25 N.E.3d 885
Mass. App. Ct.2015Background
- In 1998 and 1999 Robert James (through the Robert and Ardis James Foundation) advanced funds to Daniel Meyers (and Stephen Anbinder) to buy First Marblehead shares under two one‑page letter agreements; the letters gave Meyers title to the shares but entitled James to share in future sale proceeds per a formula. The letters contained no termination date or mandatory sale procedure.
- The shares subject to the agreements multiplied through stock splits and paid dividends after First Marblehead’s 2003 IPO; Meyers retained title and collected dividends.
- Beginning in 2004 the James family sought to unwind the arrangements; Anbinder ultimately negotiated a 50/50 unwind with James in 2005, but Meyers refused to agree to a similar resolution.
- The Foundation sued in 2006 asserting, inter alia, breach of an implied contract term and breach of the covenant of good faith and fair dealing; after a bench trial the judge found Meyers breached the implied covenant on July 31, 2006 and awarded damages based on that date (about $44 million).
- The Appeals Court reviewed whether Meyers breached the implied covenant, concluding the trial record did not support a finding of lack of good faith or that Meyers had an obligation to agree to unwind by the chosen date; it reversed the judgment on the good faith claim and vacated the damages, but affirmed that the agreements contemplate a sale and that Meyers cannot postpone resolution indefinitely.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Meyers breached the implied covenant of good faith and fair dealing by refusing to unwind the agreements after James requested resolution | James: Meyers unreasonably refused to negotiate to terminate the agreements and unfairly kept dividends and upside, depriving the Foundation of the bargain | Meyers: The letters gave him title and discretion as to sale timing; he acted within contractual rights and in good faith | No breach proved; record did not show lack of good faith or an obligation to agree by July 31, 2006 |
| Whether a contractual term should be implied requiring sale on demand or within a specified time | James: Court should supply a reasonable term (sale on demand or upon Foundation request) | Meyers: Agreements contain no such term; parties knew the allocation and risks when they contracted | Court declined to imply a mandatory demand‑sale term; agreements silent on termination and timing |
| Proper measure and date for damages if covenant breached | James: Damages measured by fair market value at date of breach (trial judge used July 31, 2006) | Meyers: No proven breach; date selection arbitrary and unsupported | Damages vacated because the trial judge's breach date was not supported by findings |
| Scope of relief and continuing obligations under the covenant | James: Remedy includes reimbursement for value as of breach and other relief | Meyers: No liability beyond honoring express contract terms | Court reiterated covenant cannot create new rights beyond contract but forbids indefinite refusal to resolve; remanded to clarify parties’ obligations going forward |
Key Cases Cited
- Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451 (1991) (recognizes implied covenant of good faith and fair dealing and its prohibition on destroying the other party's contractual fruits)
- T.W. Nickerson, Inc. v. Fleet Natl. Bank, 456 Mass. 562 (2010) (scope of covenant limited by the contract; covenant cannot create new rights beyond the agreement)
- Ayash v. Dana‑Farber Cancer Inst., 443 Mass. 367 (2005) (limits on the covenant’s scope—cannot expand contractually negotiated duties)
- Nile v. Nile, 432 Mass. 390 (2000) (plaintiff bears burden to prove lack of good faith; bad faith may be inferred from totality of circumstances)
- Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376 (2004) (covenant cannot create duties inconsistent with the contract)