48 N.E.3d 442
Mass.2016Background
- In 1998 and 1999 Robert James (on behalf of the Robert and Ardis James Foundation) advanced about $653,340 to Daniel Meyers to buy First Marblehead shares in exchange for a share of proceeds upon eventual sale; the deals were memorialized in two single‑page letters that set formulas for dividing sale proceeds but said nothing about sale timing.
- The foundation retained the share certificates and expected to share in future sale profits; Meyers kept voting control and later collected substantial dividends on the shares purchased with foundation funds.
- Beginning in 2004 the foundation repeatedly sought to conclude the arrangements and to discuss sale, but Meyers largely ignored requests for nearly two years while selling other First Marblehead stock and collecting dividends.
- The foundation sued in 2006 seeking specific performance and damages; after a bench trial the judge found Meyers breached the implied covenant of good faith and fair dealing and fixed the breach date as July 31, 2006, awarding damages per the written formulas.
- The Appeals Court reversed; the Supreme Judicial Court granted further review and affirmed the trial judge, holding Meyers breached the implied covenant by refusing to engage in reasonable efforts to effectuate sale as the parties had reasonably expected.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Meyers breached the implied covenant of good faith and fair dealing by refusing to engage to conclude the agreements | James: Meyers thwarted the parties' bargain and ignored repeated reasonable requests to discuss sale, depriving the foundation of the contract's benefits | Meyers: Letters omitted any timing term and gave him discretion; no duty to sell or to negotiate; no demand was made | Held: Breach — covenant required Meyers, upon reasonable request, to engage in reasonable efforts to arrive at a reasonable time for sale; his prolonged refusal violated reasonable expectations |
| Whether the court could supply or imply a timing obligation beyond the written letters | James: the silence should be read against indefinite withholding; parties had a reasonable expectation of eventual sale | Meyers: silence reflected a bargained rule giving him sole discretion to hold or sell at will | Held: Court declined to impose an on‑demand sale term or to give Meyers unchecked discretion; construed contract to effectuate parties' reasonable business expectations |
| Whether the judge erred in setting the date of breach and awarding damages as of July 31, 2006 | James: date follows foundation’s final informal letter and long delay; damages calculable from written formulas | Meyers: insufficient evidentiary basis for that date and for computing damages under those formulas | Held: No error — date of breach and damages are factual determinations for the trier of fact; reasonable approximation sufficed given defendant's conduct |
| Whether the implied covenant can be used to create duties to negotiate or new contractual rights | James: seeks only cooperative performance to realize existing deal, not a new bargain | Meyers: judge improperly imposed a duty to negotiate a new deal | Held: Covenant does not create new rights but required cooperation to effectuate the existing agreements; court did not impose a duty to negotiate a new allocation |
Key Cases Cited
- Weiler v. PortfolioScope, Inc., 469 Mass. 75 (bench trial findings credited; covenant scope)
- Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451 (implied covenant exists in every contract)
- Chokel v. Genzyme Corp., 449 Mass. 272 (breach when one party violates reasonable expectations)
- Bay Colony R.R. Corp. v. Yarmouth, 470 Mass. 515 (inaction can breach implied covenant when it thwarts contract performance)
- Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376 (covenant cannot create rights beyond the contract)
- T.W. Nickerson, Inc. v. Fleet Nat'l Bank, 456 Mass. 562 (lack of good faith may be inferred from circumstances)
- National Merchandising Corp. v. Leyden, 370 Mass. 425 (reasonable approximation of damages allowed where defendant's conduct causes uncertainty)