Merriam v. Demoulas Super Markets, Inc.
464 Mass. 721
| Mass. | 2013Background
- DSM is a Massachusetts close corporation with limited stock liquidity and long-standing intra-shareholder litigation.
- Art. 5 of DSM’s articles restricts stock transfers and creates a formal arbitration process to set stock value.
- In 2010, sellers offered 36% of DSM; DSM rejected and invoked art. 5 by naming arbitrators, triggering a valuation process.
- Sellers sought declaration that they could dispose of shares if not bought by DSM; DSM counterclaimed that such sale could violate Subchapter S status and fiduciary duties.
- Trial court held sellers were not bound by fiduciary duties under art. 5 and that reoffer to DSM was not required; issues regarding Subchapter S status and fiduciary duties remained, but were resolved in favor of the sellers on the asserted art. 5 grounds.
- This appeal followed a motion for judgment on the pleadings; the appellate court affirmed, upholding the art. 5 framework and limiting fiduciary duty implications to contract- governed actions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of fiduciary duty in close corporations | Sellers owe duty to preserve DSM’s S status | Art. 5 governs transactions; no broader fiduciary duty applies | Art. 5 fully governs sale; no extra fiduciary duty. |
| Whether art. 5 creates a right of first offer | DSM has a perpetual right to reoffer at favorable terms | No explicit right of first offer; contract language is narrow | No right of first offer implied; plain language controls. |
| Obligation to reoffer to DSM after third-party offer | DSM can enforce reoffer under implied covenant | No reoffer obligation beyond art. 5 terms | No obligation to reoffer beyond art. 5. |
| Relation between contract and fiduciary duty | Contract cannot fully govern fiduciary obligations | Compliance with contract suffices; no breach absent overreach | If fully governed by contract, fiduciary duty not breached. |
Key Cases Cited
- Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578 (Mass. 1975) (close corporations, fiduciary duties, and minority protections)
- Chokel v. Genzyme Corp., 449 Mass. 272 (Mass. 2007) (contracts guiding fiduciary duties in corporations)
- Blank v. Chelmsford Ob/Gyn, P.C., 420 Mass. 404 (Mass. 1995) (contracts do not always remove fiduciary duties; contract governs actions within scope)
- O’Brien v. Pearson, 449 Mass. 377 (Mass. 2007) (close corporation fiduciary duties and loyalty standard)
- King v. Driscoll, 418 Mass. 576 (Mass. 1994) (fiduciary duty limited when contract governs)