999 N.E.2d 138
Mass. App. Ct.2013Background
- Astra Tech acquired Atlantis in October 2007 and placed $6.3 million of the purchase price in escrow to cover post-closing indemnity claims; a shareholders’ agent was appointed to represent former Atlantis shareholders and to handle indemnity disputes.
- Nobel Biocare sent patent-infringement letters to Atlantis before closing; Astra Tech later claimed Atlantis fraudulently failed to disclose a second letter and demanded indemnity from the escrow fund, accruing substantial defense fees.
- Astra Tech demanded the entire escrow on December 30, 2008 (one day before escrow release); the then-shareholders’ agent filed suit disputing entitlement and Astra Tech counterclaimed and impleaded numerous former shareholders.
- As Astra Tech’s recoverable legal fees grew (~$2.5M), a subset of former shareholders (the settling shareholders) negotiated a settlement with Astra Tech using their pro rata share (38.95%) of the escrow; they sought court approval of that settlement.
- The shareholders’ agent (Bailey) opposed, arguing (1) no procedural mechanism allowed direct settlement by shareholders, (2) the merger agreement gave him exclusive negotiating authority, and (3) his agency was irrevocable because it was a power coupled with an interest. The Superior Court approved the settlement and ordered distribution; the agent appealed.
Issues
| Issue | Plaintiff's Argument (shareholders' agent) | Defendant's Argument (settling shareholders/Astra Tech) | Held |
|---|---|---|---|
| Whether the escrow agreement permits settling shareholders to seek judicial disbursement rather than only agent–Astra Tech agreement | Escrow §3 only permits settlement by shareholders’ agent and Astra Tech; court order clause applies only if those parties fail to agree | The proviso allowing delivery on a final court order is an exception permitting court-ordered disbursement independent of agent–Astra Tech settlement | Court: Escrow agreement’s proviso creates an exception; a court may order disbursement and the settling shareholders could seek approval |
| Whether the merger agreement granted the shareholders’ agent exclusive authority to negotiate and bar shareholders from negotiating themselves | Merger §8.6 makes the agent’s decisions "final, binding and conclusive," which renders his negotiating authority exclusive | "Final, binding and conclusive" makes agent’s acts binding but does not, in plain terms, create an exclusive agency preventing principals from acting | Court: Language grants broad power to bind shareholders but does not expressly create an exclusive agency; principals retain common-law rights absent explicit exclusivity |
| Whether the agent’s authority was irrevocable because it was a power coupled with an interest | Agent contends he has a power coupled with an interest (irrevocable) in the escrow, preventing unilateral principal action | Settling shareholders: agent does not have unilateral control or ownership of the entire fund; any agent interest is limited to his individual pro rata share | Court: No power coupled with an interest—agent lacks unilateral power over the escrow and lacks ownership interest in the whole fund; agency is revocable/nonexclusive |
| Whether settling shareholders could validly settle with Astra Tech using their pro rata escrow share | Agent argued settlement was unauthorized and prejudiced nonsettling shareholders | Settling shareholders argued common-law principal rights and contract language permitted settlement and court approval | Court: Settling shareholders had the power to negotiate and settle; approval and distribution affirmed |
Key Cases Cited
- Buchanan v. Contributory Retirement Appeal Bd., 65 Mass. App. Ct. 244 (interpretation of contract is reviewed de novo)
- USM Corp. v. Arthur D. Little Sys. Inc., 28 Mass. App. Ct. 108 (contract must be construed as a whole in a reasonable way)
- Sears v. Childs, 309 Mass. 337 (meaning and effect of provisos and "provided" language)
- Hayes v. Gessner, 315 Mass. 366 (example of express language creating an exclusive and irrevocable right)
- MacDonald v. Gough, 326 Mass. 93 (power coupled with an interest requires incidents of ownership)
- Hunt v. Rousmanier, 21 U.S. (8 Wheat.) 174 (historic statement equating "interest" with title/ownership for irrevocable powers)