Rafsky v. SmallBizPros, Inc.

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STEVEN M. RAFSKY, Plaintiff, v. SMALLBIZPROS, INC., SUE BOSEVICH, EXECUTRIX OF THE ESTATE OF DAN SAUTNER, and BRIAN AUSTIN, Defendants.

Civil Action No. 20-11148-TSH

United States District Court, D. Massachusetts

March 19, 2024

MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS

TIMOTHY S. HILLMAN SENIOR DISTRICT JUDGE

Introduction

Defendants Smallbizpros, Inc. (“Smallbizpros”), Executrix Sue Bosevich on behalf of decedent Dan Sautner (“Sautner”), and Brian Austin (“Austin”) (collectively the “Defendants”), move to dismiss all counts in Plaintiff Steven Rafsky's (“Rafsky”) Amended Complaint on res judicata grounds. (Docket No. 32). Rafsky opposes this Motion. After careful review of the record, the briefs, and hearing the parties at oral argument the Court grants the Defendants' Motion to Dismiss in its entirety.

Factual Background^[1]

Plaintiff Rafsky is the former Chief Executive Officer and former Chair of the Board of Defendant Smallbizpros. Smallbizpros is a corporation organized under the laws of Georgia with a principal place of business in Athens, Georgia, which was formed on or about January 31, 2003. Smallbizpros is engaged in the business of accounting, tax preparation, consulting and payroll services throughout North America, with a focus on small businesses. Rafsky served as Smallbizpros' Chief Executive Officer and as a member of its Board of Directors until September 20, 2019, when his employment and status as Board member were terminated.

The Smallbizpros Board of Directors, which included Defendants' decedent Sautner and Austin as members, voted to move forward to sell the company shortly before Rafsky was terminated. Defendants' decedent Sautner and Austin then allegedly executed a “hostile takeover” of Smallbizpros to stop the sale of the company and remove any Board members who did not agree. After taking a controlling share in the company, Defendants' decedent Sautner and Austin allegedly caused Smallbizpros to remove Rafsky from the Board and terminate Rafsky as CEO. Rafsky alleges that he is owed wages related to a deferred compensation agreement back wages and unused vacation time while he was still acting as an employee of Smallbizpros, as well as severance related to his termination as CEO and Board member at Smallbizpros.

Procedural Background

This case was previously litigated in the United States District Court for the Middle District of Georgia (the “Georgia Action”) as a shareholder dispute. Rafsky and other plaintiffs filed their initial Georgia complaint in October 2019, and their amended Georgia complaint on March 24, 2020, in which they alleged, inter alia, that they were wrongfully removed from the management and active involvement of Smallbizpros via a “hostile takeover” undertaken by the defendants in the Georgia Action. The plaintiffs in the Georgia Action filed suit against all the named Defendants here, among others. Once discovery concluded, the parties to the Georgia Action eventually submitted dueling Summary Judgment motions. District Judge Land then issued a lengthy opinion on May 11, 2021, in which he ruled against the Georgia plaintiffs on their request for a declaratory judgment and granted the Georgia defendants' summary judgment motion, ruling against all the Georgia plaintiffs' other claims. Specifically, Judge Land found that the Georgia defendants acted properly and with authority when they removed Rafsky and others from the Smallbizpros Board and then subsequently terminated Rafsky's employment as CEO. Rafsky and other plaintiffs then timely took an appeal from the Order of the Middle District of Georgia to the Court of Appeals for the Eleventh Circuit. The Eleventh Circuit affirmed the Middle District of Georgia's decision on July 20, 2022, resulting in a final judgment on the merits.

Seven months later, the present action (the “Massachusetts Action”) arose from a complaint Rafsky filed on April 24, 2020, in the Massachusetts Superior Court, Business Litigation Section. Rafsky's complaint alleges similar claims to those alleged in the Georgia Action, with an added Massachusetts Wage Act claim (Count I), two contract claims (Counts IIIII), and a severance claim (Count VIII) related to his termination as CEO of Smallbizpros. On August 17, 2020, the Defendants removed the action to this Court pursuant to its diversity jurisdiction. 28 U.S.C. § 1332(a). The Defendants then moved to dismiss the case on August 24, 2020, under prior pending acting doctrine, or in the alternative transfer the case to the Middle District of Georgia or issue a stay pending resolution of the Georgia Action and any appeals arising therefrom. Accordingly, Judge Woodlock of this Court issued a stay on November 10, 2020. Defendants now move to dismiss the complaint for a second time, contending that this Court should dismiss all counts on res judicata grounds.

Standard of Review

The doctrine of res judicata establishes that claims arising from the same transaction or a common nucleus of operative facts that have been fully adjudicated on the merits are barred from further litigation. Airframe, 601 F.3d 9, 12 (1^st Cir. 2010). The interests undergirding the application of res judicata include “protecting litigants against gamesmanship and the added litigation costs of claim-splitting, and preventing scarce judicial resources from being squandered in unnecessary litigation.” Id. at 14. “Those interests [in applying res judicata] are especially implicated... where the plaintiff had every opportunity to fully litigate its various claims against the full range of defendants in an earlier suit and made the strategic choice not to do so.” Id. “Plaintiffs cannot obtain a second chance at a different outcome by bringing related claims against closely related defendants at a later date.” Id.

“... [T]he rule in this Circuit is that the ‘federal law of res judicata governs the effect of a prior federal judgment.'” Lube 495, Inc. v. Jiffy Lube Int'l, Inc., 813 F.Supp. 100, 111 (D.Mass. 1993) (“Lube”) (quoting Johnson v. SCA Disposal Services of New England, 931 F.2d 970, 974 (1^st Cir. 1991)). “All claims which are part of the same cause of action are extinguished, whether or not asserted in the original action.” Kale v. Combined Ins. Co. of America, 924 F.2d 1161, 1164 (1^st Cir. 1991), cert. denied, 502 U.S. 816, 112 S.Ct. 69 (1991); accord Airframe, 601 F.3d at 14 (citing Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)) (“Federal claim preclusion law bars parties from relitigating claims that could have been made in an earlier suit, not just claims that were actually made”).

The doctrine of res judicata is applicable when the following factors are met: “(1) the earlier suit resulted in a final judgment on the merits, (2) the causes of action asserted in the earlier and later suits are sufficiently identical or related, and (3) the parties in the two suits are sufficiently identical or closely related.” Airframe 601 F.3d at 14. Causes of action are sufficiently identical when they “derive from a common nucleus of operative facts.” Breneman v. U.S. ex rel. F.A.A., 381 F.3d 33, 38 (1^st Cir. 2004) (quoting Gonzalez v. Banco Cent. Corp., 27 F.3d 751, 755 (1^st Cir. 1994)). Courts determine whether the first claim and the subsequent claim are derived from a common nucleus of operative facts by looking to factors such as “whether the facts are related in time, space, origin or motivation,” “whether they form a convenient trial unit,” and whether treating them as a unit “conforms to the parties' expectations.” In re Iannochino, 242 F.3d 36, 46 (1^st Cir. 2001) (“Iannochino”) (quoting Restatement (Second) of Judgments § 24 (1982) (internal quotation marks omitted).

Discussion

As a preliminary matter, Rafsky concedes that the Georgia Action bars Count IV (“Misrepresentation, Fraud & Deceit”), Count IX (“Minority Freeze-Out / Breach of Fiduciary Duty”), and Count X (“Conspiracy”). The Court accordingly dismisses each of these Counts with prejudice. Now the Court will consider the res judicata factors as applied to the remainder of Rafsky's claims. Airframe 601 F.3d at 14.

Res Judicata Factors-Relatedness of the Causes of Action

Rafsky asserts that the remaining Counts, I-III, V-VIII, and XI-XII, are not barred by res judicata. Both parties agree that the first and third res judicata factors are met by the Massachusetts Action. The parties disagree, however, on whether the second res judicata factor is met by the Massachusetts Action, with Rafsky asserting that the Massachusetts Action is not sufficiently identical or related to the cause of action in Georgia.

The second res judicata factor is met when there is sufficient identicality between causes of action in both suits. See Airframe 601 F.3d at 14. This identicality is found when both sets of claims - those asserted in the earlier action and those asserted in the subsequent action - derive from a common nucleus of operative facts. Kale, 924 F.2d at 1166; Gonzalez, 27 F.3d at 755. In deciding whether there exists a common nucleus, factors the Court may consider are “whether the facts are related in time, space, origin or motivation,” “whether they form a convenient trial unit,” and whether treating them as a unit “conforms to the parties' expectations.” Iannochino, 242 F.3d at 46. The Court considers each of these factors in turn.

Relatedness of Facts

The Georgia Action and the Massachusetts Action rely on facts “related in time, space, origin or motivation” because both the Georgia Action and several of the Counts in the Massachusetts Action rely on the following facts Defendants decedent Sautner and Austin allegedly executed a “hostile takeover” of Smallbizpros to stop the sale of the company and, after taking...