455 Mass. 537 | Mass. | 2009
The plaintiff, Bernard J. Pointer, was part owner of Fletcher Granite Company, LLC, a closely held corporate entity. The case commenced in the Superior Court in Middlesex County and was transferred to the business litigation session, where a Superior Court judge presided over a jury-waived trial, lasting some twenty-three days, in which over 750 exhibits were admitted. In a forty-seven page written decision containing findings of fact and rulings of law, the judge found for Pointer on his claims against the defendants for a freeze-out and breach of fiduciary duty; for breach of an employment contract and of the covenant of good faith and fair dealing; and for interference with an advantageous relationship. He also found for the plaintiff on the defendants’ counterclaims. We granted the parties’ applications for direct appellate review. Because we conclude that there
Background and facts. Proper understanding of this case requires a somewhat lengthy discussion of the essential facts that we gleaned from the findings of the judge. We also present only so much of the lengthy procedural history in this case as is necessary to understand the issues raised. In our review, we do not set aside a judge’s findings of fact unless they are clearly erroneous. Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 509 (1997). The burden is on the appellant to show that a finding is clearly erroneous. Id. “Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous.” Id. at 510, quoting Gallagher v. Taylor, 26 Mass. App. Ct. 876, 881 (1989).
1. Fletcher Granite Company, LLC (FGC),
Pointer had been president of Pioneer, and his initial involvement in the sale of the business was in that capacity. Ultimately, however, he joined with Castellani, Woodberry, and Herbert. The group had agreed that, when FGC assumed ownership of Pioneer, they would continue to operate the quarry business and sell the real estate.
Through a wholly-owned subsidiary, Pioneer also owned a residential subdivision called Greystone Estates, Inc. (Greystone). Pioneer was unwilling to sell its granite business unless it also sold Greystone. Pointer and another individual, Lou Frank, had decided to purchase Greystone. To that end, just before FGC was formed, he and Frank formed Stone Ridge Investments, LLC (SRI), of which Pointer owned fifty per cent. The other members of FGC were interested only in the quarry business and not in Greystone. The other members knew Pointer was involved in SRI, as he conducted SRI business while he was president of FGC. Pointer told the others that he would assist Frank in the Greystone transaction, but Pointer did not disclose that he was a substantial (fifty per cent) owner. Implicit in the judge’s findings however, which also has support in the record, is that the others knew he was a principal of SRI. The others learned of the extent of Pointer’s ownership only after Pointer’s employment was terminated. It is important to note that, as discussed infra, Pointer and Frank formed another entity, Stone Ridge Management, LLC (SRM), in 2000.
FGC closed on Pioneer’s quarry, mill, and certain real estate on March 30, 1999. All but Woodberry were present at the closing. On April 1, 1999, SRI closed on Greystone. Pointer was the only member of FGC present.
The judge found that, at the time the parties entered into the
2. We now provide some preliminary information about FGC’s operating agreement and Pointer’s employment contract. Under § 2.3 of the operating agreement, FGC was organized to “own and operate a quarry business and to engage in any other lawful act or activity permitted under the [l]aw.” In addition, under § 5.1.4.7 of the operating agreement, the approval of 66.7 per cent of the managers was required for FGC to engage in any business other than that related to quarrying.
*541 “[Njothing in this Agreement shall be deemed to restrict in any way the rights of any Member, or any affiliate of any Member, to conduct any other business or activity whatsoever, and no Member shall be accountable to [FGC] or to any other Member with respect to that business or activity. The organization of [FGC] shall be without prejudice to the Members’ respective rights (or the rights of their respective Affiliates) to maintain, expand, or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Member waives any rights the Member might otherwise have to share or participate in such other interests or activities of any other Member or the Member’s Affiliates.”
3. The sale, in 2001, to SRM of FGC’s approximately sixty-four acre parcel containing undeveloped land and an abandoned quarry in Milford is at the center of several issues raised in this case and thus requires elaboration.
The judge found that, before Pioneer sold its granite business to FGC, it had granted to Frank an option to purchase its sixty-four acre parcel in Milford (option). The parcel was burdened with the option at the time FGC acquired it as part of Pioneer’s granite business. The option had a $475,000 purchase price that was due to expire on March 31, 1999, but on several occasions, Pointer extended it, including an extension until October 31, 1999. Important for our purposes is that the option had a contingency attached that allowed the exercise of the option only if Frank were able to acquire an adjoining property, owned by H.E. Fletcher Tmst (Tmst land).
The key to understanding the dispute over the sale of FGC’s
At some point, Frank offered Pointer the opportunity to join in the project. He presented Pointer with a memorandum describing the plan. The memorandum stated that, if it acquired all the parcels, SRI would control “major acreage in a community very supportive of development” and that several developers also had. been in “constant touch” with an eye to being considered.
When Pointer accepted the offer to join with Frank, he knew that (1) a substantial real estate developer, Pulte Homes, had contacted Pointer about FGC’s parcel on June 1, 1999 (while it was under the option with Frank), but he had not told FGC members and managers anything about this contact; (2) other developers had expressed interest in the tract property; (3) Frank was already engaged in conversations to acquire two of the parcels, the sale of one of which was likely because of Frank’s personal relationships with the owners, and the acquisition of the other of which would constitute a significant component of the tract; (4) Frank had considerable wealth to facilitate the transaction; and (5) Frank believed that the town of Milford would be receptive to development of the tract.
Pointer did not offer FGC any participation in the plan, nor did he inform Castellani, Woodberry, or Herbert of it. However, in September, 1999, at a board meeting, Pointer had reported to FGC members and managers that FGC’s parcel did not have value apart from the abutting Trust land and recommended that an appraisal of two pieces be conducted. The minutes from that meeting stated that there was an appraisal of FGC’s parcel from two years previously for $170,000.
In January, 2000, without prior consultation with FGC members and managers and with no consideration to FGC, Pointer reinstated the expired purchase option on FGC’s parcel and extended it until December 31, 2000. However, the record shows that FGC members knew of this extension of the option and that the option was owned by SRI because Pointer informed them in a memo
SRI began acquiring the properties in February, 2000, and by October, 2000, had acquired three parcels. On October 11, 2000, Pointer and Frank created a separate entity, SRM, to acquire the parcels. Frank and Pointer each controlled fifty per cent of SRM’s equity; SRM was owned equally by their children, with Pointer and Frank as managers. By October, 2000, SRM had reached an agreement in principle to sell approximately eighty-five acres for development as an office park at a price of $6 million. The purchaser agreed to assist SRI in pursuing its plans for the entire assembled acreage. Pointer disclosed none of this information to FGC members and managers.
The remaining acreage, which included FGC’s parcel and the Trust land, would be a residential development. In the October 6 memorandum, Pointer advocated to FGC that it sell its parcel to “Stone Ridge, LLC”
The record shows that Pointer’s October memorandum also stated that Pointer had agreed that “Stone Ridge, LLC would acquire the option if it would cause some action on this piece and facilitate [FGC’s] desire to sell [as w]e previously identified this parcel as excess assets . . . .’’The memorandum further stated that the option was for $475,000; that there had been two appraisals of FGC’s parcel, one for $192,000 and the other for $385,000
Concerning the sale price of FGC’s parcel, the judge found that Pointer had obtained a copy of another appraisal, which stated that if FGC’s parcel were consolidated with others, it would have a value of $525,000. He also found that Pointer did not share the appraisal with FGC.
4. In 2003, issues began to arise at FGC related to “FGC’s deteriorating operating profits and its then precarious cash position.” FGC had a revolving credit agreement with Citizens
As part of its landscaping business, FGC bought cobblestones imported from India that required such a letter of credit. In early 2003, the members and managers of FGC, concerned about having enough cash to operate their business in the first three quarters of 2003, decided to defer cobblestone orders until the fall of 2003. Nonetheless, Pointer, concerned that the business would have an insufficient supply of cobblestones for the landscaping season, decided on his own to order a “half ship” of them. The minutes of the board meetings in February and May, 2003, reveal that this shipment was known to the members. In any event, the resulting letter of credit reduced FGC’s borrowing base by over $700,000. In addition, the order placed an additional $170,000 cash demand on FGC.
In order to deal with the cash shortage, Pointer took two steps. First, he decided to use a billing method known as “cut-and-store,” which was a way to send invoices to customers in advance of shipment, in hopes that payment would be more prompt. In March, 2003, Pointer decided to include the cut-and-store bills in FGC’s receivable records (and thereby in the receivable amounts reported to the bank). This was contrary to FGC’s agreement with the bank, although Pointer contended that he was unaware of this fact. There is record support for the judge’s finding that, “[djespite concerns expressed by Castellani at trial, it appears that the bank was aware of the cut-and-store situation and was not seriously concerned about it.”
Second, Pointer caused FGC to borrow $300,000 from SRI’s affiliate, SRM, at an interest rate of fifteen per cent, approximately three times the prime rate. Herbert was aware of the transaction because Pointer, after depositing the check from SRM to FGC, presented her with a copy of it. Castellani and Woodberry were not informed of the loan. The loan was contrary to the bank covenants, and could have constituted an event of default that would have permitted the bank to call in the loan. It also violated the operating agreement. Herbert, the chief financial
When Castellani and Woodberry learned of Pointer’s actions, they were concerned about his judgment and ability to manage FGC, but they did not discuss their concerns with him. Instead, they concluded that Pointer deliberately reported the receivables to the bank and had concealed financial problems by borrowing from SRM. In addition, FGC, on a pure performance basis, was projecting a loss for 2003, and was in difficulties with its bank.
As majority owners, Castellani and Woodberry secretly decided to find someone to replace Pointer as the top executive of FGC. In November, 2003, the pair began communicating with the defendant Jonathan Maurer, culminating in Maurer’s hiring in January, 2004, as FGC’s chief executive officer. The contract Maurer signed stated that Castellani and Woodberry would “use their best efforts to cause the operating agreement to be modified” to allow Maurer to purchase shares up to forty per cent of FGC.
In March, 2004, two other actions by Pointer came to the attention of Castellani and Woodberry. During a four-year period, Pointer made political contributions in the amount of $4,825. He wrote personal checks for which he was reimbursed by FGC.
The second action by Pointer involved a report done by FGC’s accountants concerning the cut-and-store billing activity.
At a meeting on March 29, 2004, the managers and members tried to talk about these issues with Pointer, but he refused to participate because it was not on the agenda he had submitted for the meeting.
Without notice to Pointer, the managers had a meeting where they terminated Pointer’s employment as of June 30, 2004, by means of a resolution that set forth several allegations (resolution). Pointer was given no opportunity to respond. After Pointer’s
Pointer sued the defendants, alleging, in relevant part, that the defendants engaged in a freeze-out, committed a breach of their fiduciary duty, violated his employment contract and the covenant of good faith and fair dealing, and interfered with an advantageous relationship. The judge found for Pointer on his claims,
The defendants appealed, and Pointer cross-appealed concerning the appropriate remedy for the freeze-out.
Discussion. It is uncontested that FGC is a close corporation in that it has “(1) a small number of stockholders; (2) no ready market for the corporate stock; and (3) substantial majority stockholder participation in the management, direction and operations of the corporation.” See Brodie v. Jordan, 447 Mass. 866, 868-869 (2006), quoting Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 586 (1975). “Because of the fundamental resemblance ... to [a] partnership . . . stockholders in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another[, that is,] the ‘utmost good faith and loyalty.’ ” Donahue v. Rodd Electrotype Co. of New England, Inc., supra at 592-593, quoting Cardullo v. Landau, 329 Mass. 5, 8 (1952).
1. The freeze-out and termination of employment. The defendants argue that the judge erred in finding for Pointer on his claims of a freeze-out and wrongful termination of his employment. There was no error.
“The denial of employment to the minority at the hands of the majority is especially pernicious in some instances. A guaranty of employment with the corporation may have been one of the ‘basic reason[s] why a minority owner has invested capital in the firm.’ . . . The minority stockholder typically depends on his salary as the principal return on his investment, since the ‘earnings of a close corporation ... are distributed in major part in salaries’ .... Other noneconomic interests of the minority stockholder are likewise injuriously affected by barring him from corporate office. . . . In sum, by terminating a minority stockholder’s employment . . . the majority effectively frustrate the minority stockholder’s purposes in entering on the corporate venture and also deny him equal return on his investment.”
Id. at 849-850, quoting Symposium — The Close Corporation, 52 Nw. U. L. Rev. 345, 392 (1957), and 1 F.H. O’Neal, Close Corporations § 1.07 (1971). See Brodie v. Jordan, supra at 869, quoting Donahue v. Rodd Electrotype Co. of New England, Inc., supra at 588-589 (denial of employment is freeze-out).
A breach of fiduciary duty through a freeze-out also occurs when the reasonable expectations of a shareholder are frustrated. Bodio v. Ellis, 401 Mass. 1, 10 (1987) (thwarting shareholder’s expectation of controlling close corporation).
Nevertheless, majority shareholders “have certain rights to what has been termed ‘selfish ownership’ in the corporation which should be balanced against the concept of their fiduciary obligation to the minority” permitting them “room to maneuver” and “a large measure of discretion” in, among other things, hiring
Applying these principles to the facts in this case, the judge did not err in concluding that Pointer was subject to a freeze-out when Castellani and Woodberry, in violation of their fiduciary duty, secretly hired Maurer in January, 2004, barred Pointer from the FGC, and ultimately fired him as president in June, 2004. In addition, for the reasons cited above, the judge also did not err in concluding that Pointer’s actions did not require his termination because less harmful alternatives outweighed “any of the asserted business purposes for the actions that Castellani and Woodberry took in secretly engaging Maurer.”
“[Castellani and Woodberry] attempted to excuse this failure [to inform Pointer about discussions with Maurer] by expressing concern that Pointer would react badly to news that an effort was underway to find someone who would be senior to him in the operations of FGC. If Pointer were to leave before a new executive could be located, [they] knew that there was no one immediately able to step into his role. Certainly neither of them was equipped, nor interested, in doing so. Further, they were concerned that the bank might move their account to workout or call the loan if Pointer left the company.”
The defendants claim that the judge also erred in holding that Pointer did not commit a breach of his employment contract. This argument has no merit.
The resolution terminating Pointer’s employment enumerated the grounds on which that termination was based. In relevant part, it stated that Pointer had violated his employment agreement and the operating agreement, and engaged in acts of malfeasance that materially injured FGC by forming a fifty per cent ownership in SRI/SRM and engaging in certain real estate transactions
The judge also did not err in determining that the defendants’ claim that Pointer should have revealed to the other members and managers that the purchase of FGC’s parcel was part of a larger real estate venture and that Pointer was a fifty per cent owner of SRI/SRM was contrived. The judge found that no one from FGC other than Pointer had any interest in real estate development; that under FGC’s operating agreement, for FGC to engage in real estate transactions, approval of 66.7 per cent of the members was required, and the defendants presented no evidence that demonstrated that FGC was deviating from its operating agreement; and that Castellani knew that SRM was aggregating land for development. In fact, the others knew that there was discussion about using some land for a golf course. Castellani sent Pointer a newspaper article involving a golf course developer sued over “turtles.”
The defendants argue that they could not have demonstrated that FGC was interested in real estate when they did not know that Pointer was a fifty per cent owner of SRM, and thus, they argue, they did not know that the opportunity was even available to them. However, the judge implicitly found that they knew Pointer was an owner of SRI and that SRM was buying the parcel; indeed, Pointer signed the purchase and sale agreement and deed for FGC’s parcel as a manager of SRM.
As the judge found, Castellani, Woodberry, Herbert and Maurer owed Pointer, who was a forty-three per cent owner of
The defendants argue that because Pointer was president under an employment contract, the terms of the contract control rather than their fiduciary duty. Even assuming that this assertion has merit, the cases on which the defendants rely are easily distinguished. One involved a corporation whose stock was publicly traded. See Chokel v. Genzyme Corp., 449 Mass. 272, 273 (2007). Two concerned terminations that were consistent with applicable employment contracts. See Merola v. Exergen Corp., 423 Mass. 461, 465-466 (1996) (no breach of fiduciary duty in closely held corporation where plaintiff was employee at will, bought corporation’s stock but was not required to as condition of employment, was terminated in accordance with his employment contract, and was adequately compensated for his stock); Blank v. Chelmsford Ob/Gyn, P.C., 420 Mass. 404, 406-409 (1995) (termination of shareholder and purchase of his stock consistent with terms of applicable contracts, including proper notice). Here, there is support for the judge’s conclusion that Pointer did not violate his employment agreement.
2. Usurpation of a corporate opportunity and self-dealing. The defendants’ counterclaims against Pointer for breach of fiduciary duty in usurping a corporate opportunity and self-dealing concern the sale, in 2000, of FGC’s parcel and the larger plan that Frank offered Pointer to assemble multiple parcels of land in Milford.
In order for liability to attach for usurpation of a corporate opportunity, the claimant must prove that the opportunity belonged to the business. That is, “ ‘a director or senior executive [must become] aware’ either in connection with performing the functions of those positions, or ‘[flhrough the use of corporate information or property, [that] the resulting opportunity is one that the director or senior executive should reasonably be expected to believe would be of interest to the corporation.’ ” Demoulas v. Demoulas Super Mkts., Inc., supra at 530, quoting Principles of Corporate Governance § 5.05(b)(1) (1994). Here, the judge found that the language in FGC’s operating agreement directly enumerating a limited business purpose, see note 7, supra, and explicitly allowing any member the right “to conduct any other business or activity whatsoever,” freed Pointer “from such liability relating to an opportunity not involved within FGC’s line of business.”
The defendants argue that pursuant to the Demoulas case, the judge was bound by a definition of corporate opportunity that “leave[s] little room for [a] director to appropriate any opportunity conceivably advantageous to [its] corporation, without its consent.” Demoulas v. Demoulas Super Mkts., Inc., supra at
Concerning the argument that Pointer engaged in self-dealing when SRM bought FGC’s parcel, the defendants argue that the judge erred in concluding that the sale was consistent with fundamental fairness because Pointer pursued an unfair process by not revealing that he owned a fifty per cent interest in SRM or that SRM wanted to acquire the property at a discount, and failed to get the best possible price for FGC’s parcel. There was no error.
Here, although Pointer did not reveal that he owned fifty per cent of SRM, there is adequate evidence in the record to support the judge’s conclusion, consistent with the operating agreement, that Castellani negotiated directly with Frank, that Pointer did not participate in the vote on the deal, and that $300,000 was a commercially reasonable price. The record shows that the other members knew Pointer owned part of SRI/SRM and that Pointer and Frank were assembling parcels of land for development. It is true that there was no disclosure that Frank would take $300,000 or that SRM was pursuing the parcel at a discount. However, as discussed, the record shows that, in his memorandum of October 6, 2000, Pointer stated that the existing option was for $475,000. He also stated the amounts of two other estimates and explained why FGC should “discount” the option price.
The minutes of the meeting in which the sale of FGC’s parcel was discussed reveal that members understood that they could hold out for a higher price, but instead chose to sell rather than take a chance that the permitting process would be successful. Moreover, although an expert for the defendants testified that FGC’s parcel could have sold for $700,000, the judge was entitled to reject that testimony and rely instead on the opinion of the plaintiff’s expert that $300,000 was a commercially reasonable price. Given that the price was commercially reasonable, it follows that Pointer did not harm FGC when Castellani and Frank settled on that price. The judge did not err in concluding that the transaction was fundamentally fair.
3. Interference with advantageous relationship. The judge
Corporate officers have freedom of action; there must be actual malice to hold corporate directors personally liable for interference with an advantageous relationship. Blackstone v. Cashman, 448 Mass. 255, 260 (2007), quoting Gram v. Liberty Mut. Ins. Co., 384 Mass. 659, 663 (1981), S.C., 391 Mass. 333 (1984). Actual malice is defined as showing spiteful, malignant purpose with no legitimate corporate purpose. Blackstone v. Cashman, supra at 261, quoting Wright v. Shriners Hosp. for Crippled Children, 412 Mass. 469, 476 (1992). Here, we have concluded already that the judge did not err in finding that the defendants’ claim that they terminated Pointer for cause was contrived. There was no error in finding the defendants hable.
4. Indemnification. Under § 5.5.3 of the operating agreement, FGC must “indemnify, defend and hold harmless” the managers and members unless their action or inaction “was the result of active and deliberate dishonesty.” See G. L. c. 156C, § 8. The defendants argue that this limitation applies regardless of the outcome of the case and that the judge’s findings concerning Pointer’s behavior lead to the conclusion that Pointer was, at the very least, dishonest.
As the judge stated in a written memorandum and order on several posttrial motions, “Contrary to the [defendants’ argument, nowhere in this [decision] are there findings that Pointer committed actions in bad faith or that were the result of active and deliberate dishonesty.” There was no error.
5. Remedy for freeze-out. Having found Castellani, Wood-berry, Herbert, and Maurer individually liable to Pointer for a
In July, 2008, approximately eight months after judgment entered, Pointer filed a motion for relief from judgment under Mass. R. Civ. P. 60 (b) (5) or (6), 365 Mass. 828 (1974). He asked the judge to modify the remedy for the freeze-out because, he argued, FGC was insolvent and, therefore, a forced sale would yield him nothing. He requested that the remedy be modified to order the defendants to pay him approximately $3.6 million dollars, which, according to an expert who testified for Pointer at trial, was 43.3 per cent of the value of FGC when the freeze-out occurred. In return, Pointer would tender his stock.
Because the trial judge had retired, another judge ruled that the relief Pointer sought was contrary to the Brodie decision. As the judge stated, the operating agreement does not require any buyout during the lifetime of a shareholder.
Both sides make numerous arguments concerning the appropriate remedy for the freeze-out. We need not discuss them because we conclude that the trial judge’s order for a forced sale of FGC violated our holding in the Brodie decision. Because we held that a forced buyout of a shareholder was improper without some authorization from shareholders, it would be inconsistent
Anticipating that this court would conclude that a forced sale of FGC violated the holding in the Brodie decision, the trial judge fashioned an alternative remedy, stating he “would grant to Pointer an order for his reinstatement as [president of FGC, together with back pay for salary lost at the rate he was earning at the time of his discharge to the date of his reinstatement, indemnification for his reasonable attorney’s fees and costs in litigating this action, along with appropriate injunctive relief to enable him to resume and continue in the future, under reasonable regulation by the FGC members and managers, in his position as [president.” However, since the trial judge fashioned this remedy, it appears that circumstances have changed, not the least of which is that FGC may have been sold. We are constrained in fashioning a remedy here, as Pointer sought both monetary damages and equitable relief, and the appropriate remedy depends on further factual findings. Therefore, the case is remanded for further proceedings to determine whether it is possible to implement the trial judge’s alternative remedy.
Conclusion. For the reasons set forth above, we affirm the decision of the trial judge insofar as he found for Pointer on his claims and on the defendants’ counterclaims.
So ordered.
Fletcher Granite Company, LLC (FGC), was formed under the name FG Acquisitions, LLC.
The company was called Fletcher Granite Co., Inc., a subsidiary of Pioneer Concrete of America, Inc., which was a subsidiary of Pioneer International Pic, an Australian entity.
Before they joined with Herbert and Pointer, Castellani was a broker who was hired to locate a buyer for Pioneer, and Woodberry was his business associate.
FGC’s operating agreement provided Pointer with a right of first refusal under certain conditions on the purchase of FGC shares, including Castellani’s.
Section 5.1.4.7 of the operating agreement states, in relevant part, that 66.7 per cent of the members had to approve for FGC to engage in any business other than the “quarrying, manufacture and sale of dimension stone, granite curbing, dimensional building stone, granite cobblestone, granite architectural and landscaping stone, cut stone and granite tile and related businesses.”
As of the date of the memorandum, October 6, 2000, SRM had not been formed. As the judge found and the record supports, although SRI and SRM were two legally separate entities, they were “the same entity,” in that both were controlled by Pointer and Frank. They financed and capitalized SRM solely by debt.
The first appraisal was performed for Castellani and mentioned the option
This appraisal was not created for FGC or Pointer. In his testimony, Pointer stated that he did not show this appraisal to the members and managers. However, Castellani testified that he did see the appraisal.
On cross-examination, Castellani testified that Pointer reduced the interest rate to a fair rate without any prompting.
Maurer testified that, at the time he signed his employment agreement, he knew that the shares would have to come from Pointer.
One witness, an employee of FGC, testified that Maurer had approved reimbursements for political contributions since Pointer left.
The judge found that the “report quantified the impact of including cut- and-store receivables and reflected the overstatements on FGC’s financial statements and the borrowing base certificates submitted to the bank. [It] also quantified the extent to which FGC has borrowed more funds that it was entitled to borrow.”
The record shows that Pointer called the meeting to discuss a proposal for him to buy out the other members’ shares in FGC, and his concern that he was not forewarned about Maurer’s employment. Castellani circulated a competing agenda, containing allegations against Pointer that Pointer claimed arrived at his house while Castellani knew Pointer was away, and to which Pointer objected, in writing.
The judge found that FGC employees “all essentially liked Pointer, which, perhaps, was an irritant to Castellani and Maurer particularly.”
The judge dismissed, without prejudice, two of Pointer’s claims against the defendants.
One of the defendants’ counterclaims concerned SRI’s acquisition of Greystone. They do not press that issue on appeal.
Unscrupulous minority shareholders also may do damage to the interests of the majority. See Zimmerman v. Bogoff, 402 Mass. 650, 658 (1988), citing Smith v. Atlantic Props., Inc., 12 Mass. App. Ct. 201 (1981); Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 593 n.17 (1975).
The judge ruled that Herbert failed in her fiduciary duty when she “sat silently by until joining in at the end,” signing the resolution of June 29, 2004, terminating Pointer. He also concluded that Maurer was guilty of breaches that began once he replaced Pointer by marching in “lockstep with Castellani and Woodberry against Pointer and joined Castellani and Herbert in Pointer’s termination.”
The transaction that concerns us involves FGC’s parcel in Milford.
Several other issues were raised in the resolution. The judge concluded that they were not only “not a substantial feature” at trial but also that “none . . . even approaches] a basis for termination for cause.” The defendants do not discuss these issues in their brief, and thus we do not consider them. Mass. R. A. P. 16 (a) (4), as amended, 367 Mass. 921 (1975).
We take the judge’s conclusion that the allegations against Pointer were not grounds for his termination to mean that the defendants have not established a legitimate business purpose for the termination. See Wilkes v. Springside Nursing Home, Inc., 370 Mass. 842, 851-852 (1976) (where court is asked to settle dispute, it must “weigh the legitimate business purpose, if any, against the practicality of a less harmful alternative”). In the one area where the judge found that Pointer engaged in any misconduct, his political contributions, we agree with the judge that termination was not necessary; a simple discussion would have been enough. In any event, Pointer reimbursed FGC.
The defendants argue that the judge’s reliance on § 5.4.3 of the operating agreement is misplaced because as a manager, Pointer was bound by § 5.4.1, which states that he owed FGC a fiduciary duty to the same extent “as a director would have to a corporation of which he is a member of the Board of Directors.” This argument fails because in order to find that Pointer committed a breach of his fiduciary duty on this particular counterclaim, the judge first had to find that a corporate opportunity existed. See generally Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 535 (1997) (“nondisclosure of a corporate opportunity is, in itself, unfair to a corporation and a breach of fiduciary duty”).
In their reply brief, the defendants argue that Frank’s plan fit the definition of a “corporate opportunity” because the judge found that “Pointer knew that the [plan] was a real and substantive opportunity.” That the opportunity was substantial does not compel a conclusion that it was a corporate opportunity for FGC.
Under the operating agreement, that action would have required the approval of 66.7 per cent of the managers to expand FGC’s business interests.
Because we conclude that the judge did not err in denying the defendants’ counterclaims of usurpation of a corporate opportunity and self-dealing, we need not address the defendants’ argument that the judge erred in rejecting their counterclaim against SRI/SRM for aiding and abetting Pointer in this regard.
In their brief, the defendants allege bias by the judge. We have reviewed the portions of the transcripts referenced in the brief and conclude that the judge’s statements, made when he was discussing the admissibility of certain evidence, that he did not find a defense theory credible and statements about his view of the duty that partners in a close corporation owe each other, did not demonstrate bias. The judge stated that he would consider everything, including the defendants’ assertions when the time came.
The judge also ordered an alternative remedy, discussed infra.
Although it now may be moot, in Ms brief Pointer mentioned a possibility that “a remnant of FGC may remain in business for two years.”
Other remedies the judge ordered are not raised in tMs appeal.