Brining v. Hayes, No. 507-11-17 Wrcv (Gerety, J., Nov. 21, 2018).

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the 

accompanying data included in the Vermont trial court opinion database is not guaranteed.]

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STATE OF VERMONT

SUPERIOR COURT CIVIL DIVISION

Windsor Unit Docket No. 507-11-17 Wrcv

DECISION AND ORDER GRANTING MOTION TO DISMISS INDIVIDUAL CLAIMS 

(MPR2)

Count 1, Breach of Fiduciary Duty (507-11-17 Wrcv)

Title: Motion to Dismiss (Motion 2)

Filer: Defendant Thomas Hayes

Attorney: Christopher D. Ekman, Esq.

Filed Date: March 19, 2018

Alison J. Bell, Esq., Attorney for Plaintiff Jennifer Brining, filed an opposition on 4/4/18.

Defendant moves to dismiss all claims made individually by Plaintiff, pursuant to V.R.C.P. 

12(b)(1) and (6), asserting that Plaintiff lacks standing to bring an action to recover for her 

alleged individual harm.

Motions to dismiss are disfavored and are rarely granted. Gilman v. Maine Mutual Fire 

Ins. Co., 175 Vt. 554, 830 A.2d 71, 2003 VT 55, ¶ 14 (mem.). The purpose of a motion to dismiss 

is to test the law of the case, not the facts which underlie the complaint. Kane v. Lamothe, 182 

Vt. 241, 936 A.2d 1303, 2007 VT 91, ¶ 14. In considering a motion to dismiss, the Court 

assumes all factual allegations in the complaint to be true and gives the benefit of all 

reasonable inferences to the non-moving party. Richards v. Town of Norwich, 169 Vt. 44, 48, 

726 A.2d 81 (1999). A motion to dismiss should not be granted unless it is beyond doubt that 

there exist no facts or circumstances which would entitle the plaintiff to relief. Assoc. of 

Haystack Property Owners, Inc. v. Sprague, 145 Vt. 443, 446-47, 494 A.2d 122 (1985).

Factual Allegations

In October 2014, Plaintiff invested $1,306,250 into SendLater Inc. (SLI), a Vermont 

Corporation, through a trust she controlled called the Jennifer Brining Living Trust. SLI was a 

new business intended by the couple who had originally conceived of it, Nancy and Romano 

Formichella, to be an internet-based service that would permit individuals to have messages, 

Jennifer Brining, Individually and as Trustee vs. Thomas Hayes
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videos, and gifts sent to loved ones after the individuals’ deaths. At the time of Plaintiff’s initial 

investment, the President/CEO, director and shareholder of SLI was John J. Donovan. Thomas 

Hayes was the attorney who did the legal work to incorporate SLI as a Vermont corporation in 

the first instance. He also acted as corporate counsel, director, Secretary, and Treasurer. 

Shortly after Plaintiff and others began investing funds with SLI, Securenet, care of Mr. 

Donovan or Mr. Donovan in his own name began presenting invoices to Attorney Hayes who, in 

turn, approved all of the invoices in full and made out checks or arranged wires paying all of 

them. He did so without determining that Mr. Donovan was entitled to invoice SLI or provided 

value to SLI. For example, in 2015, SLI, as authorized solely by Attorney Hayes, paid Securenet 

or Mr. Donovan $1,019.750. This payment was deposited directly into Mr. Donovan’s personal 

bank account. In 2016, SLI, as authorized solely by Attorney Hayes, paid to Securenet or Mr. 

Donovan another $870,200. From May 22, 2014 through August 2016, the payments by SLI of 

funds to Mr. Donovan amounted to about $2,353,000 out of a total invested of about 

$2,358,000. 

Plaintiff, by her counsel, has made several demands that SLI produce to her records as 

to its current financial status. SLI, by its subsequent litigation counsel, has refused all such 

requests.

Defendant’s Motion

In his Motion to Dismiss, Defendant asserts that Plaintiff has not alleged an injury 

separate and distinct from other shareholders, or a wrong involving a contractual right unique 

to her that exists independently of any right of the corporation. Because Plaintiff, in effect, 

claims that Defendant’s mismanagement caused her and other shareholders to lose their 

investment, Defendant argues that she has stated a derivative claim. Defendant contends that 

Plaintiff lacks standing for individual losses and that the Court thus lacks subject matter 

jurisdiction over her claim, or, in the alternative, her Complaint should be dismissed for lack of 

any factual allegations to sustain a direct action.

Plaintiff responds by arguing that SLI is a close corporation and that the Vermont 

Supreme Court would apply the majority rule to permit a direct claim in the close corporation 

context for a breach of fiduciary duty. Defendant replies that Plaintiff is a “general” 

corporation because it was never incorporated as a “close corporation” pursuant to 11A V.S.A. 

§ 20.02.

Discussion

In Vermont, “[t]he general principles governing shareholder suits are well settled. In a 

derivative suit, the shareholder sues on behalf of the corporation for harm done to the 

corporation; in a direct action, the shareholder brings suit individually, or on behalf of a class of 

shareholders, for injuries done to them in their individual capacities.” Bovee v. Lyndonville Sav.

Bank & Tr. Co., 174 Vt. 507, 508 (2002) (citing Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 351 
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(Del.1988); Lash v. Lash Furniture Co. of Barre, Inc., 130 Vt. 517, 522 (1972)) (shareholder 

derivative action is one brought in the interest of corporation). “To have standing to sue 

individually, the shareholder must allege an injury separate and distinct from other 

shareholders, or a wrong involving a contractual right of the shareholder that exists 

independently of any right of the corporation.” Id. (citing Kramer, 546 A.2d at 351).

Here, even giving Plaintiff the benefit of all reasonable doubts and inferences, the Court 

concludes, for several reasons, that Plaintiff has failed to sufficiently allege a direct claim 

against Defendant. Plaintiff’s Complaint alleges that Defendant “knowingly, negligently, and 

recklessly” breached his fiduciary duty owed to SLI, Plaintiff, and the other SLI shareholders by 

failing to safeguard SLI’s assets, to secure ordinary protections for the SIL Board and its 

shareholders, and by failing to make certain disclosures to SLI, Plaintiff, and the other 

shareholders. Additionally, Plaintiff alleges that Defendant “aided and abetted, knowingly 

participated in, and substantially assisted” Mr. Donovan’s conduct, permitting him to: loot the 

funds that Plaintiff and the other shareholders had invested in SLI; wrongfully become a 

controlling shareholder; and dilute the shareholdings and control of others. Consequently, 

Plaintiff alleges that she, SLI, and the other shareholders have sustained damages in excess of 

$2,350,000. These allegations, assumed true, fail to establish that Plaintiff suffered an injury 

distinct from other shareholders or that Defendant breached any contractual right separate 

from that of the other SLI shareholders. Cf. Bovee, 174 Vt. at 509. As such, these claims are 

derivative in nature. 

Further, Plaintiff has failed to persuade the Court that, even assuming SLI is treated as a 

closely held corporation, she would not be obligated to allege a harm separate and distinct 

from the other shareholders. Cf. Palmer v. Fox Software, Inc., 107 F.3d 415, 419 (6th Cir. 1997) 

(minority shareholder in closely held corporation could not maintain suit against other minority 

shareholders for misappropriation of corporate opportunity, unjust enrichment, and 

constructive trust where damages claimed were sustained by corporation generally, and 

accused shareholders sustained losses of same sort as complaining shareholder). In arguing 

that the “overwhelming current majority rule is that an individual shareholder of a close 

corporation has standing to bring a direct claim against others in the close corporation for 

breach of fiduciary duty,” Plaintiff relies on Horizon House-Microwave, Inc. v. Bazzy, 21 Mass. 

App. Ct. 190, 486 N.E.2d 70 (1985). That case involved a corporate merger resulting in dilution 

of the plaintiff’s common stock holdings in a closely held corporation in which the plaintiff’s 

brother was the controlling officer and stockholder. The plaintiff was permitted to bring a 

direct claim in that case where his grievance was that he was “cashed out” of the company

while his brother attained a larger equity in the surviving entity and discriminated against the 

plaintiff in the distribution of shares. Id. at 190-95. Such circumstances are distinguishable 

from the instant scenario, which does not allege distinct injury. 

Plaintiff also relies on Webber v. Webber Oil Co., which included a direct claim in the 

context of a close corporation by a treasurer against majority shareholders accused of

disproportionately reducing the treasurer’s salary. 495 A.2d 1215, 1224-1225 (Me. 1985). And, 

in Durham v. Durham, likewise cited by Plaintiff, a direct claim was permitted in a close 
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corporation context by a shareholder against shareholder-directors who excluded the plaintiff 

from management of the corporation, despite the fact that he was a director and owned 40 

percent of the shares. 871 A.2d 41, 43 (N.H. 2005). The circumstances in both cases reflect 

that each litigant had alleged a harm clearly separate from the other shareholders. By contrast, 

in the instant case, the actions of Defendant complained of, as alleged, did not injure Plaintiff in 

a way that was separate and distinct from the injury to SLI.

Significantly, although the issue of attorney-client relationship is more complicated in a 

closely held corporation, where the line between individual and corporate representation can 

become blurred, many courts have refused to recognize a duty to nonclient shareholders in a 

close corporation. Bovee v. Gravel, 174 Vt. 486, 489 (2002) (quoting United States v. Edwards, 

39 F.Supp.2d 716, 731-32 (M.D.La. 1999)). In this vein, the Vermont Supreme Court in Bovee v. 

Gravel, held that a corporation’s attorneys owed no duty to shareholders allegedly damaged by 

the attorneys’ malpractice in advising the corporation about liability insurance coverage, failing 

to advise the corporation to pursue bad faith claims against insurers, and pursuing a meritless 

suit on behalf of the corporation, and, thus, the shareholders lacked standing to bring a

malpractice action. Id. In that case, the shareholders did not allege that the corporation was a 

mere formality indistinguishable from the shareholders or that they were third-party 

beneficiaries, and the shareholders were not in privity with the attorneys. Id. Therefore, the 

trial court’s dismissal of the complaint was affirmed. External courts have similarly held that 

“the attorney for a corporation, even a closely held one, does not have a specific fiduciary duty 

toward the individual shareholders.” Kopka v. Kamensky and Rubenstein, 354 Ill.App.3d 930, 

939, 821 N.E.2d 719, 727 (2004) (citing Hager-Freeman v. Spircoff, 229 Ill.App.3d 262, 277-78, 

171 Ill.Dec. 1, 593 N.E.2d 821 (1992); Hoggett v. Brown, 971 S.W.2d 472, 488 (Tex. App. 1997). 

Cf. Taylor v. Riley, 162 Idaho 692, 403 P.3d 636 (2017) (referencing controlling shareholder’s

prior action against law firm and attorney, in which Supreme Court determined that 

shareholder failed to demonstrate privity necessary to sue law firm and attorney for legal 

malpractice and breach of fiduciary duty arising from representation of corporation in 

shareholder’s suit to enforce agreement). In light of this line of cases, the Court finds the lack 

of privity between Plaintiff shareholder and Defendant attorney for the corporation to further 

undercut Plaintiff’s direct claims. 

Based on all of the above, the Court concludes that dismisssal of Plaintiff’s direct claims 

against Defendant is warranted. Accordingly, Defendant’s Motion to Dismiss is GRANTED. 

This decision in no way precludes Plaintiff’s derivative suit against Defendant.

Dated at Woodstock, Vermont on November 3, 2018:

____________________________________

Robert P. Gerety

Superior Court Judge