Blakeslee v. PHC, Inc. et al
Chief Judge Patti B. Saris: MEMORANDUM and ORDER entered. The Court ALLOWS in part the motion for judgment as a matter of law (Docket No. 423 ) to the extent that $2,964,396 plus interest is disgorged from Shear to the certified class. The Court otherwise DENIES the motion. The Court DENIES the motion for a new trial (Docket No. 426 ). The parties shall submit a proposed form of judgment within fourteen days. (Geraldino-Karasek, Clarilde)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
MAZ PARTNERS LP, Individually and
on Behalf of Others Similarly
BRUCE A. SHEAR, et al.,
MEMORANDUM AND ORDER
July 13, 2017
The Court held a nine-day jury trial in this shareholder
class action arising from a corporate merger. The Court assumes
familiarity with the parties’ dispute. See MAZ Partners LP v.
Shear, 204 F. Supp. 3d 365 (D. Mass. 2016) (summary judgment
order), on reconsideration in part, 218 F. Supp. 3d 132 (D.
On March 10, 2017, the jury returned a verdict in favor of
Bruce Shear and Acadia Healthcare, Inc. (the “defendants”).1 On
the special verdict form, the jury answered:
The other defendants were dismissed from the case, leaving
only Shear and Acadia by the time the case went to the jury.
Trial Tr. Day 8 at 52–53.
1. Has the plaintiff MAZ proven that Bruce Shear
controlled a majority of the PHC Board of Directors with
regard to the Board’s decision to approve the merger?
2. Has the defendant Bruce Shear proven that the merger
was entirely fair to the Class A shareholders?
3. Has MAZ proven that, at the time of the merger, the
class suffered an economic loss caused by Shear’s breach
of fiduciary duty to the Class A shareholders?
Docket No. 419. Pursuant to the instructions on the verdict
form, the jury stopped after finding no economic loss and did
not answer subsequent questions on aiding-and-abetting liability
Plaintiff MAZ Partners LP (“MAZ”) moves for judgment as a
matter of law or, in the alternative, for a new trial. MAZ
raises a number of issues: (1) alleged inconsistency in the jury
verdict, (2) the appropriateness of one of the questions on the
special verdict form, (3) the availability of equitable remedies
notwithstanding the jury verdict, and (4) evidentiary error at
trial. The defendants respond to those issues and also raise
three alternative bases for a finding of non-liability.
The Court ALLOWS in part the motion for judgment as a
matter of law (Docket No. 423). The Court orders that Shear’s
pro rata share of the $5 million Class B premium be disgorged to
the certified class. Otherwise, the Court DENIES the motion. The
Court DENIES the motion for a new trial (Docket No. 426).
Alleged Inconsistency of Jury Verdict
MAZ argues that the jury’s answer to Question 3 -- that the
class did not suffer an economic loss from Shear’s breach of
fiduciary duty -- is inconsistent with its determination that
Shear was a controlling shareholder and that the merger was not
entirely fair to the class. MAZ’s objection is untimely, and in
any event the jury’s verdict was not inconsistent.
MAZ failed to timely challenge the jury’s special verdict
as inconsistent. “[W]ith respect to special verdicts, ‘the law
is perfectly clear that parties waive any claim of internal
inconsistency by failing to object after the verdict is read and
before the jury is discharged.’” In re Nexium (Esomeprazole)
Antitrust Litig., 842 F.3d 34, 59 (1st Cir. 2016) (quoting
Trainor v. HEI Hosp., LLC, 699 F.3d 19, 34 (1st Cir. 2012)).
“This has been an ‘iron-clad rule’ in our circuit.” Id. (quoting
Rodriguez–Garcia v. Mun. of Caguas, 495 F.3d 1, 9 (1st Cir.
2007)); see also Toucet v. Mar. Overseas Corp., 991 F.2d 5, 8
(1st Cir. 1993) (“In this circuit, a ‘party waives inconsistency
if it fails to object after the verdict is read and before the
jury is dismissed.’” (quoting Bonilla v. Yamaha Motors Corp.,
955 F.2d 150, 155–56 (1st Cir. 1992))).
MAZ points to an older First Circuit case suggesting that
the Court has discretion to disregard an inconsistent special
verdict even in the absence of a timely objection. See Kavanaugh
v. Greenlee Tool Co., 944 F.2d 7, 10 (1st Cir. 1991) (“The
district court possesses ‘considerable discretion’ when it comes
to the disposition of inconsistent special verdicts . . . .
Where, as here, the complaining party, whether tacitly or
explicitly, accedes to the written instructions on the special
verdict form and to the companion directions included in the
charge to the jury, and interposes no objection to the jury's
inconsistent responses until after the jury has been discharged,
the district court may exercise its discretion to reject special
verdicts which the court, with the agreement of all parties,
correctly instructed the jury not to answer.”). But the question
in Kavanaugh was whether to disregard the jury’s answers to
certain questions on the special verdict form that both parties
agreed should not have been answered given the jury’s answers to
earlier questions on the form. MAZ is not asking the Court to
disregard an answer to a question that the jury was instructed
not to answer. MAZ’s inconsistency challenge is untimely.
Consistency of Verdict
In any event, the jury verdict was not inconsistent. The
jury could have concluded that the premium paid to the Class B
shareholders for their high-vote stock was too large but that
there was no resulting economic loss to the Class A
shareholders. That conclusion was supported by testimony of the
defendants’ expert Andrew Capitman:
Well, one of the things that I disagree greatly with
[plaintiff’s expert] Mr. Morris about is simply this
idea that if you weren’t getting the -- if the Class Bs
were not getting the premium, the buyer would have paid
more for the Class As, and generally speaking, I don’t
see any evidence for that. I don’t see any facts that
would support that. But just as a matter of practicality
and sort of how cheap and flinty-eyed anybody is when
they’re a buyer in one of these big executive positions,
they don’t have to pay it. They’re offering a fair price
for A. That’s in and of itself enough. That they’ve got
to get the Bs to come along with the deal and they’ve
got to negotiate a deal for that, that’s a separate
issue. So just like you’ve got to pay for lawyers and
accountants and bankers, this is a cost of the deal, but
it’s not a valuation issue.
Trial Tr. Day 8 at 94. Capitman reiterated that point in
response to a juror question:
A JUROR: So if the B deal wasn’t done -- is this what
you’re saying -- if the B deal was not done, the price
of the A shares would not have changed?
THE WITNESS: Yes, that’s what I’m saying. What I’m saying
is that from the point of view of assessing the fairness
of the deal, the question is, were the A shareholders
getting paid a fair price for their PHC stock?
A JUROR: I guess my question is, would the A shares’
stock price have changed if the B deal -- is there a
potential for that to have happened if the B deal wasn’t
THE WITNESS: I see no evidence that there was any
discussion like that.
Trial Tr. Day 8 at 94–95. There was adequate evidentiary support
for the jury’s conclusion that even if the $5 million premium
for Class B shares was too high (or that no premium should have
been paid at all), there was no resulting economic loss to the
Class A shareholders because the Class A shareholders would not
have gotten a higher price but for the Class B premium.
In fact, the jury was instructed that the entire fairness
standard was made up of two components: fair dealing and fair
price. Although the Court instructed that the price was the
“paramount issue,” a sufficiently great finding of unfair
process may lead to the conclusion that the merger was not
entirely fair to the Class A shareholders even without evidence
of unfair price. The relevant part of the jury instructions,
which were not objected to, stated:
The entire fairness standard involves an inquiry into
two interrelated concepts: fair dealing and fair price.
To determine whether the merger was a product of fair
dealing, you may consider when the transaction was
timed, how it was initiated, how it was structured, how
it was negotiated, how it was disclosed to the directors,
and how the approvals of the directors and stockholders
were obtained. . . . The fair dealing and fair price
components are not viewed in isolation. Rather, you
should consider both concepts in conjunction to
determine whether the merger was entirely fair to PHC’s
Class A shareholders. The paramount issue, however, is
whether the exchange ratio -- you’ve heard about this
during the testimony -- whether the exchange ratio, the
additional consideration to Class B shareholders, and
shareholders were fair to the Class A shareholders.
Trial Tr. Day 9 at 26–27; see also Weinberger v. UOP, Inc., 457
A.2d 701, 711 (Del. 1983); Emerald Partners v. Berlin, 787 A.2d
85, 97 (Del. 2001); In re Crimson Expl. Inc. Stockholder Litig.,
No. CIV.A. 8541-VCP, 2014 WL 5449419, at *9 (Del. Ch. Oct. 24,
2014); In re TD Banknorth, 938 A.2d 654, 667 (Del. Ch. 2007)
(“[F]air price and fair dealing are not viewed in isolation, but
rather in conjunction, and . . . fairness as to one prong will
not necessarily sterilize a transaction or immunize a defendant
from liability.”). The jury verdict can be supported by a
finding that Shear negotiated the Class B premium in an unfair
way by seeking personal benefit and not involving the other
directors in the negotiation, even if that did not result in an
unfair price to the Class A shareholders. The jury verdict was
Question 3 on Verdict Form
MAZ argues that the Court’s inclusion of Question 3 on the
verdict form was error because there is no separate causation
element necessary to establish a fiduciary duty claim against a
controlling shareholder. MAZ failed to timely object to Question
3, and in any event the inclusion of Question 3 on the verdict
form was not error.
Under Federal Rule of Civil Procedure 51(b)(2), the Court
must inform the parties of its proposed instructions and “must
give the parties an opportunity to object on the record and out
of the jury’s hearing before the instructions and arguments are
delivered.” A party may make a timely objection by “object[ing]
at the opportunity provided under Rule 51(b)(2).” Fed. R. Civ.
P. 51(c)(2)(A). If the party was not informed of an instruction
before the opportunity provided under Rule 51(b)(2), the party
must “object promptly after learning that the
instruction . . . has been given.” The First Circuit has adhered
to a “strict enforcement of the object-or-forfeit rule.” Booker
v. Mass. Dep’t of Pub. Health, 612 F.3d 34, 40–41 (1st Cir.
On February 14, 2017, the Court distributed an initial
draft verdict form to the parties via email. Question 9 on the
draft verdict form asked: “Has MAZ proven that the class has
suffered an economic loss as a result of the Defendants’ breach
of fiduciary duties and/or aiding and abetting of breach of
fiduciary duties?” At the final pretrial conference the
following day, MAZ stated: “Your Honor, we actually thought you
understood the law very well. We thought this is a very simple
way and simple for the jury. Now, obviously to some degree the
devil is in the details of the jury instructions, but we think
this makes sense. . . . [W]e don’t have any serious opposition
to this. We think it’s simple, it’s the right interpretation of
the law, and we don’t have any strong objection to it, but,
again, it kind of depends on what the jury instructions say.”
Docket No. 374 at 78–79.
On March 8, 2017, the seventh day of trial, the Court
distributed to the parties a revised draft verdict form and
draft jury instructions. Trial Tr. Day 7 at 7–8. Although the
draft verdict form had been significantly shortened since the
February pretrial conference because of the intervening decision
in Int’l Bhd. of Elec. Workers Local No. 129 Benefit Fund v.
Tucci, 70 N.E.3d 918 (Mass. 2017), the economic loss question
remained substantially intact. Question 3 on that draft of the
verdict form asked, “Has MAZ proven that the class has suffered
an economic loss caused by Shear’s breach of fiduciary duty?”
That afternoon, the Court held a charge conference during which
MAZ did not object to the inclusion of the economic loss
question or to the accompanying jury instruction. MAZ did make a
minor objection to the wording of the question, and the Court
responded: “So how would you word it? I do have to charge on
causation.” MAZ responded, “I understand,” and proposed that the
word “has” in “has suffered” be stricken. The Court adopted that
one-word edit. Trial Tr. Day 7 at 156.
On March 9, 2017, the eighth day of trial, the Court
distributed to the parties a revised draft verdict form and
revised draft jury instructions that incorporated the parties’
requests from the prior day’s charge conference. Trial Tr. Day 8
at 80. Later that day, following the close of evidence, the
Court stated: “as far as I’m concerned, the verdict form is set
at this point because I can’t change it at the last minute, and
I will hand that out to the jury beforehand. So if there are any
problems with it, you need to shoot me an email by, say, 4:00
o’clock.” Trial Tr. Day 8 at 134. The parties raised some issues
at the time, but none related to the economic loss question.
Trial Tr. Day 8 at 134–40. The parties also emailed the clerk
before the 4:00 PM deadline with additional issues related to
the jury charge, but none of the emails related to the economic
On March 10, 2017, the ninth day of trial, the Court handed
out the special verdict form to the jury and charged the jury.
MAZ did not object to Question 3 or the associated jury
instruction. Following the jury charge and the closing
arguments, the Court held a final sidebar conference before
sending the jury to deliberate. Trial Tr. Day 9 at 108. The
Court stated: “If it’s just preserving an objection for the
record, let me do it after I send the jury back; but if it’s
something that I misstated or some other such issue, you know,
like that one instruction, that kind of thing.” Trial Tr. Day 9
at 108. MAZ still did not challenge the question on economic
Only after the jury was excused, MAZ stated: “Your Honor,
from the verdict form, we would object to the inclusion of the
question with respect to economic loss, which is No. 3. We would
also object to the -- and we would on that one ask that the
question be removed from the charge.” Trial Tr. Day 9 at 110.
This was the first time MAZ asked that the economic loss
question not be submitted to the jury, and even at that time,
MAZ did not state a justification. The Court responded: “Can I
just say, this is a little unfair. This was not raised the other
day, to my memory. . . . It’s, you know, the reason I do charge
conferences. Then I allowed you to do emails to me yesterday.
This is just a surprise, and I think it’s waived. I mean, no one
has asked me for anything else. This was almost the standard -I’ve had this out there now for about four days. So, anyway, you
can object, but I don't think it’s been fairly preserved.” Trial
Tr. Day 9 at 110–11.
MAZ did not adequately preserve its objection to Question 3
on the special verdict form by raising it for the first time
after the jury commenced deliberation. The Court had given MAZ
notice even before the final pretrial conference that the jury
was going to be asked about economic loss, and MAZ had many
opportunities to object to the question. Even when MAZ did raise
the objection for the first time after the jury commenced its
deliberation, MAZ did not articulate its reason for seeking to
eliminate Question 3.
Causation and Breach of Fiduciary Duty
In any event, the Court did not err in asking the jury to
determine economic loss. Under Massachusetts law, a plaintiff
must prove causation to recover damages for breach of fiduciary
duty. Qestec, Inc. v. Krummenacker, 367 F. Supp. 2d 89, 97 (D.
Mass. 2005) (citing Hanover Ins. Co. v. Sutton, 705 N.E.2d 279,
288–89 (Mass. App. Ct. 1999)) (listing four elements for a
breach of fiduciary duty claim: duty, breach, damage, and
causation); see also Billings v. GTFM, LLC, 867 N.E.2d 714, 719
(Mass. 2007) (“On the question whether the defendants had
breached their fiduciary duty to [the plaintiff] . . . , the
[trial] judge concluded that, even if the defendants had
breached their fiduciary duty in this regard, [the plaintiff]
had failed adequately to prove his damages. . . . Accordingly,
as the burden of proving damage was on [the plaintiff], he could
recover nothing on this claim even if there had in fact been a
breach of duty.”). Even if the jury found breach of fiduciary
duty, MAZ was not entitled to a compensatory damage award
without a finding of resulting economic loss.
But equitable relief may be available without a showing of
causation. Massachusetts courts have recognized the availability
of equitable remedies as relief for breach of fiduciary duty.
See Berish v. Bornstein, 770 N.E.2d 961, 978 (Mass. 2002);
Demoulas v. Demoulas, 703 N.E.2d 1149, 1169 (Mass. 1998);
Demoulas v. Demoulas Super Markets, Inc., 677 N.E.2d 159, 195
(Mass. 1997). Those equitable remedies may be awarded without a
showing of damage and causation. See Kelley v. CVS Pharmacy,
Inc., No. CIV.A. 98-0897-BLS2, 2007 WL 2781163, at *13 (Mass.
Super. Ct. Aug. 24, 2007) (“[I]f an attorney breached his
fiduciary duty by investing funds entrusted to him by a client
in the attorney’s personal hedge fund rather than a client IOLTA
account, doubled the money through this investment, and returned
the client’s principal to the IOLTA account, the law does not
permit the attorney to keep the fruits of his breach of
fiduciary duty simply because the client is not ultimately
injured. Rather, the attorney would be required to disgorge the
profits arising from his fiduciary breach to the client. The
essential principle is that the law does not wish a fiduciary to
enjoy personal financial gain from his breach of fiduciary
duty.”); see also Fid. Mgmt. & Research Co. v. Ostrander, No.
902142B, 1993 WL 818684, at *4 (Mass. Super. Dec. 9, 1993)
(“Since [the defendant] breached the fiduciary duty of undivided
loyalty she owed to [the plaintiff], the appropriate remedy is
disgorgement of her improper profits. . . . It is of no import
whether or not the plaintiffs in this case suffered any
measurable monetary damages. The injury to [the plaintiff] is
the loss of [the defendant]’s undivided loyalty, and
disgorgement of profits is the appropriate remedy to prevent
conflicts of interest in the future.”), aff’d, 662 N.E.2d 699
(Mass. App. Ct. 1996). Indeed, “the well-considered position of
every jurisdiction that has considered the issue [of whether
claims for breach of fiduciary duty require actual harm] . . .
is to require harm only for damages, not for the equitable
remedy of disgorgement.” Huber v. Taylor, 469 F.3d 67, 77 (3d
Cir. 2006) (citing Liberty Mut. Ins. Co. v. Gardere & Wynne,
L.L.P., 82 F. App’x 116, 118 (5th Cir. 2003)).
The jury’s function was only to determine whether damages
should be awarded.2 Whether equitable relief should be awarded
was for the Court to decide, and the Court deferred that
question until after the jury trial. Docket No. 374 at 40 (“As I
understand rescission generally, it’s an equitable remedy. It’s
something I decide, not a jury. . . . I’m not going to give the
“Actions for breach of fiduciary duty, historically
speaking, are almost uniformly actions ‘in equity’ -- carrying
with them no right to trial by jury.” Ed Peters Jewelry Co. v. C
& J Jewelry Co., 215 F.3d 182, 186 (1st Cir. 2000) (quoting In
re Evangelist, 760 F.2d 27, 29 (1st Cir. 1985)). But that same
court went on to say, “We point out that this case does not
involve the computation of damages, which is often considered a
determination to be made by a jury.” Id. Indeed, “actual and
punitive damages . . . is the traditional form of relief offered
in the courts of law,” Curtis v. Loether, 415 U.S. 189, 196
(1974), and the nature of the relief sought is key to
determining whether there is a jury right, Granfinanciera, S.A.
v. Nordberg, 492 U.S. 33, 42 (1989). As such, the claim for
damages for breach of fiduciary duty was properly submitted to
the jury. See Pereira v. Farace, 413 F.3d 330, 340 (2d Cir.
2005) (finding right to jury trial for claim for compensatory
damages for breach of fiduciary duty); FleetBoston Fin. Corp. v.
Alt, 668 F. Supp. 2d 274, 276 (D. Mass. 2009) (same).
jury this issue. I’m going to decide it afterwards. I’m going to
give them the legal damage standard -- I’m still not sure what
that is -- but not the rescissory. I’ll listen to the testimony,
and I’ll make a decision afterwards as to whether or not it’s an
appropriate remedy.”). The parties agreed to this arrangement,
which is the appropriate way for a court to handle a situation
where both legal and equitable forms of relief are sought for a
single claim. 9 Wright & Miller, Federal Practice and Procedure
§ 2306 (3d ed.) (“[T]he constitutionally required solution in
the situations in which a single issue may be either legal or
equitable depending upon the remedy awarded is to have a jury
present to decide the issue, even though the district court then
may have to determine for itself, on the basis of the jury’s
determination, whether to grant relief of a type that was
historically viewed as equitable.”). Given that the jury’s role
was only to determine whether legal damages should be awarded,
the jury was correctly instructed that it need go no further if
it did not find economic loss caused by the breach of fiduciary
MAZ argues that causation can be presumed in a controlling
stockholder case, even for purposes of a legal damages remedy.
The case law does not support that position. First, MAZ argues
that there is no mention of causation as a separate element to a
fiduciary duty claim in two Massachusetts cases discussing the
fiduciary duty of a controlling shareholder in a corporate
merger: Coggins v. New England Patriots Football Club, Inc., 492
N.E.2d 1112 (Mass. 1986), and Gut v. MacDonough, No. CIV.A.
2007-1083-C, 2007 WL 2410131 (Mass. Super. Ct. Aug. 14, 2007).
But the remedy sought in Coggins was rescission, and the remedy
sought in Gut was a preliminary injunction. That neither of
those equitable remedies required a showing of damages and
causation is not determinative of whether such a showing is
necessary for obtaining damages. Second, MAZ cites language from
two Delaware cases that it reads as eliminating a causation
requirement for obtaining damages for a breach of fiduciary duty
by a controlling shareholder. However, Cede & Co. v.
Technicolor, Inc., 634 A.2d 345, 367–71 (Del. 1993), says only
that there was no requirement to prove resultant injury in order
to show liability for breach of fiduciary duty for purposes of
obtaining an equitable remedy. As for In re Orchard Enterprises,
Inc. Stockholder Litig., 88 A.3d 1, 53 (Del. Ch. 2014), MAZ
points to a cryptic statement that the Delaware Chancery Court
made without citation: “In a controlling stockholder case like
this one, those issues are subsumed within the entire fairness
test.” By “those issues,” the court seemed to be referring to
“causation and damages,” but MAZ misreads the case. The
statement comes from a paragraph explaining that in a case
concerning a breach of the duty of disclosure in a merger, an
injunction requiring corrective disclosures does not require a
showing of damages and causation. Id. But the same paragraph
stated that claims for post-closure money damages do require a
showing of damages and causation. Id. There is no support in the
case law for a rule that damages for breach of fiduciary duty by
a controlling shareholder can be obtained without a showing of
harm or causation. Question 3 on the special verdict form
correctly asked the jury to determine causation.
III. Equitable Relief
MAZ seeks two forms of equitable relief: (1) disgorgement
of Shear’s $4.7 million pro rata portion of the Class B payment,
plus prejudgment interest, and (2) rescissory damages as
necessary to reform the 22.5%/77.5% equity split in the merger
to the split that the Court determines is fair.
Under Massachusetts law, “[e]quitable remedies are flexible
tools to be applied with the focus on fairness and justice. A
court has the power to grant equitable relief when there has
been a violation of fiduciary duty and fraud, and rescission may
be ordered to avoid unjust enrichment of the fiduciary at the
expense of a beneficiary. A court may also reform an agreement
to correct wrongdoing.” Demoulas, 703 N.E.2d at 1169.
While equitable relief is within the equitable power of the
Court, the Court is bound by the jury’s determination on any
issues the jury decided relating to the legal remedy. See Wright
& Miller, supra, § 2306; see also Int’l Fin. Servs. Corp. v.
Chromas Techs. Canada, Inc., 356 F.3d 731, 735 (7th Cir. 2004)
(“Even when a plaintiff is entitled to a jury trial on his legal
claims, the district court must nonetheless make an independent
judgment as to any equitable issue. This proposition is true
even though the jury’s determination of factual issues common to
both the legal and equitable claims would bind the court.”);
Perdoni Bros. v. Concrete Sys., Inc., 35 F.3d 1, 5 (1st Cir.
1994) (“[W]hen a party has a right to a jury trial on an issue
involved in a legal claim, the judge is of course bound by the
jury’s determination of that issue as it affects his disposition
of an accompanying equitable claim.” (quoting Lincoln v. Bd. of
Regents of Univ. Sys. of Ga., 697 F.2d 928, 934 (11th Cir.
By answering “yes” to the first question on the special
verdict form, the jury determined that Shear was a controlling
shareholder. That determination is binding on the Court. Because
Shear was a controlling shareholder who engaged in a selfinterested transaction that was to the detriment of the
disinterested shareholders, he owed a fiduciary duty to the
adversely affected shareholders. See Tucci, 70 N.E.3d at 926;
Coggins, 492 N.E.2d at 1118. To determine whether that fiduciary
duty was breached, the question is whether Shear could show that
the merger was entirely fair to the Class A shareholders.
Coggins, 492 N.E.2d at 1117.
At trial, MAZ presented two theories as to why the
transaction was not entirely fair: first, because the Class B
premium was too large, and second, because the equity split for
the PHC shareholders was unfair. The jury’s answers on the
special verdict form are consistent if the jury agreed with the
first theory but then determined that the Class A shareholders
suffered no injury from the unfairly high Class B premium. There
does not seem to be (and the parties do not suggest) a way that
the jury verdict can be squared with liability under MAZ’s
second theory that the Acadia/PHC equity split was also unfair
and therefore a breach of fiduciary duty. If Shear had breached
his fiduciary duty by obtaining an unfair equity split, then the
Class A shareholders must have suffered economic loss because
the Class A merger consideration was directly tied to the equity
split. The Court would reach this same conclusion independently
of the jury verdict. Shear breached his fiduciary duty as a
controlling shareholder because the Class B premium was not
entirely fair to the Class A shareholders, but MAZ failed to
prove that the 22.5% equity share for PHC was also a breach of
As a result of the foregoing, there is no basis for
rescission to reform the equity split. The facts presented at
trial do justify disgorgement of Shear’s $4.7 million pro rata
portion of the Class B premium. See Berish, 770 N.E.2d at 978
(“The measure of recovery for a wilful breach of fiduciary duty
that results in personal financial gain to the trustee may
include disgorgement of the amount of the gain.”); see also
Demoulas, 677 N.E.2d at 197 (“Where a corporate fiduciary
obtains a gain or advantage through a violation of his duty of
loyalty, a court may properly order restitution of the gain, so
as to deny any profit to the wrongdoer and prevent his unjust
The Court calculates the disgorgement remedy as follows.
The Class B shareholders received a $5 million premium. While
that premium was too high, the payment of a premium was not
altogether wrongful. Matthew Morris, the expert for MAZ,
testified about a report that Evercore wrote for Xerox about
premiums for high-vote share classes. Trial Tr. Day 7 at 95. The
Evercore report found thirty transactions in which a company
with two classes of shares was acquired. Id. at 96. In twentythree of those transactions, zero premium was paid to the highvote shares. Id. In the seven transactions in which a premium
was paid, the premium ranged from 1.1 to 5.2 percent of the
equity value of the company before the transaction, with an
average of around 3.2 percent. Id. at 97. Morris calculated that
3.2 percent of PHC’s market capitalization at the time of the
merger was about $1.82 million. Id. at 98. In other words, MAZ’s
own expert suggested that a $1.82 million Class B premium may
have been defensible. The difference between that and $5 million
-- $3.18 million -- was unjustified. According to the final
proxy statement, Shear owned 721,259 shares of Class B common
stock. Docket No. 187-1 at 183. As of the record date, there
were 773,717 shares of Class B common stock outstanding. Docket
No. 187-1 at 12. That means Shear held 93.22% of the Class B
common stock. Shear’s pro rata portion of the unjustified
portion of the Class B premium, which is the sum that should be
disgorged, is 93.22% of $3.18 million, or $2,964,396.
There remains an additional question: to whom that sum is
disgorged. Disgorgement of that sum to MAZ and the class it
represents would be a windfall, since Shear breached his
fiduciary duty to all of the Class A shareholders but MAZ
represents only 29.2%3 of the public Class A shareholders. Docket
No. 326 at 11. But to only disgorge 29.2% of Shear’s ill-gotten
gains would be insufficient to deprive Shear of the fruits of
his wrongdoing and to deter future wrongdoing. The First Circuit
has recognized the equitable principle that it is “more
MAZ represents “all Class A shareholders who voted against
the merger or abstained,” Docket No. 234 at 3, which includes
both Class A shareholders that affirmatively abstained and those
who did not vote at all, Docket Nos. 325, 367, 374 at 62. Those
voters constituted 29.2% of the Class A shareholders. Trial Ex.
18 (SEC Form 8-K reporting shareholder vote).
appropriate to give the defrauded party the benefit even of
windfalls than to let the fraudulent party keep them.” Lawton v.
Nyman, 327 F.3d 30, 45 (1st Cir. 2003) (quoting Janigan v.
Taylor, 344 F.2d 781, 786 (1st Cir. 1965)). That principle
applies more broadly than the fraud context, as the Restatement
(Third) of Restitution and Unjust Enrichment has recognized the
When the defendant has acted in conscious disregard of
the claimant’s rights, the whole of the resulting gain
is treated as unjust enrichment, even though the
defendant’s gain may exceed both (i) the measurable
injury to the claimant, and (ii) the reasonable value of
Restitution from a conscious wrongdoer may therefore
yield a recovery that is profitable to the claimant -a result that is generally not permitted when the
restitution claim is against an innocent recipient.
Restitution requires full disgorgement of profit by a
conscious wrongdoer, not just because of the moral
judgment implicit in the rule of this section, but
because any lesser liability would provide an inadequate
incentive to lawful behavior.
Restatement (Third) of Restitution and Unjust Enrichment § 3
cmt. c (2011). The Restatement expressly recognizes that
principle as a remedy for the breach of fiduciary duty. See id.
§ 43 cmt. c (“Gain resulting from breach of fiduciary duty is a
prime example of the unjust enrichment that the law of
restitution condemns, and one function of the rule of this
section is to exclude the possibility of profit from this kind
of wrongdoing. An equally fundamental goal of liability under
§ 43, and one which may be stated without reference to unjust
enrichment, is to enforce by prophylaxis the special duties of
the fiduciary. Restitution offers a further safeguard, beyond
the fiduciary’s liability to make good any injury, protecting
the reliance of the beneficiary on the fiduciary’s disinterested
conduct. To this end, a liability in restitution by the rule of
this section does not depend on proof either that the claimant
has sustained quantifiable economic injury or that the defendant
has earned a net profit from the transaction.”). In short, there
have been other cases in which disgorgement would result in
greater recovery to the plaintiff than the amount of injury that
it actually suffered. That in itself is not an extraordinary
situation that makes disgorgement inequitable.4
To be fair, the windfall concern in this case is slightly
different from that of an ordinary case of disgorgement. The
windfall arises not simply from the fact that the wrongdoer’s
profit was higher than the amount of the loss, but that the
wrongdoer’s profit is being disgorged to only a portion of the
persons who were wronged. The parties do not cite a case
addressing this situation. However, since the certified class of
Disgorgement may be inequitable in some cases where the
plaintiff seeks “unduly remote” profits derived from a wrong.
Restatement (Third) of Restitution and Unjust Enrichment
§ 51(5)(a), 53(3) (2011). The classic example is if valuable
artwork were painted on stolen canvas using stolen paint -disgorgement of the full value of the artwork may be considered
inequitable. There is no such concern here.
Class A shareholders who voted against or abstained from voting
on the merger did the work in proving the breach of fiduciary
duty, it is not unjust to disgorge to them the wrongful gain.
See The Little Red Hen, https://en.wikipedia.org/wiki/The_Little
_Red_Hen. The Court finds that in this situation, it would be
equitable to order the disgorgement of $2,964,396 to MAZ and the
certified class that it represents.
MAZ asks for interest on the disgorgement amount. In
determining the equitable remedy, the Court is not bound by the
state statutory interest rate for tort damage awards in Mass.
Gen. Laws ch. 231, § 6B. The Court finds that it would be
equitable to award interest at the one-year Treasury bill rate,
compounded annually, running from the date of the merger to the
date of this order.
Finally, awarding equitable relief is not unconstitutional
additur, as the defendants claim. “[T]he Seventh Amendment
flatly prohibits federal courts from augmenting jury verdicts by
additur.” Campos-Orrego v. Rivera, 175 F.3d 89, 97 (1st Cir.
1999). But awarding equitable relief based on the facts as found
by the jury does not implicate the Seventh Amendment.
Prejudicial Evidence Concerning Post-Merger Stock
MAZ argues, in the alternative, that a new trial is
warranted on the basis of prejudicial evidence and argument
concerning Acadia’s post-merger stock performance.
Under Federal Rule of Civil Procedure 61, “Unless justice
requires otherwise, no error in admitting or excluding evidence
-- or any other error by the court or a party -- is ground for
granting a new trial, for setting aside a verdict, or for
vacating, modifying, or otherwise disturbing a judgment or
order. At every stage of the proceeding, the court must
disregard all errors and defects that do not affect any party’s
substantial rights.” See Granfield v. CSX Transp., Inc., 597
F.3d 474, 488 (1st Cir. 2010) (citing Soto Lebrón v. Fed.
Express Corp., 538 F.3d 45, 65 (1st Cir. 2008)).
MAZ filed a motion in limine to exclude any reference to
Acadia’s post-merger stock price performance. Docket No. 315.
The Court allowed in part and denied in part the motion in
limine. The Court ruled that evidence of post-merger stock price
performance is admissible to the extent that the evidence
demonstrates why the PHC board opted to negotiate for a larger
percentage of the equity in the resulting company. But the Court
ruled that the defendants could not make a “no harm, no foul”
argument that MAZ did not suffer an injury because of the rise
in the stock price. Docket No. 374 at 68–70.
MAZ’s argument for a new trial can be parsed into two
parts. First, MAZ argues that the Court’s ruling on the motion
in limine was erroneous. Second, MAZ argues that at trial, the
defendants did not comply with the Court’s ruling that they
could not make a “no harm, no foul” argument.
MAZ’s first argument is adequately preserved. “When a court
makes a definitive ruling on a motion in limine, a party need
not renew the objection at the time the evidence is offered.”
United States v. Carpenter, 494 F.3d 13, 18 (1st Cir. 2007). But
there was no error. Post-merger financial data can be admissible
“to show that plans in effect at the time of the merger have
born fruition.” Gonsalves v. Straight Arrow Publishers, Inc.,
701 A.2d 357, 362 (Del. 1997); see also Cede & Co. v.
Technicolor, Inc., 758 A.2d 485, 499 & n.91 (Del. 2000). Postmerger stock performance is relevant to showing the
reasonableness of the PHC directors’ beliefs and actions in
approving the merger, which counters the claim for breach of
fiduciary duty. While the probative value of the evidence must
be discounted given its post-merger nature, the evidence had
particular relevance because MAZ was not only challenging the
wisdom of the stock-for-stock merger, but also the structure of
the merger. The evidence at trial showed that PHC was a small
public company that had not achieved significant growth in many
years. In the merger negotiations, the PHC board sought to
structure the transaction in a way that maximized the PHC
shareholders’ equity stake in the combined company, by agreeing
to a $90 million pre-merger dividend to the Acadia shareholders.
The post-merger stock performance had some probative value in
showing the reasonableness of the PHC directors’ decision to
negotiate for more equity. To the extent that evidence of postmerger stock performance had prejudicial potential, the Court’s
ruling on the motion in limine alleviated the concern by
preventing the defendants from arguing that there was “no harm,
no foul” to MAZ because of the post-merger increase in the stock
MAZ’s second argument is not adequately preserved. MAZ did
not make any contemporaneous objections at trial when, it now
alleges, the defendants did not comply with the line the Court
drew. In any event, the Court finds that the defendants complied
with the line by avoiding any “no harm, no foul” argument. No
limiting instruction was necessary, and none was requested -- in
fact, when the Court offered to bring the jury back for a
limiting instruction, MAZ declined. Trial Tr. Day 9 at 116–18.
Defendants’ Alternative Arguments
The defendants raise three alternative arguments supporting
a verdict in their favor: the Tucci decision from the Supreme
Judicial Court, insufficiency of evidence on control of a
majority of directors, and statutory ratification. None have
merit, but they are adequately preserved for appeal.
The defendants argue that judgment should have been entered
as a matter of law based on International Bhd. of Elec. Workers
Local No. 129 Benefit Fund v. Tucci, 70 N.E.3d 918 (2017), a
case that the Supreme Judicial Court decided in the midst of
trial. Tucci held that merger challenges are necessarily
derivative, with “at least two exceptions” -- one of which
allowed direct shareholder merger challenges “where a
controlling shareholder who also is a director proposes and
implements a self-interested transaction that is to the
detriment of minority shareholders.” 476 Mass. at 562.
The defendants argue that the exception applies only to
majority controlling shareholders and that because there was no
majority controlling shareholder in this case, this action had
to be brought derivatively. While the Tucci decision used
language referring to director-majority shareholders, the
decision should not be read as defining controlling shareholders
as only those that hold majority shares. Delaware law has
consistently recognized that actions by a controlling or
dominating shareholder can be subject to the same level of
scrutiny as those of a majority shareholder. Kahn v. Lynch
Commc’n Sys., Inc., 638 A.2d 1110, 1113 (Del. 1994) (citing
Ivanhoe Partners v. Newmont Mining Corp., Del. Supr., 535 A.2d
1334, 1344 (1987)). Even though Massachusetts corporate law is
not the same as Delaware corporate law in important respects,
see, e.g., Tucci, 476 Mass. at 563 n.14, the Court does not read
Tucci or Coggins as restricting controlling shareholders in
Massachusetts to those that own majority shares. The parties
agree that no Massachusetts case has decided whether minority
shareholders that dominate or control a majority of the board
can be considered controlling shareholders, and the Supreme
Judicial Court may one day depart from the Delaware courts and
decide the answer is “no.” In the absence of any such indication
from the Massachusetts courts, the better approach is to follow
Delaware’s rule that domination or control can create a
fiduciary duty as a controlling shareholder. See Piemonte v. New
Boston Garden Corp., 387 N.E.2d 1145, 1150 (Mass. 1979)
(describing Delaware corporate law as “instructive but not
Sufficiency of Evidence on Control
The defendants argue that there was insufficient evidence
of Shear’s control of a majority of the board of directors. They
point out, correctly, that Shear’s power to appoint a majority
of the directors does not, without more, establish control. See
In re Primedia Inc. Derivative Litig., 910 A.2d 248, 258 (Del.
Ch. 2006); Williamson v. Cox Commc’ns, Inc., No. CIV.A. 1663-N,
2006 WL 1586375, at *4 (Del. Ch. June 5, 2006). But the
defendants incorrectly argue that there is no evidence of “more”
control necessary to establish liability. In particular, the
defendants point out that there was little evidence directly
referring to many of the individual defendants.
There was sufficient evidence of control. Even without
evidence pertaining specifically to each individual director,
MAZ presented evidence that Shear was intimately involved in the
operations of the company from its very beginning. The various
emails to and from Shear during the course of the merger
negotiations showed that Shear controlled the entire negotiation
process, with little involvement from most of the other members
of the board. See MAZ, 204 F. Supp. 3d at 376.
The defendants argue for shareholder ratification under
Mass. Gen. Laws. ch. 156D, § 8.31. The Court previously held, in
its order on the defendants’ motion for partial reconsideration
of the summary judgment order, that the statute does not apply.
Docket No. 302 at 16–21.
As the Court stated, § 8.31 applies to “conflict of
interest transactions.” A conflict of interest transaction 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). Although the statute does not define a direct
interest, it can be inferred from the definition of indirect
interest that a direct interest is where the director himself or
herself is a party to the transaction. None of the directors in
this case had a direct or indirect interest in this transaction
because they were not, in any way, on the other side of the
transaction from PHC.
The Court ALLOWS in part the motion for judgment as a
matter of law (Docket No. 423) to the extent that $2,964,396
plus interest is disgorged from Shear to the certified class.
The Court otherwise DENIES the motion. The Court DENIES the
motion for a new trial (Docket No. 426).
The parties shall submit a proposed form of judgment within
/s/ PATTI B. SARIS
Patti B. Saris
Chief United States District Judge
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