dining–In. See Equipment & Sys. for Indus., Inc., supra. “[T]he elements of the tort of aiding and abetting a fiduciary breach are (1) there must be a breach of fiduciary duty, (2) the defendant must know of the breach, and (3) the defendant must actively participate or substantially assist in or encourage the breach to the degree that he or she could not reasonably be held to have acted in good faith.” Arcidi v. National Assn. of Govt. Employees, Inc., 447 Mass. 616, 623–624 (2006). However, because C Co. has failed to allege any facts demonstrating that the accounting defendants actually knew any financial information was false or that the accounting defendants had any role in creating the underlying data, C Co.'s claim for aiding and abetting a breach of fiduciary duty cannot survive a rule 12(b)(6) motion to dismiss. See Spinner v. Nutt, 417 Mass. 549, 556–557 (1994).
4. General Laws c. 93A. C Co. contends that the motion judge erred when he granted the accounting defendants' motion to dismiss count VIII, which alleged a G.L. c. 93A violation. C Co.'s claim against the accounting defendants is based on the claims of fraud and deceit (count V) as well as aiding and abetting a breach of fiduciary duty (counts VI and VII), which have been appropriately dismissed. Accordingly, this claim too must be dismissed. See Townsends, Inc. v. Beaupre, 47 Mass.App.Ct. 747, 755 (1999) (G .L. c. 93A, § 11, claim failed where premised on theory that had no support in record).
5. Federal civil RICO Act. C Co. claims that the motion judge erred when he granted the accounting defendants' motion to dismiss counts X and XI, which alleged Federal civil RICO Act violations arising under 18 U.S.C. §§ 1962(b) and 1962(c), respectively. “To state a RICO claim, plaintiffs must allege four elements: (1) conduct, (2) of an enterprise, (3) through a pattern, (4) of racketeering activity.” Giuliano v. Fulton, 399 F.3d 381, 386 (1st Cir.2005) (quotation omitted). The Federal civil RICO Act claims were properly dismissed against the accounting defendants in the instant action because the alleged acts, taken together, amount to only a single episode designed to acquire Cercone's interest in MN. See Systems Mgmt., Inc. v. Loiselle, 303 F.3d 100, 105 (1st Cir.2002) (“RICO is not aimed at a single narrow criminal episode, even if that single episode involves behavior that amounts to several crimes [for example several unlawful mailings]” [quotation omitted] ). See also Eagle Inv. Sys. Corp. v. Tamm, 146 F.Supp.2d 105, 110 (D.Mass.2001) (where the acts alleged make up “a single effort, over a finite period of time,” there cannot be a RICO violation [quotation omitted] ). For these reasons, the Federal civil RICO claims against the accounting defendants were appropriately dismissed.
Judgment affirmed.