Opinion
No. 15–P–1632.
12-06-2016
Shrinath NARAHARI v. DBLS HOLDINGS LTD.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiff appeals from a Superior Court judgment, entered on the defendant's motion for summary judgment, dismissing five of his six claims. The plaintiff raises three arguments: (1) that the judge erred by failing to conclude that certain acts by the defendant were invalid and tantamount to a corporate "freeze out"; (2) that the judge erred by failing to award him costs of collection due under a separate promissory note that was paid in full prior to litigation; and (3) that the judge erred in failing to compel the defendant to produce records during discovery. We affirm.
The motion judge dismissed the plaintiff's claims for breach of a promissory note, promissory estoppel, unjust enrichment, declaratory judgment, and inspection of books and records (G.L. c. 156D, §§ 16.04, 16.05 ), but entered judgment in favor of the plaintiff on his breach of contract claim in the amount of $31,500.
We review summary judgment decisions de novo to decide "whether, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law." Karatihy v. Commonwealth Flats Dev. Corp., 84 Mass.App.Ct. 253, 255 (2013) (quotation omitted).
1. Freeze out. The plaintiff argues that the defendant's majority shareholders breached their fiduciary duties owed to him by conducting a shareholder's meeting without giving him notice, thus invalidating their decision to vote him off the board of directors and rescind the "Director Fee Plan" (plan). We conclude that the evidence, viewed in the light most favorable to the plaintiff, supports the judge's finding of summary judgment in favor of the defendant.
The plan had provided for stipends to directors in the amount of $2,500 per calendar quarter plus $1,000 for one attended meeting per quarter. The motion judge awarded the plaintiff $31,500 in accrued fees under the plan.
"[S]tockholders in [a] close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another." Brodie v. Jordan, 447 Mass. 866, 869 (2006) (quotation omitted). "Majority shareholders in a close corporation violate this duty when they act to ‘freeze out’ the minority." Ibid. One example of a "freeze-out" is when the majority shareholders deprive minority shareholders of corporate offices and employment. Ibid.
The defendant's managing officers failed to notify the plaintiff of the January, 2013, shareholder's meeting in violation of G.L. c. 156D, § 7.05, and the defendant's by-laws. As a result, any action taken at that meeting, including the vote to remove the plaintiff as a director, was invalid. However, the defendant's failure to give notice to the plaintiff was inadvertent and the invalid actions taken at the January, 2013, meeting were ratified when the defendant held a special shareholder's meeting in June, 2014. See Winchell v. Plywood Corp., 324 Mass. 171, 175–176 (1949) (upon formal ratification of an otherwise voidable act, act becomes enforceable). Cf. Finnegan v. Baker, 88 Mass.App.Ct. 35, 41 (2015) ("[V]oidable acts are susceptible to cure by shareholder approval while void acts are not"). The plaintiff did not demonstrate the existence of a genuine issue of material fact. SCA Servs., Inc. v. Transportation Ins. Co., 419 Mass. 528 (1995). Consequently, the defendant is entitled to summary judgment on this claim.
The plaintiff received notice of the June, 2014, meeting, but did not attend.
2. Costs of collection. The plaintiff argues that the judge erred by refusing to award attorney's fees associated with the costs he incurred in collecting overdue payments from a promissory note. The judge correctly granted summary judgment because the plaintiff was unable to quantify the actual costs related to collection.
The defendant issued a promissory note to the plaintiff in 2006 agreeing to pay him $85,800 plus interest; $82,500 was paid before the defendant was unable to make timely final payments. In September, 2013, the defendant paid the plaintiff $35,838.30, the full remaining balance on the note.
"The plaintiff bears the burden of establishing and supporting the number of hours billed." Haddad v. Wal–Mart Stores, Inc. (No. 2), 455 Mass. 1024, 1026 (2010). Here, the plaintiff's previous attorney signed an affidavit stating that any opinion on the time spent on collecting the note would be speculative and he could not possibly segregate the attorney's fees related to collection costs from other matters. Additionally, the plaintiff's current attorney acknowledged that it would be speculative to attempt to decipher what portion of legal fees is attributable to collection of the note. The plaintiff is unable to establish the attorney's fees he alleges. Accordingly, summary judgment on this claim is proper.
3. Failing to compel records. The plaintiff argues that the judge erred in failing to compel the defendant to produce certain records requested in discovery. There was no error because the plaintiff failed to comply with G.L. c. 156D, § 16.02, specifically, that he provide a proper written notice of his demand to inspect the records.
Generally, appellate courts uphold discovery rulings "unless the appellant can demonstrate an abuse of discretion that resulted in prejudicial error." McCarthy v. Slade Assocs., Inc., 463 Mass. 181, 190 (2012) (quotation omitted). Here, the plaintiff requested an extensive list of documents. The request did not comply with the formalities of the statute because it did not state a purpose for the demand. General Laws c. 156D, § 16.02(c)(2), inserted by St.2003, c. 127, § 17, requires that a shareholder "describe [ ] with reasonable particularity his purpose" for the inspection. According to the official comment on § 16.02, "proper purpose" means a "purpose that is reasonably relevant to the demanding shareholder's interests as a shareholder," and that purpose must be stated with particularity "in order to avoid harassment under the guise of inspection." The judge concluded that the plaintiff's request stated no purpose. There was no abuse of discretion.
The plaintiff also argues that he was entitled to review corporate records under G.L. c. 156D, § 16.05. However, at the time of the discovery request, the plaintiff was no longer a member of the board of directors. He was replaced by vote at the January, 2013, shareholder's meeting, which was ratified by vote at the June, 2014, shareholder's meeting. The plaintiff was not a director and therefore is not entitled to inspection under § 16.05.
General Laws c. 156D, § 16.05, relates to inspection of records by directors.
Conclusion. For the reasons stated above, we affirm the judgment. The defendant requests double costs and attorney's fees pursuant to G.L. c. 211A, § 15, and Mass.R.A.P. 25, as appearing in 376 Mass. 949 (1979). We conclude that the plaintiff's claims do not rise to the level of frivolity that would warrant the award of such costs and fees.
So ordered.