Opinion
14-P-1947
05-05-2016
WHIRLWIND CAPITAL, LLC, & another v. ROBERT WILLIS & others.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The judge dismissed Whirlwind Capital, LLC's (Whirlwind's) derivative action in part on the ground that Whirlwind does not fairly and adequately represent the interests of the other shareholders of the company, Hickory Hill Ventures, LLC (HHV). We conclude that there are genuine issues of material fact with respect to this question that preclude that allowance of summary judgment on this basis.
Our review of the record on summary judgment is, of course, de novo. See Miller v. Cotter, 448 Mass. 671, 676 (2007). The record must be viewed in the light most favorable to the nonmoving party, here the plaintiffs, and all reasonable inferences that might be drawn from the evidence should be drawn in favor of that party. See ibid. Summary judgment is appropriate where there are no genuine issues of material fact and where the movant is entitled to judgment as a matter of law. See Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991). In reviewing a grant of summary judgment, "[w]e may consider any ground supporting the judgment." Ibid.
The judge ruled that Whirlwind is not a fair and adequate representative of the other shareholders of HHV under Mass.R.Civ.P. 23.1, 365 Mass. 768 (1974). In making this determination, the judge applied the eight factors set out in Davis v. Comed, Inc., 619 F.2d 588, 593-594 (6th Cir. 1980), a leading case on Federal Rule of Civil Procedure 23.1, which is substantially identical to the Massachusetts rule. The judge found three factors satisfied that he considered determinative: (1) that the suit was motivated by vindictiveness; (2) that there is other litigation between Whirlwind and Willis; and (3) that there is economic antagonism between the representative and the class, since the other shareholders of HHV, whom the judge found to be similarly situated to Whirlwind, all do not want the suit to proceed.
Although the adequacy of a plaintiff in a derivative suit, such as this, to represent the shareholders presents a question of law, the questions of motivation and the situation of the other shareholders are questions of fact. Accordingly, these questions may only be decided on summary judgment on the basis of undisputed facts, with all inferences drawn in favor of the plaintiffs.
As neither party pointed to any evidence in the record showing that Whirlwind is motivated by vindictiveness, the trial judge erred in finding that factor satisfied. The parties agree, however, that there is other litigation ongoing between the parties and that five other shareholders did submit substantially identical affidavits stating that the lawsuit is "contrary to [their] interests."
The parties disagree, however, as to whether this latter fact supports the inference drawn by the judge below that there is "economic antagonism" between Whirlwind and these other shareholders. In the absence of economic antagonism, the existence of other litigation, on its own, is inadequate to support the finding that Whirlwind does not fairly and adequately represent the interests of the other shareholders.
The judge ruled that there is economic antagonism between Whirlwind and the other shareholders because this lawsuit might upset an agreement by REW, LLC, one of the defendants, to repay the shareholders their initial investment, albeit over ten years and without interest, and that the opposition of the other shareholders to this suit derives from their judgment that that cost is not worth whatever benefit the suit might have.
The major premise of this conclusion, however, is incorrect as a matter of law. Nothing in this lawsuit will upset any existing agreement unless it is successful, which will only occur if the shareholders are entitled to more than they received under that agreement.
There thus is insufficient evidence in the record to support the conclusion that there is no genuine issue of material fact -- essential to a ruling that the defendants are entitled to judgment as a matter of law -- about either the reason for the objection to this lawsuit by the other shareholders, or whether they are really similarly situated to Whirlwind in the relevant respect. These fact questions must be resolved before the rights of the minority shareholder who brought this derivative action may be extinguished.
The defendants argue in the alternative that a prior case in 2007 is res judicata to this action. However, except as described below, we disagree. A direct action by a shareholder is not res judicata to a derivative action, as the parties are not the same. See Commissioner of the Dept. of Employment & Training v. Dugan, 428 Mass. 138, 142 (1998) (issue preclusion only applies when "the party against whom estoppel is asserted was a party [or in privity with a party] to the prior adjudication").
Counts 7 and 8, however, are not derivative and allege that there was an agreement between Barletta Willis Investments, LLC (BWI), and Robert Willis for BWI to lend money to Willis that would be repaid, and that Willis failed to repay $250,000. In the instant matter, the judge dismissed these counts for failure to state a claim. While we disagree with that conclusion, we do think that the 2007 decision was res judicata as to these claims. Although no identical claims are contained in the complaint in the 2007 action, the $250,000 is mentioned in the fact section of that complaint. To the extent that counts 7 and 8 of the instant complaint are direct claims by BWI against Willis, they could have been brought at the time of the 2007 complaint. The doctrine of res judicata, of course, bars relitigation of all claims that were or could have been brought between the parties to a prior action in which the parties or their privies were also parties. See Isaac v. Schwartz, 706 F.2d 15, 16 (1st Cir. 1983), quoting from Angel v. Bullington, 330 U.S. 183, 193 (1947) (concluding that under Massachusetts law, res judicata "prevents relitigation of issues that were or could have been dealt with in an earlier litigation"). See also Northern Assur. Co. v. Square D. Co., 201 F.3d 84, 88 (2d Cir. 2000). We therefore agree that counts 7 and 8 should have been dismissed and affirm the judgment below to the extent it dismissed these counts.
In light of our disposition, we need not address the plaintiffs' claim either that they should have been allowed to supplement their opposition to the defendants' summary judgment motion or that the judge was required to hear the plaintiffs' own summary judgment motion before ruling upon the defendants' motion.
So much of the summary judgment in favor of the defendants on the derivative components of counts 2, 4, 5, and 6 is vacated, and those claims are remanded for further proceedings consistent with this memorandum and order. The summary judgment is otherwise affirmed. The judgment on the motion to dismiss is affirmed.
So ordered.
By the Court (Cypher, Trainor & Rubin, JJ.),
The panelists are listed in order of seniority. --------
/s/
Clerk Entered: May 5, 2016.