Koshy v. Sachdev
477 Mass. 759
| Mass. | 2017Background
- Indus Systems, Inc. was a closely held CAD-services corporation formed in 1987; George Koshy and Anupam Sachdev each owned 50% of the shares and served as the only directors.
- Relations deteriorated in the late 2000s over corporate strategy, distributions, payments to an affiliated Indian company (eSystems), hiring decisions, and control of operations; mutual distrust and acrimony became pervasive.
- Koshy unilaterally wrote himself a $690,000 distribution check in Nov. 2011; Sachdev responded by initiating litigation on behalf of Indus and restricting Koshy’s access and compensation; the funds were later escrowed and returned but hostility persisted.
- Koshy sued in Superior Court in June 2012 alleging breach of fiduciary duty, breach of the covenant of good faith, and seeking dissolution under G. L. c. 156D, § 14.30 (director deadlock); Sachdev counterclaimed; an eight-day bench trial occurred in Oct. 2013.
- The trial judge found no breach of fiduciary duty, concluded no statutory “true deadlock,” and dismissed a later contempt complaint as rehashing trial issues; Koshy appealed and the SJC transferred the case to itself.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether directors are in a statutory "true deadlock" under G. L. c. 156D, § 14.30(2)(i) | Koshy: mutual antipathy and inability to agree on core management matters (payroll, hires, distributions, strategy) amount to true deadlock threatening the corporation | Sachdev: disputes are ordinary board disagreements; no statutory deadlock; existing corporate provisions (articles §5) provide a buyout/arbitration mechanism | Court: Found a true deadlock — irreconcilable differences, corporate paralysis, absence of workable shareholder mechanism, and mutual distrust; remanded for discretionary remedy determination |
| Whether Koshy's allegations show irreparable injury to Indus (third § 14.30 element) | Koshy: ongoing dysfunction, litigation, and inability to manage threaten the company’s long-term viability and goodwill | Sachdev: company remained profitable; no irreparable harm shown | Court: Even profitable companies may be threatened by irretrievable dysfunction; here the trajectory posed a substantial threat of irreparable injury |
| Whether Sachdev breached fiduciary duties by withholding tax/dividend distributions and making a low buyout offer | Koshy: actions were pretextual and intended to freeze him out; low offer was bad faith | Sachdev: acted for legitimate business purposes (concern over STARS contract expiration, escrowed funds) and did not act in bad faith | Court: Affirmed trial judge — Sachdev had legitimate business purposes; no breach of fiduciary duty found |
| Whether the contempt complaint should have been dismissed as rehashing trial issues | Koshy: contempt complaint alleged repeated violations of the preliminary injunction, including many post-trial acts | Sachdev: many contempt claims duplicate issues already litigated | Court: Dismissal inappropriate as to alleged violations occurring after trial; contempt judgment vacated and remanded for consideration of post-trial alleged violations |
Key Cases Cited
- Merola v. Exergen Corp., 423 Mass. 461 (Mass. 1996) (legal determinations of fiduciary duty reviewed de novo)
- MacLaurin v. Holyoke, 475 Mass. 231 (Mass. 2016) (primary duty in statutory interpretation is to effectuate legislative intent)
- Wheatley v. Massachusetts Insurers Insolvency Fund, 456 Mass. 594 (Mass. 2010) (use of legislative language to discern intent)
- Donahue v. Rodd Electrotype Co. of New England, 367 Mass. 578 (Mass. 1975) (close-corporation fiduciary duties; oppression risk in closely held firms)
- Zimmerman v. Bogoff, 402 Mass. 650 (Mass. 1988) (legitimate business purpose defense and requirement to show less harmful alternatives)
- Brodie v. Jordan, 447 Mass. 866 (Mass. 2006) (authority to infer lesser equitable remedies such as buyout from statute authorizing dissolution)
- Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609 (Mass. 1980) (definition of irreparable injury and standard for preliminary relief)
- Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501 (Mass. 1997) (civil contempt is remedial; fiduciary duties among shareholders in close corporations)