Wade v. Tri-Wire Eng'g Sols., Inc.

JOHN R. WADE, III, SHARON WADE,JOHN WADE IV, and TAYLOR WADE, Plaintiffs, v. TRI-WIRE ENGINEERING SOLUTIONS, INC.,

TRI-WIRE EMPLOYEE STOCK OWNERSHIP TRUST,

SCOTT PERRY, ROBERT R. NEWELL, ROBERT LANDRY,

DAVID GESMONDO, CAPITAL TRUSTEES, LLC,

SPINNAKER TRUST, ROBERT GOULD, JEANINE PENDERGAST,

EMPIRE VALUATION CONSULTANTS, LLC,

SES WINDING UP CORPORATION f/k/a SES ADVISORS, INC.,

SES ESOP STRATEGIES, LLC, as successor to SES ADVISORS, INC.,

BELLMARK PARTNERS, LLC, JOHN MARSH,LORI WENETTA, and RUBEN KLEIN, Defendants,SPINNAKER TRUSTand TRI-WIRE ENGINEERING SOLUTIONS, INC., Counter Claimants, v. JOHN R. WADE, III, Counter Defendant.

Civil No. 20-10523-LTS

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

March 5, 2021

MEMORANDUM AND ORDER ON MOTIONS FOR JUDGMENT ON THE PLEADINGS AND MOTIONS TO DISMISS

SOROKIN, J.

This action results from Plaintiff John R. Wade III's sale of his ownership interest in Defendant Tri-Wire Engineering Solutions, Inc. ("Tri-Wire" or "the company") to the Tri-Wire Employee Stock Ownership Trust ("ESOT") for a substantial sum. Wade and his family members ("Wade" or "the Wades") allege that Wade was illegally stripped of control of the company following the sale and that he and his family members were wrongfully terminated from their positions with the company. Tri-Wire and the ESOT, through its Trustee, counterclaim against Wade alleging that he fraudulently inflated the value of the company prior to its sale.

I. PROCEDURAL BACKGROUND

Wade launched this action with a sprawling Complaint alleging twenty-five counts against sixteen defendants. Doc. No. 1.¹ His Complaint suffered from several flaws. First, there were serious questions as to whether the Complaint, which runs for eighty-two pages not counting exhibits and attachments, complied with Rule 8. See Fed. R. Civ. P. 8(a)(2) (requiring a "short and plain statement"); see, e.g., Doc. No. 1 ¶¶ 33-51 (four-page digression on the history of the American cable telecommunications industry and the founding of Tri-Wire in the 1990s). Second, the Complaint sued the ESOT under the wrong name. Doc. No. 1 at 1 ("Tri-Wire Employee Stock Option Trust" (emphasis added)). And third, Wade's former counsel had neglected to name an essential defendant in the Complaint (the company at issue in this case). See Doc. No. 83 at 2 n.3. Because the parties had already provided extensive briefing on various motions related to the pleadings, the Court ordered Wade to file an Amended Complaint which(1) clarified against whom he was bringing each count, (2) corrected the name of the ESOT as it appears in the caption, and (3) added Tri-Wire as a defendant. Doc. No. 117. Wade complied. Doc. No. 120. Though Wade had the benefit of various motions to dismiss filed by the defendants, he sought to make no other changes to his pleadings.

Various defendants have moved to dismiss the Amended Complaint for failure to state a claim or for lack of subject matter jurisdiction. Doc. Nos. 45, 50, 53, 55, 75.² Tri-Wire and the ESOT, through its trustee Spinnaker Trust, have filed separate counterclaims against Wade, Doc. Nos. 43 & 121, and have both moved for judgment on the pleadings, Doc. Nos. 48 & 122. Wade has moved to dismiss the counterclaims against him. Doc. Nos. 94 & 128. Each of these nine motions have been opposed and are now fully briefed. The Court heard argument on February 23, 2021.

II. LEGAL STANDARDS

"In resolving a motion to dismiss, a court should employ a two-pronged approach. It should begin by identifying and disregarding statements in the complaint that merely offer 'legal conclusion[s] couched as . . . fact[ ]' or '[t]hreadbare recitals of the elements of a cause of action.'" Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011) (alterations in original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The Court must also disregard allegations which, "while not stating ultimate legal conclusions, are nevertheless so threadbare or speculative that they fail to cross 'the line between the conclusory and the factual.'" Peñalbert-Rosa v. Fortuño-Burset, 631 F.3d 592, 595 (1st Cir. 2011) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 n.5 (2007)). "Non-conclusory factual allegations in the complaint must thenbe treated as true, even if seemingly incredible." Ocasio-Hernández, 640 F.3d at 12. The Court must also draw "all reasonable inferences in favor of the plaintiff[]." Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993). If that factual content, so taken, "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged," then the claim has facial plausibility. Iqbal, 556 U.S. at 678; Fed. R. Civ. P. 8(a).

III. DISCUSSION

The Court begins, as it must, by considering its jurisdiction to hear this dispute. As a court of limited jurisdiction, the Court has "an unflagging obligation to inquire sua sponte into its own jurisdiction." Charlesbank Equity Fund II v. Blinds to Go, Inc., 370 F.3d 151, 155-56 (1st Cir. 2004). Counts I, III, IV, V, XIII, XXII, and XXIII of the Amended Complaint assert violations of federal law and therefore fall within the jurisdictional grant of 28 U.S.C. § 1331. The Court shall consider these claims first.

1. Wade's Racketeer Influenced and Corrupt Organizations Act Claims

In Counts I and XXII, Wade brings claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), which requires a plaintiff to show "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985) (footnote omitted). "Racketeering activity" means any act that violates one of the laws specified in the RICO statute. See 18 U.S.C. § 1961. To establish a "pattern" of racketeering acts, a plaintiff must show "the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989). This continuity requirement can be satisfied in one of two ways. Under the "closed" approach, a plaintiff must allege a "'closed period of repeated conduct' that 'amounted to . . . continued criminal activity.' Alternatively, under the 'open-ended' approach, a plaintiff could satisfy the continuity requirement by showing 'past conduct that by its nature projects into the future with a threat of repetition.'" Home Orthopedics Corp. v. Rodriguez, 781 F.3d 521, 528 (1st Cir. 2015) (omission in original) (quoting H.J., 492 U.S. at 237, 241).

Wade's allegations that defendants worked together over several months to deprive him of his ownership and leadership of the company fall well short of establishing continuity because he has described only "a single, narrow scheme targeting few victims." Giuliano v. Fulton, 399 F.3d 381, 390 (1st Cir. 2005). "RICO liability cannot attach under a theory of a closed pattern of racketeering" where, as here, "'a closed-ended series of predicate acts . . . constitute[d] a single scheme to accomplish one discrete goal, directed at one individual with no potential to extend to other persons or entities.'" Home Orthopedics, 781 F.3d at 530 (quoting Efron v. Embassy Suites (P.R.), Inc., 223 F.3d 12, 19 (1st Cir. 2000)). Nor has Wade plausibly alleged the "specific threat of repetition" necessary to establish open-ended continuity, Feinstein v. Resolution Tr. Corp., 942 F.2d 34, 45 (1st Cir. 1991), given the defendants' alleged object—control of the company and theft of Wade's trade secrets—has already been achieved. Unable to establish continuity, Wade is unable to establish a "pattern" of racketeering activity. His RICO claims must therefore be dismissed.³

2. Wade's Employee Retirement Income Security Act Claims

In Counts III, IV, V, and XIII, Wade and his family members bring claims against various defendants under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Among other things, they accuse defendants of "[e]ndangering the value of the Company," Doc. No. 120 ¶ 217(g), and of breaching their fiduciary duty to the ESOT by removing Wade from his position as CEO. The Wades bring these claims pursuant to 29 U.S.C. § 1132(a)(2) and (a)(3), which provide that "in order to have standing under ERISA, a plaintiff must qualify as either a participant, a beneficiary, or a fiduciary (or be the Secretary of Labor)." Eggert v. Merrimac Paper Co. Leveraged Emp. Stock Ownership Plan & Tr., 311 F. Supp. 2d 245, 251-52 (D. Mass. 2004).

The Wades are not participants or beneficiaries. Wade himself is barred from participating in the plan by its terms, Doc. No. 47-1 at 21, and the Amended Complaint contains no factual allegations that he or his family members ever enrolled in, received allocations from, have any vested benefits in, are likely to enroll in, or otherwise have any participation in the plan.⁴ See generally Doc. No. 120. Nor are the Wades fiduciaries. Wade argues he was previously a "functional fiduciary," Doc. No. 109 at 28, by virtue of his chairmanship of the company's board of directors but, even assuming this to be true, former fiduciaries do not havestanding to bring ERISA breach-of-fiduciary-duty claims. Chemung Canal Tr. Co. v. Sovran Bank/Md., 939 F.2d 12, 14-15 (2d Cir. 1991). Finally, to state the obvious, none of the Wades are the Secretary of Labor. Thus, they do not meet the requisites for standing under ERISA and their claims must be dismissed.

3. Wade's Computer Fraud and Abuse Act Claims

In Count XXIII, Wade alleges several defendants froze him out of his company email account in violation of the Computer Fraud and Abuse Act of 1986 ("CFAA"), 18 U.S.C. § 1030. He brings claims under four separate provisions of the CFAA, each of which requires as an essential element that Wade show the defendants either (1) accessed a computer; (2) damaged a computer; or (3) conspired to access or damage a computer. See 18 U.S.C. §§ 1030(a)(2), 1030(a)(4), 1030...