Beninati v. Borghi
90 Mass. App. Ct. 556
| Mass. App. Ct. | 2016Background
- Elizabeth Beninati, Joseph Masotta, and Steven and Linda Borghi operated a chain of licensed fitness clubs (WOW New England); clubs were held in separate LLCs with uneven formalities.
- Steven, using inside information and with defendant Harold Dixon, formed Blast Fitness Group and opened competing clubs in New England, some using the WOW name; Blast had access to WOW New England confidential data and employees (including Linda Borghi).
- Disputes over expansion and licensing intensified after Tony Beninati’s death; in 2011 Dixon negotiated licensing and sublicensing arrangements that affected WOW New England’s use of the WOW name.
- Elizabeth and Masotta sued derivatively and individually alleging breach of fiduciary duty, contract violations, and violations of G. L. c. 93A; after trial the judge found fiduciary breaches and awarded roughly $4M in damages and injunctive relief, invalidated certain 2011 amended operating agreements, and enforced a member vote removing the Borghis from management.
- The judge denied G. L. c. 93A liability for Dixon and Blast on the ground that c. 93A does not reach intracorporate disputes; awarded Elizabeth derivative attorney’s fees under G. L. c. 156C §57 but denied Masotta’s fee request for failure to allocate derivative vs. personal work.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Elizabeth was a voting member for purposes of removing the Borghis | Elizabeth: Operating agreements (and parties’ conduct) intended her to succeed Tony as a voting member | Borghis: Agreements don’t confer Elizabeth voting rights; tax returns support Tony-only ownership | Court: Elizabeth was a voting member; extrinsic evidence and conduct support that construction; removal valid |
| Whether the June 2011 amended operating agreements (without Elizabeth’s consent) are enforceable | Elizabeth: Amendments are void due to conflicts, misconduct, and inequitable procurement | Borghis/Steven: Amendments valid corporate action | Court: Amendments voidable; disqualified self-interested votes and inequitable procurement；judge did not abuse discretion |
| Whether Dixon and Blast can be liable under G. L. c. 93A for aiding breaches of fiduciary duty | Plaintiffs: Outsiders who aided and benefited from misconduct are liable under c. 93A | Dixon/Blast: c. 93A inapplicable because dispute is intracorporate; outsiders’ liability barred if insiders can’t be liable | Court: Vacated judge’s c. 93A ruling as to Dixon/Blast and remanded — c. 93A may apply to outsiders who aided insiders; trial judge must decide liability and damages level |
| Whether Masotta is entitled to reimbursement of attorney’s fees under G. L. c. 156C §57 | Masotta: Fees incurred in prosecuting derivative claims on behalf of the companies warrant reimbursement | Opposing view: Masotta failed to separate fees for derivative claims from personal claims; duplicate/unnecessary work | Court: Affirmed denial — judge did not abuse discretion; Masotta failed to carry burden to segregate and justify fees |
Key Cases Cited
- Browning-Ferris Indus., Inc. v. Casella Waste Mgmt. of Mass., Inc., 79 Mass. App. Ct. 300 (discussing contract ambiguity and extrinsic evidence)
- Manning v. Zuckerman, 388 Mass. 8 (1983) (limits G. L. c. 93A applicability in employer-employee/intracorporate disputes)
- Augat, Inc. v. Aegis, Inc., 409 Mass. 165 (outsiders who aid insiders in disloyalty can be liable under c. 93A)
- Hanover Ins. Co. v. Sutton, 46 Mass. App. Ct. 153 (1999) (affirming c. 93A liability for outsider who aided employee/officer diverting corporate opportunity)
- Kattar v. Demoulas, 433 Mass. 1 (c. 93A culpability standard and availability of multiple damages)
- Coggins v. New England Patriots Football Club, Inc., 406 Mass. 666 (attorney’s fees may be awarded for successful derivative actions at the judge’s discretion)