In re Jenzabar, Inc. Derivative Litig
Submitted May 1, 2014
Revised: August 8, 2014
Gregory E. Stuhlman Greenberg Traurig, LLP
Catherine G. Dearlove Thomas A. Uebler Richards, Layton & Finger, P.A.
Peter J. Walsh, Jr. Matthew D. Stachel Potter Anderson & Corroon LLP
Thad J. Bracegirdle Wilks, Lukoff & Bracegirdle, LLC
Richard D. Heins Ashby & Geddes
This case raises an interesting question of the capacity of a trust as a juridical person, which trust, by the document that gave it life, has expired, but where that trust still holds assets on behalf of its beneficiary. The question arises under Massachusetts law. This Letter Opinion addresses the Defendants' Motion to Dismiss, which is granted. For the reasons below, I find that the trust can take only those actions related to preserving its assets for purposes of distribution and wind-up, together with those actions for which the trust instrument specifically provides: the latter include defensive litigation, but not the maintenance of the derivative litigation contemplated in this action.
The question before me arises in the following context: On April 21, 2009, MCG Capital Corporation ("MCG") filed a Complaint in this action, alleging both direct and derivative claims against the software company Jenzabar, Inc. ("Jenzabar, " or the "Company") and various directors and officers of the Company, including Robert A. Maginn, Jr., Ling Chai, Jamison Barr, Joseph San Miguel, and Daniel Quinn Mills. In May 2010, then-Chancellor Chandler dismissed most of MCG's derivative claims; the surviving derivative claims relate to a $750, 000 bonus payment for Maginn, Jenzabar's CEO and Chairman, that was purportedly approved by the board in 2002, never paid, and then reapproved in December 2008 (the "2002 Bonus"). According to the Complaint, reapproval of this bonus reflected breaches of fiduciary duties by the Defendants. On October 19, 2010, MCG filed a second complaint against Jenzabar in a separate action, seeking an order requiring the Company to repurchase its preferred stock.
Those parties subsequently settled both matters, with Jenzabar repurchasing MCG's preferred stock. On March 1, 2012, they filed a Stipulation of Dismissal in this action, which dismissed MCG's direct claims and the Defendants' counterclaims. On June 27, 2013, the parties filed a Joint Stipulation and Petition for Dismissal of Derivative Claims with Prejudice as to Named Plaintiff Only. Jenzabar then mailed a Notice of Stipulation and Petition for Dismissal of Derivative Claims "to all Jenzabar stockholders of record who held Jenzabar stock continuously from December 31, 2008, to June 26, 2013." This Notice notified Jenzabar stockholders of their right to seek to intervene, providing:
Jenzabar's stockholders may seek leave of the Court to intervene in this action, subject to Defendants' right to oppose such motion. Any Jenzabar stockholders seeking to pursue the Derivative Claims shall, by no later than 15 days before the Dismissal Hearing . . ., file a motion to intervene . . . .
Only the Plaintiff here, trustee of a trust allegedly holding Jenzabar stock, came forward to continue what remains of this litigation; specifically, the derivative claims related to the 2002 Bonus. Conversely, all other Jenzabar stockholders— representing approximately 96 percent ...