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SJC-12391
W. ROBERT ALLISON vs. ELOF ERIKSSON & others.1
Suffolk. February 5, 2018. - May 30, 2018.
Present: Gants, C.J., Gaziano, Budd, Cypher, & Kafker, JJ.
Limited Liability Company. Damages, Breach of fiduciary duty.
Civil action commenced in the Superior Court Department on
May 22, 2013.
The case was heard by Mitchell H. Kaplan, J.
The Supreme Judicial Court on its own initiative
transferred the case from the Appeals Court.
Dana Alan Curhan for the plaintiff.
Sean T. Carnathan for the defendants.
Ben Robbins & Martin J. Newhouse, for New England Legal
Foundation, amicus curiae, submitted a brief.
KAFKER, J. At issue in the instant case is the remedy
available for limited liability company (LLC) mergers undertaken
1 Gudrun Eriksson, individually and as trustee of the Elof
Eriksson Irrevocable Trust-2003; and Karl H. Proppe,
individually and as trustee of the Elof Eriksson Irrevocable
Trust-2003.
2
in violation of fiduciary duties. The defendant, Elof Eriksson,
contends that the exclusive remedy for dissenting members to
such mergers is the distribution of their interest in the LLC,
pursuant to G. L. c. 156C, § 60 (b). The plaintiff, W. Robert
Allison, contends that other equitable relief is available but
that the judge erred in declining to rescind the merger. We
conclude that G. L. c. 156C, § 60 (b), provides the exclusive
remedy for dissenting members of a limited liability company
that has voted to merge, so long as the merger is undertaken in
accordance with G. L. c. 156C, §§ 59-63. Of relevance here is
G. L. c. 156C, § 63 (b), which provides that members of a
limited liability company owe each other fiduciary duties, but
that such duties may be enhanced or restricted according to the
terms in the operating agreement. Where, as here, a member of
an LLC conducts a merger in breach of his fiduciary and
contractual duties, the merger has not been conducted in
compliance with § 63, and the remedy provided by G. L. c. 156C,
§ 60 (b), is not exclusive. Thus, the trial judge did not abuse
his discretion in fashioning an equitable remedy. We also
affirm most of the equitable relief awarded, but remand that
portion of the trial judge's decision which increases Allison's
interest in the merged LLC to five per cent, as we cannot
discern any basis in the record for that figure.2
2 We acknowledge the amicus brief submitted by New England
3
1. Background. We recite the trial judge's relevant
findings of fact, supplemented with undisputed evidence from the
record.
a. Formation and operation of Applied Tissue Technologies.
Allison is an experienced corporate attorney who left the legal
field in 1997. Eriksson is the former chief of the division of
plastic surgery at a hospital in Boston. In 1999, Eriksson was
looking to start a business based on technology he had developed
at the hospital. He reached out to Allison, and the two
eventually agreed to form Applied Tissue Technologies (ATT-MA),
a Massachusetts LLC. Allison contributed $15,000 to the
company, and Eriksson contributed $45,000. Allison received a
twenty-five per cent membership interest in ATT-MA; Eriksson
received a seventy-five per cent interest. Allison became the
president and chief executive officer (CEO) of the company.
Allison drafted the initial operating agreement for ATT-MA.3
It provided that Allison and Eriksson were the only members of
ATT-MA and that ATT-MA was to be managed by the members, who
would vote based on their respective membership interests. Any
additional capital contributions required the unanimous consent
of all members. The judge found that this requirement "is not
Legal Foundation in support of the defendant.
3 The trial judge found that W. Robert Allison was not
acting as Elof Eriksson's attorney when Allison drafted the
operating agreement.
4
uncommon in a joint venture involving two participants who agree
that they must both consent to certain, fundamental business
changes, even though they do not have equal interests in the
profit and loss of the enterprise."
In 2003, Allison and Eriksson each decided to transfer a
portion of their respective interests in ATT-MA into trusts for
the benefit of their families. To that end, Allison and
Eriksson also executed a new operating agreement that was
lengthier and more sophisticated than the original. It
contained several important changes: (1) it created a manager
position, to be elected by voting members; (2) it defined the
term, "Original Members," as Allison and Eriksson; (3) both
original members had to agree to the addition of any new
members; (4) any change to the operating agreement required
consent from both original members; (5) any change to the
operating agreement that had the effect of reducing a member's
interest in ATT-MA or interest in distribution from a sale of
assets or cash flow required consent from the affected member;
(6) a vote of at least sixty per cent of the membership was
required to make significant business decisions. The agreement
further provided that members were entitled to examine ATT-MA's
books and records at any and all reasonable times, and that
members had a duty to conduct company affairs in good faith.
The new operating agreement also maintained a provision from the
5
original agreement that required both Allison and Eriksson to
consent to any further capital contributions. Subsequent to the
enactment of the new operating agreement, Allison was elected as
manager.
At some point, ATT-MA hired Christian Baker to work as a
full-time employee. In 2004, Baker received a two per cent
interest in ATT-MA, transferred from Allison and Eriksson
according to their twenty-five per cent/seventy-five per cent
split. By 2007, ATT-MA could not afford to pay Baker, and his
employment was terminated. A dispute arose between Allison and
Eriksson about the terms of Baker's termination, which was
ultimately resolved by Allison transferring two per cent of his
interest in ATT-MA to Eriksson. After this transfer, the
membership interests in ATT-MA were as follows: Eriksson owned
55.5 per cent; Eriksson's family trust owned twenty per cent;
Allison owned 14.66 per cent; Allison's family trust owned 7.84
per cent; and Baker owned two per cent.
From 2006 to 2008, Eriksson lent ATT-MA $200,000 to cover
operating expenses. This sum was later repaid to him with
fifteen per cent interest. In March, 2010, Allison stepped down
as CEO, and Karl Proppe, Eriksson's close friend, became the new
CEO. In November, 2011, Allison resigned as president and
manager.
6
By January, 2012, ATT-MA was almost out of cash. Eriksson
was unwilling to lend the company any more money, but indicated
he would be willing to invest money in exchange for additional
equity. However, Allison was unwilling to have his interest
diluted unless the investment came from an outside investor,
even though the members generally agreed that ATT-MA was at
least one year away from being able to attract outside
investors. In response to Allison's stance, Eriksson indicated
that the operating agreement should be amended.4
Eriksson eventually offered to invest $600,000 if Allison
invested $200,000, but Allison rejected the proposal. Allison
also refused to use personal assets to secure a bank loan for
ATT-MA. Eriksson was frustrated by Allison's position and
suggested that ATT-MA should be dissolved.
b. The merger. In February, 2012, Eriksson's daughter
arranged for him to meet with a senior attorney at her firm,
Gary Schall, to discuss his concerns about the company. They
ultimately decided that an appraisal of the company was
necessary. Eriksson and Proppe retained Schall and his firm to
represent ATT-MA. The judge found that Eriksson, Proppe, and
4 The trial judge explained that Eriksson wanted to amend
the operating agreement "presumably so that he could invest
equity over Allison's objection, but [he] was non-specific
concerning what the amendments should be."
7
Schall all specifically decided not to let Allison know of
Schall's engagement.
ATT-MA hired a firm to conduct the appraisal. Eriksson
informed Allison of the appraisal, but not Schall's involvement
or the purpose of the appraisal. The appraisal firm concluded
that one hundred per cent of ATT-MA's equity had a value of
$239,000, but only if $620,000 of additional funding was
invested; without the additional $620,000, ATT-MA was worth $0.5
In May, 2012, Eriksson and Schall planned how they would
deal with Allison. First, Eriksson would offer to purchase
Allison's individual and trust membership interests based on the
appraisal value. If Allison rejected the offer, Eriksson would
form a new LLC under Delaware law (ATT-DE), and create a new
operating agreement "that would accomplish Eriksson's goals."
ATT-MA would then be merged into ATT-DE.
On May 6, 2012, Eriksson offered to purchase Allison's
collective membership interests, totaling 22.5 per cent, for
$53,775, i.e., 22.5 per cent of the $239,000 valuation. Allison
rejected the offer.
5 The trial judge noted that the appraisal was "curiously
principally based on a discounted cash flow valuation, although
[ATT-MA] had not generated any significant income in the last
few years, and its only significant assets [were] its
[intellectual property]." The appraisal company "did not
consult with anyone who could value [ATT-MA's intellectual
property]."
8
Later the same month, ATT-DE was created. Proppe, now the
manager and CEO of both ATT-MA and ATT-DE, executed the
agreement and plan of merger on May 29, 2012. That evening,
Eriksson and Proppe informed Allison of the merger. Up to this
point, Allison had no prior notice of the merger or Schall's
representation of ATT-MA.
The operating agreement for ATT-DE is significantly
different from the operating agreement for ATT-MA. The ATT-DE
operating agreement creates a class of preferred shares with
liquidation preference over common shares, and establishes a
board of directors (board) to manage the company.6 Members have
no rights other than to select the directors of the board.
Directors of the board are elected by members holding a majority
of the company's outstanding shares. As the holder of the
majority of the company's shares, Erickson could select the
directors. As a minority member, Allison would not have the
ability to successfully elect directors by himself. The
6 Section 6.01 of the ATT-DE operating agreement provides in
relevant part:
"The business and affairs of [ATT-DE] shall be managed
by or under the direction of the Board [of Directors],
which shall have the right, power and authority to exercise
all of the powers of [ATT-DE] except as otherwise provided
by law or this Agreement. . . . Except as may be expressly
provided otherwise elsewhere in this Agreement or pursuant
to non-waivable provisions of [Delaware's limited liability
company act], the Members shall have no voting
rights . . . ."
9
operating agreement also provides that members owe no fiduciary
duty to ATT-DE or one another, and attempts to limit all other
duties to the extent permitted by Delaware law.7 Members do not
have the right to access ATT-DE's books or records, or to
receive any information about ATT-DE's business or affairs,
without the board's authorization.8 No membership interest may
be transferred without board approval, even to family members.
7 Specifically, § 6.04(a) of the operating agreement states:
"The Members' respective obligations to each other are
limited to the express obligations set forth in this
Agreement, subject only to the implied contractual covenant
of good faith and fair dealing. No Member shall have any
duties or liabilities, including fiduciary duties, to [ATT-
DE] or to any other Member, or to the Board or any
Director, and the provisions of this Agreement, to the
extent that they restrict or otherwise modify, or
eliminate, the duties and liabilities, including fiduciary
duties, of the Members otherwise existing at law or in
equity, are agreed by the Members to replace such other
duties and liabilities of the Members. Any standard of
care or duty imposed by or under the Act or any other law,
rule or regulation (or any judicial decision based on or
interpreting the same) shall be modified, waived or
limited, to the extent permitted by law, as required to
permit each Member to act under this Agreement and to make
any decision such Member is authorized to make hereunder in
such manner as such Member may determine in his, her or its
sole and absolute discretion, subject only to the implied
contractual covenant of good faith and fair dealing."
(Emphasis added.)
8 Section 7.01 of the operating agreement provides in
relevant part:
"Except as otherwise expressly provided in this
Agreement, no Member shall have any right of access to any
of the books or records of [ATT-DE] or to receive any
information about the business, affairs, properties or
10
In the meantime, Eriksson quickly purchased $250,000 of
preferred shares in ATT-DE. Allison was given the opportunity
to purchase enough preferred shares of ATT-DE to maintain his
ownership interest, but declined to do so. Instead, Allison
challenged the propriety of these transactions. In July,
Allison was denied further access to ATT-MA's offices, which now
belonged to ATT-DE.
Over the next eighteen months, Eriksson purchased preferred
shares in ATT-DE, totaling $923,536. As a result, by January,
2014, Allison's combined interests in ATT-DE had been reduced to
only 3.32 per cent. His interests would also be subordinated to
preferred shareholders' interests in the event of a liquidation.
Allison, Eriksson, Proppe, and Schall met to attempt to
resolve Allison's claim that Eriksson had committed a breach of
his fiduciary duties by authorizing the merger and purchasing
preferred shares. Schall asked Allison if he would rather have
3.32 per cent of an ongoing business or 22.5 per cent of a
defunct one. Allison responded that he would prefer a larger
percentage of the failed business.
Eriksson appeared to be willing to amend some of the
provisions of ATT-DE's operating agreement in Allison's favor.
ownership of [ATT-DE] unless the Board determines, in its
discretion in compliance with [§ 6.04(b)], to grant such
access or to provide such information to one or more
Members."
11
In particular, he seemed willing to provide Allison with access
to information and the opportunity to confer on decisions
affecting ATT-DE, as well as a right of first refusal on
additional investments or the sale of shares. However, Eriksson
was unwilling to reclassify his own investments as debt and
restore Allison's prior ownership interests in the company.
Allison would not agree to any compromise that did not include
the restoration of his equity without the risk of dilution,
except from a third-party investment.
Eriksson's son-in-law, Michael Broomhead, became CEO of
ATT-DE in November, 2012. Broomhead actively looked for
investors without success. Broomhead invested $10,000 in ATT-DE
and Proppe invested $30,000.
In May, 2013, Allison brought suit against Eriksson,
Eriksson's wife, and Proppe, seeking a preliminary injunction of
the merger. The motion judge ordered ATT-DE to allow Allison to
examine its books and records at reasonable intervals, but
otherwise denied the preliminary injunction.
In his complaint, Allison brought claims for breach of
contract, intentional interference with advantageous relations,
breach of fiduciary duty, civil conspiracy, and declaratory
judgment. After a jury-waived trial, Allison prevailed on his
claim against Eriksson for breach of fiduciary duty, but lost on
12
all other claims.9 The judge granted equitable relief, ordering
the following amendments to the operating agreement of ATT-DE:
(1) the rescission of § 6.01, such that members shall have
voting rights as provided under Delaware law; (2) the rescission
of § 6.04 to the extent that it eliminated members' fiduciary
duties to one another, and to directors, officers, and
shareholders; (3) the rescission of the first two sentences of
§ 7.01, such that members may access the company's books and
records; (4) the addition of a provision requiring the directors
to "report to Allison either orally or in writing on the
business and affairs of" ATT-DE, to timely advise him of
anticipated extraordinary business events, and to provide him
with a copy of ATT-DE's annual financial statements, if any.
The judge also ordered that the combined membership interest of
Allison and the Allison Trust be "grossed up" to five per cent
and not be subject to dilution without a bona fide outside
investment. Any such dilution must be on the same terms as
holders of common or preferred shares of ATT-DE. If ATT-DE
should be liquidated before receiving any outside investment,
Allison's interest must be "treated pari passus with the
preferred shareholders."
9 Allison did not appeal from the judgment on any of these
other claims.
13
The parties cross-appealed. We transferred the appeals to
this court on our own motion.
2. Discussion. a. Relevant provisions of G. L. c. 156C.
We must first determine whether distribution is the exclusive
remedy for a minority shareholder of an LLC who has objected to
a merger that breaches fiduciary duties. The governing
provision is G. L. c. 156C, § 60 (b). Where a minority member
objects to the merger, but the majority of members vote to merge
anyway, G. L. c. 156C, § 60 (b), provides:
"The exclusive remedy of a member of a domestic
limited liability company, which has voted to consolidate
or to merge with another entity under the provisions of
[G. L. c. 156C, §§ 59-63], inclusive, who objects to such
consolidation or merger, shall be the right to resign as a
member and to receive any distribution with respect to his
limited liability company interest, as provided in [G. L.
c. 156C, §§ 31-37], inclusive. Such members and the
resulting or surviving entity shall have the rights and
duties, and shall follow the procedure set forth in said
sections."
For questions of statutory interpretation, we look first to
the text of the statute. Phillips v. Equity Residential Mgt.,
L.L.C., 478 Mass. 251, 257 (2017). In so doing, we must examine
"the language of the entire statute, not just a single sentence"
or phrase, "and attempt to interpret all of its terms
'harmoniously to effect the intent of the Legislature.'" Id.,
quoting Commonwealth v. Hanson H., 464 Mass. 807, 810 (2013).
Here, the statute expressly provides for distribution of the
dissenting member's interest in the LLC as an exclusive remedy
14
where an LLC has voted to merge "under the provisions" of G. L.
c. 156C, §§ 59-63. We must therefore consider the requirements
of the cross-referenced sections, particularly § 63, to
understand the scope of the exclusive remedy provision.10,11
General Laws c. 156C, §§ 59-62, address the mechanics and
consequences of merging or consolidating an LLC. By contrast,
G. L. c. 156C, § 63, defines the scope of a member's or
10We note that unlike G. L. c. 156D, the Commonwealth's
most recent business corporations statute, which provides
detailed commentary from its drafters, the legislative history
on G. L. c. 156C is less clear. See Halebian v. Berv, 457 Mass.
620, 624-625 (2010), and authorities cited. The authors of
G. L. c. 156C took guidance from a number of sources, including
the existing corporate statutes, the Massachusetts Uniform
Limited Partnership Act, other States' limited liability company
(LLC) statutes, and the American Bar Association (ABA) Prototype
LLC Act. Parker, The Limited Liability Company: An
Introduction, 39 Boston B.J. 8, 12 (1995). However, the
language in G. L. c. 156C, § 60 (b), does not appear to be taken
from a single source. The ABA's Prototype LLC Act does not even
provide a distribution remedy for mergers. See American Bar
Association, Working Group on Prototype Act, Prototype Limited
Liability Company Act, at § 1202 commentary, at 88 (Nov. 19,
1992). The Massachusetts Uniform Limited Partnership Act does
not contain "exclusive remedy" language. See G. L. c. 109,
§§ 1A, 16A. As Eriksson points out, the then most recent
business corporations statute, G. L. c. 156B, contains an
"exclusive remedy" provision, but provides an exception for
"illegal or fraudulent" corporate actions. See G. L. c. 156B,
§ 98.
11Eriksson asserts that interpreting G. L. c. 156C, § 60
(b), in reference to G. L. c. 156C, § 63, is barred by the fact
that Allison did not make this particular statutory
interpretation argument below. Although Allison did not
explicitly rely on G. L. c. 156C, § 63 (b), below, he did raise
the issue of how § 60 should be constructed and thus the issue
is properly before us. See Wilcox v. Riverside Park Enters.,
Inc., 399 Mass. 533, 535 n.5 (1987).
15
manager's duties and liabilities. Specifically, § 63 (b)
states:
"To the extent that, at law or in equity, a member or
manager has duties, including fiduciary duties, and
liabilities relating thereto to a limited liability company
or to another member or manager, (1) any such member or
manager acting under the operating agreement shall not be
liable to the limited liability company or to any such
other member or manager for the member's or manager's good
faith reliance on the provisions of the operating
agreement, and (2) the member's or manager's duties and
liabilities may be expanded or restricted by provisions in
the operating agreement."
This provision establishes the rules governing fiduciary and
contractual duties in LLCs, including the fiduciary duties
applicable to mergers. The subsection's opening statement about
"[t]o the extent that" such duties exist "at law or in equity,"
is best read as an acknowledgement that the courts define and
determine the nature of such duties, and that the courts provide
for their enforcement as default rules. See Piemonte v. New
Boston Garden Corp., 377 Mass. 719, 723 (1979) (consideration of
Delaware judicial decisions appropriate where Massachusetts's
provision is based on similar Delaware statute); Feeley v.
NHAOCG, LLC, 62 A.3d 649, 661-662 (Del. Ch. 2012) (court
interpreting analogous phrase in Delaware's LLC statute
concluded Legislature was not "agnostic" about existence of
fiduciary duties but recognized that they do exist).12 See also
12General Laws c. 156C, § 63 (b), appears to be taken
almost verbatim from the 1992 version of Delaware's LLC
16
R.W. Southgate & D.W. Glazer, Massachusetts Corporation Law and
Practice § 19.4 (2d ed. 2012 & Supp. 2018) ("better reading [of
'to the extent' clause] is . . . to leave the fiduciary duties
of members and managers to the courts to define over time").
The LLC statute further allows, however, for the modification of
these duties. According to § 63 (b), such duties and
liabilities "may be expanded or restricted by provisions in the
operating agreement." This recognizes that "[a]n LLC is
primarily a creature of contract, and the parties have wide
contractual freedom to structure the company as they see fit."
Seneca Invs. LLC v. Tierney, 970 A.2d 259, 261 (Del. Ch. 2008).
Additionally, § 63 (b) provides that a member's or manager's
good faith reliance on the operating agreement provides a
defense to liability.
The merger here was done in contravention of the duties
recognized in § 63 (b) and does not fall under the good faith
defense provision. As the trial judge correctly found, Eriksson
fiduciary duty provision, Del. Code Ann. tit. 6, § 18-1101 (c)
(2013). Delaware's LLC Act has since been amended to allow LLCs
to eliminate fiduciary duties, but our interpretation of § 63
(b) remains consistent with the Delaware Chancery Court's
interpretation that the LLC fiduciary duty provision provides
for the existence of fiduciary duties, and their enforcement as
default rules in the absence of contractual modification. See
Feeley v. NHAOCG, LLC, 62 A.3d 649, 661-663 (Del. Ch. 2012);
Auriga Capital Corp. v. Gatz Props. LLC, 40 A.3d 839, 851 (Del.
Ch. 2012).
17
clearly committed a breach of his fiduciary duties. Indeed,
this is undisputed on appeal.
Although § 63 (b) provided Allison and Eriksson the ability
to restrict members' and managers' duties, they chose instead to
expand them. ATT-MA's operating agreement expressly prohibited
many of the consequences of this merger, such as the ability to
dilute a member's interest without that member's consent, the
ability to amend the operating agreement without the original
members' consent, and the ability to cut members out of the
management of the company. Thus, Eriksson was not acting in
good faith reliance on the operating agreement when he conducted
the merger in secret, so as to subvert each of these explicit
protections.
The many minority protections provided in ATT-MA's
operating agreement also indicate that the company was set up to
establish protections akin to those provided at law to a close
corporation.13 Because close corporations often involve a small
number of owners, who are "quite dependent on one another for
the success of the enterprise[,] . . . the relationship among
the stockholders must be one of trust, confidence and absolute
13A closely held corporation is defined as having (1) a
small number of shareholders; (2) no ready market for the
corporation's shares; and (3) substantial majority shareholder
participation in the management, direction, and operations of
the corporation. See Brodie v. Jordan, 447 Mass. 866, 868-869
(2006), quoting Donahue v. Rodd Electrotype Co. of New England,
Inc., 367 Mass. 578, 586 (1975).
18
loyalty if the enterprise is to succeed." Donahue v. Rodd
Electrotype Co. of New England, Inc., 367 Mass. 578, 587 (1975).
The nature of these close corporations imposes a duty of "utmost
good faith and loyalty" (citation omitted). Id. at 593. The
minority protections in ATT-MA's operating agreement established
an analogous relationship and duty among its members, and thus,
the close corporation doctrine, and the strict fiduciary duty it
imposes, applies here.14
The trial judge correctly found that "Eriksson certainly
did not act with utmost good faith toward Allison." Eriksson
does not challenge this finding, nor could he. Eriksson
initiated the merger in secret, acting covertly in order to
dilute Allison's interest in the company and remove Allison's
minority rights, which were both expressly protected by ATT-MA's
operating agreement.
As we have explained, "the danger of abuse of fiduciary
duty is especially great in a freeze-out merger." See Coggins
v. New England Patriots Football Club, Inc., 397 Mass. 525, 534
(1986), S.C., 406 Mass. 666 (1990). In close companies and
close corporations, such freeze-outs defeat "the reasonable
14Not all LLCs are close companies. The test for whether a
corporation is closely held, see note 13, supra, is not
dispositive for determining whether an LLC is closely held. As
LLCs are creatures of contract, determining whether an LLC is
closely held is a more fact-specific determination that will
depend on the way in which a particular LLC is structured.
19
expectations" of minority shareholders. See Pointer v.
Castellani, 455 Mass. 537, 550 (2009). Here we have such a
freeze-out merger.
In sum, we are presented with a merger that clearly
contravenes the fiduciary and contractual duties recognized in
§ 63 (b). The question that remains is whether such a merger
may still be characterized as a merger "under the provisions of
[G. L. c. 156C, §§ 59-63]," and therefore be covered by the
exclusive remedy provision of § 60 (b). We conclude that it
cannot for the following reasons.
First, the exclusive remedy provision is expressly limited
to mergers conducted "under the provisions of [G. L. c. 156C,
§§ 59-63]." It would be anomalous to treat a merger conducted
in contravention of the fiduciary and contractual duties
identified in § 63 (b) as a merger "under" § 63. This is
especially true given the great flexibility provided to LLCs by
statute either to restrict or enhance duties. Here, instead of
restricting fiduciary duties, the operating agreement structured
the LLC as a closely held company designed to prevent the very
freeze-out accomplished by the merger.
We also have held that "a freeze-out merger in technical
compliance" with G. L. c. 156B or 156D does not divest the
courts of their equitable jurisdiction, and shareholders who
dissented to the merger "are not limited to the statutory remedy
20
of judicial appraisal [and distribution]," where the majority
has violated its fiduciary duties. See Coggins, 397 Mass. at
532 & n.13, 533. See also G. L. c. 156D, § 13.02 (e)
(preserving Coggins holding for corporations formed under G. L.
c. 156D). We conclude that the same principles apply here
given how Erickson and Allison structured the LLC, imposing
contractual and fiduciary duties on each other, including those
designed not to allow the freeze-out and cash-out of one by the
other.
Eriksson argues that G. L. c. 156C, § 60 (b), must
nonetheless be the exclusive remedy here because, unlike G. L.
c. 156B, § 98, or G. L. c. 156D, § 13.02 (e), the two business
corporation statutes discussed supra, it does not contain an
explicit exception for illegal or fraudulent corporate actions.
However, Eriksson's interpretation ignores § 60 (b)'s cross-
reference and incorporation of § 63 (b) and the fiduciary and
contractual duties and defenses it defines. As we have
explained, a merger in violation of the duties and defenses
established in § 63 (b) is not a merger "under" § 63. Although
compliance with § 63 (b) is a precondition rather than an
exception to § 60 (b), it serves the same purpose as the
exceptions found in G. L. c. 156B and G. L. c. 156D.
Finally, we conclude that if it was the Legislature's
understanding that merger would provide a unilateral means for
21
majority members to extinguish fiduciary duties and freeze out
minority members from LLCs, it would have said so expressly.
Although we recognize that the scope of the exclusivity
provision for LLC mergers could have been more clearly written,
we conclude that the Legislature would not have intended to
create anything less than a transparent means of extinguishing
fiduciary duties and freezing out minority members. See
Gevurtz, Squeeze-Outs and Freeze-Outs in Limited Liability
Companies, 73 Wash. U.L.Q. 497, 533 (1995) ("even if majority
expulsion is the better default rule, it should be explicit in
the statute rather than hidden in merger provisions").
Thus, we hold that in this case, where the merger of an LLC
constitutes a breach of fiduciary and contractual duties in
contravention of G. L. c. 156C, § 63 (b), G. L. c. 156C,
§ 60 (b), does not prevent the courts from providing the
dissenting members with an equitable remedy other than the
statutory right of distribution. See Coggins, 397 Mass. at 532
& n.13, 533. Thus, a majority member may not rely on § 60 (b)
to exclude all other equitable relief when he or she has
initiated a merger in breach of his or her existing fiduciary
and contractual duties.
b. Propriety of the remedy. The proper remedy for a
freeze-out merger is one that "will put [the minority member] in
the position he would have been in had the freeze-out not
22
occurred, and compensates him for the denial of his reasonable
expectations." Pointer, 455 Mass. at 560. See Brodie v.
Jordan, 447 Mass. 866, 870-871 (2006) (remedy for freeze-out
"should, to the extent possible, restore to the minority
shareholder those benefits which she reasonably expected, but
has not received because of the fiduciary breach"). This
"remedy should neither grant the minority a windfall nor
excessively penalize the majority." Id. at 871. The remedy
must also take into account the passage of time and changed
circumstances. See Coggins, 397 Mass at 536. The LLC merger
egg may not always be unscrambled. Courts therefore have broad
equitable powers in specifying the appropriate remedy, and their
choice of remedy is reviewed for abuse of discretion. See
Brodie, supra at 871.
Here, the trial judge carefully crafted an equitable
remedy, amending specific provisions in ATT-DE's operating
agreement that had diminished Allison's rights. The judge's
amendments recreate Allison's minority member protections to the
largest extent possible under Delaware law, within the existing
structure of ATT-DE. Despite this, Allison insists that the
only appropriate remedy was to rescind the merger and restore
Allison's interest in ATT-MA. We disagree.
A judge need not order rescission of a freeze-out merger if
it would not be in the best interest of the company. See
23
Coggins, 397 Mass. at 536. This litigation has gone on for five
years, and concerns a merger that occurred six years ago. See
id. (rescission of merger not equitable where litigation lasted
many years and prior position of parties was difficult to
restore). Despite being a sophisticated corporate attorney,
Allison waited seven months after settlement negotiations had
ended to file suit. By that point, the merger had been in place
for nearly one year and Eriksson had already invested over
$500,000 in ATT-DE. Rescinding the merger and backing out
Eriksson's additional equity six years later would be
complicated and inequitable. Further, the merger was
precipitated by Allison's refusal to invest additional money in
ATT-MA while preventing Eriksson from making capital
contributions. Indeed, the trial judge found that "Allison's
position that he would not invest anything more in [ATT-MA] or
secure its debt with personal assets, while simultaneously
asserting his right against diluting his interest, does not
appear consistent with his own fiduciary responsibilities to
Eriksson." Under these circumstances we discern no abuse of
discretion in the judge's decision to amend ATT-DE's operating
agreement to restore Allison's minority protections instead of
rescinding the merger. See Demoulas v. Demoulas, 432 Mass. 43,
67 (2000), quoting Clark v. Greenhalge, 411 Mass. 410, 417
(1991) ("one who seeks equity must do equity and . . . a court
24
will not permit its equitable powers to be employed to
accomplish an injustice").
In addition to amending ATT-DE's operating agreement, the
judge increased Allison's ownership interest to five per cent.
Any such equitable change to Allison's ownership interest in
ATT-DE should, in combination with the amendments to ATT-DE's
operating agreement, "attempt to reset the proper balance
between the majority's 'concede[d] . . . rights to what has been
termed 'selfish ownership,' . . . and the minority's reasonable
expectations of benefit from its shares." Brodie, 447 Mass. at
871, quoting Wilkes v. Springside Nursing Home, Inc., 370 Mass.
842, 850-851 (1976). Here, however, the judge did not explain
how he settled on the five per cent figure. The only potential
basis for this increase that we can identify in the record is
Allison's transfer of two per cent of his interest to Eriksson
after their disagreement over Baker's termination. Yet the
judge's findings do not explain whether this was the reason for
increasing Allison's interest. Further, a two per cent increase
would give Allison a 5.32 per cent interest in the company, not
five per cent exactly. Accordingly, we deem it appropriate to
remand this matter on the question whether and to what extent
Allison's interest in ATT-DE should be increased, and the
reasons for any increase provided. See Pointer, 455 Mass. at
25
560 (remand ordered where appropriate remedy depended on further
fact finding).
3. Conclusion. For the reasons discussed, the judgment
below is affirmed, except with respect to the issue of Allison's
ownership interest percentage in ATT-DE. We remand to the
Superior Court for further explanation on the propriety of
increasing Allison's interest to five per cent.
So ordered.