Karmaloop, Inc. v. Sneider
31 Mass. L. Rptr. 455
Mass. Super. Ct.2013Background
- Karmaloop, LLC and Karmaloop, Inc. dispute Sneider’s share ownership and related warrants in the corporate structure post-merger and investment.
- Sneider claimed 7% ownership with dilution protections, plus warrants, dating to 2002–2005; defendants contest existence/value of grants.
- June 2006 warrants exercise allegedly yielded Sneider ownership of 871,109 units; later actions diluted his stake per defendants.
- Insight Venture Partners’ 2008 investment and related Delaware reorganization sparked repurchase offers and notice to shareholders.
- Sneider filed counterclaims including slander of title, breach of contract, good faith, tortious interference, fiduciary duties, conversion, abuse of process, and declaratory relief.
- The court granted summary judgment to dismiss several counts and reserved others for trial, focusing on the dilution, fiduciary, and interference issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Slander of title damages requirement | Sneider asserts damages from third-party reliance on false statements. | No show of third-party reliance or pecuniary loss due to statements. | Count I dismissed for lack of special damages. |
| Existence and perpetuity of dilution protection agreements | Oral dilution agreements protected seven percent and warrants from dilution. | Evidence is inconsistent; toehold of testimony insufficient alone, but could support a jury finding. | A reasonable jury could find dilution protections; summary judgment denied on Count II. |
| Duty of good faith and fair dealing | Covenant implied in contract may be breached by denying dilution protections. | Cannot create rights not agreed; terms are disputed; jury may determine contract terms. | Count III survives summary judgment; cannot foreclose the claim. |
| Tortious interference with contract/advantageous relation | Selkoe/Mastrangelo interfered with Sneider’s anti-dilution rights to protect others’ interests. | Actions tied to legitimate corporate purposes; officer liability is limited. | No liability; legitimate corporate purpose and officer protection; Counts IV and V dismissed. |
| Breach of fiduciary duties and governing law | Majority shareholders/officer actions breached duties toward Sneider; direct claims possible. | Internal affairs governed by law of incorporation; Delaware law applies; limited direct claims. | Delaware law governs internal affairs; Selkoe’s conduct not shown to breach fiduciary duties; Count VI limited; Count VII dismissed. |
Key Cases Cited
- Harrison v. NetCentric Corp., 433 Mass. 465 (Mass. 2001) (internal affairs governed by state of incorporation; corporate duties vary by jurisdiction)
- Blackstone v. Cashman, 448 Mass. 255 (Mass. 2007) (corporate officers’ actions with legitimate corporate purpose shield from liability)
- Weber v. Commt. Teamwork, Inc., 434 Mass. 761 (Mass. 2001) (limits on interference claims when tied to corporate objectives)
- Gram v. Liberty Mat. Ins. Co., 384 Mass. 659 (Mass. 1981) (fiduciary duties and corporate purposes; protect corporate interests)
- Donahue v. Rodd Electrotype Co., 367 Mass. 278 (Mass. 1975) (fiduciary duties in closely held corporations; what constitutes loyalty)
- Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501 (Mass. 1997) (choice-of-law framework for internal corporate affairs)