AGNES, J.
Under the Massachusetts Business Corporation Act (Act),
Factual background. Robert Spenlinhauer (Robert), acting as the executor of the estate of Georgia Spenlinhauer (estate), brought the present case against the defendants, Spencer Press, Inc. (Spencer Press), Spencer Acquisition, Inc., and their former majority owners, Stephen Spenlinhauer and John Spenlinhauer (collectively, defendants), based on a dispute regarding the valuation of the estate's one percent interest in Spencer Press, which Spenlinhauer was forced to sell as a result of the cash-out merger.
Spencer Press was founded in the 1940's by John E. Spenlinhauer, Jr. (John Jr.), and his wife, Georgia M. Spenlinhauer (Georgia), parents of the three brothers who are parties in this case. John Jr. owned ninety-nine percent of the stock and Georgia owned one percent. After the death of John Jr. in 1972, his three sons each owned one-third of the shares in Spencer Press, while Georgia retained her one percent share. In 1987, after disputes arose among the brothers, John and Stephen bought out Robert's stake in the company. Shortly thereafter, Georgia ceased active involvement in the business.
Georgia's health deteriorated in the late 1980's and early 1990's. Robert began taking care of her and in 1994, Georgia executed a new will, which left substantially all of her assets to Robert, including her share in Spencer Press. Robert was also named as the executor of her will.
In December of 2004, John and Stephen received from R.R. Donnelly & Sons, Inc. (Donnelly), a competitor, a preliminary offer to purchase Spencer Press. The price was $60 million, minus outstanding debts of around $30 million in addition to other company obligations and escrows. Stephen discussed the offer with Robert.
On October 5, 2005, Stephen and John completed a cash-out merger, whereby Spencer Press was merged into its recently formed parent company, Spencer Acquisition, Inc., which was subsequently renamed Spencer Press, Inc. On October 15, 2005, Robert was notified for the first time of this transaction; that the estate's share would be converted into $375,000; and of his rights under the Act. In November, 2005, the recently formed Spencer Press signed an agreement to sell its business to Donnelly.
Procedural background. On November 30, 2005, Robert brought the instant action, challenging several actions in the cash-out merger and sale. The parties agree that the defendants complied with the statutory requirements contained in G. L. c. 156D, § 11.05, in executing the cash-out merger. As required by G. L. c. 156D, § 13.30(a)
The parties conducted two years of discovery, which ended on December 31, 2007. The trial judge granted summary judgment in favor of the defendants on all of Robert's claims except his breach of contract claim. The appraisal claim brought by the defendants was stayed at Robert's request as executor until after a trial on Robert's breach of contract claim and the defendants' misrepresentation claim. A jury returned a verdict for the defendants on Robert's claim and for Robert on the misrepresentation claim.
After trial, the judge gave the parties an opportunity to comment on the procedure she should follow in adjudicating the appraisal claim,
The trial judge confirmed this request in an order dated August 7, 2009. The defendants responded by stating that they would rely on the evidence presented at trial. Robert, on the other hand, requested additional discovery without making an offer of proof that there was any new evidence.
Discussion. 1. Appraisal procedure. Robert claims that the trial judge violated the Act's appraisal provision, G. L. c. 156D, § 13.30, and deprived him of due process under the State and Federal Constitutions by not allowing an evidentiary hearing on his appraisal claim following the jury trial.
a. Obtaining an appraisal. When a subsidiary corporation is merged with its parent under G. L. c. 156D, § 11.05, a shareholder who is dissatisfied with the amount of the payment under G. L. c. 156D, § 13.26(a), is entitled to an equitable proceeding pursuant to § 13.30 to determine the "fair value" of his or her shares as defined by § 13.01. G. L. c. 156D, § 13.02(a). This was the procedure by which Spencer Press was merged with Spencer Acquisition, Inc., and the estate's appraisal rights were correspondingly triggered.
b. Appraisal notice and form. When corporate action is taken
c. Judicial appraisal proceedings. Robert alleges that the judge violated the appraisal provision of the Act, which provides, in part, that:
G. L. c. 156D, § 13.30(d).
d. Determining fair value. The "fair value" of the shares being appraised is defined as "the value of the shares immediately before the effective date of the corporate action to which the shareholder demanding appraisal objects, excluding any element
In general, in determining "fair value" under G. L. c. 156D, § 13.30(d), the judge "is not to reconstruct an `intrinsic value' of each share of the enterprise but, rather, to determine what a willing buyer realistically would pay for the enterprise as a whole on the statutory valuation date." BNE Mass. Corp. v. Sims, 32 Mass.App.Ct. 190, 197 (1992) (citation omitted). "[T]ypically, in an appraisal . . . the price the corporation must pay for minority shares is fair value determined, as the judge did here, by finding the value represented by all the shares and
2. Constitutional challenge. The appraisal proceedings also did not violate Robert's right to due process under art. 12 of the Massachusetts Declaration of Rights and the Fourteenth Amendment to the Constitution of the United States. Due process fundamentally requires "notice and the opportunity to be heard `at a meaningful time and in a meaningful manner.'" Matter of Angela, 445 Mass. 55, 62 (2005), quoting from Armstrong v. Manzo, 380 U.S. 545, 552 (1965).
Robert also asserts that the appraisal proceeding itself violated his right to due process. "Due process does not require any particular type of hearing, and `many matters can lawfully — and satisfactorily — be heard on the papers.'" Demoulas v. Demoulas, 428 Mass. 555, 589 (1998), quoting from EEOC v. Steamship Clerks Union, Local 1066, 48 F.3d 594, 608 (1st Cir.), cert. denied, 516 U.S. 814 (1995).
3. Judge's decision. Robert argues that the trial judge failed to make required findings of fact and conclusions of law in her summary adjudication of the appraisal claim. Under Mass. R.Civ.P. 52(a), as amended by 423 Mass. 1402 (1996), "[i]n all actions tried upon the facts without a jury, the court shall find the facts specially and state separately its conclusions of law thereon." This rule "does not require extensive detail, but does impose on the judge an independent duty to articulate the essential grounds of [her] decision." Leader v. Hycor, Inc., 395 Mass. 215, 224 (1985), quoting from Schrottman v. Barnicle, 386 Mass. 627, 638 (1982). Here, the trial judge stated, on the record, that her decision was based on the evidence presented at the trial of the contract claim; specifically addressed arguments made by Robert; and concluded that the fair value of the estate's stock was one percent of the net sale price. Accordingly, the trial judge satisfied the requirements of rule 52(a).
4. Determination of "fair value" of stock. Robert also claims that the trial judge erred in determining that the fair value of the estate's stock was a one percent pro rata share of the net sale price of Spencer Press. See Shear v. Gabovitch, 43 Mass. App. Ct. at 677. Valuation is a question of fact that is reviewed only for clear error. See Sarrouf v. New England Patriots Football Club, Inc., 397 Mass. 542, 550 (1986); Chokel v. First Natl. Supermkts., Inc., 421 Mass. 631, 641 (1996); Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 541 n.47 (1997). The judge's "decision imports every fact essential to sustain it if there is evidence to support it." Mailer v. Mailer, 390 Mass. 371, 373 (1983).
As noted, G. L. c. 156D, § 13.30(d), does not specify the valuation method that the judge must use and should be interpreted in a manner that is consistent with existing decisional law.
The evidence that was relevant to the factual question of "fair value" presented during the jury trial included a certification filed by Robert with the Probate and Family Court five months after his mother's death (and while this litigation was pending) in which he declared that the value of his mother's one percent stockholding was $377,000. At his pretrial deposition, Robert testified that the purchase price paid by Donnelly was "a great price." Although Robert testified at trial that in his opinion his mother's stock was worth "at least one million dollars," none of the evidence presented at trial indicated that the fair value was anything other than one percent of the net sale price. The judge was warranted in concluding that the $60 million sale price paid by Donnelly for Spencer Press as a going concern was arrived at as a result of an arm's-length transaction. Moreover, the testimony of Philip Taub of Nixon Peabody, LLC, about the adjustments and deductions made from the purchase price established the net value of all the shares as $36 million.
Since the parties in this case were afforded the opportunity to
While Robert cites a variety of factors that may be considered in assessing the fair value of shares, with two exceptions, he does not give any reason why the judge should have used them in this case. Robert only substantively asserts that the estate's one percent interest is worth more than its pro rata share because it would give either Stephen or John a controlling interest in the company; and the purchase of the share was necessary in order to sell one hundred percent of the stock to Donnelly. Both of these arguments pertain to the value of the estate's stock to Stephen or John, rather than the fair value of the stock as a pro rata share of the net value of the business. Thus, Robert has not shown that the trial judge's valuation determination was clearly erroneous.
5. Breach of fiduciary duty and conspiracy claims. Robert further claims that the trial judge erred in granting summary judgment on his claims for breach of fiduciary duty and conspiracy. A grant of summary judgment is reviewed de novo, with all facts construed in favor of the nonmoving party. Miller v. Cotter, 448 Mass. 671, 676 (2007). Robert, in essence, argues that the fiduciary duties owed to shareholders in a close corporation entitled the estate to notice of the cash-out merger before it
Stockholders in a close corporation owe each other a duty of utmost good faith and loyalty. Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 593 (1975). Majority shareholders violate this duty when they frustrate the minority's "reasonable expectations of benefit from their ownership of shares." Brodie v. Jordan, 447 Mass. 866, 869 (2006) (illustrating so-called "freeze-out" techniques). Georgia had not participated actively in the management of the corporation or received financial benefit from her ownership of the stock for approximately eighteen years. Thus, she had no reasonable expectation of benefit from ownership of the stock other than its fair value, which the estate received as a result of the cash-out merger. Robert's personal expectations of benefit are irrelevant, as he controlled the stocks only as fiduciary of the estate. See Lathrop v. Merrill, 207 Mass. 6, 10 (1910). Accordingly, the trial judge did not err in concluding that the defendants were entitled to judgment as a matter of law on Robert's claim for breach of fiduciary duty.
Similarly, the trial judge did not err in finding that the defendants were entitled to judgment as a matter of law on Robert's claim for conspiracy because he had not proved an independent basis for tort liability and did not allege coercion. See Kurker v. Hill, 44 Mass.App.Ct. 184, 188-189 (1998) (civil conspiracy requires either independent tort liability or coercion). Robert's claim that the defendants conspired to commit the tort of breach of their fiduciary duties fails because the defendants did not breach their fiduciary duties.
Amended judgment affirmed.
In the modern era, appraisal "exists only for fundamental changes and only for the subset of fundamental changes where `uncertainty' about the fair value of the shares casts doubt on the fairness of the transaction." Thompson, The Case for Iterative Statutory Reform: Appraisal and the Model Business Corporation Act, 74 Law and Contem. Probs. 253, 267 (2011), quoting from Model Bus. Corp. Act Ann. § 13.01 comment at 1 (2008). Under this view, "[u]ncertainty is sufficiently reduced (for purposes of removing the need to provide shareholders this additional remedy [i.e., appraisal] beyond the usual protections provided by voting, gatekeepers, markets, et cetera) so long as shareholders can sell their shares in a market that is liquid and reliable ... [l]iquidity is measured by the efficiency of the market; reliability is measured by the absence of conflict [of interest]." Ibid., citing Model Bus. Corp. Act Ann. § 13.02 comment at 2 & 3 (2008).
Piemonte, Sarrouf, Chokel, and Sullivan involve the interpretation of G. L. c. 156B, the predecessor to G. L. c. 156D. However, the drafters' comment to G. L. c. 156D, § 13.01, makes it clear that the definition of "fair value" in G. L. c. 156D "is primarily based upon [§ 92 of G. L. c. 156B]" and "leaves untouched the accumulated case law about what constitutes fair value." Comment 3 to G. L. c. 156D, § 13.01, 25A Mass. Gen. Laws Ann. at 4 (West Supp. 2011).
This case does not present an appropriate occasion to consider whether the essentially equitable nature of an appraisal proceeding under G. L. c. 156D, § 13.30(d), permits or requires a discount, in exceptional circumstances, as expressed by the ALI.