Mason, DPM v. Mazzei et al

Filing 50

OPINION and ORDER denying 34 Motion for Summary Judgment; denying 36 Motion for Summary Judgment; Count 4 of the Amended Complaint 11 is DISMISSED. Signed by Senior Judge James P. Jones on 1/18/2023. (flc)

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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION
RENEE MASON, DPM,
individually and derivatively
on behalf of Abingdon Foot and
Ankle Clinic, PC,

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Plaintiff,
v.
BRIAN MAZZEI, ET AL.,
Defendants.

Case No. 1:22CV00008
OPINION AND ORDER
JUDGE JAMES P. JONES

Kellie Budd, VASSEGHI BUDD PLLC, Fairfax, Virginia, for Plaintiff; Dennis E.
Jones, DENNIS E. JONES, PLC, Abingdon, Virginia., for Defendants.
In this action invoking the court’s diversity jurisdiction, the plaintiff, Renee
Mason, the estranged wife of defendant Brian Mazzei, asserts that Mazzei has
breached his fiduciary duties and converted property belonging to the professional
corporation of which the parties are shareholders, directors, and officers and has
tortiously interfered with Mason’s business expectancy. The parties have filed
partial cross motions for summary judgment. For the reasons that follow, I will deny
both motions.
I.
The following facts are taken from the summary judgment record, which
largely consists of discovery deposition transcripts and exhibits thereto.

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In July 1995, Abingdon Foot and Ankle Clinic (Clinic) was incorporated as a
professional corporation under Virginia law.1 The Clinic’s Articles of Incorporation
named Mazzei and Mason as initial directors.
The First Meeting of the Board of Directors (First Directors’ Meeting) was
held on December 27, 1995. At that meeting, Mazzei and Mason elected themselves
as officers, Secretary/Treasurer and President, respectively. The meeting minutes
indicate that Mason “had received 127 shares of stock in the corporation” and that
Mazzei “had received 123 shares of stock in the corporation.” Defs.’ Mem. Supp.
Mot., Mazzei Decl. Ex. D at 4, ECF No. 35-7 (emphasis added). The directors
instructed the officers (themselves) to execute and issue stock certificates for these
shares of stock.
The directors adopted the Clinic Bylaws at this First Directors’ Meeting. The
Bylaws provide that the Clinic’s stock “shall be issued in numerical order,” “shall
be signed by the President . . . and attested by the Secretary” and “[a] record of each
certificate shall be kept on the stub thereof.” Id. at Mazzei Dep. Ex. 3 at 1, ECF No.
35-2.
The parties also held the Annual Meeting of the Board of Directors and
Shareholders on December 27, 1995. Mazzei Decl. Ex. D at 6, ECF No. 35-7. This

1

Prior to incorporation, Mazzei established the Clinic as a sole proprietorship while
Mason finished her out-of-state podiatry residency program.
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meeting was somewhat duplicative of the First Directors’ Meeting; the Annual
Meeting minutes indicate that the “shareholders” elected themselves as directors for
the Clinic, who in turn elected themselves as President and Secretary/Treasurer. Id.
Mazzei and Mason signed the Annual Meeting minutes as both shareholders and
directors.
On May 15, 1996, despite having stated in the meeting minutes from half a
year earlier that the parties had already received their shares of stock, Mason and
Mazzei submitted letters to the Board of Directors stating that they “agree[d] and
fully intend[ed] to purchase” 127 shares and 123 shares of stock for certain sums,
respectively. Id. at Ex. E, ECF No. 35-8 (emphasis added); Id. at Ex. F, ECF No.
35-9 (emphasis added).
The record is unclear whether stock certificates were ever issued and whether
the parties paid for their shares. The Clinic’s Share Register is blank. The only stock
certificate book in the record is full of blank certificates beginning at the certificate
marked number 0. Mazzei testified that no money was ever paid for the stock.
Mason testified that she believed the parties had paid for the stock, and she
remembers that money coming from funds borrowed from Mazzei’s grandmother.
The Clinic’s former accountant testified that there was $25,000 categorized as
Capital Stock on tax returns, which she stated is typically indicative of an initial
shareholder investment. Attorney John Lamie, the Clinic’s incorporator, testified
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that the parties held themselves out as shareholders. It is undisputed that Mason and
Mazzei were treated as shareholders for tax purposes.2
As is the case with many close corporations, Mason and Mazzei usually
ignored corporate formalities. Mazzei testified that there were no regular corporate
meetings after December 2000. Mason testified that there were meetings, but that
they were sometimes held over dinner, in the car, at the kitchen table, or during
breaks at seminars. Despite Mason’s role as president, Mazzei managed the Clinic
while Mason focused on the home. Bank records and deposition testimony indicate
Mazzei regularly used the Clinic’s accounts to pay personal expenses for both
himself and Mason, payments of which were treated as shareholder advances on tax
documents. Upon incorporation, the Clinic executed an equipment lease with
Mazzei, but Mazzei does not recall any rental payments. It was common practice
for the Clinic to issue distributions jointly to the couple as opposed to individually.
In recent years, Mason’s role and the parties’ relationship changed. In March
2020, Mason temporarily stopped working because of the COVID-19 pandemic.
Then in 2021, the couple’s relationship deteriorated. Mason left for Maryland in
July of 2021 after she claims there was an altercation between her and Mazzei.

2

The Clinic elected pass-through S-Corp status, and the parties were issued
Schedule K-1s and VK-1s.
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Mazzei disputes this claim and contends that Mason simply walked into the office,
threw everything that was on her desk at Mazzei, and quit.
Mason returned in August 2021 to “test[] the waters.” Pl.’s Mem. Supp. Mot.
Ex. 6, Mason Dep. 7, ECF No. 37-6. At this point, the couple began discussing the
possibility of Mason managing the Clinic after Mazzei asked for a second
consolidation loan and Mason “saw that things were being mismanaged.” Id. at 39.
Mazzei allegedly agreed at first.

But at some point thereafter, Mazzei reputedly

became combative, and Mason departed again for Maryland. Mazzei changed his
mind about Mason managing the Clinic after this.
Mason told Mazzei that she was considering selling her shares to an investor,
but Mazzei did not consent to this. Mazzei then hired a divorce attorney, who told
Mazzei to change the locks on the office because Mason had “walked away.”
Mazzei Dep. 64, ECF No. 35-1. The Clinic stopped paying Mason a distribution
and Mazzei removed Mason from the clinic’s payroll.

Mazzei also removed

Mason’s access to patient charts.
After Mason quit working, the Clinic’s cash flow dropped, and Mazzei had to
take money out of his personal accounts to cover the Clinic’s bills. In tax year 2021,
the Clinic incurred thousands of dollars in overdraft fees. Mazzei alleges that Mason
overdrafted a personal account that he then “got stuck with.” Id. at 70. In August
2022, Mazzei failed to file the Clinic’s required annual report with Virginia
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Corporation Commission. Mazzei began paying employee raises out of a personal
banking account. Mazzei’s spousal support payments to Mason are being paid out
of Clinic funds. Mason and Mazzei are currently in the middle of contested divorce
proceedings in state court.
Mason initially filed this suit naming the Clinic and Mazzei as defendants and
asserting that Mazzei has breached his fiduciary duties to her, wrongfully converted
the Clinic’s assets, and tortiously interfered with Mason’s business relationships in
the Clinic. Mason then timely amended the Complaint to bring her breach of
fiduciary duty and conversion claims derivatively on behalf of the Clinic.
The parties have filed cross motions for summary judgment. Mazzei contends
that Mason does not have standing to sue derivatively because she is not in fact a
shareholder, and accordingly seeks judgment on Mason’s derivative claims. Mason
asserts that she is entitled to summary judgment because Mazzei does not dispute
the facts underlying her claims and that the record demonstrates that she is a
shareholder. The parties agree that Mason’s tortious interference with a business
expectancy claim is an individual claim that should proceed to trial. At oral
argument, Mason moved to voluntarily dismiss Count Four of her Amended
Complaint, which sought a court order allowing her to inspect and copy the corporate
records. Mason represents that such records have now been produced.
The motions have been fully briefed, argued, and are ripe for decision.
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II.
“The court shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). A fact is deemed “material” if proof of its
existence or nonexistence would affect the disposition of the case under the
applicable law.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An

issue of material fact is “genuine” if the evidence offered is such that a reasonable
jury might return a verdict for the non-movant. Id. at 257. In determining whether
a genuine issue has been raised, the court must construe all inferences and
ambiguities against the movant in favor of the non-moving party. United States v.
Diebold, Inc., 369 U.S. 654, 655 (1962).

The court should not weigh evidence.

Greater Balt. Ctr. for Pregnancy Concerns, Inc. v. Baltimore, 721 F.3d 264, 283
(4th Cir. 2013). In the context of cross motions for summary judgment, “[w]hen
considering each individual motion, the court must take care to resolve all factual
disputes and any competing, rational inferences in the light most favorable to the
party opposing that motion.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.
2003).3

3

I have omitted internal quotation marks, citations, and alterations throughout this
opinion, unless otherwise noted.
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At bottom, a party is entitled to summary judgment if the record as a whole
could not lead a rational trier of fact to find for the non-moving party. Williams v.
Griffin, 952 F.2d 820, 823 (4th Cir. 1991). Conversely, summary judgment is
inappropriate if the evidence is sufficient for a reasonable factfinder to return a
verdict in favor of the non-moving party. Anderson, 477 U.S. at 248.
III.
Before turning to the parties’ motions, I must first determine whether this
court has subject-matter jurisdiction over Counts One and Two, the derivative
claims. Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006) (“[C]ourts . . . have an
independent obligation to determine whether subject-matter jurisdiction exists, even
in the absence of a challenge from any party.”). The Amended Complaint does not
raise a federal question, leaving diversity of the parties’ citizenship as the only
potential foundation for jurisdiction. It is undisputed that Mason is and was at the
time of filing a citizen of Maryland, while the Clinic and Mazzei are citizens of
Virginia. At issue is whether the Clinic should be aligned as a plaintiff, which would
destroy diversity, or remain as a defendant, which would allow jurisdiction.
In a derivative action, the corporation is an “indispensable” party. Koster v.
(Am.) Lumbermens Mut. Cas. Co., 330 U.S. 518, 522 n.2 (1947). This is because
the corporation is typically considered the “real party in interest.” Id. at 522–23.
Thus, an individual suing derivatively is typically considered a nominal plaintiff,
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and the corporation is aligned as a plaintiff. Gibson v. BoPar Dock Co., 780 F. Supp.
371, 373 (W.D. Va. 1991). If this principle applies here, there is no diversity —
both the Clinic and Mazzei are Virginia citizens.
But certain derivative actions are excepted from realignment when the
corporation is “in antagonistic hands,” Koster, 330 U.S. at 523, which occurs when
the corporation’s management is aligned against the plaintiff. Smith v. Sperling, 354
U.S. 91, 95 (1957). Typically, when a plaintiff has the power to take control of the
corporation, such as when the plaintiff is a majority shareholder, the corporation is
not considered to be antagonistic. In re Digimarc Corp. Derivative Litig., 549 F.3d
1223, 1237–38 (9th Cir. 2008). Courts have also considered whether the plaintiff
has made a demand on management to sue, Tessari v. Herald, 207 F. Supp. 432, 437
(N.D. Ind. 1962), and whether the corporation and the other defendants share
counsel. Raese v. Kelly, 59 F.R.D. 612, 615 (N.D. W. Va. 1973).
Mason asserts that she is the majority shareholder, owning 50.2% of the
Clinic. There is no dispute that she is co-director and is President and that she did
not attempt to call a meeting of the shareholders or board of directors to address her
concerns. These considerations all weigh toward the alignment of the Clinic as a
plaintiff. Gibson, 780 F. Supp. at 373–74.
But despite the appearance of control on paper, the record reveals that in
practice, Mason has had no role in the Clinic’s management. Mazzei primarily
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managed the clinic prior to Mason’s move to Maryland while Mason focused on the
home. And after the move, it is undisputed that Mazzei took even more control by
removing Mason’s access to the Clinic and its records. Thus, this is not a case where
Mazzei is managing by default and where, at the time of filing, nothing prevented
Mason from taking over the corporation. Id. at 374. Nor is it the case where the
corporation cannot act in its interest simply because the directors are deadlocked. In
re Digimarc Corp. Derivative Litig., 549 F.3d at 1237. Rather, Mazzei “appears to
have complete managerial control” in connection to “the primary issue in
controversy,” being the treatment of corporate assets. Hildebrand v. Lewis, 281 F.
Supp. 2d 837, 846 (E.D. Va. 2003). Moreover, defense counsel represents both the
Clinic and Mazzei.
Based on the record before me and recognizing that this is a close case, I find
that the Clinic is antagonistic to Mason’s suit, is properly aligned as a defendant, and
that diversity jurisdiction exists.
IV.
A.
I turn now to the parties’ motions. Mazzei’s motion hinges on a single point
— Mason is not a shareholder and therefore does not have standing to sue.4

Mazzei contends that neither party is a shareholder, but Mason’s shareholder
status is the only status that matters at this juncture.
4

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The Code of Virginia defines a shareholder, in relevant part, as “the person in
whose name shares are registered in the records of the corporation.” Va. Code Ann.
§ 13.1-603.5 In determining shareholder status, courts “look[] to (1) the reflection
of the shareholder’s name in the company books, (2) a stock certificate proving
ownership of shares, (3) payment for the shares of stock, and (4) the company
payments of dividends upon the stock to the shareholder.” Rountree Motors, Inc. v.
Commonwealth Dealers Life Ins. Co., No. 3:13CV47 (DJN), 2013 WL 4102161, at
*4 (E.D. Va. Aug. 13, 2013) (analyzing shareholder status under Virginia law and
citing Turnbull v. Payson, 95 U.S. 418, 420–21 (1877)). “[P]ossession of stock
certificates and registration of the certificates in the records of a corporation are
prima facie evidence of shareholder status” but “possession of certificates and
recordation of them . . . is not dispositive.” Barber v. VistaRMS, Inc., 634 S.E.2d
706, 711–12 (Va. 2006).
I begin by analyzing the corporate documents in the record. The First
Directors’ Meeting minutes indicate that the parties had received stock. Mason and
Mazzei signed the December 1995 Annual Meeting minutes in their capacities as
shareholders. Mason and Mazzei were treated as shareholders on Clinic-related tax
forms. The Bylaws require that the Clinic’s directors be stockholders. Viewed in

5

Virginia law governs this case. Smith, 354 U.S. at 95.
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a light most favorable to Mason, this evidence does not permit a finding that Mason
is not a shareholder.
But there is some conflicting evidence in the record. Mason and Mazzei’s
May 1996 letters to the Board of Directors state that at that time they only intended
to purchase shares of stock, which conflicts with the First Directors’ Meeting
minutes representing that Mason and Mazzei were already stockholders. The
Clinic’s stock ledger does not list either party as owner. It appears that no stock
certificates have been issued from the only stock certificate book in the record. This
conflicting evidence creates a genuine dispute of material fact as to whether the
Clinic’s books identify Mason as a shareholder.
As to whether Mason paid for the stock, material facts are also in dispute.
Mazzei maintains that no money was ever paid for the stock. Mason testified that
she recalled that money was paid for stock out of funds borrowed from Mazzei’s
grandmother, although there is also some evidence that this loan consisted of money
that may have been used as start-up funds prior to incorporation, not as consideration
for the parties’ shares. And again, the parties’ May 1996 letters indicate only that
the parties intended to pay for their stock. An accountant did testify that money
classified as Capital Stock on the Clinic’s tax returns may be indicative of an initial
shareholder investment, but the accountant conceded that she was not involved in
the Clinic’s incorporation, and regardless, it is unclear that this money was the
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consideration Mason and Mazzei “intended” to pay for shares of stock pursuant to
their May 1996 letters.
Finally, it is undisputed that the Clinic paid Mason and Mazzei dividends in a
joint fashion until divorce proceedings began. This evidence can be conclusive of
ownership if such payment was made “upon the shares standing upon the book of
the company . . . when taken in connection with the other evidence.” Turnbull, 95
U.S. at 422. Here, other evidence of ownership is conflicting and therefore this fact
is not conclusive. But a jury could certainly find that the payment of dividends is an
indication of shareholder status.6
In sum, I find that genuine disputes of material fact exist that are determinative
of Mason’s shareholder status. Consequently, Mazzei’s motion will be denied. I
turn next to Mason’s motion.
B.
Mason brings her fiduciary duty and conversion claims derivatively, so
shareholder status is a prerequisite. Va. Code. Ann. § 13.1-672.1 (noting that only
shareholders may bring derivative suits under Virginia law). Thus, for the reasons

6

Mazzei relies upon Hill v. Hill, 318 S.E.2d 292 (Va. 1984), but that decision held
that a certificate of incorporation conclusively establishes the existence of the corporation,
but not its ownership, which could be determined by the particular facts of the case, even
where no valid issue of stock had been made. Id. at 297. In so holding, it supports the
denial of Mazzei’s motion.
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explained above, summary judgment is inappropriate because there is conflicting
evidence in the record about whether Mason and Mazzei were in fact shareholders.
But aside from the disputed facts regarding shareholder status, I deny Mason’s
motion for other reasons. To establish breach of a fiduciary duty, a plaintiff must
prove the existence of a duty, the breach of that duty, and subsequent damages. DCG
& T ex rel. Battaglia/Ira v. Knight, 68 F. Supp. 3d 579, 586 (E.D. Va. 2014). There
is no question that Mazzei owes a duty to any existing shareholders and to the Clinic
itself as a director and officer of the corporation. Under Virginia law, directors and
shareholders owe a duty of loyalty to the corporation and to the corporation’s
shareholders. WLR Foods, Inc. v. Tyson Foods, Inc., 869 F. Supp. 419, 421 (W.D.
Va. 1994), aff’d, 65 F.3d 1172 (4th Cir. 1995). But the breach of such duty is often
a matter for the jury to determine. Williams v. Dominion Tech. Partners, L.L.C., 576
S.E.2d 752, 758 (Va. 2003) (“Whether such a [fiduciary] duty exists is a question of
law to be determined by the trial court. If the evidence is sufficient to establish a
duty as a matter of law, only then will it become a matter for the jury to determine
whether the duty has been breached.”).
Moreover, there is some evidence in the record that suggests Mason may have
acquiesced to and benefited from at least some of the conduct of which she now
complains. The record suggests that the use of Clinic funds for personal expenses
was common throughout the Clinic’s existence. There is testimony that the debt
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paid from corporate funds was joint debt, that Mason’s car was paid using company
funds, and that certain gifts paid from company funds were for Mason. Such
payments were considered shareholder advances on taxes, and Mazzei testified that
Mason never complained of the handling of corporate funds in that way.
As for Mazzei’s concession that he locked Mason out of the Clinic, Mazzei
testified that at one point Mason said it “sound[ed] like a good idea” to take Mason
off the patient record system to save money. Mazzei Dep. 152, ECF No. 35-1. And
Mason allegedly told Mazzei to tell patients she had retired and that “her plan was
to retire” id. at 153, which could lead a jury to conclude that Mazzei’s changing of
the locks after Mason allegedly quit does not amount to a breach. Additionally, these
facts describe an individual injury rather than conduct that injured the shareholders
as a class or the corporation.
Mason’s conversion claim suffers a similar fate. “A person is liable for
conversion for the wrongful exercise or assumption of authority over another’s
goods, depriving the owner of their possession, or any act of dominion wrongfully
exerted over property in denial of, or inconsistent with, the owner’s rights.”
Simmons v. Miller, 544 S.E.2d 666, 679 (Va. 2001). Again, the evidence, viewed
in a light most favorable to Mazzei as non-movant, suggests that Mason may have
consented to the use of Clinic property to pay some of the personal debt for which
she now bases her tort claim. Thus, I find that summary judgment is inappropriate,
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see Devil’s Advocate, LLC v. Zurich Am. Ins. Co., 666 F. App’x 256, 265 (4th Cir.
2016) (unpublished) (“Indeed, Virginia has long recognized that implied consent is
a bar to conversion claims.”), and I will deny Mason’s motion as to her derivative
claims.
I will also deny Mason’s motion as to her constructive trust and accounting
counts. Mason concedes that these are remedies she seeks based on her substantive
derivative claims. Thus, I find that these are not subject to determination at this
stage of the litigation.
V.
For the foregoing reasons, it is ORDERED as follows:
(1) The parties’ Motions for Summary Judgment, ECF Nos. 34 and 36, are
DENIED; and
(2) Count Four of the Amended Complaint, ECF No. 11, is DISMISSED.

ENTER: January 18, 2023
/s/ JAMES P. JONES
Senior United States District Judge

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