Opinion
14-P-898
06-23-2015
RICCI CONSULTANTS, INC. v. LINDA L. BOURNIVAL (and a companion case).
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
These companion cases arose out of the acrimonious break-up of two actuaries. Following a six-day trial on the parties' competing tort claims, a jury found in favor of Linda L. Bournival and KMS Actuaries, LLC (KMS or collectively, the KMS parties) on one of their two intentional interference claims against Stephen J. Ricci and Ricci Consultants, Inc. (RCI or collectively, the Ricci parties). After receiving additional evidence, a judge rejected the parties' competing breach of fiduciary duty claims. Both sides filed timely cross appeals. We affirm in part and reverse in part.
1. KMS parties' intentional interference claims. Answering special questions, the jury found that the Ricci parties improperly interfered with the KMS parties' "contractual and/or advantageous relationships" with the Stoneham Contributory Retirement Board (Stoneham). After careful review of all the evidence under the appropriate standard, we conclude that the evidence was insufficient to support a reasonable inference of causation. The Ricci parties' motions for a directed verdict and for judgment notwithstanding the verdict should have been granted. See O'Brien v. Pearson, 449 Mass. 377, 383 (2007).
Stoneham awarded the contract at issue to a third party. The jury thus necessarily found interference with KMS's prospective contractual or advantageous relations. Generally, the courts do not make distinctions between these torts. See Blackstone v. Cashman, 448 Mass. 255, 259 n.7, 260 n.9 (2007). The jury awarded to the KMS parties the precise amount of damages sought ($19,758).
We summarize the meager evidence in the record potentially supportive of this essential element of the claim. On March 30, 2012, Bournival submitted a proposal and a proposed fee schedule on behalf of KMS to perform valuation work for Stoneham; Stoneham selected her for an interview; and during the interview, Stoneham presented her with one of the so-called "attack" letters sent by Stephen Ricci, and asked questions about it; and thereafter KMS did not get the work.
Between June 7, 2011, and April 3, 2012, Ricci, an officer, director, and the majority shareholder of RCI, sent a significant number of letters to RCI public sector clients as well as to nonclients like Stoneham. Two versions of the letter were sent. According to Ricci, the purpose of the second version (the one sent to Stoneham) was to announce a change in the business strategy of RCI (i.e., RCI was no longer going to compete for public sector work until further notice). In the April 3, 2012, letter, Ricci informed Karen DeAngelis, the Stoneham retirement administrator, about the pending lawsuit commenced "[a]s a result of [Bournival's] conduct." Ricci asked DeAngelis to contact RCI's attorney if she had spoken with Bournival since May 9, 2011, assuring her that RCI "intends to proceed in a manner which will least inconvenience you."
Karen DeAngelis was deposed during the course of discovery. Although her name appeared on the KMS parties' witness list in the pretrial memorandum, neither DeAngelis nor any other Stoneham representative testified at the trial. Based upon the proper sustaining of Ricci's hearsay objection, no evidence about the discussion during the interview was presented.
Bournival presented evidence that during her tenure at RCI, she attended approximately twenty-five interviews. The three interviews Bournival attended with Ricci for retirement system work resulted in one RCI contract. Following the other twenty-two interviews for retiree medical work, in which she interviewed alone or with a copartner from another firm, Bournival had "pretty significant success."
No similar statistical evidence was presented concerning Bournival's success rates at KMS. Moreover, no evidence was presented about the bidding process for the Stoneham job, including the number of bidders, the number of candidates interviewed, the amount of KMS's bid as compared to the winning bid, or the reasons given, if any, for Stoneham's rejection. Bournival had no preexisting relationship with Stoneham that might have elevated her chances of success. Finally, it was undisputed that a number of public entities entered into contractual relations with the KMS parties despite receiving one of the attack letters. In sum, the proof was insufficient to warrant a finding that the KMS parties, more probably than not, were harmed by Ricci's April 3, 2012, letter. See Blackstone v. Cashman, 448 Mass. 255, 260 (2007); Dear v. Devaney, 83 Mass. App. Ct. 285, 294 (2013).
At oral argument, the KMS parties' attorney represented that KMS was one of ten or eleven candidates sent requests for proposals by Stoneham, and that Stoneham interviewed five candidates, including Bournival. There was no support in the record for these assertions.
While Stoneham was a client of Buck Consultants, Bournival's previous employer, it was not one of her personal clients.
On the view we take, there is no need to consider the sufficiency of the evidence of the other elements of the claim. To the extent that Ricci challenges the verdict against him individually, arguing that he was entitled to the higher burden of proof (i.e., the actual malice standard), that issue was raised for the first time on appeal, and is thus waived. See Weiler v. PortfolioScope, Inc., 469 Mass. 75, 84-86 (2014).
2. RCI's intentional interference claims. In light of the evidence of RCI's abandonment of its existing contracts, the snippet of instruction objected to by RCI was a correct statement of the law. In the portion of the charge preceding the challenged fragment, the judge thoroughly instructed the jury on the principles of law governing shareholders in a close corporation. He also gave examples of how the duties owed to fellow shareholders and to the corporation might be breached. We discern no reversible error in the jury instructions. See Selmark Assocs., Inc. v. Ehrlich, 467 Mass. 525, 547 (2014).
3. RCI's conversion claim. On appeal, RCI claims that the judge erroneously failed to rule on its conversion claim. In fact, the trial judge did issue a ruling, denying RCI's motion under Mass.R.Civ.P. 59(e), 365 Mass. 827 (1974), to amend the judgment in its favor on the conversion claim and to order Bournival to return the laptop. Beyond this factually incorrect statement, RCI offered nary a hint as to how the judge might have erred. We do not consider RCI's two-sentence appellate argument further. See Selmark Assocs., Inc. v. Ehrlich, 467 Mass. at 540.
4. Breach of fiduciary duty claims. Shareholders in a close corporation, as in a partnership, owe each other the duty to act with the utmost good faith and loyalty. See Donahue v. Rodd Electrotype Co. of New England, 367 Mass. 578, 593 (1975). Their relationship "must be one of trust, confidence, and absolute loyalty." Selmark Assocs., Inc. v. Ehrlich, 467 Mass. at 536, quoting from Donahue v. Rodd Electrotype Co. of New England, 367 Mass. at 587. In discharging their management functions, shareholders "may not act out of avarice, expediency or self-interest in derogation of their duty of loyalty to the other stockholders and to the corporation." Donahue v. Rodd Electrotype Co. of New England, 367 Mass. at 593. The duty of loyalty requires shareholders, as fiduciaries, to "consider [their co-shareholders'] welfare, and refrain from acting for purely private gain." Meehan v. Shaughnessy, 404 Mass. 419, 434 (1989). To satisfy the paramount duty of loyalty, the shareholder must fully disclose and offer a business opportunity to the corporation before taking it for personal advantage. See Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 528-531 (1997).
a. RCI. On appeal, RCI maintains that it was entitled to judgment as matter of law on its claim that Bournival usurped its corporate opportunities. We disagree. By remaining a shareholder of RCI, Bournival could not, consistent with her continuing fiduciary duties, actively solicit RCI's customers for KMS or compete with RCI for their work. See Selmark Assocs., Inc. v. Ehrlich, 467 Mass. at 551-552. Here, however, the judge was warranted in concluding that the work performed by Bournival for existing RCI clients occurred after RCI had disclaimed its intention and ability to complete the contracts. Not only did Ricci choose to effectively break the contracts, he ended RCI's ability to perform public sector actuarial work. The judge was warranted in concluding that Bournival did not leave RCI high and dry, placing RCI in an untenable position from which it was unable to perform public actuary work. As the judge noted, Ricci rejected three options that would have permitted RCI to complete the work on all outstanding contracts. We agree with the judge that the provision of services in these circumstances to RCI clients did not amount to a seizure of a corporate opportunity.
Bournival was not subject to any type of employment, noncompetition, or shareholder agreement. At the trial, RCI took the position that Bournival's duty of loyalty prevented her from leaving RCI and from earning a living as an actuary outside of the firm. RCI has abandoned that position on appeal.
For example, in the first version "attack" letter sent on June 7, 2011, to a number of RCI clients with pending contracts such as the Worcester Regional Retirement Board (WRRB), Ricci stated that "[a]s a result of . . . Bournival's departure, RCI [wa]s unable to satisfactorily perform the scope of services that Ms. Bournival contracted for on behalf of RCI with your organization." Ricci offered to assist Kevin Blanchette, the chairman and the chief executive officer of the WRRB, with the transition to any other company he wished to retain to complete the contract work. According to Blanchette, he decided to retain KMS after RCI announced it could not do the work.
On June 9, 2011, Patty Quintero, acting on Ricci's instructions, canceled RCI's subscription to ProVal, the industry standard software required to perform public sector actuarial work. Ricci admitted that following Bournival's departure, RCI did not submit any proposals for public sector work. Commencing in August, 2011, Ricci ruled RCI out of public sector work all together. See note 3, supra.
RCI could have hired a public sector actuary, entered into a fee-splitting actuarial consulting arrangement with Bournival, or Ricci, with a little time and effort in developing his own skills, performed the work himself. To the extent RCI challenges the bona fides of Bournival's offer to enter into the fee-splitting arrangement, two earlier offers were made closer in time to her notice of separation and letter of resignation. Ricci failed to respond to any of the proposals. RCI did not address the other two options that the judge found were available to RCI.
Trial exhibits should not be submitted to this court by way of an addendum to the reply brief. We do not consider arguments raised by RCI for the first time in its reply brief. See Cape Cod Shellfish & Seafood Co. v. Boston, 86 Mass. App. Ct. 651, 654 n.6 (2014).
The judge's finding that Bournival neither hid nor failed to divulge pertinent information about her ongoing work for RCI clients was not clearly erroneous. See Pointer v. Castellani, 455 Mass. 537, 539 (2009). We have considered the remainder of RCI's arguments and reject them as inadequately argued or lacking in merit.
To the extent RCI challenges Bournival's failure to seek relief through a shareholder derivative suit, so far as appears, the issue was raised for the first time on appeal. We decline to consider it. See Pelullo v. Croft, 86 Mass. App. Ct. 908, 909 n.3 (2014).
b. Bournival. Bournival claimed that Ricci breached his fiduciary duties to her and to RCI by acting purely out of self-interest with respect to RCI client, the Ricci estate, a series of family trusts owned by the Ricci family. The judge concluded that no breach of duty had occurred. See Hanover Ins. Co. v. Sutton, 46 Mass. App. Ct. 153, 164 n.18 (1999) (listing the elements of the claim: duty, breach, damage, and causation). We conclude that the judge's subsidiary facts, combined with the undisputed evidence, compelled a finding in favor of Bournival on this claim. See Donahue v. Rodd Electrotype Co. of New England, 367 Mass. at 580.
As the judge found, the Ricci estate work was essentially private family business done by Ricci on RCI time. Ricci received annual income from the Ricci estate. During the time period Bournival was a shareholder of RCI, the Ricci estate did not pay RCI for the services provided by Ricci or by RCI support staff, Patty Quintero and Charleen Eaton. The judge also found Ricci failed to disclose to Bournival the substantial amount of time devoted to this nonpaying client. Prior to Bournival's ownership, RCI had billed the Ricci estate for professional services. Ricci's work on this private matter, the judge found, made it more difficult for him to pitch in and to help Bournival keep up with her work.
Ricci estate work was classified as "billable" time on the company database. The time and potential lost revenue involved were not de minimis. Between July, 2007, and March, 2011, Eaton spent twenty percent of her total "billable" time on Ricci estate matters. RCI paid Eaton $36 per hour and billed clients for her services at $110 per hour until 2009 and $125 per hour between 2009 and 2011. Quintero spent nineteen percent of her total "billable" time on Ricci estate matters. RCI paid Quintero $15-16 per hour and billed clients $70 per hour for her services. Ricci spent twenty-three percent of his total "billable" time on the Ricci estate matters. RCI billed clients $300 per hour for Ricci's services. Ricci admitted the time benefited the Ricci estate.
Bournival testified that while she certainly knew about the estate work, until the litigation, she was unaware of the magnitude of the hours spent on Ricci estate matters. Ricci admitted he never informed Bournival that the Ricci estate was not paying RCI for the services.
According to Ricci, RCI billed the estate for close to $12,000 in 1998, the last year the Ricci estate paid RCI for services. Administrative work performed on behalf of the Ricci estate included creating and maintaining a database on the RCI server to keep track of the estate holdings, tracking stocks to be bought and sold, working with stock brokers, drafting annual reports, and overseeing the charitable lead trust to make sure there was cash on hand for the beneficiaries of the trust. The documentary evidence appears to show that in 1998, RCI charged the Ricci estate for similar, nontraditional actuarial work (i.e., "stock listings and charts including related research and production").
Bournival consistently billed far more time than Ricci on behalf of RCI. She reported to Ricci that she felt overwhelmed by her workload and requested his assistance. Ricci, the judge noted, did not follow through satisfactorily in Bournival's opinion. Ricci was responsible for peer reviewing some of Bournival's work for her. As a result of Ricci's failure to return her work promptly, certain RCI clients did not receive their reports on time; and in one case, when she was unable to get work reviewed by Ricci, she sent out the client a draft instead of a final report.
In concluding that no breach of fiduciary duty or loyalty had occurred, the judge found the work was "administrative" (i.e., outside the normal business of RCI); and "since it was not billable, there was no point in keeping track of the time;" and although Bournival had established that the work slowed down Ricci's completion of important RCI tasks, Bournival "made no showing that the time he spent on Ricci estate matters cost RCI any money."
These findings were clearly erroneous and did not support the result reached by the judge. Even if the work was administrative, there was evidence that RCI performed nonactuarial administrative work for other clients, and was paid for it. RCI also charged clients for administrative work usually included in overhead, such as typing. Moreover, Ricci, who described himself as an "overly compulsive" record keeper, did in fact keep track of all the time.
Even if RCI suffered no monetary damages as a result of the delays in getting firm work finished, Bournival established that the Ricci estate itself did not pay RCI for services from which it benefited. In using the assets and employees of RCI to enrich himself and his family at the expense of RCI and Bournival, Ricci violated his fiduciary duties. See Goode v. Ryan, 397 Mass. 85, 91 (1986). Compare Astra USA, Inc. v. Bildman, 455 Mass. 116, 124 n.13 (2009) (serious improprieties included using company employees to provide personal services on company time).
Bournival presented evidence that as a one-third owner of RCI, she lost significant amounts of money from Ricci's failure to bill the Ricci estate for his time and that of support staff. Ricci is entitled to dispute the amount of damages caused by his breach of fiduciary duty and so further proceedings on damages are required.
Conclusion. As to docket no. CV2011-00766, the judgment and the order denying RCI's motion to amend the judgment are affirmed.
As to docket no. CV2011-01271, the judgment on count II is reversed, the finding set aside, and the matter remanded to the Superior Court for further proceedings consistent with this decision. The judgment on count III is reversed and the verdict set aside; a new judgment shall enter in favor of the Ricci parties on that count. In all other respects, the judgment is affirmed. The order denying the Ricci parties' motion for judgment notwithstanding the verdict is reversed.
So ordered.
By the Court (Kantrowitz, Kafker & Hanlon, JJ.),
The panelists are listed in order of seniority. --------
Clerk Entered: June 23, 2015.