Corporate Law - Massachusetts Limits Tolling of Statute of Limitations for Breach of Fiduciary Duties in Closely Held Corporations - Aiello V. Aiello

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Corporate Law--Massachusetts Limits Tolling of Statute of Limitations for Breach of Fiduciary Duties in Closely Held Corporations--Aiello v. Aiello, 852 N.E.2d 68 (Mass. 2006)

The statute of limitations for claims arising out of an alleged breach of fiduciary duty by members of a corporate board of directors is generally three years from the date the plaintiff knew or should have known of the alleged wrong. (1) For certain equitable reasons, courts and legislatures have provided exceptions to this sometimes harsh rule by tolling the statute of limitations and permitting claims beyond the three year period. (2) In Aiello v. Aiello, (3) the Massachusetts Supreme Judicial Court (SJC) considered whether to apply either the complete domination test or the disinterested majority test in determining adverse domination to toll the statute of limitations when a majority of the board of directors dominated the decision making. (4) The SJC announced that Massachusetts courts must apply the complete domination test when a corporate agent seeks to toll the statute of limitations. (5)

Joy Hyland and her three brothers each owned twenty-five percent of DeLuca's supermarkets, a family-owned supermarket that had been conducting business on Charles Street in Boston since 1966. (6) Each sibling was also a member of the four seat board of directors. (7) After Joy moved to Florida in 1984, the brothers assumed control of DeLuca's by attending to the daily responsibilities of the supermarket operation. (8) Without consulting Joy, the brothers obtained property, opened new locations, and developed separate companies with DeLuca's profits. (9) In March of 1994, Joy confronted her brothers regarding her low compensation, and despite hiring an accountant to examine the corporate books, Joy maintained an amicable relationship with her brothers until 1997. (10)

In 1997, the siblings' uncle died and conveyed the Deluca's supermarket property to Joy and her brothers in unequal shares. (11) Largely based on the unequal distribution of the property, several years of litigation followed, during which time each sibling engaged in suits with or against each other. (12) The judge eventually appointed a receiver to wind up and dissolve the business, and each sibling subsequently submitted a claim demanding an amount in excess of his or her pro rata share. (13) In her submission to the receiver, Joy alleged that her brothers received excessive compensation, diverted corporate opportunities, and engaged in self-dealing. (14)

The receiver conducted his initial investigation and filed his report and recommendations on August 15, 2002. (15) The judge accepted the receiver's report and found the statute of limitations barred all of Joy's claims that accrued before May of 1999. (16) Additionally, the judge accepted the receiver's recommendation from a supplemental report filed in May of 2003, that Joy receive an extra $250,000 over and above her pro rata share as compensation for the alleged abuses that occurred after May 17, 1999. (17) The judge approved the receiver's report, and on January 31, 2004, he dismissed the receiver and entered the judgment from which Joy's appeal follows. (18)

Traditionally, courts have treated closely held corporations the same as larger private or even publicly held corporations. (19) Courts have gradually begun noticing that the specific nature of closely held corporations makes them especially vulnerable to breaches of fiduciary duty, and have thus afforded greater protection to minority interests in such corporations. (20) Massachusetts has been especially sensitive to such issues and became one of the first states to break from traditional corporate theory, affording minority interests in closely held corporations protection by finding a heightened fiduciary duty between shareholders. (21) Virtually all state and federal jurisdictions have now begun treating closely held corporations more like general partnerships and less like publicly held corporations. …