Section 220 and discovery are entirely different procedures
How later courts described this case
- Section 220 and discovery are entirely different procedures
Written by the judges who cited it.
The opinion
.,
STATE OF MAINE BUSINESS AND CONSUMER DOCKET
Cumberland, SS LOCATION: Portland
DOCKET NO. BCD-CV-17-37 /
BRIAN J. FOURNIER, )
)
Plaintiff, )
)
v. ) ORDER PARTIALLY GRANTING
) PLAINTIFF'S MOTION FOR
FLATS INDUSTRIAL, INC. f/k/a ) SUMMARY JUDGMENT
FLATS INDUSTRIAL RAILROAD )
CORPORATION, )
)
Defendant. )
Based on a one count Complaint filed in May 2017, this matter came before the Court
approximately eighteen months later upon the Motion for Summary Judgment filed by Plaintiff
Brian Fournier ("Fournier"). In its Memorandum of Law in Opposition, Defendant Flats
Industrial Railroad Corporation ("Flats") does not contest Fournier's right under 8 Del. C. § 220
to inspect information and documents responsive to 40 out of 4 7 specific requests. At oral
argument on October 11, 2018, the Court confirmed that despite resisting Fournier' s inspection
efforts for approximately a year and half, Flats was not contesting 40 out of 4 7 requests for
inspection. Accordingly, the Court ruled from the Bench on the uncontested portion of
Fournier's Motion, and issues this Order to memorialize the Court's ruling from the Bench.
As to the uncontested requests for inspection, the Court finds that the undisputed material
facts establish as a matter of law that Fournier is a stockholder of Flats, that Fournier complied
with all requirements of 8 Del. C. § 220 in making demand to inspect corporate documents, and
that Mr. Fournier made the demand for a proper purpose, specifically to value his ownership
interest in Flats. 1
The Court further finds that undisputed material facts establish as a matter of law that the
records identified in the affidavit of Fournier's valuation expert, Vanessa Claiborne, as Request
Nos. 1-6, 8-26, 28, 30-35, 37-38, and 42-47 (the uncontested 40 requests) are essential and
sufficient to valuing Fournier's interest in Flats. The Court, however, takes under further
advisement the question whether the records identified in Ms. Claiborne's affidavit as Request
Nos. 7, 27, 29, 36, 39, 40 and 41 (the contested 7 requests) are likewise essential and sufficient to
valuing Mr. Fournier's interest in Flats.
Accordingly, the Court grants Fournier's motion for summary judgment, in part, and, in
part, reserves ruling on that motion. In addition, the Court reserves ruling on Fournier's request
for attorney fees and costs. The Court will issue an order addressing the issues on which it has
reserved ruling at a later date.
Section 220 provides that the Court in its discretion can prescribe conditions with
reference to inspection. 8 Del. C. § 220(c). Having found that Fournier is legally entitled to the
documents responsive to Request Nos. 1-6, 8-26, 28, 30-35, 37-38, and 42-47 in Ms. Claiborne's
affidavit, and given the umeasonable length of time it has taken Flats to announce it does not
contest 40 out of 47 inspection requests, the Court in its discretion further orders as follows:
1
At oral argument, although no( contesting inspection of the 40 requests F lats' counsel hedged somewhat with
regard to proper purpose, saying that Flats had 'qualified" the tatement of Material Facts with regard to proper
purpose. Defendant's Memorandum of Law in Opposition, however, does not challenge Foumier's proper puipose,
and limits its attack to the permissible scope of inspection. Moreover Flats' attempted "qualification" by
questioning whether Foumier's desire to value his shares is bona fide neither qualifies nor controverts Foumier's
proper purpose. It is well established that a stockholder's desire to value his or her shares in a corporation is a
proper purpose, regardless of the reasons. Mack/owe v. Planet Hollywood, 1994 Del. Ch. LEXIS 182, *12-14; CM
& MGroup, 453 A.2d 788, 792-793.
2
I •
1. Flats shall prepare, ready, assemble, and make available for inspection by
Fournier and/or his counsel all records responsive to Request Nos. 1-6, 8-26, 28, 30-35,
37-38, and 42-47 by the close of business on November 1, 2018.
2. The records produced shall be organized in a readily accessible fashion - in
particular, the records shall be tabbed to respond to each individual request as numbered
in Ms. Claiborne's affidavit. For example, all records responsive to Request No. 1 shall
be organized and tabbed as responsive to Request No. 1.
3. Flats shall take all measures to ensure that it meets the Court's deadline including
retaining additional staff if necessary. No extension of the Court's deadline shall be
permitted except under extraordinary circumstances.
4. After reviewing the records produced by Flats, Fournier, through his counsel or
other designated representative, shall inform Flat's counsel which record he wishes to
have copied, including that he wishes all records to be copied. Flats is to make such
copies without any further request or delay.
5. Flats shall bear all costs of complying with this Order and shall not pass any costs,
including, but not limited to, any copying costs, along to Fournier.
6. The Court will not entertain any further objection from Flats to producing the
records responsive to Request Nos. 1-6, 8-26, 28, 30-35, 37-38, and 42-47.
7. Flats may not designate any of the records produced as confidential without
Fournier's consent.
8. Failure to strictly comply with this Order will expose Flats and its officers,
managers, and directors personally to being held in contempt by this Court and to the full
exercise of this Court's contempt powers.
3
Should Flats fail to comply with this Order in any respect, Fournier is directed to notify
the Court of that fact promptly, in response to which the Court will promptly schedule a show
cause hearing.
The Clerk shall incorporate this Order on the docket by reference pursuant to M.R. Civ.
P. 79(a).
SO ORDERED.
Date: Oct. 12, 2018.
Entered on the ocJ:et: _LO::.J..2:-.J_I'.
Copies sent via Mail_ Electrnnlc Olly' ?'
4
STATE OF MAINE BUSINESS & CONSUMER DOCKET
CUMBERLAND, ss. LOCATION: PORTLAND
DOCKET NO. BCD-CV-17-37 ~
BRIAN J. FOURNIER, )
)
Plaintiff, )
)
v. ) ORDER GRANTING MOTION FOR
) SUMMARY JUDGMENT
FLATS INDUSTRIAL, INC., )
f/k/a FLATS INDUSTRIAL )
RAILROAD CORPORATION, )
)
Defendant. )
This matter involves a single count for inspection of documents under
Delaware corporation law, 8 Del. C. § 220. Plaintiff Brian J. Fournier ("Fournier") is a
shareholder in Defendant Flats Industrial Railroad Corporation ("Flats"). Flats is a
Delaware corporation. In order to value his shares in Flats, Fournier seeks inspection
of information and documents described in forty-seven separately enumerated
requests. In response to Fournier's Motion for Summary Judgment, Flats indicated it
does not object to providing inspection in response to forty of the forty-seven
requests. Accordingly, on October 12, 2018, the Court issued a prior order governing
disclosure of information and documents responsive to the uncontested forty
requests. Flats does object to providing disclosures in response to seven of the forty
seven requests, on the grounds that information and documents responsive to those
seven requests are not essential to valuing Fournier' shares.
1
Oral argument on Fournier's Motion for Summary Judgment was held on
October 11, 2018. Fournier was represented by Brendan Rielly, Esq. Flats was
represented by Brett Leland, Esq. For the reasons set forth below, the Court finds
there is no genuine issue of material fact, and concludes that Fournier is entitled as a
matter of law to disclosure of information and documents responsive to the
remaining seven requests.
FACTS
Apart from what it maintains is a factual dispute between the parties' experts
regarding the necessary scope of disclosure for the purpose of valuing shares, Flats
does not contest the material facts. Although there is no dispute about these facts,
the Court recites them briefly for the purpose of establishing the background against
which the scope-of-disclosure issue is decided.
Flats is a closely held a Delaware corporation that owns railroad track in
Cleveland, Ohio and provides commercial and industrial switching service primarily
for the Norfolk Southern Railway. On or about March 23, 2016, Flats' stock was
conveyed out of the Estate of Arthur J. Fournier in the following manner: (a) 50% to
Arthur's widow Beth Fournier; (b) 12.5% each to Arthur's four children: Brian
Fournier, Douglas Fournier, Patrick Fournier, and Catherine McClarity. Thus,
Fournier is a stockholder of Flats.
On December 8, 2016, acting through his attorney, Fournier sent a written
demand under oath to Flats' representative demanding to "inspect copies of the
Corporation's stock ledger reflecting the shareholders of the Corporation, including
the number of shares owned by each shareholder, and the Corporation's books and
2
records." Fournier seeks the information in order to determine the status and
financial health of Flats, and the value of the shares he owns. Fournier's reasons for
valuing his shares include possibly selling them and extricating himself from further
relationships with his family members who own the remaining shares.
Since December 2016, Fournier has on more than one occasion reiterated his
demand for disclosure. Flats has provided some minimal information in response to
Fournier's demand, but has by-and-large failed to provide the information and
documents Fournier seeks.
Fournier retained Vanessa Brown Claiborne ("Claiborne") to provide an
expert opinion of the value of Flats (and thus the value of Fournier's shares in Flats).
Flats does not dispute Claiborne is a qualified expert in business evaluation. In her
affidavit, Claiborne enumerated forty-seven requests for information and documents
that are typical and essential to valuing a business. In addition to reviewing
documents, Claiborne typically requests a site visit, during which she interviews the
management, directors, and officers of the company for information relating to
operations and finances. In this case, Claiborne has not had the opportunity to
interview the management, directors, and officers of Flats for information relating to
the operations and finances of the company. 1
1 Claiborne says she did not ask to interview the management, directors and officers of Flats, because
based on the same individuals' refusal to meet with her in the litigation concerning Penobscot Bay
Tractor Tug Co., Inc. ("Pen Bay"), such a request would have been futile. Defendant argues that Pen
Bay is a separate matter, and whatever occurred in Pen Bay cannot be used in the present case.
Defendant is incorrect. By Court order dated October 25, 2017, the Pen Bay case (BCD-CV-17-38) was
consolidated with this case (BCD-CV-17-37). The original two cases are thus one case, and Plaintiff
and Claiborne can properly seek to draw on events from the Pen Bay side of this litigation to support
its Motion for Summary Judgment on the Flats side of this litigation. The Court is nevertheless mindful
that the pertinent issues relating to Pen Bay primarily involved discovery disputes, and the issues
relating to Flats solely relate to inspection under 8 Del. C. § 220. Defendant is correct that discovery
3
Flats retained Seth Webster ("Webster"), not to value Flats, but rather to
review the forty-seven requests for information and documents Claiborne asserts are
essential to value Fournier's shares in Flats. In his opposition affidavit, Webster
agrees (by his silence) that forty of the forty-seven requests enumerated by Claiborne
are essential to value Fournier's shares in flats. 2 However, Webster asserts seven of
the forty-seven requests are not essential to value Fournier's shares in Flats.
Following Claiborne's numbering, the seven categories are as follows:
Request No. 7: Detailed general ledgers, all account statements and
credit card statements for the past four fiscal years and 2018 YTD.
Request No. 27: Any documents reflecting how services are priced.
Request No. 29: Any documents reflecting Flats' safety program and the
recent experience/workers' compensation modifier.
Request No. 36: A list of each customer 2014 to present, with a
description of the services provided, where the services were provided, and
the revenue received by Flats from each customer.
Request No. 39: All customer contracts 2014 to present.
and Section 220 inspection are not coterminous. See Highland Select Equity Fund, L.P. v. Motient Corp.,
906 A.2d 156, 165 (Del. Ch. 2006) (Section 220 and discovery are entirely different procedures).
However, when Claiborne's inability to interview management on the Pen Bay side of the litigation is
coupled with (1) Flats emphasis in this case, see infra, that Section 220 does not allow for an interview
of management, and (2) Flats' counsel's inability at oral argument to confirm Flats would agree to such
an interview, it is fair to state as a matter of undisputed fact that it would have been futile for Claiborne
to ask to interview the management of Flats. But the Court's Summary Judgment ruling does not turn
on the futility of such a request, and the outcome is the same even if there is a genuine dispute of fact
regarding futility. Limiting the Court's field of vision to only the Flats side of this litigation, Fournier
has established without dispute that Claiborne did not have an opportunity to interview the
management, directors, and officers of Flats.
2 As discussed earlier, the Court has issued a separate Order governing disclosure of information and
documents responsive to the forty undisputed requests.
4
Request No. 40: All documents reflecting revenue from customers 2014
to present.
Request No. 41: Flats' operating metrics (number of cars moved,
fee/car) in each of the last four years and interim periods.
According to Webster, it is not the role of business evaluators to verify or audit
financial statements or other financial documents; business valuators rely on
aggregated financial information, and the granular financial information requested
by Claiborne in these seven requests is unnecessary for a reliable business valuation.
Webster does not dispute that it is appropriate for a business evaluator such as
Claiborne to conduct a site visit to interview management for information relating to
the operation and finances of the company.
In her supplemental reply affidavit, Claiborne explained that the seven
requests for information are necessary because she has not had an opportunity to
interview the management, directors, and officers of Flats. Claiborne reiterated that
such interviews are an essential part of valuing the company. Without the
opportunity to interview management, directors, and officers, Claiborne has no other
option to gather the necessary information than through the seven inspection
requests. 3
Accordingly, the Court concludes there is no genuine dispute between the
affidavits of Claiborne and Webster; the affidavits speak to two different situations.
3At oral argument, Defendant's counsel argued that M.R. Civ. P. 56 prevented him from supplying the
Court with a supplemental sur-reply affidavit of Webster, which purportedly would dispute
Claiborne's reply affidavit. But that is not what Rule 56 provides. According to Rule 56, "[t]he court
may permit affidavits to be supplemented or opposed by ... further affidavits." M.R. Civ. P. 56(e).
Defendant neither provided, nor asked to provide, a sur-reply affidavit of Webster, and so the Court
decides this matter based on the affidavits that were provided.
s
Where a business evaluator has the opportunity to interview management, directors,
and officers, a somewhat more modest inspection request is sufficient to provide the
information necessary to reliably value a company. However, where a business
evaluator does not have the opportunity to interview management, directors, and
officers, an inspection request including the seven challenged categories is necessary
to provide the information necessary to reliably value a company.
The Court thus finds the following undisputed facts have been established.
Claiborne is a qualified expert in the field of business evaluation. Interviewing
management, directors, and officers of a company is a typical and essential part of
valuing a company. If interviewing management, directors, and officers of a company
is not an option, then a business evaluator must have the kinds of information and
documents responsive to the seven requests described above. In this case, Claiborne
has not had the opportunity to interview the management, directors, and officers of
Flats.
Hence, information and documents responsive to Request No. 7 (detailed
ledgers and statements) are necessary for a business evaluator to understand why
expenses were higher or lower in a particular year and to see trends in operating
expenses. Information and documents responsive to Request No. 27 (how services
are priced) are necessary for a business evaluator to understand the security of the
revenue stream and the resulting nature of the risk for the company. Information and
documents responsive to Request No. 29 (safety program information) are necessary
because they show the operating risk inherent in the company. The safety record of a
company like Flats is important because safety problems may affect the company's
6
bottom line. Information and documents responsive to Request Nos. 36, 39, and 40
(customer information) are necessary because customer contracts and revenue are
crucial to predicting revenue stream and risk. This information would ordinarily be
the primary focus of a management interview, and without the opportunity for an
interview, the information is essential. Finally, information and documents
responsive to Request No. 41 (operating metrics) are necessary for a business
evaluator to understand risk and future revenue by reflecting the volume of business
and fees charged.
ANALYSIS
Section 220 of the Delaware corporations code empowers the Court to
"summarily order" a corporation to permit a stockholder to inspect the corporation's
books and records when certain conditions have been satisfied. 8 Del. C. § 220(c).
Pursuant to this language, "[s]ummary judgment is an appropriate way to proceed ..
. ." Loew's Theatres, Inc. v. Commercial Credit Co., 243 A.2d 78, 81 (Del. Ch. 1968).
Granting summary judgment is appropriate when there is no genuine issue as to any
material fact, and a party is entitled to judgment as a matter oflaw. M.R. Civ. P. 56(c).
As the moving party in this case, Fournier has the burden to prove the summary
judgment record establishes each element of his claim without dispute as to material
fact. Cach, LLC v. Kulas, 2011 ME 70, ,r 8, 21 A.3d 1015. Fournier has met his burden.
In this case, Flats does not dispute that Fournier has satisfied the three
statutory prerequisites for inspection under Section 220: Fournier is a shareholder,
he submitted the required shareholder demand for inspection, and he has a proper
7
purpose for inspecting Flats' books and records. 4 The Court also finds that the three
statutory prerequisites have been established. The only dispute in this case involves
the scope of the required inspection under Section 220. And even with regard to
scope, Flats agrees that Fournier is entitled to inspection of the information and
documents responsive to the uncontested forty requests. This case all comes down
to whether Fournier is entitled to inspect information and documents responsive to
the seven contested requests. The question of whether documents are essential for a
stockholder to value his or her shares is "fact specific," Amalgamated Bank v. Yahoo!
Inc., 132 A.3d 752, 788 (Del. Ch. 2018), and the trial court's determination will be
overturned only if "clearly wrong." CM & M Group, Inc. v. Carroll, 453 A.2d 788, 793
(Del. 1982).
In determining the scope of inspection relief under Section 220, "the
overriding principle is that only those records that are 'essential and sufficient' to the
shareholder's purpose will be included in the court-ordered inspection." Helmsman
Management Servs., Inc. v. A & S Consultants, Inc., 525 A.2d 160, 167 (Del. Ch. 1987)
(citation omitted). Flats argues there is a factual dispute about whether the
information and documents sought by the seven requests is essential to value
Fournier's shares in Flats, and thus summary judgment cannot be granted. Flats
4 At oral argument, Flats' counsel hedged somewhat with regard to proper purpose, saying that Flats
had "qualified" the Statement of Material Facts with regard to proper purpose. Defendant's
Memorandum of Law in Opposition, however, does not challenge Fournier's proper purpose, and limits
its attack to the permissible scope of inspection. Moreover, Flats' attempted "qualification" by
questioning whether Fournier's desire to value his shares is bona fide, neither qualifies nor controverts
Fournier's proper purpose. It is well established that a stockholder's desire to value his or her shares
in a corporation is a proper purpose, regardless of the reasons. CM & M Group, Inc. v. Carroll, 453 A.2d
788, 792-793 (Del. 1982); Mack/owe v. Planet Hollywood, 1994 Del. Ch. LEXIS 182, *12-14 (Sep. 29,
1994).
8
predicates its claim of a factual dispute on what it characterizes as the competing
affidavits of Claiborne and Webster. However, as explained above, the Court finds
there is no conflict between the affidavits. It is an undisputed fact that interviewing
management, directors, and officers about a company's finances and operations is
important to a business evaluation, and without the opportunity to interview
management, directors, and officers, a business evaluator needs the information
responsive to the seven requests in order to prepare an opinion of the company's
value.
At oral argument, Defendant's counsel emphasized that Section 220 does not
provide for an interview of management. The Court agrees, but that reality only
underscores the need for Fournier's business evaluator to have the information and
documents she seeks in response to the seven requests. Claiborne has not had an
opportunity to interview the management, directors, and officers of Flats; Section 220
does not allow the Court to order such an interview; and at oral argument Defendant's
counsel declined to say whether Flats would agree to such an interview. Under the
circumstances, Claiborne has no option but to request information responsive to the
seven requests. The seven requests are not being pursued as "a way to circumvent
discovery proceedings." See Highland Select Equity Fund, Ltd. P'ship v. Motient Corp.,
906 A.2d 156, 165 (Del. Ch. 2006). The seven requests do not constitute an audit, and
are "narrowly tailor[ ed]" to Fournier's need to value his shares in Flats, while
balancing the interests of the shareholder and the corporation. See Thomas & Betts
Corp. v. Leviton Mfg. Co., Inc., 681 A.2d 1026, 1035 (Del. 1996). The seven requests
are not exceptionally broad, as were the twenty-five pages of rambling requests
9
denied in Highlands Select, 906 A.2d at 160-162. To the contrary, the seven requests
have the "rifled precision" appropriate to a Section 220 inspection request. 5 See
Security First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 570 (Del. 1997). As a
result, the Court finds inspection of the information and documents sought in
response to the seven requests is essential and necessary to Claiborne's ability to
reliably value Flats, and within the permissible scope of a Section 220 inspection.
Section 220 provides that the Court in its discretion can prescribe conditions
with reference to inspection. 8 Del. C. § 220 (c). Having found that Fournier is legally
entitled to inspection pursuant to Request Nos. 7, 27, 29, 36, 39, 40 and 41 as
numbered in Ms. Claiborne's affidavit, and given the length of time Fournier has been
waiting to inspect the information and documents, the Court in its discretion further
orders as follows:
1. Flats shall prepare, ready, assemble, and make available for inspection
by Fournier and/or his counsel all records responsive to Request Nos. 7, 27,
29, 36, 39, 40, and 41 by the close of business on November 30, 2018.
2. The records produced shall be organized in a readily accessible
fashion-in particular, the records shall be tabbed to respond to each
individual request as numbered in Ms. Claiborne's affidavit. For example, all
records responsive to Request No. 7 shall be organized and tabbed as
responsive to Request No. 7.
s Indeed, Flats' objection that the seven requests are too "granular" runs directly counter to the Section
220 case law which emphasizes that Section 220 requests should be targeted and not sweeping.
10
l I
3. Flats shall take all measures to ensure that it meets the Court's deadline
including retaining additional staff if necessary. No extension of the Court's
deadline shall be permitted except under extraordinary circumstances.
4. After reviewing the records produced by Flats, Fournier, though his
counsel or other designated representative, shall inform Flat's counsel which
record he wishes to have copied, including that he wishes all records to be
copied. Flats is to make such copies without any further request or delay.
5. Flats shall bear all costs of complying with this Order and shall not pass
any costs, including, but not limited to, any copying costs, along to Fournier.
6. The Court will not entertain any further objection from Flats to
producing the records responsive to Request Nos. 7, 27, 29, 36, 39, 40, and 41.
7. Flats may not designate any of the records produced as confidential
without Fournier's consent.
8. Failure to strictly comply with this Order will expose Flats and its
officers, managers, and directors personally to being held in contempt by this
Court and to the full exercise of this Court's contempt powers.
Should Flats fail to comply with this Order in any respect, Fournier is directed to
notify the Court of that fact promptly, in response to which the Court will promptly
schedule a show cause hearing.
Fournier seeks an award of attorney fees. Attorney fees are available under
Section 220, but are not ordinarily awarded without a showing of bad faith.
Fournier's wait has been unreasonably long in this case, but Fournier has not
established bad faith. The Court declines to make an award of attorney fees.
11
Finally, the Court notes the mediator has filed a Report of ADR Conference,
indicating that the issues in the consolidated Pen Bay case (originally BCD-CV-17-38)
have been fully resolved. Accordingly, all aspects of this consolidated case are now
fully resolved.
The Clerk shall incorporate this Order on the docket by reference pursuant to
M.R. Civ. P. 79(a).
SO ORDERED.
October 15, 2018.
Michael A Duddy
Judge, Business and Consumer Docket
Ent~red on the Docket: j {). ..- / (,, --/ f
Cop1e!; sent via Mail - Eleclronically X
12
STATE OF MAINE SUPERIOR COURT
CUMBERLAND, ss. BUSINESS AND CONSUMER COURT
LOCATION: PORTLAND
DOCKET NO. BCD-CV-2017-37./
BRIAN J. FOURNIER, )
)
Plaintiff, )
)
V. ) ORDER ON PLAINTIFF'S
) MOTION TO DISQUALIFY
FLATS INDUSTRIAL, INC, et al. ) COUNSEL FOR DEFENDANTS
)
Defendants, )
Plaintiff Brian J. Fournier ("Brian") has moved this Court to disqualify the law firm Verrill
Dana, LLP ("Verrill Dana") as counsel for Defendants Douglas A. Fournier, Patrick M. Fournier,
and Beth B. Fournier (collectively the "Individual Defendants") and Defendant Penobscot Bay
Tractor Tug Co., Inc. ("Pen Bay") (collectively "Defendants"). Defendants oppose the motion. A
hearing was held on the motion on November 27, 2017 in Cumberland County Superior Court.
Attorney Brendan P. Rielly appeared for Brian and Attorneys Brett R. Leland and Harold J.
Friedman appeared for Defendants.
FACTUAL BACKGROUND 1
Pen Bay operates tugboats in and around Bucksport and Searsport, Maine with an office in
Belfast, Maine. (Complaint~ 9.) During his lifetime, Arthur J. Fournier ("Arthur") was the sole
owner, director, and manager of Pen Bay. (Complaint~~ 9, 10.) Arthur passed away on November
16, 2013, and his will distributed ownership of Pen Bay equally between his three children: Brian,
1 The facts described in this section are taken from Brian's operative pleading in this matter, the Amended and Verified
Complaint (the "Complaint") filed July 5, 2017 in the Cumberland County Superior Court prior to transfer here to the
Business and Consumer Court. The Court includes these facts merely to contextualize the instant motion. Nothing in
this section should be construed as a finding of fact by the Court.
1
Douglas Fournier ("Douglas"), and Patrick Fournier ("Patrick"). (Complaint~~ 9, 23.) Arthur's
will named his wife, Beth Fournier ("Beth"), as personal representative of his estate. (Complaint
~ 15.) Beth was appointed Special Administrator by the Cumberland County Probate Court and
used her authority as such to appoint herself to Pen Bay's board and then name herself President
and Treasurer of Pen Bay. (Complaint~~ 18, 20.) Sometime thereafter Beth appointed Douglas
and Patrick to Pen Bay's board. (Complaint~ 22.) Brian is a shareholder, but neither a director nor
manager, of Pen Bay.
Pen Bay is now owned in equal shares by Brian, Douglas, and Patrick. Beth remains Pen
Bay's President and Treasurer. Brian alleges that the Individual Defendants control and manage
Pen Bay, and brings several direct claims against all Defendants arising out of the Individual
Defendants' alleged failure to share Pen Bay's business records with him, along with alleged
mismanagement and self-dealing by the Individual Defendants in their operation and management
of Pen Bay. Brian also brings a derivative claim on behalf of Pen Bay against the Individual
Defendants.
Verrill Dana had previously represented Beth individually in matters related to the probate
of Arthur's estate. See generally In re Estate ofArthur J Fournier, Jr., Cum. Cty. Prob. Ct. 2013
-1627 (Mazziotti, J); In re Nix's Mate Equip. Trust, Cum. Cty. Prob. Ct. 2016-0583 (Mazziotti,
J). At a shareholder meeting, acting in their capacity as directors, the Individual Defendants
consented on behalf of Pen Bay to Verrill Dana's dual representation of Pen Bay and themselves
individually. (Complaint~~ 125-26.) Brian objected to the dual representation and did not consent.
(Complaint ~ 122, 127.) Notwithstanding his objection, Brian was outvoted by Douglas and
Patrick, and Verrill Dana is now counsel for all Defendants: Pen Bay and the Individual
Defendants. Brian now brings the instant motion to disqualify Verrill Dana as counsel for not only
2
Pen Bay, but each of the Individual Defendants as well.
STANDARD OF REVIEW
Our Law Court is highly deferential to a trial court's decision whether disqualification is
proper. Estate ofMarkheim v. Markheim, 2008 ME 138, ~ 27, 957 A.2d 56. This Court must be
"mindful that motions for disqualification are capable of being abused for tactical purposes, and
justifiably wary of this type of strategic maneuvering." Morin v. Maine Educ. Assoc 'n, 2010 ME
36, ~ 8, 993 A.2d 1097 (quotations and omissions omitted). Therefore, disqualification is
appropriate only when the moving party produces evidence supporting two findings: (1) "that
continued representation of the nonmoving party by that party's chosen attorney results in an
affirmative violation of an ethical rule" and (2) "that continued representation by the attorney
would result in actual prejudice to the party seeking that attorney's disqualification." Id. ~~ 9-10.
The moving party must point to specific, identifiable harm she will suffer in the litigation by
opposing counsel's continued representation; mere general allegations are insufficient. Id. ~ 10.
DISCUSSION
Brian alleges that Verrill Dana's concurrent representation of Pen Bay and the Individual
Defendants violates many of the Maine Rules of Professional Conduct, including Rules 1.6, 1.7,
1.9, 1.13. Defendants deny that Verrill Dana's dual representation violates any of the ethical rules
and that any conflict stemming from Verrill Dana's concurrent representation of Pen Bay and the
Individual Defendants has been resolved by consent.
The Court notes that Brian's motion presents a significant question regarding a lawyer's
ethical duties in representing a closely-held corporation as well as its individual directors or
managers when a minority shareholder purports to bring a derivative action on behalf of the
corporation against those individuals. See M.R. Prof. Con. 1.13 cmt. (14). The problem is
3
compounded when, as here, there are no disinterested directors or managers and the directorship
management forms an allied bloc of majority shareholders, which will inevitably conclude that
joint representation is not counter to the corporation's interests and consent to the joint
representation. See Restatement (Third) of the Law Governing Lawyers, § 131 cmt. g. However,
the Court need not determine whether Verrill Dana's continued representation of Pen Bay and the
Individual Defendants would violate any ethical rules in order to decide the instant motion to
disqualify counsel. Brian has failed to adduce evidence of actual prejudice he will suffer from
Verrill Dana's continued representation of Defendants, and his motion therefore fails the second
prong of the Morin test and must be denied.
At the outset, Brian questions whether the Morin test applies to this case. Brian points out
that Morin involved different ethical rules, did not involve a derivative claim, and relied on the
reasoning expounded in Adam v. MacDonald Page & Co., 644 A.2d 461 (Me. 1994), which
involved successive representations and held that the former client was required to show that the
former attorney had actually acquired relevant, confidential information to be disqualified from
representing the other side in a subsequent suit. Id. at 464-65. Regardless of Adam's applicability
to Brian's motion, the scope of Morin's holding-that is, that it applies to all motions to disqualify
counsel-is apparent from its plain language. Morin, 2010 ME 36, ~~ 9-10, 993 A.2d 1097.
Furthermore, Morin is explicit that the actual prejudice requirement is grounded not in the specific
rules at issue justifying the motion to disqualify, but rather to discourage the use of disqualification
motions for strategic purposes and as an "obvious vehicle for abuse." Id. ~~ 8, 10 (citation omitted).
Finally, the U.S. District Court for the District of Maine has consistently applied Morin's actual
prejudice requirement to motions to disqualify regardless of the ethical violations alleged by
movants. See, e.g., Concordia Partners, LLC v. Ward, No. 212-cv-138-GZS, 2012 U.S. Dist.
4
LEXIS 109540 (D. Me. Aug. 6, 2012); Doe v. Reg'! Sch. Unit No. 21, No. 2:11-cv-25-DBH, 2013
U.S. Dist. LEXIS 16700 (D. Me. Feb. 7, 2013).
Morin itself shows that the movant bears a heavy burden in demonstrating actual prejudice.
In that case, an employee and her counsel shared confidential information with an attorney
conducting an "independent investigation" because they were told the investigating attorney did
not represent the employer, and they were not aware that the attorney's firm would later represent
the employer in defending against the employee's discrimination suit. Id. ,r,r 3-6. Morin and her
counsel testified that they disclosed litigation and settlement strategy to the other attorney and were
generally unguarded during the investigation based on his assurances. Id. ,r 12. Nonetheless, the
Law Court held that on these facts the employee "failed to point to any particular prejudice she
has suffered or will suffer." Id. See also Concordia Partners, LLC, 2012 U.S. Dist. LEXIS 109540
at *21-22 (finding no actual prejudice where attorney at law firm did significant work for an
opposing party in prior litigation).
Here, Brian's claims of actual prejudice are thinner than the employee's in Morin. Brian
first alleges that Pen Bay is "apparently" paying for the legal representation of the Individual
Defendants. (Brian Fournier Aff. ,r 10.) Second, Brian claims that without independent counsel for
Pen Bay, there is "no hope of any investigation into the corporate wrongdoings" of the individual
Defendants. (Pl.' s Mot. at 8-9 .) Both sides urge this Court to explore these allegations and
determine their truth to decide Brian's motion, but such an inquiry is unnecessary here. Morin and
the cases decided since indicate that the movant must do more than point to sworn allegations to
substantiate a showing of prejudice and, furthermore, that even if true, the prejudice Brian alleges
is inadequate to support disqualification in this case. See Morin, 2010 ME 36, ,r 11,993 A.2d 1097;
Concordia Partners, 2012 U.S. Dist. LEXIS 109540 *21-22; Reg'! Sch. Unit No. 21, 2013 U.S.
5
Dist. LEXIS 16700 *36-37.
In essence, Brian urges this Court to reject Morin in favor of the "modern view ... that it
is generally improper due to conflict of interests for counsel to attempt to represent the corporation
... while also representing the individuals charged with harming the corporation ...." 13 William
M. Fletcher, Fletcher Cyclopedia ofthe Law ofPrivate Corporations§ 6025 at 442 (perm_. ed. rev.
vol. 1991). Brian cites to several cases in other jurisdictions as persuasive authority adopting this
modern trend, and particularly relies on Stepack ex rel. Southern Co. v. Addison, 20 F.3d 398 (11th
Cir. 1994). The Court has reviewed Stepack and the other cases cited, and finds that they are
generally factually distinguishable from the motion at bar. Stepack involved a large public
corporation with separate management than those accused of misconduct. In contrast, there is no
management of Pen Bay other than Beth, Douglas, and Patrick. The other cases similarly discuss
large public corporations, and the rules developed by courts in other jurisdictions to handle motions
to disqualify in derivative actions brought on behalf of such corporations simply do not fit when
applied to a small, closely-held corporation subject to Maine law's disqualification rules. See
Morin, 2010 ME 36, i/~·9-10, 993 A.2d 1097. This Court thus declines to apply the "modem view,"
and instead follows the established Maine Law Court precedent discussed supra. See id.
CONCLUSION
By reason of the foregoing IT IS HEREBY ORDERED:
That Plaintiff Brian J. Foumier's motion to disqualify counsel for defendants be
DENIED.
The Clerk is instructed to enter this Order on the docket for this case, by incorporating it
be reference pursuant to Maine Rule of Civil Procedure 79( a).
Dated: December 'f, 2017 ~
Ric ~ e m
v""--
Judge, Business & Consumer Court
_
critered on the D c!<et:
I "'~4-17 .
cl _/
6 Co!')ies sB1i\ vi11 Mall __ Electronically-,/