Blakeslee v. PHC, Inc. et al

Filing 302

Chief Judge Patti B. Saris: MEMORANDUM and ORDER entered. This Court ALLOWS in part and DENIES in part the defendants' motion for partial reconsideration of the order on summary judgment (Docket No. 285 ). This Court DENIES MAZ's motion to modify the order on class certification (Docket No. 271 ). (Geraldino-Karasek, Clarilde)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
___________________________________
MAZ PARTNERS LP, Individually and
on Behalf of Others Similarly
Situated,
Plaintiff,
v.
BRUCE SHEAR, et al.,
Defendants.
______________________________

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Civil Action
No. 11-11049-PBS

MEMORANDUM AND ORDER
November 21, 2016
Saris, C.J.
INTRODUCTION
This shareholder class action arises from a corporate
merger. This Court assumes familiarity with its prior rulings
and the factual record of this case. MAZ Partners LP v. Shear
(MAZ I), No. CV 11-11049, 2016 WL 183519 (D. Mass. Jan. 14,
2016) (order on class certification); MAZ Partners LP v. Shear
(MAZ II), No. CV 11-11049, 2016 WL 4574640 (D. Mass. Sept. 1,
2016) (order on summary judgment).
Plaintiff MAZ Partners LP (“MAZ”) moves to modify this
Court’s January 14, 2016 order on class certification. The

1

defendants oppose modification and move to reconsider a portion
of this Court’s September 1, 2016 order on summary judgment.
For the reasons stated, the defendants’ motion for partial
reconsideration (Docket No. 285) is ALLOWED in part and DENIED
in part. MAZ’s motion to modify (Docket No. 271) is DENIED.
BACKGROUND
On January 14, 2016, this Court certified a class defined
as follows:
All Class A shareholders of PHC, Inc., who either
abstained from voting or voted against the PHCAcadia merger in the October 26, 2011 shareholder
vote, who held their Class A shares immediately
prior to October 26, 2011, and whose shares were
converted to Acadia shares after the effective
merger date, except Defendants and any person,
firm, trust, corporation, or other entity related
to, or affiliated with, any of the Defendants.
MAZ I, 2016 WL 183519, at *9.
MAZ had sought a broader class definition that also
included Class A shareholders who had voted for the merger, but
this Court held that MAZ was not typical of such shareholders
because those shareholders faced an acquiescence defense that
MAZ did not. Id. at *4–6. This Court rejected MAZ’s argument
that omissions in the proxy made the shareholders who voted for
the merger so poorly informed that the acquiescence defense
would not apply. Id. at *6. This Court did, however, note that:
“If, after ruling on the parties’ motions for summary judgment,
the Court concludes that the Class A shareholders were not fully
2

informed based on material omissions in the proxy, the plaintiff
may ask this Court to revisit the issue of typicality and the
Court may indeed acquiesce.” Id. at *6 n.6.
On September 1, 2016, this Court stated in its order on
summary judgment that there was a triable issue of whether there
was a material nondisclosure in the proxy. MAZ II, 2016 WL
4574640, at *5 (“The plaintiff has presented evidence from which
a jury could find that the defendants failed to fully inform the
shareholders that the SRR fairness opinion did not address the
$5 million Class B payment or the $90 million pre-merger
dividend. The Final Proxy itself was over 200 pages long and
over 500 pages long with attachments. What shareholder is going
to wade through the proxy and then jump into the attachments?
Even Grieco was confused about the scope of the fairness
opinion.”).
MAZ moves to modify the order on class certification on the
basis that this Court’s finding of a triable issue of inadequate
disclosure supports an expansion of the class definition to
include Class A shareholders who voted for the merger. In
response, the defendants move for reconsideration of this
Court’s statement in the summary judgment order that there is a
triable issue of whether the scope of the Stout Risius Ross,
Inc. (“SRR”) fairness opinion was adequately disclosed. The
defendants’ motion for reconsideration also asks the Court to
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rule as a matter of law that the proxy fully and adequately
disclosed all material facts.
DISCUSSION
I.

Disclosure of the Scope of the SRR Fairness Opinion
This Court’s summary judgment order found that the proxy

inadequately disclosed the scope of the SRR fairness opinion.
While the fairness opinion was attached in full to the proxy,
this Court was concerned that the proxy itself failed to
adequately disclose the fact that the SRR did not address the
fairness of the $5 million paid directly to Class B Common
stockholders.
The proxy initially stated that SRR was asked to evaluate
the fairness “to the holders of PHC’s Class A Common Stock and
Class B Common Stock . . . , of the merger consideration to be
received by such holders (in the aggregate), and to the holders
of PHC’s Class A Common Stock, of the merger consideration to be
received by such holders (in the aggregate).” Docket No. 187,
Ex. A, at 2–3. A later portion of the proxy, in bold and italic
font, stated: “Although the PHC board of directors received a
‘fairness opinion’ with respect to some aspects of the merger
consideration, the opinion is limited and does not address the
‘fairness’ of all aspects of the merger.” Id. at 20. The proxy
then added that “SRR was not requested to opine as to, and its
opinion does not in any manner address . . . the amount of the
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merger consideration to be paid to holders of PHC’s Class B
Common Stock, the amount of any distribution paid to Acadia
stockholders, the allocation of the merger consideration among
the PHC stockholders or the amount per share of the merger
consideration, [or] the amount of the merger consideration paid
to the holders of PHC’s Class A Common Stock relative to the
merger consideration paid to the holders of PHC’s Class B Common
Stock or relative to the merger consideration paid to all
holders of PHC common stock.” Id.
While the language on Pages 2 and 3 of the proxy is opaque
and confusing, the above-quoted disclosure on Page 20 of the
proxy (which was not flagged in the initial briefing) was
adequate to clarify to shareholders that the SRR opinion did not
separately address the fairness of the $5 million merger
compensation.
However, this disclosure does not end the analysis because
MAZ strenuously contends that the proxy improperly failed to
disclose that the Board had no basis whatsoever for opining on
the fairness of the $5 million Class B payment. MAZ argues that
the proxy was misleading because it stated on Page 2 that
“[a]fter careful consideration, the PHC board of directors . . .
determined that the merger agreement is fair to, and in the best
interests of, the stockholders of PHC” while failing to disclose

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it had no basis for its opinion that the $5 million Class B
payment was fair.
MAZ relies primarily on Omnicare, Inc. v. Laborers District
Council Construction Industry Pension Fund, 135 S. Ct. 1318
(2015). In Omnicare, a company’s registration statement had
stated essentially: “[W]e believe we are obeying the law.” Id.
at 1327. The Supreme Court suggested that if that statement had
been made without having consulted a lawyer or if that statement
had been made in the face of contrary legal advice, the
statement might be misleading through omission. Id. at 1328–29.
However, the Omnicare Court also stated that to succeed in
proving a misleading omission through this theory, “the investor
cannot just say that the issuer failed to reveal its basis [for
an opinion statement].” Id. at 1332. In other words, it is not
enough to say in a conclusory fashion that the Board “omitted to
state facts necessary to make the statements made not
misleading” or that the Board lacked “reasonable grounds for the
belief” it expressed. Id. at 1333. Rather, “[t]he investor must
identify particular (and material) facts going to the basis for
the issuer’s opinion -- facts about the inquiry the issuer did
or did not conduct or the knowledge it did or did not have -whose omission makes the opinion statement at issue misleading
to a reasonable person reading the statement fairly and in
context.” Id. at 1332. In Omnicare, the Court flagged a specific
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possible omission: that an attorney had warned the defendant
about a particular legal exposure. Id. at 1333. The Court
instructed the trial court on remand to examine the attorney’s
warning, with a focus on the attorney’s “status and expertise”
and the context of the statements. Id. Omnicare provides the
blueprint for this Court’s analysis.
As an initial matter, this Court rejects the defendants’
argument that the logic of Omnicare does not apply because
Omnicare was a case under Section 11 of the Securities Act of
1933, which is not pleaded in this case. Section 11 attaches
liability to a registration statement that “omit[s] to state a
material fact . . . necessary to make the statements therein not
misleading.” 15 U.S.C. § 77k(a). While there is no such
statutory definition of materiality in this case, the standard
for materiality here similarly allows for an omission of certain
facts from corporate disclosures to be material. See MAZ II,
2016 WL 4574640, at *4 (quoting Malpiede v. Townson, 780 A.2d
1075, 1086 (Del. 2001)); see also Rosenblatt v. Getty Oil Co.,
493 A.2d 929, 944 (Del. 1985). Also, Omnicare addressed
registration statements, which are “formal documents” for which
readers “do not, and are right not to, expect opinions contained
in those statements to reflect baseless, off-the-cuff judgments,
of the kind that an individual might communicate in daily life.”
Omnicare, 135 S. Ct. at 1330. Proxy statements fit that
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description as well. Omnicare’s logic can be extended to the
context of this case.
The defendants argue that even if the logic of Omnicare
applies, a reasonable reader of the proxy would not understand
there to be any misleading omission. See Tongue v. Sanofi, 816
F.3d 199, 210 (2d Cir. 2016) (“The core inquiry [under Omnicare]
is whether the omitted facts would ‘conflict with what a
reasonable investor would take from the statement itself.’”
(quoting Omnicare, 135 S. Ct. at 1329)). Page 2 of the proxy
stated that “[a]fter careful consideration, the PHC board of
directors . . . determined that the merger agreement is fair to,
and in the best interests of, the stockholders of PHC.” Docket
No. 187, Ex. A, at 2. In the defendants’ view, the proxy did
disclose the inquiry the directors made to support their
fairness opinion. The defendants point to Page 61 of the proxy:
The PHC board of directors . . . considered a number
of factors in evaluating the proposed payment to
the holders of the Class B Common Stock, including
the rights of the holders of the Class B Common
Stock, the fact that the proposed transaction could
not be completed without the approval of the
holders of the Class B Common Stock and the opinion
of SRR to the PHC board of directors that, from a
financial point of view, the merger consideration
to be received by the holders of PHC Class A Common
Stock (in the aggregate) was fair to such holders
and the merger consideration to be received by the
holders of all of the PHC common stock (in the
aggregate) was fair to such holders.

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Id. at 61. Based on this statement, the defendants argue that
they did not omit any facts supporting the statement in the
proxy that compensation to Class B shareholders as consideration
for their losing control rights was fair.
MAZ points to specific facts in the record that were not
disclosed in the proxy that suggest that the defendants did not
carefully consider the amount of the compensation and lacked a
reasoned basis for stating it was fair. MAZ points out that
Jefferies, PHC’s investment banker, advised against an
additional payment to Class B stockholders. MAZ relies on two
emails from Jefferies. The first is an email by Dan Decelles of
Jefferies on February 5, 2011, telling Bruce Shear that: “We
were looking for examples of ma deals where ceo had class b. We
just did the Playboy deal and even hef gave up his class b in
that deal...... get your captains hat out.......” Docket No.
295, Ex. D. The second is an email by Richard Agabs of Jefferies
on April 30, 2011, telling Bruce Shear that all classes of
common stock must be treated equally. Docket No. 295, Ex. F. The
defendants downplay these emails, pointing out that Jefferies
was not hired to provide a fairness opinion or a legal opinion,
but was just an investment advisor.
With all reasonable inferences drawn in favor of MAZ, a
fact-finder could conclude that the investment bankers at
Jefferies warned that Class B shareholders in other deals it
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handled received no additional compensation. Whether the
defendants’ statement of opinion in the proxy was therefore
misleading is a mixed question of law and fact for a jury. See
Pavlidis v. New England Patriots Football Club, Inc., 737 F.2d
1227, 1231 (1st Cir. 1984) (“The materiality issue is ‘a mixed
question of law and fact’ whose determination ‘requires delicate
assessments . . . [that] are peculiarly ones for the trier of
fact.’” (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S.
438, 450 (1976)) (alterations in original)).
Whichever conclusion a factfinder may reach, there is no
evidence in the record that any misleading opinion in the proxy
was intentional, reckless, or made in bad faith. As such, this
Court’s holding in MAZ II as to director liability remains
undisturbed. MAZ II, 2016 WL 4574640, at *5 (“At most, the
plaintiff’s disclosure allegations constitute violations of the
duty of care, not the duty of loyalty, and the directors are
protected by the exculpation clause for such violations.
Therefore, the Court allows the defendants’ motion for summary
judgment with respect to the directors’ liability for any
disclosure violations.”). There remains a disputed question of
material nondisclosure, but it relates only to the issues of
class size and shareholder ratification.

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II.

Other Allegedly Material Nondisclosures
MAZ argues that there were other material nondisclosures in

the proxy that prevented the shareholders who voted for the
merger from being fully informed. The operative complaint
contains a long laundry list of such allegedly material
nondisclosures. Docket No. 177 at ¶ 155.
At the motion hearing, this Court asked MAZ to identify the
main nondisclosures on which it is relying. Apart from the
Board’s opinion as to fairness discussed above, MAZ identified
the following at the hearing and in its supplemental briefing:
1) The proxy failed to disclose that Defendant Donald Robar
allegedly tipped and traded on inside information;
2) The proxy failed to disclose a statement from Jefferies,
the financial advisor for PHC, suggesting that Class A and
Class B had to be treated the same;
3) The proxy failed to disclose that the Acadia CEO
introduced Jefferies to PHC; and
4) The proxy failed to adequately disclose Grieco’s postmerger employment on Acadia’s board.
The parties agree on the standard for materiality of a
nondisclosure: whether there is a “substantial likelihood that
the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the total
mix of information made available.” MAZ II, 2016 WL 4574640, at
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*4 (quoting Malpiede, 780 A.2d at 1086); see also Rosenblatt,
493 A.2d at 944.
A.

Alleged Insider Trading by Robar

Robar is a defendant and PHC board member who allegedly
tipped a family member to purchase PHC Class A stock in February
2011, resulting in a $4,600 profit to that family member. MAZ
argues that because Robar’s family member traded before the
Board voted on the merger, Robar was inclined to “rubber-stamp”
any merger agreement rather than objectively consider the merits
of the merger.
The defendants respond that disclosure of this trade was
not required because it was not material. The proxy already
disclosed that Robar himself held 229,167 shares of Class A
stock. Robar’s interests were aligned with those of all Class A
shareholders at the time of the Board’s vote on the merger, and
the alleged February 2011 transaction did nothing to change
that. There is no substantial likelihood that a reasonable
investor would have seen the disclosure of the alleged February
2011 transaction as significantly altering the total mix of
available information.
B.

Jefferies Emails

MAZ contends that the Jefferies emails, described
previously in this order, should have been disclosed. Of course,
not every negative email or point of view must be disclosed in a
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proxy. A “reasonable investor does not expect that every fact
known” to the company must be disclosed. Omnicare, 135 S. Ct. at
1329 (pointing out that it is not misleading not to disclose a
junior lawyer’s minority view even if it turns out to be
correct). The Jefferies emails may provide relevant evidence
concerning whether the directors knew specific information
undercutting the conclusion that the compensation to Class B
stockholders was fair. The Court has an insufficient record for
determining whether Jefferies’ opinion needed to be disclosed.
C.

Jefferies’ Prior Relationship with Acadia CEO

MAZ argues that the proxy improperly failed to disclose
that Jefferies was introduced to PHC and Shear by Joey Jacobs,
the Acadia CEO, with whom Jefferies had a prior business
relationship. Specifically, MAZ points to the fact that Jacobs
had done investment banking work with Dan Decelles of Jefferies
since 2002 and that the Acadia-PHC merger had the potential of
generating millions of dollars in fees for Jefferies.
But the proxy already disclosed the involvement of
Jefferies and Jefferies Finance, an affiliate of Jefferies, in
the merger. Further, the proxy already disclosed that because of
the interested position of Jefferies Finance, the PHC board did
not rely on a fairness opinion by Jefferies to justify their
approval of the merger. Docket No. 187, Ex. A, at 54 (“Mr.
Grieco was further directed to interview, select and engage a
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financial advisory firm without an interest in the completion of
the transaction to evaluate the fairness of the proposed
combination from a financial point of view, in light of
Jefferies’ potential role in providing financing to the combined
company.”). MAZ does not explain the materiality of any past
business relationship between Jacobs and Decelles, and given the
information that was already disclosed, this Court finds that
further information about Jefferies’ prior relationship with
Acadia’s CEO would not have significantly added to the total mix
of available information. See In re Delphi Fin. Grp. S’holder
Litig., No. CIV.A. 7144-VCG, 2012 WL 729232, at *18 (Del. Ch.
Mar. 6, 2012).
D.

Grieco Post-Merger Employment with Acadia

In MAZ II, this Court rejected MAZ’s argument that the
proxy failed to disclose that, at the time the PHC Board
appointed Grieco as lead independent director, Grieco had
already learned that he was a frontrunner to receive an Acadia
Board seat. This Court stated that “in multiple locations, the
Final Proxy disclosed Grieco's post-merger Acadia director
position.” MAZ II, 2016 WL 4574640, at *5.
The defendants argue that while multiple parts of the proxy
disclosed Grieco’s post-merger Acadia director position, the
proxy failed to disclose the timing: that Grieco had learned of
his likely board position well in advance of his vote on the
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merger. The defendants also claim that Grieco did not disclose
his likely post-merger employment to other PHC board members at
the time of the board vote. However, as we noted in MAZ II,
management’s expectation of employment with the post-merger
company is commonplace and does not, by itself, establish a
conflict of interest. MAZ II, 2016 WL 4574640, at *6 (citing
Ehrlich v. Phase Forward Inc., 955 N.E.2d 912, 919 (Mass. App.
Ct. 2011)); see also Cinerama, Inc. v. Technicolor, Inc., 663
A.2d 1156, 1170 (Del. 1995). The exact timing of Grieco learning
of his likely post-merger employment was not material.
The defendants rely on two cases that are inapposite. In In
re Atheros Communications, Inc., the court found a disclosure
violation when the proxy stated that, at a particular specified
date, a director “had not had any discussions with [the
acquiring company] regarding the terms of his potential
employment by [the acquiring company]” when in fact that
director had engaged in such discussions. No. CIV.A. 6124-VCN,
2011 WL 864928, at *11 (Del. Ch. Mar. 4, 2011). Similarly, in
Maric Capital Master Fund, Ltd. v. Plato Learning, Inc., the
proxy expressly stated that a company did not negotiate any
terms of post-merger employment with the other company’s
management when in fact there had been extended discussions on
the topic. 11 A.3d 1175, 1179 (Del. Ch. 2010). While the proxy
statements in those cases contained affirmatively untrue
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statements, the proxy in this case contained no such
misrepresentation that would lead to a disclosure violation.
Contrary to this Court’s statement in the summary judgment
order, the scope of the SRR fairness opinion was adequately
disclosed in the proxy. However, there remains a disputed
question of whether the Jefferies emails had to be disclosed. In
light of the above discussion, this Court ALLOWS the motion for
partial reconsideration (Docket No. 285) to the extent that the
defendants argue that there is no triable issue of whether the
scope of the SRR fairness opinion was adequately disclosed. This
Court DENIES the motion to the extent that the defendants ask
the Court to rule as a matter of law that the proxy fully and
adequately disclosed all material facts.
III. Effect on Shareholder Ratification
Nondisclosure was relevant to two parts of this Court’s
September 1, 2016 summary judgment order. The first was the
claim that the directors had breached their fiduciary duties.
This Court concluded above that any disclosure matter was at
most an exculpated breach of the duty of care and not a breach
of the duty of loyalty.
The second is what MAZ II referred to as shareholder
ratification. The defendants argued that under Mass. Gen. Laws
ch. 156D, § 8.31(a), the shareholder vote approving the merger
protected them from liability for breaches of the duty of
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loyalty. This Court’s summary judgment order expressed
uncertainty about whether the Massachusetts shareholder approval
statute applied to this situation, but ultimately did not decide
that question because a genuine dispute over whether the
shareholder vote was fully informed made it uncertain whether
the statute would even apply.
Having received additional briefing on the Massachusetts
shareholder approval statute, this Court now holds that the
statute does not apply in this context. The statute in question
applies to “conflict of interest transactions,” which is defined
as “a transaction with the corporation in which a director of
the corporation has a material direct or indirect interest.”
Mass. Gen. Laws ch. 156D, § 8.31(a). A director has an indirect
interest in a transaction if either “another entity in which he
has a material financial interest or in which he is a general
partner is a party to the transaction” or “another entity of
which he is a director, officer, or trustee or in which he holds
another position is a party to the transaction and the
transaction is or should be considered by the board of directors
of the corporation.” Id. § 8.31(b). For such transactions, the
statute provides three circumstances in which the transaction
“is not voidable by the corporation solely because of the
director's interest in the transaction.” Id. § 8.31(a).

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This statute does not apply to this case. The statute, by
its terms, applies to self-dealing transactions in which a
corporate fiduciary is on both sides of a transaction. The
record does not demonstrate that this merger fits such a
definition. PHC’s merger with Acadia was not such a transaction
because the directors of PHC had no pre-merger interest in
Acadia, whether directly or indirectly. No PHC director held a
director position or had a financial interest in Acadia prior to
the merger. Further, the statute by its terms is only relevant
to actions “by the corporation.” This suit is not such an action
because it is a shareholder class action, not a derivative suit.
The defendants cite a number of cases applying similar
shareholder approval statutes from other states in the context
of mergers. Those cases are not to the contrary. DCG & T ex rel.
Battaglia/Ira v. Knight actually cuts against the defendants’
argument because the court in that case noted that the Virginia
statute in question “refers to a corporation’s (and not a
shareholder’s) right to void an interested director
transaction.” 68 F. Supp. 3d 579, 589 (E.D. Va. 2014) (quoting
Byelick v. Vivadelli, 79 F. Supp. 2d 610, 628 (E.D. Va. 1999)).
As such, the court held that the statute only applied in
derivative suits, not shareholder class actions such as the case
at hand. See id. A further distinction is that in DCG & T, the
merging companies shared overlapping directors, making the
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merger a self-dealing transaction in which a corporate fiduciary
was on both sides of the transaction. Id. at 582–83. A merger
with overlapping management fits the statutory definition of a
conflict of interest transaction, whereas the merger in this
case does not. G & N Aircraft, Inc. v. Boehm is similarly
distinguishable. 743 N.E.2d 227 (Ind. 2001). There, the court
applied an Indiana statute like the Massachusetts statute at
hand to the merger of the corporation with another business
owned by a majority shareholder of the corporation. Id. at 238–
39. In Camden v. Kaufman, the merger was again between a
corporation and another business owned by the director of the
corporation. 613 N.W.2d 335, 337 (Mich. Ct. App. 2000) (per
curiam). While the defendants cite one case, Wittman v. Crooke,
in which the merger was between companies without overlapping
management, the state court decision did not inquire into
whether the text of the Maryland statute actually applied to
such mergers. 707 A.2d 422, 426 (Md. App. Ct. 1998). The other
cases cited by the defendants do not involve a challenge to the
terms of a merger.
The defendants argue that even if Mass. Gen. Laws ch. 156D,
§ 8.31(a) does not apply to this situation, their actions are
protected by a shareholder approval provision in the PHC company

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charter.1 The charter provision appears to be modeled off Title
8, § 144 of the Delaware General Corporation Law, which is

1

That provision, titled “Intercompany Transactions,” states
the following:
No contract or transaction between the corporation and one
or more of its directors or officers, or between the
corporation and any other organization of which one or more
of its directors or officers are directors, trustees or
officers, or in which any of them has any financial or
other interest, shall be void or voidable, or in any way
affected, solely for this reason, or solely because the
director or officer is present at or participates in the
meeting of the board of directors or committee thereof
which authorizes, approves or ratifies the contract or
transaction, or solely because his or their votes are
counted for such purposes, if:
(a) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are
known to the board of directors or the committee which
authorizes, approves or ratifies the contract or
transaction, and the board or committee in good faith
authorizes, approves or ratifies the contract or
transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote there on, and
the contract or transaction is specifically authorized,
approved or ratified in good faith by vote of the
stockholders; or
(c) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or
ratified by the board of directors, a committee thereof, or
the stockholders.
Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the
board of directors or of a committee thereof which
authorizes, approves or ratifies the contract or
transaction. No director or officer of the corporation
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similar to Mass. Gen. Laws ch. 156D, § 8.31. The charter
provision does not apply for the same reason that the
Massachusetts statute does not apply: the parties have not
identified any transaction in which any of the PHC directors was
on the other side of PHC, either directly or indirectly.
Accordingly, the defendants are not protected by shareholder
approval either through Mass. Gen. Laws ch. 156D, § 8.31(a) or
the PHC charter provision.
IV.

Effect on Class Certification Order
MAZ seeks to expand the class definition to cover all Class

A shareholders, regardless of how they voted on the merger. In
the initial class certification order, this Court defined the
class more narrowly, excluding Class A shareholders who had
voted for the merger. This Court’s reasoning was that MAZ is not
typical of Class A shareholders who voted for the merger because
shareholders who voted for the merger were susceptible to an
acquiescence defense to which MAZ was not. While the
shareholders who voted “yes” could defeat the acquiescence

shall be liable or accountable to the corporation or to any
of its stockholders or creditors or to any other person,
either for any loss to the corporation or to any other
person or for any gains or profits realized by such
director or officer, by reason of any contract or
transaction as to which clauses (a), (b) or (c) above are
applicable.
Docket No. 187, Ex. B, at 8–9.
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defense by showing that they were not fully informed by the
proxy, this Court’s judgment at the time was that there was not
a “strong enough argument” for nondisclosure. MAZ I, 2016 WL
183519, at *6.
MAZ argues that the typicality determination should be
revisited in light of the summary judgment order, in which this
Court found a triable issue of fact of whether the defendants
failed to fully inform the shareholders of the scope of the SRR
fairness opinion. MAZ argues that because the Class A
shareholders who voted for the merger may defeat acquiescence on
the basis of that nondisclosure, MAZ can represent those
shareholders. While this Court has now reconsidered that portion
of the summary judgment order, it has also found a separate but
related triable issue of material nondisclosure.
However, to say that there is a triable question of
material nondisclosure is different from deciding conclusively
at the summary judgment stage that there was insufficient
disclosure. The latter might arguably wipe out an acquiescence
defense against the “yes” voters and put all the Class A
shareholders on equal footing heading into the trial. But the
former does not because the “yes” voters would still have to
prove inadequate disclosure at trial while MAZ would not.
Typicality does not exist where a certain defense is applicable
to some potential class members but not to the named plaintiff,
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and that defense will consume a significant portion of the
plaintiff’s time and energy at trial. See MAZ I, 2016 WL 183519,
at *5. That is precisely the case here, where thorny questions
of disclosure have already sidetracked the litigation and
threaten to continue doing so at trial.
MAZ responds that it and the other “no” voters still have
to prove inadequate disclosure at trial because the defendants
will rely on shareholder ratification under Mass. Gen. Laws ch.
156D, § 8.31(a). This Court has concluded above that shareholder
ratification, whether under the Massachusetts statute or the
corporate charter, does not apply.
MAZ’s motion to modify the class certification order
(Docket No. 271) is DENIED as to inclusion of the “yes” voters.
V.

Exclusion from Class of Persons with SEC Sanction Orders
MAZ seeks to amend the class to exclude those individuals

who entered into Cease-and-Desist and Sanction Orders with the
SEC. Those Sanction Orders related to inside information about
the PHC-Acadia merger and insider trading in shares of PHC prior
to public announcement of the merger. The individuals at issue
are (1) Donald E. Robar (defendant and PHC Board Member),
(2) Eric E. Shear (defendant Bruce Shear’s brother and director
of business development at PHC), and (3) Robert A. Hanner
(Acadia officer), and (4) Danny E. Carpenter (Acadia officer).

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MAZ has stated that this portion of its motion is moot if
this Court does not modify the class to include “yes” voters,
since the four individuals that MAZ seeks to exclude were “yes”
voters. MAZ’s motion to modify the class certification order
(Docket No. 271) is DENIED as to exclusion of the specified
individuals.
ORDER
This Court ALLOWS in part and DENIES in part the
defendants’ motion for partial reconsideration of the order on
summary judgment (Docket No. 285). This Court DENIES MAZ’s
motion to modify the order on class certification (Docket No.
271).

/s/ PATTI B. SARIS
Patti B. Saris
Chief United States District Judge

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