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Rein v. ESS Group, Inc.

Supreme Court of Rhode Island

June 1, 2018

Christopher G. Rein
ESS Group, Inc., et al.

          Providence County Superior Court, PC 15-4645 Associate Justice Richard A. Licht

          For Plaintiff: Gina A. DiCenso, Esq. V. Edward Formisano, Esq. Michael D. Pushee, Esq.

          For Defendants: William R. Grimm, Esq. Ryan M. Gainor, Esq.

          Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.



         The plaintiff, Christopher G. Rein (Rein or plaintiff), appeals from a Superior Court order granting a motion to dismiss brought by the defendants, ESS Group, Inc. (ESS), Charles J. Natale, Jr. (Natale), and the Charles J. Natale, Jr. 2003 Trust u/d/t January 23, 2003, as amended (the Natale trust) (collectively defendants). This case came before the Supreme Court pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not be summarily decided. After considering the parties' written and oral submissions and reviewing the record, we conclude that cause has not been shown and that this case may be decided without further briefing or argument. For the reasons set forth in this opinion, we affirm in part and reverse in part the order of the Superior Court.


         Facts and Travel

         Rein began working at ESS in 2007 as a senior consultant and senior project manager. Previously, he had worked at ESS's predecessor, Environmental Science Services, Inc., for approximately thirteen years. On December 20, 2007, Rein, ESS, and Natale, the president and chief executive officer of ESS, entered into a stockholder agreement that resulted in Rein owning 5, 000 shares of ESS stock and the Natale trust owning 80, 300 shares of ESS stock.

         In his complaint, Rein alleged that in 2013 he became concerned about Natale's use of ESS's assets and funds. In December 2013, Natale informed Rein that ESS would not be giving employees payments pursuant to its incentive compensation plan because ESS had not met its annual revenue goal. Natale allegedly told Rein that certain employees would nevertheless receive an annual bonus outside of the incentive compensation plan. Rein asked to review the list of employees who would be receiving an annual bonus and the amount of said bonuses, but Natale refused to provide Rein with that information. In February 2014, Natale and Rein met and discussed the incentive compensation plan and bonuses. Rein alleged that, at this meeting, Natale accused Rein of not trusting him and told Rein that he could not review ESS's financial documents because he was a minority shareholder. Subsequently, in mid-2014, Rein received a negative performance review from Natale, which Rein claimed was the first negative performance review of his career.

         On December 11, 2014, Natale and Rein met to discuss matters related to ESS's year-end. Thereafter, Natale gave Rein the minutes of the December 11, 2014 meeting, which Natale characterized as an ESS shareholder meeting. Rein alleged, however, that his December 11, 2014 meeting with Natale was not a shareholder meeting because it was not conducted pursuant to ESS's corporate bylaws or the provision of the Rhode Island Business Corporation Act (BCA) pertaining to shareholder meetings, G.L. 1956 § 7-1.2-701. Rein further claimed that the minutes falsely represented that certain topics were discussed and voted on at the purported shareholder meeting.

         At the end of December 2014, Rein sent a letter to ESS's counsel requesting certain financial information pertaining to ESS, but counsel informed him that he could not legally provide Rein with the requested information because his request did not comply with state law. Rein alleged that he also asked defendants for permission to review ESS's books and records, but was refused access to do so. Rein obtained counsel and filed a formal request to review ESS's books and records, but he was again informed by ESS's counsel that his request did not comply with the law.

         On May 27, 2015, Rein was terminated from his position as senior vice president. Rein alleged, in his lawsuit, that he was terminated due to his complaints to his supervisors, including Natale, that defendants had violated state and municipal laws, and due to his refusal to violate the law or assist defendants in doing so. After his termination, Rein initiated a shareholder derivative action against defendants in Delaware, where ESS is incorporated; however, the action was dismissed on July 27, 2015.

         On October 23, 2015, Rein filed a two-count complaint in Superior Court in Rhode Island, wherein he alleged that: defendants had violated the Rhode Island Whistleblowers' Protection Act, G.L. 1956 chapter 50 of title 28 (WPA), by discriminating against Rein "because he refused to violate or assist in violating state or local law and/or because [Rein] reported to his supervisors a violation of state or local law" (the WPA count or claim); and defendants violated the BCA by refusing to allow Rein to examine ESS's books and records of accounts, minutes, and/or records of shareholders of ESS (the BCA count or claim). In response, defendants moved to dismiss the action pursuant to Rule 12(b)(6) of the Superior Court Rules of Civil Procedure. In support of their motion, defendants maintained that the WPA count should be dismissed because Rein did not identify a law that defendants had allegedly violated, as is necessary under the WPA. The defendants also argued for dismissal of the BCA count because ESS is incorporated in Delaware and, therefore, its internal affairs are governed by Delaware law, not Rhode Island law.

         Rein objected to defendants' motion to dismiss. He rejected defendants' argument that he failed to set forth a law that defendants allegedly violated; Rein maintained that the complaint alleged that defendants' conduct violated the BCA. Rein argued that, even if ESS was not subject to the BCA because the company is incorporated in Delaware, the WPA claim is nevertheless viable because the complaint also alleged that defendants made false representations in the minutes of the December 11, 2014 meeting, which Rein maintained amounted to a violation of the common law. With respect to the BCA count, Rein asserted that ESS is subject to the BCA because, pursuant to § 7-1.2-1402, a foreign corporation "is subject to the same duties, restrictions, penalties, and liabilities now or subsequently imposed upon a domestic corporation of like character."

         A hearing was held on April 5, 2016, before a justice of the Superior Court. After hearing the parties' arguments, the hearing justice rendered his decision. He first discussed the BCA count and referenced § 7-1.2-1401, which provides, in part, that:

"A foreign corporation may not be denied a certificate of authority because the laws of the state or country under which the corporation is organized governing its organization and internal affairs differ from the laws of this state, and nothing contained in this chapter authorizes this state to regulate the organization or the internal ...

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