Opinion
Civil Action CV-2021-453
05-08-2023
JEREMY K. MARSTON, Plaintiff, v. JOSHUA A. NAPPI, etal., Defendants,
Plaintiff represented by Roy Pierce, Esq. of Jensen Baird Defendant Joshua A. Nappi represented by William D. Deane, Esq. and Erin Bucksbaum, Esq. of Nixon Peabody
Plaintiff represented by Roy Pierce, Esq. of Jensen Baird
Defendant Joshua A. Nappi represented by William D. Deane, Esq. and Erin Bucksbaum, Esq. of Nixon Peabody
ORDER ON DEFENDANT' S/COUNTERCLAIM PLAINTIFF'S JOINT MOTION FOR SUMMARY JUDGMENT
Thomas McKeon Justice, Superior Court
Before the Court is Defendants/Counterclaim Plaintiffs, Joshua Nappi's (Nappi) and Daniel Torrey's (Torrey), Joint Motion for Summary Judgment. In addition, Nappi, Torrey and Imperial Plumbing and Heating, LLC ("Imperial") move for summary judgment on their counterclaim. Because the Court finds there is a genuine issue of material fact, the motion is DENIED.
I. Factual Background
Marston and Nappi formed Imperial as a heating and plumbing business in April 2011. Marston and Nappi each owned fifty percent of the business. In January 2020, Torrey acquired a ten percent interest in Imperial and Marston and Nappi's interest in Imperial was subsequently reduced to forty five percent each. Up to and until March 2020, Marston generally performed 4045 hours of work per week for Imperial. From March 2020 to July 2020, Marston took a CO VID-19 related leave of absence from Imperial.
In November 2020, all three members of Imperial agreed to purchase a fifty percent interest in an investment property in Westbrook with another company, Halcyon, holding the other fifty percent interest in the property. Marston spent the majority of his time performing updates to the investment property rather than generating revenue for Imperial through its core business of heating and plumbing services. Marston completed the renovations to the investment and the property was rented beginning June 1, 2021.
Sometime in mid-May 2021, Nappi approached Marston and informed him that that the relationship was not working out and expressed his belief that Marston leaving Imperial was in Imperial's best interest. Buy-out negotiations ensued between Nappi, Torrey and Marston that were ultimately unsuccessful.
In August 2021, Nappi and Torrey formed another heating and plumbing company, Super Good. Super Good used a similar business model, serviced the same customer base, and utilized the same supply houses as Imperial. During the same month, Marston froze Imperial's credit cards so that no additional purchases could made using the card. Imperial and Super Good operated simultaneously with Torrey and two former Imperial employees performing work for Super Good. Imperial stopped performing heating and plumbing work in December 2021. Between May 2021 and August 2022, Marston did not perform any heating and plumbing work for Imperial for which he was paid.
II. Discussion
Summary judgment is granted to a moving party where the "no genuine issue as to any material fact" and the moving party "is entitled to judgment as a matter of law." M.R. Civ. P. 56(c). "A material fact is one that can affect the outcome of the case." Dyer v. Dep't of Transp., 2008 ME 106, ¶ 14, 951 A.2d 821. A genuine issue of such material fact arises when the factfinder would be required to "choose between competing versions of the truth." MP Assocs. v. Liberty, 2001 ME 22, ¶ 12, 771 A.2d 1040. When evaluating a motion for summary judgment, the court will consider "the evidence and reasonable inferences that may be drawn from the evidence in the light most favorable" to the party opposing summary judgment. Lever v. Acadia Hosp. Corp., 2004 ME 35, ¶ 2, 845 A.2d 1178.
A. Breach of fiduciary duty
Under Maine common law, a breach of fiduciary duty claim elements are (1) the existence of a fiduciary relationship, (2) a breach of a fiduciary duty, (3) and damages caused by the breach. Meridian Med. Sys., LLC v. Epix Therapeutics LLC, 2021 ME 24, ¶ 12, 250 A.3d 122. The parties do not dispute the existence of a fiduciary relationship but instead focus their dispute on the last two elements. Whether a corporate officer breached their fiduciary duty is largely a question fact. Atlantic Acoustical and Installation Co. v. Moreira, 348 A.2d 263, 267 (Me 1975).
In their motion, Nappi and Torrey seek summary judgment on their affirmative claim asserting Marston breached his fiduciary duty to them, namely his duty to act in good faith. Nappi and Torrey assert Marston violated his duty to act in good faith when he "unilaterally decided to spend the majority of his time work[ing] on improving the Property up and until May 2021" in defiance of the agreement between the members. Def.'s Mot. Summ. J. 3. Additionally, Nappi and Torrey assert Marston failed to act in good faith after the May 2021 conversation when Nappi suggested Marston leave Imperial because Marston did not perform any heating or plumbing work for Imperial.
However, Marston has successfully raised an issue of material fact with respect to his involvement with the investment property. Marston denies the existence of an agreement between the members pertaining to how the improvements to the property were to be performed. Opp. S.M.F ¶ 40. Additionally, Marston asserts that the extensive amount of time he spent improving the property was in good faith because the state of the property warranted the repairs in order to be profitable and that the other 50% owner of the property, Halcyon, was not willing to perform the improvements. Marston contends the failure of the property to be profitable would harm Imperial. Therefore, Marston claims he acted in good faith when he prioritized performing the improvements on the investment property.
Moreover, Marston raises an issue of material fact with respect to the conversation he had with Nappi in mid-May 2021. Marston asserts during the conversation, Nappi asked him to leave Imperial in exchange for a "buyout". Marston then left Imperial and entered "buyout" negotiations with Nappi and Torrey, in contrast to Nappi and Torrey's assertion that Marston withdrew from Imperial in violation of his good faith duty.
Because an issue of material fact exists with respect to Marston's involvement with the investment property and the nature of the mid-May 2021 conversation between Marston and Nappi, Nappi and Toney are not entitled to summary judgment on their affirmative claim against Marston for breach of fiduciary duty.
B. Marston's alleged withdrawal from Imperial
In their motion, Nappi and Torrey assert Marston violated the terms of Imperial's operating agreement and in doing so violated Maine law. According to Imperial's operating agreement, any withdrawal by a voluntary act constitutes a violation of the operating agreement. Similarly, Nappi and Torrey assert, under the operating agreement, Marston is required to hold his position as Chief Operating Officer and continue to manage Imperial until a successor was chosen. According to Nappi and Torrey, Marston's actions following the mid-May 2021 conversation between him and Nappi constituted a wrongful withdrawal and a failure to manage Imperial. Specifically, Nappi and Torrey point to Marston's failure to perform heating and plumbing work for Imperial following mid-May 2021.
As discussed above, Marston has raised an issue of martial fact with respect to the midMay 2021 conversation between he and Nappi. Marston asserts he complied with Nappi's request for him to leave Imperial and entered "buyout" negations with Nappi and Torrey. Therefore, the facts, viewed in the light most favorable to Marston, do not support a grant of summary judgment to Nappi and Torrey on the claim that Marston violated Imperial's operating agreement.
C. Judicial expulsion
A person may be expelled from a limited liability company on judicial order if that person has
A. Has engaged, or is engaging, in wrongful conduct that has adversely and materially affected, or will adversely and materially affect, the limited liability company's activities;
B. Has willfully and persistently committed, or is willfully and persistently committing, a material breach of the limited liability company agreement or the person's duty or obligation under this chapter or other applicable law; or
C. Has engaged, or is engaging, in conduct relating to the limited liability company's activities that makes it not reasonably practicable to cany on the activities with the person as a member;31 M.R.S. § 1582(5).
In their motion, Nappi and Torrey seek judicial expulsion of Marston on the ground that Marston's voluntary withdrawal from Imperial violates 31 M.R.S. § 1582(5). But again, an issue of material fact exists with respect to Marston's actions following the mid-May 2021 conversation between him and Nappi. Therefore, Nappi and Torrey are not entitled to summary judgment on their claim that Marston violated the operating agreement by withdrawing from Imperial. Because this Court has not found Marston's conduct after mid-May 2021 violated Imperial's operating agreement, Nappi and Torrey's request that Marston be expelled from Imperial is denied.
D. Marston's claim for breach of fiduciary duty
Finally, Nappi and Torrey are seeking summary judgment on Marston's claim that they violated their fiduciary duty owed to Marston. Marston asserts that Nappi and Torrey violated their fiduciary duty when they formed Super Good and operated Super Good in direct competition with Imperial. By doing so, Marston claims Nappi and Torrey transferred most, if not all, of Imperial's value as a company, of which Marston owned forty percent, to Super Good, in which Marston does not have any ownership.
I. Standing
In their Motion, Nappi and Torrey characterize Marston's claim as a usurpation of corporate opportunity action even though Marston does not do so in his pleadings. Nappi and Torrey characterize Marston's claim as such by highlighting that a claim for usurpation of corporate opportunity finds in roots in breach of fiduciary duty.
The Supreme Judicial Court of Maine "has adopted the American Law Institute's (ALI) ! definition of taking a corporate opportunity" Northeast Harbor Golf Club v. Harris, 1999 ME 38, ¶ 9, 725 A.2d 1018. Under The Principles of Corporate Governance "[a] director or senior executive may not take advantage of a corporate opportunity." Principles of Corp. Governance § 5.05(a) (Am. L. Inst.). A corporate opportunity means "[a]ny opportunity to engage in a business activity of which a senior executive becomes aware and knows is closely related to a business in I which the corporation is engaged or expects to engage." Id. § 5,05(2).
However, Marston does not claim Nappi and Torrey learned of a new corporate opportunity and took advantage of it through Super Good. Rather, Marston's claim is that Super Good services the same customers that Imperial previously serviced and by doing so Nappi and Torrey transferred the value derived from the customer base from Imperial to Super Good. Marston's breach of fiduciary duty claim is not grounded in usurpation of corporate opportunity and Marston has standing to bring his claim.
II. Marston's claim
Nappi and Torrey counter Marston's claim on the grounds they acted in the best interest of Imperial following Marston's involvement with the investment property owned by Imperial and Marston's actions after mid-May 2021. But as discussed above, an issue of material fact exists as to the agreement between Marston, Nappi, and Torrey regarding the investment property and the events following the conversation between Marston and Nappi in mid-May 2021. Because there is a genuine issue of material fact, Nappi and Torrey's motion for summary judgment on Marston's claim is denied.
For these reasons:
Summary Judgment for Defendants/Counterclaim Plaintiffs Joshua Nappi's and Daniel Torrey's Motion for Summary Judgment on Plaintiffs Complaint and their Counterclaims is DENIED.
The Clerk is requested to enter this Order on the docket for this case by incorporating it by reference. M.R. Civ. P. 79(a).