98 N.E.3d 143
Mass.2018Background
- Allison and Eriksson formed Applied Tissue Technologies (ATT‑MA), with Allison holding 25% initially (later reduced to ~14.66% plus a trust interest) and Eriksson the majority interest; Allison drafted the operating agreements that provided strong minority protections (unanimous consent for key actions, access to books, and restrictions on dilution and amendments without original members' consent).
- In 2012 Eriksson, covertly assisted by counsel and management allies, commissioned an appraisal, formed a Delaware LLC (ATT‑DE), and caused ATT‑MA to be merged into ATT‑DE without giving Allison meaningful notice; ATT‑DE’s operating agreement removed fiduciary duties, limited member rights, and created preferred shares with liquidation preference.
- Allison objected, refused to buy into ATT‑DE, and sued for breach of fiduciary duty and related claims; the trial judge found Eriksson breached fiduciary duties and granted equitable relief rather than rescission, modifying ATT‑DE’s operating agreement to restore many minority protections and "grossing up" Allison’s combined interest to 5% (subject to remand on that percentage).
- Eriksson argued that G. L. c. 156C, § 60(b) makes judicial distribution (appraisal) the exclusive remedy for dissenting members after a statutory merger, precluding other equitable relief.
- The trial court declined rescission as inequitable given elapsed time and subsequent investments; instead it used equitable powers to amend ATT‑DE’s governance and attempted to compensate Allison for the freeze‑out.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether G. L. c. 156C, § 60(b) bars equitable relief and makes statutory distribution the exclusive remedy for a dissenting LLC member after a merger | Allison: § 60(b) is not exclusive where the merger violated fiduciary and contractual duties under § 63(b); equitable remedies remain available | Eriksson: § 60(b) expressly makes distribution the exclusive remedy for objecting members of a merged LLC | Court: § 60(b)’s exclusivity applies only to mergers conducted “under the provisions” of §§ 59–63; a merger that breaches fiduciary/contractual duties under § 63(b) is not such a merger, so equitable relief is available |
| Whether the merger here complied with § 63(b) (fiduciary duties and operating agreement protections) | Allison: merger breached fiduciary duties and ATT‑MA’s operating agreement protections (freeze‑out) | Eriksson: merger was effectuated under statutory merger procedures and thus falls within § 60(b) | Court: merger breached fiduciary and contractual duties; conduct was covert and contrary to operating agreement protections, so § 63(b) defenses inapplicable to Eriksson’s conduct |
| Appropriate remedy for a fiduciary‑breach freeze‑out merger | Allison: sought rescission and restoration of his ATT‑MA interest | Eriksson: statutes provide distribution as exclusive remedy; rescission is inappropriate so statutory remedy should govern | Court: rescission was unnecessary and inequitable given passage of time and investments; equitable relief to restore minority protections and compensate reasonable expectations is proper; trial court’s tailored amendments upheld |
| Validity of trial court’s award increasing Allison’s interest to 5% | Allison: seeks restoration of pre‑freeze‑out economic position; trial court adjusted percentage | Eriksson: challenges alterations to membership percentages | Court: equitable power to adjust ownership is permissible but judge failed to explain basis for selecting 5%; remand required to justify or recalculate the percentage |
Key Cases Cited
- Phillips v. Equity Residential Mgt., 478 Mass. 251 (interpretive approach to statutory language)
- Piemonte v. New Boston Garden Corp., 377 Mass. 719 (courts define fiduciary duties where statute provides defaults)
- Coggins v. New England Patriots Football Club, Inc., 397 Mass. 525 (freeze‑out mergers do not necessarily limit courts to statutory appraisal remedy)
- Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578 (utmost good faith and loyalty in close corporations)
- Pointer v. Castellani, 455 Mass. 537 (remedy for freeze‑out should restore minority’s reasonable expectations)
- Brodie v. Jordan, 447 Mass. 866 (equitable remedy for freeze‑out should avoid windfalls and excessive penalties)
- Demoulas v. Demoulas, 432 Mass. 43 (equity requires comity between relief and the parties’ conduct)
- Wilkes v. Springside Nursing Home, Inc., 370 Mass. 842 (balancing majority rights and minority expectations in equitable relief)