Outsiders May be Held Liable under Chapter 93A for Aiding and Abetting Immune Insiders

fidciary-duty

In Beninati v. Borghi, the Massachusetts Appeals Court recently vacated a judgment insulating an outside consultant, alleged to have aided and abetted insiders in violating their fiduciary duties, from Chapter 93A liability. The Appeals Court held that “intra-corporate dispute” doctrine absolved the insiders from multiple damages and attorneys’ fees, but did not absolve the outside consultant who assisted them in their breaches.

This case arose from a dispute among owners of a chain of New England fitness clubs called Work Out World (WOW). The plaintiffs, members of a limited liability company that operated the WOW clubs, sued co-owners Stephen Borghi and his wife for breach of fiduciary duty based on their competition with the WOW clubs using confidential and proprietary business information. The plaintiffs also sued Harold Dixon, a consultant who had helped Borghi compete with WOW, and the competing clubs.

At trial, the Superior Court judge found the Borghis liable for breach of fiduciary duties and also held Dixon liable for aiding and abetting the Borghis.’ The Superior Court awarded nearly $4 million in damages but refused to multiply the damages, holding that the Borghis were protected by the “intra-corporate” exception to Chapter 93A liability. In an unusual move citing no case law support, Judge Janet Sanders also held that Dixon and the competing clubs too were protected by the “intra-corporate” exception, reasoning that their Chapter 93A liability could stem only from the Borghi’s, and the Borghis were insulated by the exception.

On appeal, the plaintiffs challenged that holding, arguing that Dixon and the competing clubs are not LLC member or employees, and, therefore, the intra-corporate exception should not foreclose liability under c. 93A. The Appeals Court agreed, in a decision that appears correct under Massachusetts precedent but sets up a paradigm where the primary wrongdoer could be faced with a judgment significantly less than an individual who simply helped him in his wrongdoing. We would not be surprised to see this issue proceeding further to the SJC.

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