Ex-spouses dispute if wife is shareholder of business

Where a man sued by his estranged wife for allegedly breaching his fiduciary duties and converting property belonging to their joint business argued the wife lacked standing because she wasn’t a shareholder of the company, but it was disputed whether the wife paid for the stock, what the company’s books showed and how a jury would view the payments of dividends to the wife, judgment to the husband was denied.

Background

Renee Mason, the estranged wife of defendant Brian Mazzei, asserts that Mazzei has breached his fiduciary duties and converted property belonging to the professional corporation (Abingdon Foot and Ankle Clinic) of which the parties are shareholders, directors and officers and has tortiously interfered with Mason’s business expectancy. The parties have filed partial cross motions for summary judgment.

Jurisdiction

The court has to determine if it has subject-matter jurisdiction over Counts One and Two, the derivative claims. The amended complaint does not raise a federal question, leaving diversity of the parties’ citizenship as the only potential foundation for jurisdiction.

It is undisputed that Mason is and was at the time of filing a citizen of Maryland, while the clinic and Mazzei are citizens of Virginia. At issue is whether the clinic should be aligned as a plaintiff, which would destroy diversity, or remain as a defendant, which would allow jurisdiction.

An individual suing derivatively is typically considered a nominal plaintiff, and the corporation is aligned as a plaintiff. If this principle applies here, there is no diversity — both the clinic and Mazzei are Virginia citizens. But certain derivative actions are excepted from realignment when the corporation is “in antagonistic hands,” which occurs when the corporation’s management is aligned against the plaintiff.

Mason asserts that she is the majority shareholder, owning 50.2% of the clinic. There is no dispute that she is co-director and is president and that she did not attempt to call a meeting of the shareholders or board of directors to address her concerns. These considerations all weigh toward the alignment of the clinic as a plaintiff.

But despite the appearance of control on paper, the record reveals that in practice, Mason has had no role in the clinic’s management. Based on the record before me and recognizing that this is a close case, I find that the clinic is antagonistic to Mason’s suit, is properly aligned as a defendant, and that diversity jurisdiction exists.

Mazzei’s motion

Mazzei’s motion hinges on a single point — Mason is not a shareholder and therefore does not have standing to sue. There is conflicting evidence that creates a genuine dispute of material fact as to whether the clinic’s books identify Mason as a shareholder. As to whether Mason paid for the stock, material facts are also in dispute.

Finally, it is undisputed that the clinic paid Mason and Mazzei dividends in a joint fashion until divorce proceedings began. This evidence can be conclusive of ownership if such payment was made “upon the shares standing upon the book of the company … when taken in connection with the other evidence.” Here, other evidence of ownership is conflicting and therefore this fact is not conclusive. But a jury could certainly find that the payment of dividends is an indication of shareholder status.

In sum, I find that genuine disputes of material fact exist that are determinative of Mason’s shareholder status. Consequently, Mazzei’s motion will be denied.

Mason’s motion

Mason brings her fiduciary duty and conversion claims derivatively, so shareholder status is a prerequisite. Thus, for the reasons explained above, summary judgment is inappropriate because there is conflicting evidence in the record about whether Mason and Mazzei were in fact shareholders. But aside from the disputed facts regarding shareholder status, I deny Mason’s motion for other reasons.

To establish breach of a fiduciary duty, a plaintiff must prove the existence of a duty, the breach of that duty and subsequent damages. But the breach of such duty is often a matter for the jury to determine. Moreover, there is some evidence in the record that suggests Mason may have acquiesced to and benefited from at least some of the conduct of which she now complains. Mason’s conversion claim suffers a similar fate.

I will also deny Mason’s motion as to her constructive trust and accounting counts. Mason concedes that these are remedies she seeks based on her substantive derivative claims. Thus, I find that these are not subject to determination at this stage of the litigation.

Plaintiff’s motion for summary judgment denied. Defendant’s motion for summary judgment denied.

Mason v. Mazzei, Case No. 1:22-cv-00008, Jan. 18, 2023. WDVA at Abingdon (Jones). VLW 023-3-019. 16 pp.