265 F. Supp. 3d 109
D. Mass.2017Background
- MAZ Partners, on behalf of dissenting/abstaining Class A PHC shareholders (29.2% of Class A), sued Bruce Shear and Acadia after a stock-for-stock merger, alleging Shear (a controlling Class B holder) breached fiduciary duties by negotiating an excessive $5 million Class B premium and an unfair equity split.
- After a nine-day jury trial, the jury found Shear controlled a majority of the PHC board and that the merger was not entirely fair, but concluded MAZ failed to prove economic loss from Shear’s breach; the jury did not reach aiding-and-abetting or damages questions.
- MAZ moved for judgment as a matter of law or a new trial, arguing the verdict was inconsistent, Question 3 (economic loss/causation) on the special verdict form was improper, equitable remedies remained available despite the jury verdict, and certain evidence was prejudicial.
- Defendants argued alternative grounds for judgment: the Tucci decision limits direct claims, insufficient evidence of control, and statutory ratification; they also opposed equitable relief as unconstitutional additur and contested evidentiary rulings.
- The Court found MAZ’s inconsistency and verdict-form objections waived for late challenge, held the verdict was not inconsistent (jury could find unfair dealing without economic loss), and concluded causation was properly submitted to the jury for legal damages while equitable remedies remain for the court.
- Remedy: the Court ordered disgorgement of $2,964,396 (Shear’s pro rata share of the unjustified portion of the Class B premium) plus interest to MAZ and the certified class; denied rescission/reform of equity split and denied a new trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Consistency of jury verdict | Verdict is inconsistent: finding lack of economic loss conflicts with findings Shear controlled board and merger not entirely fair | No timely objection; verdict could reflect unfair process (Class B premium negotiation) without economic harm to Class A | Objection waived; verdict not inconsistent — jury could find unfair dealing but no economic loss |
| Inclusion of economic-loss question (Question 3) | Question 3 was improper because causation is not a separate element for controlling-shareholder fiduciary claims | Question 3 was proper; parties had notice and failed to timely object | Objection waived; Court correctly submitted causation/economic loss to jury for legal damages |
| Availability of equitable relief despite no jury damages | Equitable remedies (disgorgement, rescission/reformation) are available without proof of causation/damages | Equitable relief that augments jury verdict is improper (additur) or otherwise unavailable | Court may order equitable disgorgement despite jury finding no legal damages; disgorgement of $2,964,396 + interest ordered to class; rescission/reform denied |
| Prejudicial post-merger stock-performance evidence | Post-merger stock evidence prejudiced jury and warranted new trial | Evidence admissible to show reasonableness of directors’ actions; defendants prohibited from arguing “no harm, no foul” | No new trial; evidence admissible in limited way and defendants complied with limitation; no contemporaneous objections preserved for asserted violations |
Key Cases Cited
- In re Nexium (Esomeprazole) Antitrust Litig., 842 F.3d 34 (1st Cir.) (timely objection required to preserve inconsistency challenge to special verdict)
- Trainor v. HEI Hosp., LLC, 699 F.3d 19 (1st Cir.) (waiver of inconsistency without objection after verdict)
- Kavanaugh v. Greenlee Tool Co., 944 F.2d 7 (1st Cir.) (district court discretion on inconsistent special verdicts in limited circumstances)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (articulation of entire fairness standard: fair dealing and fair price)
- Coggins v. New England Patriots Football Club, Inc., 492 N.E.2d 1112 (Mass. 1986) (controlling shareholder fiduciary duty in merger context)
- Berish v. Bornstein, 770 N.E.2d 961 (Mass. 2002) (equitable disgorgement available for fiduciary breaches)
- Demoulas v. Demoulas, 703 N.E.2d 1149 (Mass. 1998) (equitable remedies and rescission for fiduciary breaches)