Barriault v. Barriault

STATE OF MAINE BUSINESS AND CONSUMER COURT

CUMBERLAND, ss. LOCATION: PORTLAND

Nos. BCD-CV-17-39 & BCD-CV-17-54

DENNIS BARRIAULT, )

)

Plaintiff, )

)

v. )

)

DENRON, INC., )

)

Defendant. )

)

RONALD F. BARRIAULT., ) COMBINED ORDER ON PENDING

) MOTIONS

Plaintiff, )

)

v. )

)

CENTRAL DISTRIBUTORS, INC., et )

al., )

)

Defendants. )

Five motions are pending before the Court in these two consolidated cases, as described in

more detail herein. The Court heard oral argument on all motions on August 1, 2019. Dennis

Barriault was represented by George T. Dilworth, Esq.; Ronald Barriault was represented by Kurt

Olafsen, Esq.; Denron, Inc., was represented by Timothy Bryant, Esq.; Central Distributors, Inc.

was represented by Daniel Nuzzi, Esq. and Stacy Stitham, Esq.; and the Fourth-Generation

Shareholders were represented by Tim Norton, Esq.

BACKGROUND

These consolidated civil actions relate to two brothers, Ronald and Dennis, 1 and the two

corporations they own jointly either in whole or in part (the “Corporation Defendants”). Ronald

and Dennis are the only two shareholders of Denron, and also serve as its only officers as President

1 Ronald and Dennis share the last name “Barriault” and as such are referred to by their first names in this Order.

1

and Treasurer, respectively. Ronald and Dennis are also shareholders in Central Distributors, Inc.

(“CDI”) along with their three adult children; however, Ronald and Dennis are the only two

directors of CDI.2 Litigation commenced in the first instance when Ronald sued Denron to allow

a $400,000 distribution to its two shareholders. Dennis was not apprised of that action and had

previously refused to allow the distribution. Dennis sued Denron in BCD-CV-17-39 for consenting

to judgment in that action and otherwise facilitating the $400,000 transaction, and Ronald

intervened as a party-in-interest. Ronald then sued Dennis and CDI in BCD-CV-17-54 for actions

Dennis allegedly took in relation to that company. Each man has now sued for dissolution of one

company or the other: Dennis for dissolution of Denron, Ronald for dissolution of CDI. However,

it appeared to the Court from the parties’ presentations at oral argument that the parties recognize

the high standard that must be met before a Court has authority to dissolve either entity.

Regardless, the two Defendant Corporations each seek judgment in their favor on the

dissolution counts pled against them on narrower grounds. They argue, essentially, that under the

undisputed facts no one is “in control” of either corporation and therefore the alleged bad acts of

a director of either corporation cannot result in judicial dissolution of the corporation as a matter

of law.

The other three motions are more procedural. CDI seeks to exclude the expert testimony

of Mark Filler, Denron seeks protection from the Court by ordering Dennis to take various actions

and abstain from others, and the so-called “Fourth Generation” of Barriaults—all shareholders of

CDI, and purportedly all responsible for the day-to-day operations of CDI—seek a “remedy other

than dissolution,” specifically, that the Court order CDI to fill a purported third director’s seat with

one of them. The Court considers each motion in turn.

2 The Fourth-Generation Shareholders claim that there is a vacant seat for a third director, and move this Court for an

order that CDI fill the seat, as discussed below.

2

DISCUSSION

1. Defendant Corporations’ Motions for Partial Summary Judgment

Both Defendant corporations have moved for summary judgment on Count III of the

respective complaints pleaded against them, which coincidentally both plead one count of judicial

dissolution. The plaintiff in each action alleges “illegal, oppressive[,] or fraudulent” acts on the

part of the directors of the corporation; however, as each plaintiff is in fact a director of each

corporation, it is obviously the other director that they are accusing. See 13-C M.R.S. § 1430(2)(B).

The Defendant Corporations claim that because there is no factual dispute that neither Dennis nor

Ronald is “in control” of either corporation, neither man’s bad acts entitles the other to judicial

dissolution as a matter of law under the statute.

The statute at issue, titled “Grounds for Judicial Dissolution” under Maine’s business

corporation act, provides in relevant part as follows:

A corporation may be dissolved by a judicial dissolution in a proceeding by[] . . .

[a] shareholder if it is established that . . . [t]he directors or those in control of the

corporation have acted, are acting or will act in a manner that is illegal, oppressive

or fraudulent.

13-C M.R.S. § 1430(2)(B). The Defendant Corporations ask this Court to analogize to the

judicial dissolution statute for LLCs, which provides in relevant part as follows:

A limited liability company is dissolved, and its activities must be wound up, upon

the occurrence of . . . [o]n application by a member, the entry by the Superior Court

of an order dissolving the limited liability company on the grounds that the

members in control of the limited liability company have acted, are acting or will

act in a manner that is illegal or fraudulent[.]

31 M.R.S. § 1595(1)(E). See also Witham Family, L.P. v. D.B.L. Enters., Inc., No. BCD-

CV-17-32, 2019 Me. Bus. & Consumer LEXIS 5, *3-4 (March 7, 2019) (concluding that

“members in control” means members constituting a majority of interest in the LLC). The

Defendant Corporations’ argument, however, fails for two reasons. First, it ignores the plain text

3

of 13-C M.R.S. § 1430(2)(B). Second, and relatedly, it fails to account for legal differences

between the organization of business corporations and LLCs—differences that the Legislature

incorporated into the two statutory judicial dissolution provisions.

Corporations and LLCs differ in important ways. LLCs are owned by members, which may

also act as managers; however, there is no requirement that a manager be a member, or vice versa.

Corporations have a more formal three-tiered management structure with shareholders, who elect

directors, who appoint officers. The respective dissolution statutes for these business entities

account for this difference: while the LLC dissolution statute speaks of “members in control,” the

corporate dissolution statute speaks of “directors or those in control.” 13-C M.R.S. § 1430(2)(B);

31 M.R.S. § 1595(1)(E) (emphases added). As this Court noted in Witham, the Legislature’s

decision to exclude manager misfeasance as grounds for LLC dissolution seems to have been

deliberate. See Witham Family, L.P, No. BCD-CV-17-32, 2019 Me. Bus. & Consumer LEXIS 5,

*6 n. 1.

On the other hand, with respect to directors of corporations, the Legislature expressly wrote

directors into—rather than out of—the corporate dissolution statute. Separate provisions of the

corporate judicial dissolution statute deal with shareholders, who are much more analogous to

members in the LLC context. See 13-C M.R.S. § 1430(2)(C)-(D). As noted above, in this case it

seems that each Plaintiff shareholder may have a difficult time proving that the other director has

acted, is acting, or will act in a manner that is illegal or fraudulent. However, that is clearly a

factual issue that is unresolved one way or the other in the summary judgment record. Moreover,

there is also a genuine factual dispute as to who, if anyone, is in control of either corporation. The

corporate dissolution statute references “directors or those in control,” meaning proof of illegal or

fraudulent acts by either category of persons is sufficient to prove entitlement to judicial

4

dissolution. 13-C M.R.S. § 1430(2)(B) (emphasis added). The provision of the LLC Act the

Defendant Corporations analogize to references “members in control” exclusively. 31 M.R.S. §

1595(1)(E). Whether “those in control” means a majority of shareholders or something else is not

an issue before the Court on this motion.

Based on the foregoing, the Defendant Corporations’ motions for partial summary

judgment on Count III of the complaints are both denied.

2. CDI’s Motion to Exclude Expert Testimony of Mark Filler

CDI does not argue that Mark Filler is not qualified as an expert, or at least, that does not

form the grounds for its motion to exclude. See M.R. Evid. 702. Instead, CDI’s quarrel is with Mr.

Filler’s methodology. See Searles v. Fleetwood Homes of Pa., Inc., 2005 ME 94, ¶ 22, 878 A.2d

509 (“To meet the two-part standard for the admission of expert testimony, the testimony must

also meet a threshold level of reliability.”) (quoting In re Sarah C., 2004 ME 152, ¶ 11, 864 A.2d

162); State v. Williams, 388 A.2d 500, 504 (Me. 1978). Ronald defends Mr. Filler’s methodology,

but more fundamentally opposes the motion on the grounds that CDI’s argument is directed more

at the weight than the admissibility of Mr. Filler’s testimony.

The Court agrees with Ronald that CDI’s arguments in this motion are misplaced, and

better reserved for argument after trial. At oral argument on the motion, in response to a query

from the Court, CDI pointed out that any trial in this matter will be a bench trial and as such the

Court can decide now on the papers whether or not to credit Mr. Filler’s testimony. However, in

the absence of agreement by the parties, the Court is not inclined to relax Maine’s Rules of

Evidence and procedural rules simply because the case will be tried to the bench rather than a jury.

The procedural posture of this case distinguishes it from Clifford v. Case, No. CV-07-03, 2008

Me. Bus. & Consumer LEXIS 2, *18-21 (July 18, 2008), where deciding the issue of the

5

admissibility of Mr. Filler’s testimony was necessary to decide the pending motion for summary

judgment. Downeast Ventures, Ltd. v. Wash. Cty., No. 05-87-B-W, 2007 U.S. Dist. LEXIS 14733,

at *6-13 (D. Me. Mar. 1, 2007) is substantively distinguishable. In that case, the U.S. District Court

for the District of Maine (Kravchuk, M.) ruled that those aspects of Mr. Filler’s testimony “for

which there is some data on which to rely” was admissible, and only excluded evidence of Mr.

Filler’s projections with respect to the future profits of a planned steel-building enterprise that

never got off the ground. Mr. Filler’s projections in this matter clearly rely on “some data,” and

the going concern of beverage distribution is more analogous to the construction and plowing

revenue on which the U.S. District Court allowed Mr. Filler to testify as to lost revenue. In sum,

whatever the merits of CDI’s complaints with respect to Mr. Filler’s methodology, they are better

reserved for cross-examination of Mr. Filler, rebuttal from its own expert witness, and argument.

Nestled within the argument to exclude Mr. Filler’s testimony is an argument that the

shareholders have agreed upon a mechanism for valuing their stock in CDI in a Buy-Sell

Agreement. See Pelletier v. Pelletier, 2012 ME 15, 36 A.3d 903. The limited factual record before

the Court on the instant motion is insufficient to apply the agreement to preclude Mr. Filler’s

testimony as to the valuation of the business. CDI can revisit the argument at trial or in another

motion, once the factual record is better fleshed out for the Court.

In conclusion, CDI’s motion to exclude the expert testimony of Mr. Filler is denied.

3. Denron’s Motion for Protection and Funds for Fees

The parties dispute how to properly characterize Denron’s motion for protection. Dennis

claims that the motion seeks nothing less than a mandatory preliminary injunction and is thus

subject to the procedural strictures of Dep’t of Envmnt’l Protec. v. Emerson, 563 A.2d 762, 768

(Me. 1989) and M.R. Civ. P. 65(b). Denron claims that the relief requested in its motion is

6

explicitly authorized by 13-C M.R.S. § 1434(2)(C), removing the request from the legal test for

entitlement to preliminary mandatory injunctive relief. Nonetheless, Denron effectively concedes

in reply that if the standard for a mandatory preliminary injunction is applied then it cannot satisfy

that test. (Denron Reply Br. 3-4.)

13-C M.R.S. § 1434 is titled “Discretion of Court to Grant Relief Other than Dissolution.”

Subsection 2 provides as follows:

On the application of a plaintiff or any other shareholder or on the court’s own

motion in any action filed by a shareholder to dissolve a corporation on any of the

grounds enumerated in section 1430, subsection 2, or on the court's own motion in

any other action to dissolve a corporation, the court may make an order or grant

relief, other than dissolution, that in its discretion it considers appropriate . . . .

Subsection C specifically authorizes the Court to enter an order “[d]irecting or prohibiting

any act of the corporation or shareholders, directors, officers or other persons party to the action[.]”

13-C M.R.S. § 1434(2)(C). The prefatory language to subsection 2 suggests that the “relief other

than dissolution” is contemplated as a remedy to be imposed after a party has prevailed in its

dissolution action. See 13-C M.R.S. § 1430(2). There is nothing in the statute to suggest that a

plaintiff or other shareholder is entitled to the relief contemplated while the dissolution action is

pending and before the statutory elements of judicial dissolution have been proven. Denron cites

no authority where section 1434(2) was construed so broadly as to entitle a plaintiff shareholder

to preliminary relief.

Functionally, the relief requested is injunctive. As Dennis points out, the law regarding

preliminary injunctions is quite well-developed and explicitly provided for in Maine’s Rules of

Civil Procedure. See M.R. Civ. P. 65(b). A party must meet a four-factor test to prevail on a motion

for a preliminary injunction, and the test is enhanced where mandatory injunctive relief is sought.

See Dep’t of Envmnt’l Protec., 563 A.2d 762, 768. Given the absence of authority construing

7

section 1434(2) as abrogating the usual test for preliminary injunctive relief,3 or anything in the

plain language of the statute suggesting such a construction, and considering the well-developed

jurisprudence of preliminary injunctive relief generally, the Court concludes that Denron’s motion

must be treated as a motion for a preliminary mandatory injunction. Because Denron has conceded

that it cannot satisfy that test, or at the very least, has declined to raise any argument with respect

to that test, the Court denies Denron’s motion for protection and funds for fees. This ruling is

without prejudice to Denron seeking contribution or indemnification from Dennis for any funds

that it maintains were wrongfully withheld, or for any other ultra vires actions or abstentions by

Dennis as Denron’s treasurer that Denron sought to compel Dennis to comply with in the instant

motion. The Court expresses no opinion as to the legal merits of Denron’s complaints about

Dennis’s actions as treasurer during the pendency of this lawsuit.

4. The Application of Fourth-Generation Shareholders for Relief other than Dissolution

The Fourth-Generation Shareholders likewise invoke 13-C M.R.S. § 1434(2) in support of

their motion, which likewise functionally seeks preliminary injunctive relief: an order validating

the creation of a third board seat for the Fourth-Generation Shareholders that was purportedly

approved by majority vote of CDI’s shareholders in December 2014. Ronald opposes essentially

on the same grounds as Dennis in the motion described above: that the Court cannot order any

“relief other than dissolution” until a plaintiff has prevailed in its dissolution action. See 13-C

M.R.S. § 1430(2). However, Ronald characterizes the Fourth-Generation Shareholders’ motion as

one for partial summary judgment as opposed to one for preliminary injunction.

3 Alternatively, the Court would exercise its discretion and deny Denron’s motion even if section 1434(2) authorized

the preliminary injunctive relief Denron seeks in its motion. There is little authority construing what a party must

show to be entitled to relief under the section and the plain text provides that the Court’s authority to enter an order is

discretionary in any event. 13-C M.R.S. § 1434(2). Some minimal, preliminary factual record must be before the

Court before it can order the extraordinary relief of a mandatory preliminary injunction, even if it were allowed under

the statute.

8

As attractive and pragmatic as the solution proposed by the Fourth-Generation

Shareholders may be, the Court declines to diverge from its conclusion above that 13-C M.R.S. §

1434(2) contemplates a court ordering relief “other than dissolution” only once a plaintiff has

proven that it is entitled to judicial dissolution. See 13-C M.R.S. § 1430(2). The primary argument

of the Fourth-Generation Shareholders is that dissolution is not appropriate, and they further argue

that ordering the disputed third director seat to be filled would mitigate the conflicts which gave

rise to this litigation, which could in turn enable these profitable entities to continue. The solution

they propose, however, must be denied on procedural grounds. The two motions brought pursuant

to 13-C M.R.S. § 1434(2) demonstrate the danger inherent in a broad construction of the statute as

allowing courts to order preliminary relief without satisfying the usual standard for such an

extraordinary remedy: essentially, forcing the court into the role of receiver before a decision has

even been reached on the ultimate issue of whether dissolution is appropriate or allowable under

the statute. For these reasons, the Fourth-Generation Shareholders’ motion must be denied, and

the Court expresses no opinion on whether the third board seat was properly created.

CONCLUSION

Based on the foregoing, the entry will be:

1. Defendant Denron’s motion for partial summary judgment on Count III is DENIED.

2. Defendant CDI’s motion for partial summary judgment on Count III is DENIED.

3. Defendant CDI’s motion to exclude expert testimony of Mark Filler is DENIED.

4. Defendant Denron’s motion for protection and funds for fees is DENIED.

5. Intervenor’s Fourth-Generation Shareholder’s motion for relief other than dissolution is

DENIED.

9

The Clerk is requested to enter this Order on the docket for this case by incorporating it by

reference. M.R. Civ. P. 79(a).

Dated:_______________ ______________________________

M. Michaela Murphy

Justice, Business and Consumer Court

10

BCD-CV-2017-39

Dennis Barriault

v.

Denron Inc.,

Ronald Barriault,

et al.

Dennis Barriault George Dilworth, Esq.

Julia Pitney, Esq.

84 Marginal Way Suite600

Portland, ME 04101

Denron Inc Timothy Bryant, Esq.

One City Center

PO Box 9546

Portland, ME 04112-9546

Ronald Barriault Kurt Olafsen, Esq.

75 Pearl Street

Suite 215

Portland, ME 04101

Central Distributors, Inc. Daniel Nuzzi, Esq.

184 Main Stree

PO Box 3070

Lewiston, ME 04243-3070

Intervenors

Michael D. Barriault Timothy Norton, Esq.

Renee C. Barriault John McArdle, Esq.

Amy L. Barriault 53 Exchange Street

PO Box 597

Portland, ME 4112

STATE OF MAfNE BUSINESS & COUNSUMER

CUMBERLAND, ss. DOCKET NO. BCD-CV-17-39

RONALD F. BARRIAULT, )

)

Plaintiff, )

)

v. ) ORDER ON DENNIS BARRIA ULT'S

) MOTION FOR COURT-APPOINTED

DENNIS A. BARRIAULT, et al., ) EXPERT

)

Defendants. )

)

)

Pending before the Court is Defendant Dennis A. Barriault's motion for court appointed

expe1i brought pmsuant to M.R. Evid. 706. Defendant Central Distributors, Inc. ("CDI") joins

the motion in part. 1 Plaintiff Ronald Barl'iault and Counterclaim-Defendant Denron, Inc. oppose

the motion, The Court heard oral argument on the motion on August 6, 2018. Ronald Lebel, Esq.

appeared on behalf of Dennis; 2 Kutt Olafsen, Esq. appeared for Plaintiff Ronald; Daniel Nuzzi,

Esq. appeared for CDI; and Timothy Bryant, Esq. appeared for Denron.

BACKGROUND

This case arises out of the ongoing dispute between Dennis and Ronald over the

management and directorship of two corporations. CDI is a Maine corporation with its principal

place of business at 15 Foss Road, Lewiston, Maine. (Pl's Comp! ~ 3.) CDT is a wholesale

distributo't· of beer, wine, and nonalcoholic drinks. (PJ's Compl. ~ 4.) Denron was incorporated

by Dennis and Ronald on May 22, 1986 and is a Maine business corporation with a principal

place of business in Lewiston, Maine. (Defs Countercl. ,r,r 3-4.) Denron owns the Foss Road

1

CDI joins the motion, provided that it is not asked to contribute to the cost of such an expe1i. (CDI Resp. to Mot.

4.)

2

Because the two individual patties share the same last name, the Court refers to them both by their first names

throughout this Order.

property and leases it to CDI. (PJ's Compl. ii 7.) Ronald and Dennis each own 50% of the voting

stock of Denron. (PJ's Comp 1. ,r 8.)

ln this case, Barriault v. Barriault et al., original docket number BCD-CV-17-54,3

Ronald is suing for, inter alia, judicial dissolution of CDI. (Pl's Comp!. ,r,r 43-47.) Dennis has

counterclaimed for, inter alia, relief other than dissolution of CDI under 13-C M.R.S. § 1434.

(Def's Countercl. ,r,r 37-41.) William Howell conducted an expert valuation of CDI on behalf of

CDI and produced a valuation report on April 6, 2018 in which he concludes that the fair value

of the 100% shareholder interest in CDI was $10,295,000 as of December 31, ?.017. (Defs Mot.

for Ct. App. Exp. Witness ,r 4.) Mark Filler conducted an expert valuation of CDI on behalf of

Ronald and produced a valuation report in which he concludes that the value of a 100%

shareholder interest in CDI as of December 31, 2017 was $30,207,200. (Def's Mot. for Ct. App.

Exp. Witness ,r 6.) Accordingly, the two experts engaged by the paities are $19,912,200 apa1t in

their valuations of CDI. (Def s Mot. for Ct. App. Exp. Witness ,r 8.)

STAND ARD OF REVIEW

"On a party's motion or on its own, the court may order the parties to show cause why

expe1t witnesses should not be appointed and may ask the parties to submit nominations. The

court may appoint any expert that the pa1ties agree on and any of its own choosing." M.R. Civ.

P. 706(a). "Although [M.R. Evid. 706) recognizes that the power of the trial judge to appoint an

expert of his own choosing should exist, ... that exercise of power in civil cases should be

resorted to only in exceptional situations." M.R. Evid. 706 advisers' note to former rule 706,

Feb. 1976. The trial court's authority to appoint an independent expert witness is discretionary.

' Dennis's motion is captioned under BCD-CV-17-39 consistent with the June 1, 2018 order consolidating this

action with BCD-CV-17-54. CDI's valuation is at issue in the pleadings originally filed in BCD-CV-17-54.

2

See In re Irene W., 561 A.2d 1009, 1012 (Me. 1989); Villa v. Smith, 534 A.2d 1310, 1312 (Me.

1987).

DISCUSSION

Dennis argues that given the $19,912,200 disparity in the valuation between CDI 's expert

and Ronald's expert, the Comt should exercise its discretionary authority and appoint its own

expe1t to determine the fair value of a 100% shareholder interest in CDI. (Def's Mot. for Ct.

App. Exp. Witness ~ 9.) Ronald responds that the fact that the two experts have a substantial

disagreement is not unusual in civil litigation and that the disagreement can be resolved by the

factfinder without the need for an additional, independent expert. (Pl's Opp. Mot. for Ct. App.

Exp. Witness 1.) Ronald further suggests that the difference in valuation in this case relates to

primarily one issue-what type of potential buyer should be considered for purposes of

determining value. (PJ's Opp. Mot. for Ct. App. Exp. Witness 1-2.) At the oral argument, Ronald

explained that while one valuation assumes a "hypothetical buyer," i.e. a "financial buyer or

investor," the other valuation assumes a "synergistic" or "strategic buyer" who is already in the

industry and seeks a larger market share.

The Court agrees with Ronald that this case does not present an exceptional circumstance

warranting the court-appointment of an independent expert. See M.R. Evid. 706 advisers' note to

former rule 706, Feb. 1976. The "dueling expe1t" situation is not uncommon, particularly with

respect to valuations of a business in the context of dissolution or buyouts. "Granting the evils in

the practice of shopping for experts and the partisanship or venality of some of them, there are

serious questions about whether a court appointment is the wise remedy. It has the effect of

leaving little of the traditional adversary system ...." Field & Murray, Maine Evidence§ 706.3

at 419 (6th ed. 2007). To the extent that the experts offer inconsistent versions of the truth, it is

3

the role of the factfinder to determine which version is better supported and more credible. As

the Adviser's Note to M.R. Evid. 706 explains, the appointment of a court-appointed expert runs

the risk of abdicating that responsibility to the expert: "In any jury case the opinion of an expe1t

known to be court appointed ... would almost surely be given decisive weight. In a case tried

without jury the judge who selected the expert could scarcely be expected by the patties not to

adopt his opinion." M.R. Evid. 706 advisers' note to former rule 706, Feb. 1976.

Furthermore, at the oral argument, Ronald suggested that the determination of which

expert's opinion is correct may turn on a question of law. As noted above, the difference between

the two valuations can apparently be explained by the valuation method used by the expett.

Ronald argued at the oral argument that the issue of which valuation method is consistent with

Maine's Business Corporation Act's requirement that a shareholder's shares be appraised at "fair

value" is a legal question within the purview of the Court. See 13-C M.R.S. §§ 1302, 1434(2)(A).

Moreover, Dennis has suggested that the valuation method of Ronald's stock is dictated by a

contract, the ''CDI buy-sell agreement." (Def's Mot. for Ct. App. Exp. Witness ,r,r 2-3, 9.)

Ronald disagrees that the price for his stock must be determined under the CDI buy-sell

agreement. (Pl's Opp. Mot. for Ct. App. Exp. Witness 2.) The factual and legal issues pt·esented

in contract construction are not issues which an independent business-valuation expert would be

helpful in resolving. See, e.g. Am. Prot. Ins. Co. v. Acadia Ins. Co., 2003 ME 6, ,r 11, 814 A.2d

989 (contract construction may present questions of both law and fact).

In sum, the experts' dispute as to the valuation of CDI presents both factual and legal

issues within the purview of the fact-finder or the Court, respectively. The court appointment of

an independent expert would not be helpful in resolving them.

4

CONCLUSION

Based on the forgoing it is hereby ORDERED:

That Defendant Dennis A. Bardault's motion for court appointed expert is DENIED.

The Clerk is requested to enter this Order on the docket for this case by incorporating it by

reference. M.R. Civ. P. 79(a).

Dated: CZ /-1.. It Y

M~ P

Justice, Business and Consumei· Court

Entered on ttie Doc_

ket:9L lj

'1 i ;;,

Copies sent via Ma1t_E\ectromcally_

5

STATE OF MAINE BUSINESS & COUNSUMER /

CUMBERLAND, ss. DOCKET NO. BCD-CV-17-39

DENNIS BARRIAULT, )

)

Plaintiff, )

)

v. ) COMBINED ORDER ON PENDING

) MOTIONS

DENRON, INC., et al., )

)

Defendants. )

)

)

Pending before the Court is Defendant Demon, Inc.'s motion to dismiss the amended

complaint (the 11 Complaint") and Plaintiff Dennis Barriault's motion to compel discovery, The

Court heard oral argument on the motion on November 5, 2018, Timothy Bryant, Esq. appeared

for Denron and Kutt Olafsen, Esq. appeared for Party-in-Interest Ronald Barriault. Dennis• was

represented by Toby Dilworth, Esq.

BACKGROUND

Dennis and Ronald are brothers and former business partne1·s who are the only directors,

officers, and shareholders of Denron, each owning fifty-percent of Demon's shares, Ronald is

Denron's president and Dennis ls its treasurer, Dennis's Complaint principally seeks judicial

dissolution of Denron based on allegations that Ronald hired a lawyer (Mr. Bryant) for the

corporation without Dennis's knowledge or apprnval and directed Mr. Bryant to agree to a consent

judgment between Ronald and Denron in a lawsuit that R011ald had filed against Denron to

wrongfully procure direct personal control of up to $400,000 of corporate money, At the oral

•Ronald Barriault and Dennis Barriault are bmthers who share the same last name. The Court therefore refers to them

by their first names in the Orde1·.

1

argument, the parties confirmed that $300 1000 was disbursed in equal parts to Demon's two

shareholders (Ronald and Dennis) and that $100,000 was deposited into a Denron bank account,

although apparently only Ronald has the ability to draw on that account,

Denron now moves to dismiss the Complaint, principally on the grounds that it does not

allege fraud by Denron with sufficient particularity. Dennis has brought a motion to compel

discovery responsive to a prior request for communications between Ronald and Mr. Bryant

(Denron 's counsel); Denron objected to the request on the grnunds that such correspondence is

protected by attorney~client privilege.

DISCUSSION

I. Motion to Dismiss

In reviewing a motion to dismiss under Rule 12(b)(6), the complaint is viewed "in the light

most favorable to the plaintiff to determine whether it sets forth elements of a cause of action or

alleges facts that would entitle the plaintiff to relief pursuant to some legal theory.'' Id. (quoting

Saunders v. Tisher, 2006 ME 94, ~ 8, 902 A.2d 830). ''Dismissal is warranted when it appears

beyond a doubt that the plaintiff is not entitled to relief under any set of facts that he might prove

in support of his claim." Id. While general allegations are usually sufficient to satisfy this liberal

pleading standard, our rules of civil procedure apply a heightened standard for pleading special

matters, such as fraud. See M.R. Civ. P. 9. "In all averments of fraud ... , the circumstances

constituting fraud ... shall be stated with particularity." M.R. Civ. P. 9(b).

Dennis's two-count Complaint alleges, inter alia, that Ronald as president of Denron "is

acting, or will act in a manner that is illegal, oppressive or fraudulent" as grounds for his request

for judicial dissolution ofDenron. (Pl 's Compl. ! 5 .b.) Denron has moved to dismiss the Complaint

on the grounds that this allegation lacks the specificity demanded by M.R. Civ. P. 9(b), In his

2

written opposition, Dennis argues that because the Complaint does not plead fraud as a cause of

action that Rule 9(b)'s heightened pleading requirement has no bearing on whether the Complaint

should be dismissed for failure to state a claim pursuant to M.R. Civ. P. 12(b)(6). At the oral

argument, Dennis further argued that the purpose behind Rufe 9(b) is "to allow the defendant to

be fairly apprised of the elements of the claim" and because Denron has actual knowledge of the

fraudulent acts alluded to in the Complaint the Rule should not apply here. See Stevens v.

Bouchard, 532 A.2d 1028, .!030 (Me. 1987) (citing 1 Field, McKusick & Wroth,Main.e Civil

Practice, § 9.2 at 221 (2d ed. 1970)). Denron responded thnt it has only a general understanding

of Dennis's complaint of fraudulent behaviol'' and that Rule 9(b) entitles it to more specificity.

Denron said it would not oppose a motion to amend the Complaint so that Dennis could state his

allegations of fraud with specificity in order to allow Denron to adequately defend itself.

Dennis's argument misapprehends the scope of Rule 9(b) and Rule 12(b). First, Rule 9(b)

applies to "all averments of fraud[,]" not only when fraud is pleaded as a stand-alone cause of

action. M.R. Civ. P, 9(b). Second, a party's .failure to meet the requirements of M.R. Civ. P, 9(b)

is grounds for dismissal pursuant to M.R. Civ. P. 12(b). See Barnes v. McGough, 623 A.2d 144,

146 (Me, 1993) (H[B]ecause the plaintiffs have alleged that the defendants 1 conduct involved fraud,

the provisions of M.R. Civ, P. 9(b) must also be considered in addressing the motion to dismiss.>');

see also 2 Harvey & Merritt, Maine Civil Practice§ 9:2 at 384 (3d, 2011 ed.) ("J:f]aiJure to comply

with the 1·equirements of Rule 9(b) may ordfoarHy lead to a dismissal under 12(b) for failure to

state a claim").

However, when a motion to dismiss is granted for failure to comply with Rule 9(b), "it

would presumably be with leave to amend." Id.; see M.R. Civ. P. 15(a). At the oral argument,

•rn pa1ticular, at the oral argument, Mr. Bryant expressed confusion as to whether the Complaint alleges fraud on the

part of Denron, Ronald, or both.

3

Denron said it would not oppose a motion to amend brought by Dennis pursuant to such a dismissal

without prejudice. The Court thel'efore grants Denron's motion to dismiss without prejudice,

II . Motion to Compel

On October 19, 2017, Dennis served requests for production of documents upon Demon

and Ronald, including Request No. 2, which sought "[a]ll communications ... between Ronald , .

. and [Mr. Bryant] ... [between] January 1, 2016 [to the present] relating in whole or in part to

(Barriault v. Denron, No. BCD-CV-18-28] or any of the allegations contained in [Ronald's

complaint) in that matter ....'' (Pl's Mot. Compel Bxs. A, B.) Demon arid Ronald responded to

other requests, but both refused to prnduce any documents in response to Request No. 2 on the

grounds that the information requested was protected by the attorney-client privilege. This case

was then stayed by court order until June l, 2018. Following the dissolution of the stay the parties

made good faith efforts to resolve the discovery dispute but were unable to reach a resolution.

11 Parties may obtain discovery by , .. production of documents , ..." M.R. Civ. P. 26(a).

"Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject

matter involved in the pending action .. , if the information sought appears reasonably calculated

to lead to the discovery of admissible evidence." M.R. Civ. P. 26(b)(l) (emphasis added). Maine

Rule of Evidence 502, "Lawyer-Client Privilege," provides that "A client has a privilege to refuse

to disclose, and to prevent any other person from djsclosing 1 the contents of any confidential

communication ... [b]etween the client . , , and the client's lawyer ...." M.R. Evid. 502(b)(l).

"The privilege may be claimed by ... [any] agent authorized to act on behalf of a legal entity . , .

such as a corporation . , , in legal matters or in obtaining the services of, or communicating with,

an attorney for the entity, ..." M.R. Evid. 502(c)(l)(D). "There is a.presumption that the .. , lawyer

... has authority to claim the privilege on the client's behalf," M.R. Evid. S02(c)(2). 'The party

4

asserting the existence of the attorney-client privilege has the initial burden of demonstrating its

applicabllity. 11 Harris Mgmt., Inc. v. Coulombe, 2016 ME 166, j 24, 151 A.3d 7. The burden then

shifts to the party seeking to pierce the privilege to prove by a preponderance of the evidence that

an exception applies, See id.

Dennis's first argument is that if Ronald is within the privilege, he is too, and can pierce or

waive the privilege. Although the lawyer-client privilege protects communications between

attorneys and corporations, see M.R. Evid. 502(c)(l)(D), the privilege does not pmtect the

communications of every employee of the corporation with the corporation's attorney. Its scope is

limited to members of the so-called "control group" of the corporation, that is, '"those officers,

usually top management, who play a substantial rnle in deciding and directing the corporation 1s

response to the legal advice given,' and other individuals who have fsufficient authority to make

decisions fol' the client(.,]"' Harris Mgmt. v. Coulombe, 2016 ME 166, ~ 15, 151 A.3d 7 (quoting

United Sr.ates v. Upjohn Co., 600 F.2d 1223, 1226 (6th Cfr. 1979), rev 1d, 449 U.S. 383); Advisers•

Note to former M.R. Evid. 502 (Feb. 2, 1976)).

Ronald and Demon do not necessarily dispute that Dennis, as an officer and director of

Denrori, is a member of the "control group." However, Ronald and Denron claim that Dennis is

adverse to Denron in this lawsuit and therefore cannot waive the lawyer-client privilege on

Denron's behalf in order to obtain a strategic advantage against it. See Chambers v. Gold Medal

Bakery, Inc., 983 N.E. 2d 683, 693 (Mass. 2013) (citing SBC Interactive Inc. v. Corp. Media

Partners, No. 15987, 1997 Del. Ch. LEXIS 170, at *18 (Dec. 8, 1997) ("The principle that

directors have a right of equal access to advice of corporate counsel provided to the corporation is

based on the assumption that the interests of the directors are not adverse to interests of the

corporation on a given issue.")

5

In Chambers, the court did not hold that the directors (who were also shareholders) were

adverse merely because they were suing the corporation, but rather concluded more narrowly that

in the context of that case "there [was] sufficient evidence, at least narrowly with respect to the ..

, present litigations, that the plaintiff's interests [were] adverse to [the corporation].'' Id. at 694. In

particular, the court noted that the plaintiffs had brought multiple suits directly against the

corporation over a short span of time, were represented by their own counsel throughout that

period, and their motives were self-interested because their goal in accessing the privileged

information was to maximize their share price in a corporate buy-back. Id. Although Dennis's

motive for obtaining the privileged communications are different in this case, his adversity to

Denron is even more pronounced than that of the plaintiffs in Chambers: Dennis's ultimate goal

in this suit is a judicial dissolution of Demon. (See Am. Campi. ,~ 5-6.) The Court therefore

concludes that regardless of whether Dennis is part of Denron 's "contrnl grnup," Dennis's interests

are adverse to Denron in this lawsuit and therefore Dennis is not e11titled to pierce the lawyer~client

privilege between Ronald and Demon.

Dennis next argues that the "crime~fraud exception" to the lawyer-client privilege vitiates

any privilege between Ronald and Denron. "An opposing party seeking to show that the crime­

fraud exception to the attorney"client privilege applies , . . has the burden to prove, by a

prepondernnce of the evidence, that (1) the client was engaged in (or was planning) criminal or

fraudulent activity when the attorney-client communications took place and (2) the

communications were intended by the clients to facilitate or conceal the criminal or fraudulent

activity." Harris Mgmt., Inc., 2016 ME 166, 9 24, 151 A.3d 7. The Court concludes that Dennis

has failed to carry his burden.

6

In support of his argument, Dennis relies on his "detailed allegations that Ronald

perpetrated a fraud upon the Court" and "documentary evidence" that consists of memoranda he

previously filed in Barriault v. Denron, No, BCD-CV-18-28: his verified motion for joinder and

for relief from judgment and his reply memorandum to Ronald's opposition to that motion. (PJls

Mot, Compel 7,) As noted above, Dennis's allegations in this lawsuit lack the particularity

demanded by M.R. Civ, P. 9(b); furthermore, allegations of fraud are not evidence of fraud.

Furthermore, the "documentary evidence" referenced in Dennis's motion does not prove

by a prepondel'ance of the evidence either that (1) Ronald was planning any fraudulent or criminal

activity when he communicated with Mr. Bryant or (2) that Ronald intended any such

communications to facilitate 01· conceal fraudulent or criminal activity. See Harris Mgmt., Inc.,

2016 ME 166,, 24, 151 A.3d 7. The Court acknowledges that Dennis strongly disagrees with

Demon's decision to consent to judgment in BCD-CV-18-28 and make the distribution sought by

Ronald. However, as "the officer designated as president[,]" Ronald had the statutory authority "to

institute or defend legal proceedings" given the deadlock between the two director/shareholders

on the issue of the distribution,

\

13-C M.R.S. § 842(2). Dennis has established, at most, that he was

not apprised of that litigation. This is insufficient to prove that the crime-fraud exception applies.

Finally, Dennis argues that he "does not seek communications between Denron and its

counsel" but rather "communications between Ronald Barriault and Demon's counsel . , , there

can be no privilege between the Plaintiff in that lawsuit [Ronald] and the attorney for the

Defendant." (Pl' s Mot, Compel 7.) However, the requested communications were between Ronald

in his capacity as president of Denron and Mr. Bryant, not between Ronald in his individual

capacity and Mr. Bryant. Corporations can only act through human beings, and as president,

Ronald was the human being with the statutory authority to act as Denronts representative in the

7

litigation. 13-C M.R.S, § 842(2). It is in this capacity that he has invoked the lawyer"client

privilege. M.R. Evid. 502(c)(l)(D). Dennis cites no authol'ity suggesting that Ronald's

participation in the litigation as an individual is enough to defeat Denron' s assertion of the lawyer­

client privilege with respect to communications between Ronald, in his capacity as Denron's

president, and Denron's counsel.•

CONCLUSION

Based on the foregoing it is hereby ORDERED:

1. Denron's motion to dismiss is GRANTED without prejudice,

2. Plaintiff Dennis's motion to compel is DENIED.

The Clerk is requested to enter this Order on the docket for this case by incorporating it by

reference. M.R. Civ. P. 79(a),

Dated:

M. Michaela Murphy

Justice, Business and Consumer Court

ft ro

Entered onthe Docket: i P.. /1..P

Copies sent viaMail_Electronically~

• At the oral argument, Dennis for the first time raised the argument that because Ronald's interests were adverse to

Denron's in No. BCD-CV-18-28 that Ronald's communications were thlls not protected by lawyer-client privilege

unde1· the rule from Chambers discussed above. 983 N.E. 2d at 693. "[A]bsenl extraordinary circumstances, arguments

raised for the first lime at oral argument al'e waived[.]" Laqua/ia v. Laqualla, 2011 ME 114, ~ 16 n.6, 30 A.3d 838

(citing United Statesv. Pu/.ido, 566 F.3d 52, 60n.4(1st Cir. 2009)}: see also C/wdwick-BaRoss, l11c. v.Martin Marietfa

Corp., 483 A.2d 711,717 (Me. 1984) ("Generally, an issue not addressed by the brief of either party and raised at oral

argument is viewed as waived. , . ."),

8