Genesis Technical & Financial, Inc. v. Cast Navigation, LLC
Genesis Technical & Financial, Inc. v. Cast Navigation, LLC
Opinion of the Court
We decide in this appeal from a summary judgment whether a corporate director has engaged in self-dealing such that the claimed interest in certain intellectual property is held in constructive trust. David A. Billings was an officer and
Disputes between Billings and Blais arose from their involvement in other business ventures.
Genesis essentially claims that Cast defaulted on its software licensing payments and seeks a declaration that Genesis is the sole owner of all rights to the software and its licensing.
The defendants filed a motion for summary judgment. A Superior Court judge granted summary judgment in favor of Cast, ruling that Billings’s fiduciary duty to Cast included a paramount duty of loyalty and that Billings, through his corporation Genesis, is not entitled to acquire the benefit of any software rights to the detriment of Cast. The judgment declares in essence that Genesis holds any rights to the software, including the right to receive related licensing fees, in a constructive trust for the benefit of Cast.
Discussion. 1. Reconsideration of ruling. The summary judgment from which Genesis has appealed followed the second time that the Superior Court judge had considered a motion for summary judgment brought by the defendants. The judge denied the first motion on the ground that material issues of fact precluded summary judgment. Relying on Littles v. Commissioner of Correction, 444 Mass. 871, 878 (2005), Genesis argues that because the second motion did not present a change in circumstances or new evidence material to the outcome, the judge could not reconsider her earlier decision.
As the Littles court states, “[I]f there is no material change in circumstances, a judge is not obliged to reconsider a case, issue, or question of law after it has been decided.” Ibid. That she was not “obliged” to reconsider the matter did not divest the judge of her broad discretion to do so. It is settled law that the power to reconsider an issue previously considered, whether by the same judge or another, “remains in the court until final judgment.” Riley v. Presnell, 409 Mass. 239, 242 (1991), citing Peterson v. Hopson, 306 Mass. 597, 601 (1940). “The denial of a motion for summary judgment is not a final judgment or decree and thus the trial judge was within h[er] authority to reconsider and alter the prior decision.” Riley v. Presnell, supra. See Kuwaiti Danish Computer Co. v. Digital Equip. Corp., 438 Mass. 459, 465-466 (2003).
2. Summary judgment, a. Standard of review. “Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as matter of law.” Kanamaru v. Holyoke Mut. Ins. Co., 72 Mass. App. Ct. 396, 398 (2008). Here, we view the facts in the light most favorable to the plaintiff, the nonmoving party against whom judgment entered. The moving party has the burden of affirmatively demonstrating that the pleadings raise no genuine
b. Undisputed facts. We expand upon the undisputed material facts, having in mind the foregoing principles. In 1999, a predecessor to Cast was owned by Averstar. The predecessor manufactured test equipment for navigational devices used primarily by the military. Averstar developed software and related equipment for testing navigational devices. Over the period from late 1999 to early 2000, Blais and others sought to purchase Cast’s predecessor from Averstar and engaged Billings’s consulting company, GTFM, LLC, see note 3, supra, to provide consulting and due diligence services. In about March, 2001, the new entity, Cast, was formed, which then went into the business of producing the test equipment. Blais was Cast’s principal shareholder, owning seventy percent of Cast’s stock. Billings and Blais, among others, became officers and directors of Cast. Necessary to Cast’s business was the Averstar computer software technology which Cast agreed to license from Averstar. The amount of the license fee was set as a percentage of Cast’s annual revenues for a period of years. Cast had the option of purchasing the software outright upon payment of both the license fee on $8 million in collections (a minimum of $1.1 million) and a $300,000 lump sum, or a total of $1.4 million.
Cast commenced operations in about April, 2000. During the second quarter of 2000, Averstar merged with Titan Corporation, a publicly traded company. Averstar/Titan
1. Averstar/Titan would assign the rights to receive licensing fees for its software, along with an option to purchase the software outright at a specified time for nominal consideration,9 to Genesis, a “shelf” corporation10 wholly owned*209 and controlled by Billings (who had no formal ties to Averstar/Titan);
2. Genesis would borrow the $675,000 needed to obtain those rights from BlaisCo, which was owned and controlled by Blais11 ; Genesis would immediately transfer the funds to Averstar/Titan in payment for the rights;
3. Genesis would execute and make payments on the promissory note to BlaisCo in return for the loan; Cast would license the software from Averstar/Titan and pay the licensing fees to Genesis.
Everybody involved, including Blais and Billings, understood that these various machinations were simply a means of structuring the deal in a manner to satisfy Averstar/Titan’s reported accounting concerns,
Genesis claims that the existence of several disputes regarding facts material to the outcome preclude summary judgment. However, these asserted factual disputes are relevant only if the motion judge erred in concluding that Genesis holds any rights in the software for the benefit of Cast. We therefore focus our discussion on that issue.
c. Constructive trust. As we have noted, there is no genuine dispute that Billings entered into negotiations with Averstar/ Titan on behalf of Cast and that ultimate purchase by Cast of the software rights was a corporate opportunity for Cast. It also is not seriously disputed that Billings did not disclose to Cast’s board of directors prior to the board’s approval of the arrangement that he or Genesis would have or claim an enforceable interest in the bargain.
The entrenched standard of behavior demanded of a director in this situation is “[n]ot honesty alone, but the punctilio of an honor the most sensitive . . . .” Meinhard v. Salmon, 249 N.Y. 458, 464 (1928) (Cardozo, C.J.). “[T]o meet a fiduciary’s duty of loyalty, a director or officer who wishes to take advantage of a corporate opportunity or engage in self-dealing must first disclose material details of the venture to the corporation, and then either receive the assent of disinterested directors or shareholders, or otherwise prove that the decision is fair to the corporation. Otherwise, the officer or director acts in violation of his fiduciary duties, and whatever gain or advantage that he acquires may be held for the benefit of the corporation so as to deny him any benefit or profit.” Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 532-533 (1997). “The nondisclosure of a corporate opportunity is, in itself, unfair to a corporation and a breach of fiduciary duty.” Id. at 535. “The prohibition against self-dealing on the part of corporate fiduciaries requires that the corporation receive the full benefit of transactions in which an officer engages on the corporation’s behalf, without thought to personal gain . . . Getter v. Allied-Lyons PLC, 42 Mass. App. Ct. 120, 122-123 (1997).
Genesis does not claim that Billings made an affirmative disclosure of his interest in the transaction to the board of Cast. Genesis argues that because the Cast directors knew the terms of the agreement as reflected in the transaction documents (which on their face gave Genesis rights to the software intended for Cast), the disinterested board members also knew that Billings could stand to benefit from the arrangement. This appears to assume that, because the deal as structured reflects a transfer to
Genesis agrees that the purpose behind Billings’s negotiations was to procure the Averstar technology for Cast; it makes no claim that, apart from inferences to be drawn from the transaction documents, the board was informed that Genesis or Billings might benefit from the arrangement. The summary judgment materials establish that Cast’s disinterested board members understood that the deal to obtain the Averstar software and the license was a corporate opportunity belonging to Cast.
“If during the existence of [a partnership or joint venture]
Conclusion. For the foregoing reasons, we affirm the judgment of the Superior Court.
So ordered.
The transaction documents reflect that Averstar assigned to Genesis its right to receive royalties from Cast and an option to purchase the software outright for a nominal sum. Genesis financed the purchase of the assignment through a $675,000 loan from Blais’s company, BlaisCo. Genesis pledged its interest in the assignment to BlaisCo as security for, and agreed to pay interest and principal on, a $675,000 promissory note executed in favor of BlaisCo. Cast promised to pay to Genesis royalties due under the license agreement assigned to Genesis.
At the time, Blais and Billings together controlled a consulting company, GTFM, LLC. Billings and Blais later had a falling out; Blais and others forced Billings out of GTFM, LLC, and transferred the business to another entity.
In its nine-count complaint, Genesis asserts a breach of contract claim against Cast for failing to make royalty payments (count I), seeks an accounting from Cast (count II), raises a breach of contract claim against BlaisCo
In addition to seeking this declaration under count I, the defendants’ counterclaim seeks an alternative declaration that if Genesis does not hold the rights in trust for Cast, then BlaisCo is entitled to such rights (count II). The counterclaim also asserts, against Genesis, claims of abuse of process (count III) and violation of G. L. c. 93A (count IV); and against Billings, a third-party claim for breach of fiduciary duty (count V). The latter count duplicates the allegations set forth in a separately filed third-party complaint against Billings.
As to count V of the complaint of Genesis, the judgment specifically declared as follows:
“that plaintiff [Genesis] is not a party to or assignee of the [Cast/Averstar] [l]icense [a]greement . . . and has no rights or obligations under that agreement; that [Genesis] is not a party to the so-called License Purchase Agreement [by which Genesis would have purchased the license agreement outright]. . ., since this document was never executed by [Genesis] or any other party; that [Genesis] is a party to the Assignment of License Royalty Payments Agreement. . . but that [Genesis] holds in a constructive trust for the benefit of Cast any rights it has under this Agreement to receive royalty payments from Cast or to acquire the intellectual property of Averstar that is the subject of the Cast/Averstar license agreement . . . ; and that BlaisCo is not entitled to any further payments or other relief from [Genesis] under the . . . [promissory [n]ote ... or the [accompanying] Pledge and Security Agreement. . . .”
Regarding count I of the counterclaim of the defendants, the judgment contained the following declaration:
“[Genesis] holds in a constructive trust for the benefit of Cast any*206 rights it may have under the Assignment of License Royalty Payments Agreement between [Genesis] and [Averstar] ... to receive royalty payments from Cast or to acquire the intellectual property of Averstar that is the subject of the Cast/Averstar license agreement. . . .”
We use the term Averstar/Titan for convenience to refer to the entity formed by the merger.
The parties do not dispute that Averstar/Titan’s concerns about accounting, and an additional concern about the possible bankruptcy of Averstar/Titan, lay at the bottom of the structure ultimately agreed upon.
According to submissions filed by Genesis (none were filed by nonparty Averstar/Titan), Averstar/Titan was concerned that the sale of the software rights to Cast, a former subsidiary of Averstar — or to a shareholder of Cast (such as Blais, who held seventy percent of Cast’s stock) — would appear to violate the pooling-of-interests method of accounting that had been used for the merger of Titan and Averstar. Genesis asserts that for the pooling-of-interests method of accounting to apply, one condition is that there be no deals involving the new entity that benefit insiders or former shareholders of the prior entities. In their brief, the defendants assert that the pooling-of-interests issue required only that the software rights not be sold by Averstar/ Titan to Cast for two years.
We are not concerned that the statements relating any assertions that may have been made by representatives of Averstar/Titan are hearsay, see Forten-bacher v. Commonwealth, 72 Mass. App. Ct. 82, 88 (2008), or that the parties dispute the precise nature of any conditions that may have been imposed upon Averstar/Titan as a result of the merger. What the record must establish, through appropriate summary judgment materials, is what the directors of Cast were told on the subject.
Although Genesis argues that there is a factual dispute over “whether or not [Genesis] purchased the License outright” from Averstar/Titan, this dispute is not material. The license purchase agreement was never signed, and Genesis agrees that the transaction was accomplished through the assignment. As the motion judge noted, “if the license purchase agreement had been executed ... the assignment agreement would have been a nullity . . . .”
So it was referred to by Billings. Because the record does not indicate that Genesis conducts any business or operations, it might be inferred that what was meant is that Genesis is a “shell” corporation. A shell corporation is a company that is incorporated but has no significant assets or operations; it is without independent economic value. See Meyer v. Wagner, 57 Mass. App. Ct. 494, 496 (2003) (equating “shell” corporations with “straws”); Black’s
Blais held ninety-nine percent of the stock of BlaisCo.
We express no opinion on the propriety of the arrangement.
In Genesis’s response to the defendants’ statement of undisputed facts in
One of the definitions of a corporate opportunity is “ ‘[a]ny opportunity to engage in a business activity of which a director or senior executive becomes aware,’ either in connection with performing the functions of those positions, or ‘[t]hrough the use of corporate information or property, if the resulting opportunity is one that the director or senior executive should reasonably be expected to believe would be of interest to the corporation’ ” (footnote omitted). Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. at 530, quoting from Principles of Corporate Governance § 5.05(b)(1) (1994).
Nor do Genesis’s summary judgment materials raise a material issue of fact regarding whether the transaction was fundamentally fair to Cast. “Th[e] ‘fundamental fairness’ test places the burden on the fiduciary who acquires a corporate (or partnership) opportunity, or who engages in self-dealing, ‘to prove that his or her actions were intrinsically fair, and did not result in harm to the corporation or partnership.’ ” Demoulas v. Demoulas Super Mkts., Inc.,
The defendants originally requested that a “resulting” trust be imposed. The motion judge correctly ruled that on the facts of this case imposition of a constructive trust is appropriate.
Case-law data current through December 31, 2025. Source: CourtListener bulk data.