91 Mass. App. Ct. 835
Mass. App. Ct.2017Background
- Allison, Eriksson, and Baker were members of Applied Tissue Technologies, LLC (ATT-MA); Allison and family trust held ~22.5%, Eriksson and family trust ~75.5%, Baker 2% (minority = 24.5%).
- ATT-MA operating agreement contained strong minority protections: unanimous consent for amendments, protection against dilution, rights to participate in management and access records, and fiduciary-duty obligations among members.
- Majority member Eriksson (with CEO Proppe) secretly engaged attorneys Broomhead and Schall (and their firms Gunderson and WilmerHale) as counsel to ATT-MA, then covertly planned and executed a merger into a new Delaware LLC (ATT-DE) that eliminated the ATT-MA minority protections and issued preferred shares diluting minorities.
- Plaintiffs sued the majority in a 2013 action; in 2015 minority members sued the attorneys and firms for breach of fiduciary duty, aiding and abetting, civil conspiracy, and G. L. c. 93A violations. The trial judge dismissed the claims against the attorneys on Rule 12(b)(6).
- On appeal, the court reviewed de novo, accepted plaintiffs’ factual allegations as true, and evaluated whether those allegations plausibly established fiduciary duties and related claims against company counsel.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether counsel for a closely held LLC owed a fiduciary duty to nonclient minority members | Attorneys acting as company counsel owed fiduciary duties to minority members given strong operating-agreement protections and the close-company context | No fiduciary duty because no attorney-client relationship or prior trust/interaction; potential conflict between company and minority members | Reversed dismissal: plausible fiduciary duty adequately pleaded given operating agreement protections and covert conduct; question fact-specific |
| Whether the attorneys knowingly aided and abetted or conspired in majority’s breach of fiduciary duty | Attorneys devised and executed a covert plan to circumvent protections, knew it breached duties, and substantially assisted the breach | At most provided legal advice that turned out to be wrong; insufficient to show knowledge and substantial assistance | Reversed dismissal: allegations suffice to plausibly show knowledge and substantial assistance at pleading stage |
| Whether plaintiffs stated a claim under G. L. c. 93A (trade or commerce requirement) | Attorneys’ provision of legal services to company is trade or commerce; their alleged deceptive conduct in selling those services could fall within c. 93A | Conduct was an intra-enterprise dispute/private grievance not within trade or commerce; c. 93A inapplicable | Reversed dismissal (close/novel question): allegations plausibly satisfy trade-or-commerce at pleading stage; fact issue for later proceedings |
| Appropriateness of dismissal on Rule 12(b)(6) given covert conduct and familial ties | Plaintiffs urged denial to permit discovery of covert communications and relationships (e.g., attorney is majority member’s daughter) | Defendants urged dismissal as a matter of law | Court: dismissal premature; factual development required — reversed as to attorneys and firms |
Key Cases Cited
- Schaeffer v. Cohen, Rosenthal, Price, Mirkin, Jennings & Berg, P.C., 405 Mass. 506 (Mass. 1989) (recognizes logic that counsel for close corporation may owe fiduciary duty to individual shareholders)
- Donahue v. Rodd Electrotype Co. of New England, 367 Mass. 578 (Mass. 1975) (majority-minority fiduciary duties in close corporations; freeze-out risks)
- Pointer v. Castellani, 455 Mass. 537 (Mass. 2009) (discusses fiduciary duties among closely held entity members)
- Iannacchino v. Ford Motor Co., 451 Mass. 623 (Mass. 2008) (pleading standard: facts must plausibly suggest entitlement to relief)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- Spinner v. Nutt, 417 Mass. 549 (Mass. 1994) (attorney not usually liable to third parties merely for legal advice without more)
- Gerstein v. Brown, 17 Mass. App. Ct. 558 (Mass. App. Ct. 1984) (practice of law can be "trade or commerce" under c. 93A; fact-specific inquiry)
- Cacciola v. Nellhaus, 49 Mass. App. Ct. 746 (Mass. App. Ct. 2000) (discussing survival of breach-of-fiduciary-duty claim against counsel for partnership/close entity)