Judge Sanders of the Business Litigation Session recently denied the defendants’ summary judgment motion in a case alleging theft of confidential information by a 50% owner of an investment banking firm, Boston Equity Advisors, LLC (“BAE”).
The complaint alleges that after engaging in secret negotiations to merge BAE with a competitor, Arnold Freedman, a 50% owner of BAE along with the plaintiff Mark Butts, left BAE along with one of BAE’s employees to join WWC Securities, LLC (later known as Outcome Capital LLC), that competitor. Prior to leaving BAE in July 2012, the complaint alleges that Freedman and the employee stopped recruiting business for BAE and sent it instead to their competitor/future new employer and also that the defendants took client databases, financing and investing resources and BAE’s deal history information with them where their new employer boasted about BAE’s deals being Outcome’s own.
The defendants’ arguments on summary judgment are typical in this type of case, particularly one involving a personal services firm. Defendants claimed that they owed BAE no fiduciary duty; they took only their “own skills and experience” rather than confidential information; clients of Outcome would not have become clients of BAE; the plaintiffs suffered no harm; and the company failed after they left when the plaintiff abandoned it.
The court, in the only notable legal feature of the decision, rejected the defendants’ argument that BAE’s operating agreement renounced fiduciary duties. The Operating Agreement provided that the LLC:
is not intended to be a general partnership, limited partnership or joint venture, and no Member shall be considered to be a partner or joint venture of any other Member for any purposes other than foreign, domestic, federal and provincial local income tax purposes, and this Agreement shall not be construed to suggest otherwise.
This language was not sufficiently clear and unequivocal to eliminate the members’ fiduciary duties to each other in Massachusetts close corporations, the court held.
But the main reason for the court’s denial of summary judgment appears to be the sheer fact-intensity of the record and the difficulty in deciding, on summary judgment, whether information alleged to have been taken was confidential, why BAE failed, whether defendants caused it damages and credibility issues in general. While the court kept the plaintiffs’ case alive, it expressed some serious doubts as to the merits of the claims. It will be interesting to see if a deal is struck on this one before trial.
Judge Sanders’ November 3, 2017 decision in Butts et al. v. Freedman et al. (1584CV03652-BLS 2) is available to subscribers of Lawyer’s Weekly.