Wife awarded shareholder distribution from business

Where the wife showed that she was a shareholder with her estranged husband in their podiatrist business, and that he made distributions to shareholders in September 2021 but that she failed to receive any distributions, she was entitled to 50.2% of the distributions.

Background

Renee Mason, a Doctor of Podiatry, has sued her estranged husband Brian Mazzei, also a podiatrist and her former practice colleague, along with their professional corporation, Abingdon Foot and Ankle Clinic PC. Following a two-day bench trial, this opinion represents the court’s decision.

Standing

The defendants contend that Mason is not a shareholder and therefore she does not have standing to bring her derivative claims. It is true that no stock certificate was ever issued and Mason has not presented evidence showing she actually paid the monies she promised to pay for her shares. However, she participated in corporate meetings, signed meeting minutes as a shareholder, was and still is treated as a shareholder on tax returns, up until the fallout with Mazzei, received distributions from the corporation and contributed both labor and furnishings to the corporation.

The corporation never rescinded the resolution in the minutes of the first directors’ meeting authorizing the officers to issue certificates for the shares of stock. Furthermore, Mason is a director of the corporation and the bylaws required that the directors be stockholders.

As for Mason’s failure to pay the amount she promised in her stock subscription, this does not invalidate Mason’s ownership in light of the fact that the corporation and Mazzei have acted as if the parties’ consideration for their subscribed shares was sufficient and effectuated for over 25 years.

Fiduciary duty

Mazzei admitted that he has recently opened another podiatry business, Abingdon Podiatry. The new business is operating in the same location as the corporation, in the building the corporation rents from another of Mason and Mazzei’s companies and is using the same equipment and furnishings. The evidence also indicates that the new business is utilizing the same web address, phone number and has the same patients. This is a textbook example of usurpation of the corporation’s business opportunity for personal gain.

Mason also argues that Mazzei has breached his fiduciary duties by taking unequal distributions and by wrongfully denying her access to the practice’s records and building. However, this portion of the claim is individual in nature.

Finally, Mason argues that Mazzei has breached his fiduciary duty by mismanaging corporate funds. However, in the context of this two-person, family-owned business, the use of corporate funds in this way was standard practice.

Mason also argues that Mazzei has mismanaged the corporate assets by writing checks to cash which went to Mazzei personally and by overdrawing corporate accounts. But she has failed to meet her evidentiary burden as to these allegations.

Conversion

I find that Mazzei has improperly assumed authority over the corporation’s corporate property through his operation of Abingdon Podiatry. But Mason’s personal entitlement to distributed corporate profits and her personal heath savings account are not corporate interests, so her derivative conversion claim with respect to these facts fails.

Tortious interference

Mason avers in her personal capacity that Mazzei has interfered with Mason’s business relationships and economic advantage in the corporation. I do not find that the evidence sufficiently establishes that Mason would have continued seeing patients or realized her business expectancy as a corporate practitioner and earned wages for her labor.

The record next shows that Mazzei declared distributions through the issuance of checks, but that he only wrote checks to himself starting in September 2021. But for Mazzei’s taking all of the declared distribution checks for himself, Mason would have received the benefit of a portion of the profits. Thus, I find that Mason has established by a preponderance of the evidence that Mazzei wrongfully interfered with Mason’s business expectancy with the corporation.

Damages

As for monetary damages to the corporation as a result of Mazzei breach of fiduciary duties and conversion, I find that Mason has failed to establish the extent to which the corporation has been damaged.

Regarding her individual damages, Mason has established that Mazzei paid himself distribution checks totaling $30,250. Thus, I find that Mason is entitled to damages amounting to 50.2% of those distribution payments, or $15,185.50.

I find that an accounting of Abingdon Podiatry is proper solely to disgorge Mazzei from improper gains he, through this new entity, has obtained because of its use of the corporation’s personal and leased property. Those assets should be held in trust for the benefit of the corporation until it is dissolved or otherwise properly sold.

Mason v. Mazzei, Case No. 1:22-cv-00008, March 17, 2023. WDVA at Abingdon (Jones). VLW 023-3-134. 37 pp.