Maz Partners LP v. Shear (In Re PHC, Inc. S'holder Litig.)

United States Court of Appeals
For the First Circuit

Nos. 17-1821, 17-1904

IN RE: PHC, INC. SHAREHOLDER LITIGATION

MAZ PARTNERS LP, on behalf of itself and
all others similarly situated,

Plaintiff, Appellee/Cross-Appellant,

v.

BRUCE A. SHEAR,

Defendant, Appellant/Cross-Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Patti B. Saris, U.S. District Judge]

Before

Torruella, Selya and Lynch,
Circuit Judges.

James H. Hulme, with whom Matthew Wright, Nadia A. Patel,
Arent Fox LLP, Richard M. Zielinski, Leonard H. Freiman, and
Goulston & Storrs, were on brief, for defendant.
Chet B. Waldman, with whom Jeffrey W. Chambers, Patricia I.
Avery, Adam J. Blander, Wolf Popper LLP, Norman Berman,
Nathaniel L. Orenstein, and Berman Tabacco were on brief, for
plaintiff.
July 2, 2018
 SELYA, Circuit Judge. The briefs in this case read like

a law school examination covering a curriculum that ranges from

corporate law to the law of equitable remedies. The questions

presented are intricate, entangled, and in some instances novel.

The most important of them implicate Massachusetts law and include

whether a non-majority shareholder who also serves as a director

can, under certain circumstances, be deemed a controlling

shareholder; what effect, if any, shareholder ratification may

have with respect to a self-interested transaction; and whether —

in the absence of economic loss — equitable disgorgement can be

ordered as a remedy for a breach of fiduciary duty. Concluding,

as we do, that the able district judge handled the profusion of

issues appropriately, we leave the parties where we found them,

affirming both the district court's multi-million-dollar

disgorgement order in favor of the plaintiff class and the jury's

take-nothing verdict in the favor of the defendant. The tale

follows.

I. BACKGROUND

We limn the facts and travel of the case, reserving some

details for our subsequent discussions of specific issues. For

efficiency's sake, we assume the reader's familiarity with our

opinion regarding an earlier phase of this litigation. See In re

PHC, Inc. S'holder Litig. (MAZ I), 762 F.3d 138 (1st Cir. 2014).

- 3 -
 Until the fall of 2011, PHC, Inc. (PHC) functioned as a

publicly traded corporation focusing on behavioral healthcare.

Defendant Bruce A. Shear was a co-founder of PHC, serving as its

board chairman and chief executive officer. The company was

organized under the laws of Massachusetts, and its capital

structure featured two classes of stock: Class A shares and Class

B shares. Class A shares were publicly traded and were entitled

to one vote per share. Those shares, collectively, had the right

to elect two out of six board members. Class B shares were not

publicly traded and were entitled to five votes per share. Those

shares, collectively, had the right to elect the remaining four

board members. At the times relevant hereto, Shear held

approximately 8% of the Class A shares and approximately 93% of

the Class B shares. Given the proportion of Class B shares owned

by Shear, he had the power, practically speaking, to name a

majority of the board of directors (four out of six board members).

After PHC's stock price remained relatively flat for a

protracted period of time, the PHC board grew restless and began

to mull a variety of strategic transactions designed to enhance

shareholder equity. To this end, Shear initiated discussions about

a possible merger with Acadia Healthcare, Inc. (Acadia) in early

2011. Based on conversations with Shear — who was acting as the

de facto lead negotiator on behalf of PHC — Acadia's chief

executive officer transmitted a letter of intent, dated March 22,

- 4 -
2011, to the PHC board. The letter delineated the material terms

of a proposed merger.

The merger proposal contemplated that Acadia would be

the surviving company. PHC shareholders would own 22.5% of the

merged entity and Acadia shareholders would own the remainder. To

achieve this ratio, holders of both Class A and Class B shares of

PHC would receive one-quarter share of the stock of the merged

entity in exchange for each PHC share, and the difference between

the two classes of PHC stock would evaporate. In order to

compensate Class B shareholders for relinquishing their enhanced

voting rights, they would receive an additional $5,000,000 as a

premium. Shear's ownership of approximately 93% of the Class B

shares put him in line to receive most of this premium — roughly

$4,700,000.

The letter of intent spelled out a variety of other

salient features of the proposed transaction (including Acadia's

plan to pay a special dividend to its own shareholders so as to

achieve the desired equity split). Under another provision of the

letter of intent, Shear would get to select two directors of the

merged entity — and those two directors would be the PHC

shareholders' sole designees to the new Acadia board. Finally,

the letter of intent contained a prohibition against shopping

Acadia's offer to other potential merger partners and specified

- 5 -
that a termination fee would be payable if PHC backed out of the

merger.

Following receipt of Acadia's letter of intent, Shear

asked William Grieco (a PHC director) to serve as the PHC

shareholders' principal merger negotiator. Despite naming Grieco

as the point man, Shear continued to play a leading role in

negotiations. Shear's choice of Grieco was not mere happenstance.

The two men had enjoyed a lengthy professional relationship, and

Shear had previously named Grieco to the PHC board. Moreover,

Shear had arranged that, once the merger was consummated, he and

Grieco would be the two PHC designees on the new Acadia board.

As part of his new role as principal negotiator, Grieco

assumed responsibility for selecting a financial advisor to

analyze the merger and to handle stockholder communications. To

that end, the PHC board retained Stout Risius Ross, Inc. (SRR) —

a firm that proceeded to evaluate the proposed merger and provide

a fairness opinion. SRR reported that the aggregate consideration

offered to Class A and Class B shareholders, as a combined group,

was fair. Separately, it concluded that the consideration offered

to the Class A shareholders was fair. SRR was not asked to analyze

(and did not analyze) whether the $5,000,000 Class B premium was

fair to the Class A shareholders. The PHC board considered the

transaction in light of SRR's truncated fairness opinion and voted

— with Shear abstaining — to recommend the proposed merger to PHC's

- 6 -
shareholders. None of the five directors who voted for this

recommendation owned any Class B shares.

On May 23, 2011, Acadia and PHC signed a merger

agreement, contingent upon shareholder approval. In anticipation

of a shareholder vote, PHC disseminated a proxy statement

chronicling the details of the anticipated merger. Among other

things, the proxy statement disclosed the $5,000,000 premium to be

paid to the Class B shareholders, noting that Shear would receive

the bulk of that payment. It also disclosed that the PHC board

had opted not to form an independent committee to evaluate the

merger proposal. Finally, it disclosed that Shear and Grieco would

serve as directors of Acadia following the merger. SRR's fairness

opinion was distributed to the shareholders along with the proxy

statement.

For the merger to be approved, at least a two-thirds

majority of Class A shares, a two-thirds majority of Class B

shares, and a two-thirds majority of Class A and Class B shares

combined had to vote in favor. On October 26, 2011, PHC

shareholders approved the merger: 88.7% of the Class A shares and

99.9% of the Class B shares voted in the affirmative. MAZ Partners

LP (MAZ), the owner of over 100,000 Class A shares, voted its

shares against the proposed merger. On November 1, the merger was

consummated, resulting in the conversion of all PHC stock into

Acadia stock. The market reacted favorably to the merger: Acadia

- 7 -
stock began a long upward climb. The per-share price of Acadia

stock rose from $8 at the time of the merger to over $80 in less

than four years. MAZ did not stay aboard but, rather, sold all of

its Acadia stock in January of 2012 (at a profit).

Well before the merger took effect, MAZ repaired to a

Massachusetts state court and sued the PHC directors, seeking to

block the merger. Invoking diversity jurisdiction, the defendants

removed the action to the federal district court. See 28 U.S.C.

§§ 1332(a), 1441(b). MAZ was unsuccessful in attempting to halt

the transaction: the district court refused to enjoin the merger.

Nevertheless, MAZ continued to press its breach-of-fiduciary-duty

claims, seeking both a remedy at law (money damages) and equitable

relief.

In due course, the district court (O'Toole, J.) granted

summary judgment in favor of the defendants. MAZ appealed and

succeeded in snatching a partial victory from the jaws of defeat:

it persuaded a panel of this court to vacate the summary judgment.

See MAZ I, 762 F.3d at 145. On remand, the case was reassigned to

Chief Judge Saris. See D. Mass. R. 40.1(k). After some further

skirmishing, the district court certified a class of former Class

A shareholders who had voted against the merger, abstained from

voting, or failed to vote. MAZ was designated as the class

representative and alleged that the PHC directors, jointly and

severally, had breached their fiduciary duties by orchestrating

- 8 -
the merger transaction through an unfair process and, of particular

pertinence here, by facilitating the payment of the (allegedly

inflated) $5,000,000 premium to the Class B shareholders.

The legal claims were tried to a jury (the parties

reserving the resolution of the equitable claims). During the

course of the trial, the Massachusetts Supreme Judicial Court (SJC)

decided International Brotherhood of Electrical Workers Local No.

129 Benefit Fund v. Tucci, 70 N.E.3d 918 (Mass. 2017). Premised

on their reading of this decision, the defendants moved for

judgment as a matter of law, see Fed. R. Civ. P. 50(a), arguing,

inter alia, that MAZ should have brought its claims derivatively.

The district court granted this motion in part and entered judgment

in favor of all the directors save Shear. As to the latter, the

court refused to enter judgment as a matter of law, ruling that

there was a jury question as to whether Shear was a controlling

shareholder and, thus, came within one of the Tucci exceptions.

Accordingly, the court submitted the case to the jury on the legal

claims asserted against Shear.

The jury made a series of special findings. See Fed. R.

Civ. P. 49. It found, inter alia, that Shear controlled the

board's decision to enter into the merger and that the process

undertaken to negotiate the merger was not entirely fair to the

Class A shareholders. The jury went on to find, though, that the

proof was insufficient to establish that the Class A shareholders

- 9 -
had suffered any economic loss. Predicated on this finding, the

jury determined that the plaintiff class was not entitled to money

damages and returned a take-nothing verdict.

After the jury returned its verdict, MAZ (on behalf of

the plaintiff class) moved for equitable relief. Specifically,

MAZ sought disgorgement of the Class B premium based largely on

the jury's findings that Shear was not only a director but also a

controlling shareholder, that he therefore owed the shareholders

a fiduciary duty, and that he had breached that duty by arranging

the merger through a process that was not entirely fair to the

Class A shareholders. Following a hearing, the district court

agreed with MAZ, adopted the relevant jury findings, ruled that

Shear had breached his fiduciary duty, and determined that the

class was entitled to equitable relief. See MAZ Partners LP v.

Shear (MAZ II), 265 F. Supp. 3d 109, 118-21 (D. Mass. 2017).

Concluding that disgorgement was an available and

appropriate equitable remedy, the court proceeded to make a series

of calculations. First, it determined that $1,820,000 of the

$5,000,000 Class B premium represented fair compensation for the

enhanced voting rights carried by the Class B shares. See id. at

119. The remainder of the Class B premium ($3,180,000), the court

stated, was unjustified. See id. Next, the court determined that

— based on Shear's percentage ownership of the Class B shares —

"Shear's pro rata portion of the unjustified portion of the Class

- 10 -
B premium" was "93.22% of $3.18 million, or $2,964,396." Id. at

120. Finally, the court ordered that Shear disgorge this amount,

and it awarded those funds to the plaintiff class, together with

interest. See id.

On a parallel track, MAZ challenged the jury verdict and

moved for a new trial with respect to the class's legal claims.

In support, MAZ contended that the district court had permitted

the introduction of unduly prejudicial evidence during the trial.

The district court denied this motion. See id. at 121-22. These

timely appeals ensued: Shear appeals the disgorgement order, and

MAZ appeals the denial of its motion for a new trial.

II. SHEAR'S APPEAL

Shear attacks the disgorgement order on several fronts.

His threshold argument is that MAZ's suit is infirm because it

should have been brought derivatively, not directly. Next, he

argues that the district court applied the wrong standards in

adjudicating MAZ's claim. Finally, he argues that the disgorgement

order was beyond the district court's authority and, even if it

was not, comprised an abuse of discretion. We deal with these

arguments sequentially.1

1
Shear has taken a blunderbuss approach and proffered a host
of other arguments. We have considered these other arguments, but
reject them out of hand as patently meritless, insufficiently
developed, or both.

- 11 -
 A. Direct and Derivative Actions.

The first skirmish centers on Shear's asseveration that

this suit should have been brought derivatively, not directly.

The distinction is critically important: shareholders can bring

a direct claim for their own benefit, but a derivative claim

belongs to the corporation. See Tucci, 70 N.E.3d at 923. This

distinction holds even though the law "permits an individual

shareholder to bring 'suit to enforce a corporate cause of action

against officers, directors, and third parties'" in the form of a

derivative action. Kamen v. Kemper Fin. Servs., Inc., 500 U.S.

90, 95 (1991) (emphasis omitted) (quoting Ross v. Bernhard, 396

U.S. 531, 534 (1970)). Derivative suits are subject to special

procedural guardrails designed to balance the legitimate exercise

of business judgment by corporate decisionmakers, on the one hand,

with the oversight function of corporate shareholders, on the other

hand. A claim that is brought directly when it should have been

brought derivatively is not a claim at all and, hence, is subject

to dismissal. See Tucci, 70 N.E.3d at 927.

In diversity jurisdiction, state law supplies the

substantive rules of decision. See Erie R.R. Co. v. Tompkins, 304

U.S. 64, 78 (1938). Questions of corporate law — including whether

a claim is properly classified as derivative or direct — are

generally substantive and, thus, governed by state law. See

Gasperini v. Ctr. for Humanities, 518 U.S. 415, 427 (1996); Kamen,

- 12 -
500 U.S. at 99. Consistent with PHC's status as a Massachusetts

corporation, the parties agree that Massachusetts law controls in

this case.

The starting point for our inquiry is, of course, Tucci.

There, the SJC clearly articulated, for the first time, the

framework for determining which causes of action must be brought

derivatively and which can be brought directly.2 The crux of the

inquiry is "whether the harm [that shareholders] claim to have

suffered resulted from a breach of duty owed directly to them, or

whether the harm claimed was derivative of a breach of duty owed

to the corporation." Tucci, 70 N.E.3d at 923. Because a

director's fiduciary duties are generally owed only to the

corporation, any suit to enforce those duties ordinarily must be

brought as a derivative action. See id. at 925-27.

We say "ordinarily" because the Tucci court identified

at least two situations in which a director's fiduciary duties are

owed to shareholders and can be enforced directly, rather than

derivatively. The first of these exceptions involves close

corporations, see id. at 926, and is plainly inapposite (PHC stock,

after all, was publicly traded, and PHC can by no stretch of even

the most lively imagination be considered a close corporation).

2MAZ argues that Tucci does not apply since the injury it
alleges is unique to a particular class of shareholders. We do
not reach this argument because — as we explain below — MAZ
prevails on a less exotic ground.

- 13 -
The second exception hits closer to home: it involves situations

in which a "controlling shareholder who also is a director proposes

and implements a self-interested transaction that is to the

detriment of minority shareholders." Id. The case at hand

requires us to explore the parameters of this exception and decide

whether Shear fits within it.

To begin, Shear does not contest the self-interested

nature of the corporate transaction that gave rise to the Class B

premium. Nor can he gainsay that the jury made a special finding

of detriment: the merger was not entirely fair to the Class A

shareholders. The question, then, reduces to whether the district

court supportably determined that Shear possessed a sufficient

degree of control to be considered a controlling shareholder.3

Answering this question requires us to delve into

matters of first impression: Tucci did not elaborate on the

attributes that are necessary to distinguish a controlling

shareholder from a non-controlling shareholder. Faced with terra

incognito, we must "endeavor to predict how [the state's highest]

court would likely decide the question." Butler v. Balolia, 736

F.3d 609, 612-13 (1st Cir. 2013). We are mindful that, when making

such an informed prophecy, "[a] federal court should consult the

3Unless otherwise specifically indicated or when describing
Delaware cases, we use the term "controlling shareholder"
throughout this opinion to mean a controlling shareholder who is
also a director.

- 14 -
types of sources that the state's highest court would be apt to

consult, including analogous opinions of that court, decisions of

lower courts in the state, precedents and trends in other

jurisdictions, learned treatises, and considerations of sound

public policy." Id. at 613.

At the outset, we reject out of hand Shear's insistence

upon a bright-line rule that only majority shareholders can be

controlling shareholders under Massachusetts law. He offers

little to support such a proposition. And while Shear is correct

that the SJC sometimes uses terminology reminiscent of the majority

shareholder/minority shareholder dichotomy, it has done so only in

the abstract or in cases in which those terms accurately describe

the relationship between the relevant parties. See, e.g., Tucci,

70 N.E.3d at 923-27; Coggins v. New England Patriots Football Club,

Inc., 492 N.E.2d 1112, 1119 (Mass. 1986). The SJC has given no

meaningful indication that the employment of such language was

meant to be a guiding principle for determining "controller" status

in the mine-run of future cases.

A contrary hypothesis is more compelling. The SJC's use

of the adjective "controlling" to modify "shareholder" strongly

suggests a desire to encompass a category of shareholders broader

than majority shareholders. If "controlling shareholder" meant no

more than "majority shareholder," there would be no reason at all

for the SJC to resort to the "controlling shareholder" parlance.

- 15 -
Cf. United States v. Thomas, 429 F.3d 282, 286 (D.C. Cir. 2005)

(explaining that a court's obvious choice to use one phrase over

another in authoring a decision should be given interpretive weight

in applying that decision).

Another clue points in the same direction. Although the

SJC has not opined as to who might qualify as a controlling non-

majority shareholder, it has expressed a concern for the protection

of minority shareholders when a director "is dominating in

influence or in character." Coggins, 492 N.E.2d at 1118 (quoting

Lazenby v. Henderson, 135 N.E. 302, 304 (Mass. 1922)). Such a

concern would not be palliated by restricting controlling

shareholder status to majority shareholders.

The sockdolager, we think, is that Massachusetts courts

often look to Delaware law in analyzing corporate issues. See,

e.g., Brigade Leveraged Capital Structures Fund Ltd. v. PIMCO

Income Strategy Fund, 995 N.E.2d 64, 72 (Mass. 2013); Billings v.

GTFM, LLC, 867 N.E.2d 714, 722 & n.24 (Mass. 2007); Piemonte v.

New Bos. Garden Corp., 387 N.E.2d 1145, 1150 (Mass. 1979).

Delaware law has long been hospitable to interpretations of the

term "controlling shareholder" that include non-majority

shareholders. In what is generally regarded as a landmark case in

the area of corporate governance, the Delaware Supreme Court

recognized that although a non-majority shareholder usually will

not be deemed a controlling shareholder, there are exceptions.

- 16 -
See Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110, 1114 (Del.

1994). Such a status can be established by showing, say,

"domination [of the corporation] by a minority shareholder through

actual control of corporat[e] conduct." Id. (quoting Citron v.

Fairchild Camera & Instrument Corp., 569 A.2d 53, 70 (Del. 1989));

see Weinstein Enters., Inc. v. Orloff, 870 A.2d 499, 507 (Del.

2005). Ultimately, "the analysis of whether a controlling

stockholder exists must take into account whether the stockholder,

as a practical matter, possesses a combination of stock voting

power and managerial authority that enables him to control the

corporation, if he so wishes." In re Cysive, Inc. S'holders

Litig., 836 A.2d 531, 553 (Del. Ch. 2003). We conclude that the

SJC would follow such a rule and would hold that a non-majority

shareholder who dominates a corporation through actual control of

corporate conduct may be deemed a controlling shareholder. Cf.

Butler, 736 F.3d at 612-13 (explaining that "precedents and trends

in other jurisdictions" appropriately may be consulted in

determining what a state's highest court might rule).

This gets the grease from the goose. The record contains

ample evidence to ground the conclusion that Shear dominated PHC

and had pervasive control over its affairs. As the co-founder,

board chairman, and chief executive officer, Shear was a ubiquitous

force within the company. Indeed, PHC itself acknowledged his

control in filings submitted to the Securities and Exchange

- 17 -
Commission (SEC). For example, in a 2011 filing, PHC stated (under

the heading "Management Risks") that "Bruce A. Shear is in control

of the Company . . . . [He] can establish, maintain and control

business policy and decisions by virtue of his control of the

election of the majority of the members of the board of directors."

Such representations are entitled to weight in determining whether

an individual is a controlling shareholder. See In re Primedia

Inc. Derivative Litig., 910 A.2d 248, 258 (Del. Ch. 2006).

While the percentage of the corporate stock that an

individual owns is surely a relevant integer in the calculus of

control, a party who dominates a corporation and has actual control

over it should not be allowed to hide behind mere arithmetic.

Shear, however, would have us place more weight on raw numbers.

He implores us to accord decretory significance to ownership

percentages, pointing out that his stock accounted for only 20% or

so of the overall voting power. But this is too myopic a view:

there is no formulaic rule regarding what percentage of outstanding

shares is sufficient to render a shareholder "controlling."

Moreover, the case law is hostile to Shear's absolutist position.

For instance, Delaware courts have found minority shareholders to

be controlling shareholders under particular circumstances. See,

e.g., In re Cysive, 836 A.2d at 535, 553.

In the end, everything depends on context. Here, the

numerical fraction of PHC's voting power conferred by Shear's

- 18 -
shares — hardly an insubstantial portion — does not fairly reflect

salient facts regarding his domination of the company and his

formidable ability to steer fundamental corporate decisions.

Control has a distinctly practical dimension and, as a practical

matter, Shear had control of PHC.

For one thing, Shear's near-complete ownership of, and

concomitant voting control over, the Class B stock guaranteed him

the power to veto corporate decisions that were not to his liking.

The power to block certain corporate paths by veto is the power to

direct the corporation to take the route preferred by the veto-

wielder. As any motorist knows, when access is denied to road

after road, a driver has little choice but to follow the detour

signs. The existence of this power, then, is a telltale sign that

Shear had significant control over PHC's affairs.

For another thing, Shear had the power to name four of

the six directors (a majority of the board). Courts often have

found that the power to appoint a substantial portion of the board

is a meaningful indicium of control. See, e.g., Lynch, 638 A.2d

at 1112-13; see also In re Primedia, 910 A.2d at 258 (finding

number of directors appointed by allegedly controlling shareholder

relevant to "control" inquiry).

In addition, "control over the particular transaction at

issue" may be sufficient to establish controller status for

fiduciary-duty purposes. In re Primedia, 910 A.2d at 257. Shear

- 19 -
had such control: he was the primary negotiator of the material

terms of the PHC-Acadia merger; he remained a leading player in

the negotiations even after Acadia's letter of intent was

transmitted and he arranged for his ally, Grieco, to be designated

(at least nominally) as PHC's principal negotiator; and his

suzerainty over the Class B shares allowed him to dictate board

voting and to scuttle any merger that was not to his taste. To

cinch the matter, the jury found that "Shear controlled a majority

of the PHC Board of Directors with regard to the Board's decision

to approve the merger." That finding is amply supported by the

evidence, and we — like the court below — have no reason to

disregard it. See Jones ex rel. U.S. v. Mass. Gen. Hosp., 780

F.3d 479, 487 (1st Cir. 2015); Ira Green, Inc. v. Military Sales

& Serv. Co., 775 F.3d 12, 18 (1st Cir. 2014).

Shear tries twice over to throw sand in the gears of

this reasoning. Both attempts hark back to Tucci. First, he

argues that his control over PHC was less than that of the

defendant in Tucci. This argument, though, is smoke and mirrors:

the defendant in Tucci was not sued as a controlling shareholder,

see 70 N.E.3d at 923-27, and the SJC had no earthly reason to

determine whether he qualified as such.

Shear's second sortie fares no better. He notes that

the Tucci court spoke of a controlling shareholder's power to

"propose[] and implement[]" transactions, id. at 926, and says

- 20 -
that, by himself, he could not have implemented the merger — he

needed the votes of the Class A shareholders. On its own terms,

this argument is problematic. The Tucci court gave no hint that

by using the word "implement," it meant "unilaterally implement."

In all events, such an interpretation would be overly rigid

because, among other things, it does not account for the degree of

a fiduciary's pervasive influence within the company.

That ends this aspect of the matter. As we have

indicated, control is a practical concept. It is derived from a

combination of elements. See In re Cysive, 836 A.2d at 553. Taken

in the aggregate, the combination of elements in this case easily

supports the district court's determination that Shear dominated

PHC and had actual control over its affairs (including the merger

transaction). Accordingly, the district court did not err in

holding that Shear — as the jury had found — was a controlling

shareholder within the Tucci taxonomy. It follows inexorably, as

night follows day, that MAZ's suit was appropriately brought as a

direct suit against Shear. See Tucci, 70 N.E.3d at 926.

B. Fairness.

Having found that Shear was a controlling shareholder,

the district court proceeded to determine that he had breached his

fiduciary duty to the Class A shareholders. See MAZ II, 265 F.

Supp. 3d at 118-19. In making this determination, the court

adopted a finding by the jury: that the process through which

- 21 -
Shear had arranged the merger (and, in particular, the payment of

the Class B premium) was not "entirely fair" to the Class A

shareholders. Shear challenges both the applicability of the

"fairness" standard and the court's allocation of the burden of

proof on this issue.

We turn first to Shear's argument that the district court

painted with too broad a brush in instructing the jury to apply

the "fairness" standard and then turn to his argument that, in all

events, the plaintiff class should have borne the burden of proof

with respect to fairness. Since both of Shear's arguments center

on abstract questions of law, our review is de novo. See San Juan

Cable LLC v. P.R. Tel. Co., 612 F.3d 25, 29 (1st Cir. 2010);

Charlesbank Equity Fund II v. Blinds To Go, Inc., 370 F.3d 151,

158 (1st Cir. 2004).

1. Scope of the Inquiry. Endorsing Delaware's

conception of fairness as "closely related to the views expressed

in [Massachusetts] decisions," the SJC has explained that "where

one stands on both sides of a transaction, he has the burden of

establishing its entire fairness, sufficient to pass the test of

careful scrutiny by the courts." Coggins, 492 N.E.2d at 1117

(quoting Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983)).4

4 The SJC has made plain its view that fairness extends beyond
a simple finding of fair price. See Coggins, 492 N.E.2d at 1117,
1119 (explaining that fairness inquiry involves examination of
totality of circumstances, and noting that Delaware's fairness

- 22 -
Coggins thus makes pellucid that fairness is an essential element

in judicial examination of intra-corporate claims involving self-

dealing.5 See id. at 1117-19; see also Bos. Children's Heart

Found., Inc. v. Nadal-Ginard, 73 F.3d 429, 433 (1st Cir. 1996)

(applying Massachusetts law and explaining that "fairness"

standard applies to fiduciary's ability to set own salary); Geller

v. Allied-Lyons PLC, 674 N.E.2d 1334, 1338 n.8 (Mass. App. Ct.

1997) (explaining that "fairness" standard applies to contract

promising fiduciary finder's fee).

Shear argues that in this instance the fairness standard

was misplaced because the majority of Class A shareholders voted

to approve the transaction. He argues, in the alternative, that

even if some judicial review was warranted, the court should have

narrowed its aperture and reviewed the alleged breach not under

the "fairness" standard but, rather, under the highly deferential

"business judgment" rule. In support of both of these arguments,

inquiry, encompassing "fair dealing and fair price," is compatible
with Massachusetts' inquiry (quoting Weinberger, 457 A.2d at
711)).
5 In Houle v. Low, 556 N.E.2d 51 (Mass. 1990), the SJC
discussed a standard that did not require a reviewing court to
examine fairness. See id. at 59. That more generous standard
only applies, though, when an independent committee has decided
not to pursue derivative breach-of-fiduciary-duty claims. See id.
Even then, the altered standard might not be satisfied if the
contested action allowed a "defendant who has control of the
corporation to retain a significant improper benefit." Id. This
case is far removed from any set of facts that might bring the
Houle standard into play.

- 23 -
he points to section 8.31 of the Massachusetts Business Corporation

Act (the Act). See Mass. Gen. Laws ch. 156D, § 8.31. That statute,

though, simply will not bear the weight that Shear loads upon it.

In relevant part, section 8.31 states that a "conflict

of interest transaction is not voidable by the corporation solely

because of the director's interest in the transaction if . . . the

material facts of the transaction and the director's interest were

disclosed or known to the shareholders entitled to vote and they

authorized, approved, or ratified the transaction." Id.

§ 8.31(a)(2). Assuming, favorably to Shear, that the merger

transaction at issue here is a "conflict of interest" transaction

within the purview of section 8.31(a)(2) — a matter on which we

take no view — the statute says what it means and means what it

says: it simply protects such a transaction from voidability.

See id. § 8.31 cmt. 1 ("Section 8.31(a) makes any automatic rule

of voidability inapplicable to transactions that are fair or that

have been approved by directors or shareholders in the manner

provided by the balance of § 8.31.").

Critically, section 8.31 is silent as to director

liability. This silence is especially telling when section 8.31

is juxtaposed with the immediately preceding section of the Act —

section 8.30. In contrast to section 8.31, section 8.30 is

explicit about the circumstances in which a director will be

shielded from liability. See id. § 8.30(c) ("A director is not

- 24 -
liable for any action taken as a director, or any failure to take

any action, if he performed the duties of his office in compliance

with this section."). When a legislature offers protection to a

party under one section of a statute but declines to offer the

party the same protection under a closely related section, it is

usually fair to presume that the legislature did not intend to

afford such protection under the latter section. See Duncan v.

Walker, 533 U.S. 167, 173 (2001) ("It is well settled that where

Congress includes particular language in one section of a statute

but omits it in another section of the same Act, it is generally

presumed that Congress acts intentionally and purposely in the

disparate inclusion or exclusion." (internal quotation marks and

alteration omitted)); Citizens Awareness Network, Inc. v. United

States, 391 F.3d 338, 346 (1st Cir. 2004) (stating that the "use

of differential language in various sections of the same statute

is presumed to be intentional and deserves interpretive weight").

So it is here.

Viewed against this backdrop, section 8.31 offers Shear

little shelter. Fairly read, the statute sets up shareholder

ratification as a potential protection against the voidability of

a transaction, but it does not give a controlling shareholder a

free pass for a breach of his fiduciary duty qua director. We

hold, without serious question, that section 8.31 does not afford

a conflicted director a safe harbor for a breach of his fiduciary

- 25 -
duty. See Mass. Gen. Laws ch. 156D, § 8.31 cmt. 1 ("A director

who engages in a transaction with the corporation that is not

voidable . . . is not thereby automatically protected against a

claim of impropriety on his part.").

If more were needed — and we doubt that it is — section

8.31 offers no support for the notion that the Massachusetts

legislature sought to dislodge the "vigorous" level of judicial

oversight available for breach-of-fiduciary-duty claims against

conflicted directors. Coggins, 492 N.E.2d at 1117. Section 8.31

was enacted in 2003 — at a time when Massachusetts common law

concerning self-interested fiduciaries was well-developed, and it

is a familiar tenet that when a statute addresses issues previously

governed by common law, an inquiring court should presume that —

except where explicit changes are made — the legislature intended

to retain the substance of preexisting law. See Kirtsaeng v. John

Wiley & Sons, Inc., 568 U.S. 519, 538 (2013). Shear has identified

no principled basis for refusing to honor this presumption here.6

6 The only Massachusetts cases in which shareholder
ratification appears to have been given a cleansing effect involve
close corporations. See Demoulas v. Demoulas Super Markets, Inc.,
677 N.E.2d 159, 182 (Mass. 1997); see also In re Mi-Lor Corp., 348
F.3d 294, 304 (1st Cir. 2003) (applying Massachusetts law). Such
cases have no bearing here: shareholders in close corporations
have materially different rights and responsibilities than do
shareholders in public corporations. See In re Mi-Lor Corp., 348
F.3d at 305.

- 26 -
 As a fallback, Shear invites us to follow a trail blazed

by the Delaware courts, which under certain circumstances require

less searching judicial scrutiny of transactions that have been

ratified by shareholders. See, e.g., Singh v. Attenborough, 137

A.3d 151, 151 (Del. 2016); Corwin v. KKR Fin. Holdings LLC, 125

A.3d 304, 309 n.19 (Del. 2015). We conclude, though, that this

line of cases does not aid Shear's cause. Hence, we decline his

invitation. Even under the Delaware cases, shareholder

ratification does not change the scope of judicial review in the

context of conflicted transactions engaged in by a controlling

fiduciary. See In re JCC Holding Co., 843 A.2d 713, 723-24 (Del.

Ch. 2003). This limitation makes eminently good sense inasmuch as

the coercion inherent in the relationship between a controlling

shareholder and the remaining shareholders "undermine[s] the

fairness-guaranteeing effect of a majority-of-the-minority vote

condition because coerced fear or a hopeless acceptance of a

dominant power's will, rather than rational self-interest, is

deemed likely to be the animating force behind the minority's

decision to approve the merger." Id. at 723. We are confident

that the SJC would hue to this limitation and retain the fairness

standard for self-interested transactions even in the face of

shareholder ratification.

To say more on this point would be supererogatory. Given

the self-interested nature of the challenged transaction, we hold

- 27 -
that the district court did not err in subjecting the transaction

to the "fairness" inquiry elucidated in Coggins and its progeny.

2. Burden-Shifting. Having concluded that the district

court properly framed the inquiry in terms of the fairness of the

challenged transaction, we turn to Shear's remonstrance that the

court erred in assigning him the burden of proof. We start with

the general rule that, in Massachusetts, "[a] controlling

stockholder who is also a director standing on both sides of the

transaction bears the burden of showing that the transaction does

not violate fiduciary obligations." Coggins, 492 N.E.2d at 1118;

see Geller, 674 N.E.2d at 1338 n.8. Policy considerations buttress

this allocation of the burden of proof. See Coggins, 492 N.E.2d

at 1118 (noting concern for protection of minority shareholders in

presence of controlling fiduciary). At first blush, then, the

district court would appear to have been on solid footing in

holding that Shear — as a controlling shareholder and self-

interested director — bore the burden of proving that the process

underlying the merger transaction was fair to the Class A

shareholders.

Despite this general rule, Shear contends that the

burden of proof should have been shifted to the plaintiff class.

In advancing this contention, he asks us to break new ground: the

SJC has never addressed what circumstances, if any, might justify

shifting the burden from a conflicted fiduciary to complaining

- 28 -
shareholders. Shear urges us to hold that shareholder ratification

is one such circumstance.

Shear's attempt to give a cleansing effect to

shareholder ratification relies in large part on the commentary to

section 8.31 of the Act. See Mass. Gen. Laws ch. 156D, § 8.31

cmt. 2 (stating that shareholder ratification may shift the burden

of proof to the complaining party with respect to "any challenge

to the acts for which the requisite vote was obtained"). His

reliance is mislaid. As we already have explained, see supra Part

II(B)(1), the animating purpose of section 8.31 is to curtail the

common law rule making conflicted transactions automatically

voidable. See Mass. Gen. Laws ch. 156D, § 8.31 cmt. 1. There is

no issue of voidability in this case and, thus, the commentary

upon which Shear relies does not breathe life into his novel

contention.

Shear has another shot in his sling. He points to

Delaware case law suggesting that certain facts, such as full

disclosure to disinterested shareholders who subsequently ratify

a transaction, may sometimes justify shifting the burden to the

plaintiff to prove that a transaction is unfair. See, e.g., Ams.

Mining Corp. v. Theriault, 51 A.3d 1213, 1242 (Del. 2012). This

case law simply does not fit. Even in Delaware, such burden-

shifting occurs only when a pretrial determination regarding the

crucial facts can be made. See id. at 1243 (holding that "if the

- 29 -
record does not permit a pretrial determination that the defendants

are entitled to a burden shift, the burden of persuasion will

remain with the defendants throughout the trial to demonstrate the

entire fairness of the interested transaction"). No such pretrial

determination was possible here: the evidence was inconclusive as

to whether the Class A shareholders, prior to ratification, had

been sufficiently informed of the material facts of the

transaction.

We do not think that the SJC would depart from its

settled rule and shift the burden of proof on these facts. No

precedent compels (or even strongly suggests) such a result.

Massachusetts law has long imposed the burden of proving entire

fairness on a director accused of self-dealing, see Coggins, 492

N.E.2d at 1117-18, and this rule has special salience where, as

here, a case involves a controlling shareholder who is dominating

in influence, see id. Viewed through this prism, we conclude that

the Class A shareholders' approval of the merger package did not

constitute the sort of fully informed ratification that might

cleanse the transaction of the stench of self-dealing so as to

warrant a shifted burden.

C. Disgorgement.

Shear next complains that the district court erred in

ordering disgorgement of so much of the Class B premium as exceeded

what would have been a fair premium for the Class B shares.

- 30 -
Disgorgement is an equitable remedy, and we review the award of an

equitable remedy "under a bifurcated standard." State St. Bank &

Tr. Co. v. Denman Tire Corp., 240 F.3d 83, 88 (1st Cir. 2001).

The availability of an equitable remedy presents a question of law

engendering de novo review, while the decision either to award or

to refrain from awarding an available equitable remedy is reviewed

for abuse of discretion. See id. Shear's plaint implicates both

prongs of this bifurcated standard.

1. Availability. To begin, Shear asserts that

disgorgement was not an equitable remedy available to MAZ. In

support, he offers a hodge-podge of theories, all of which draw

their essence from a fundamental misunderstanding of breach-of-

fiduciary-duty claims: he insists that such claims are essentially

legal, not equitable. Shear is wrong.

A claim for breach of fiduciary duty is a claim

originating in equity. See In re Evangelist, 760 F.2d 27, 29 (1st

Cir. 1985) (Breyer, J.) ("Actions for breach of fiduciary duty,

historically speaking, are almost uniformly actions 'in equity' —

carrying with them no right to trial by jury."); see also Coggins,

492 N.E.2d at 1117 ("The court is justified in exercising its

equitable power when a violation of fiduciary duty is claimed.").

For decades, Massachusetts courts have recognized that equity

empowers them to examine putative breaches of fiduciary duty,

particularly when evidence of self-dealing exists. See, e.g.,

- 31 -
Coggins, 492 N.E.2d at 1117; Winchell v. Plywood Corp., 85 N.E.2d

313, 316-17 (Mass. 1949); Sagalyn v. Meekins, Packard & Wheat,

Inc., 195 N.E. 769, 771 (Mass. 1935). If a breach of fiduciary

duty is found, equity allows the court to order appropriate

equitable relief. See Allison v. Eriksson, 98 N.E.3d 143, 154

(Mass. 2018); Demoulas v. Demoulas, 703 N.E.2d 1149, 1169 (Mass.

1998). This remains true even when a remedy at law is also

available. See Cosmopolitan Tr. Co. v. Mitchell, 136 N.E. 403,

409 (Mass. 1922); see also Demoulas v. Demoulas Super Markets,

Inc., 677 N.E.2d 159, 178 n.32 (Mass. 1997) (explaining that even

though breach of fiduciary duty can, under certain circumstances,

form the basis for an action at law for money damages, it generally

forms the basis for an equitable cause of action).

The hallmark of equitable relief is its protean nature

and — within wide limits — a court sitting in equity may tailor

relief to fit the circumstances of a particular case. See Allison,

98 N.E.3d at 154; Demoulas, 703 N.E.2d at 1169. Within this

remedial realm, it is standard fare for a court to fashion remedies

that deny a breaching fiduciary undue gain or advantage received

by virtue of his position. See Chelsea Indus., Inc. v. Gaffney,

449 N.E.2d 320, 327 (Mass. 1983); Sagalyn, 195 N.E. at 771; Geller,

674 N.E.2d at 1337; see also Haseotes v. Cumberland Farms, Inc.

(In re Cumberland Farms, Inc.), 284 F.3d 216, 229 (1st Cir. 2002)

(applying Massachusetts law).

- 32 -
 Examples abound and we invoke one to illustrate this

point. In Sagalyn, the SJC considered a series of votes by

directors who were also corporate officers, which had the effect

of raising salaries for one another. See 195 N.E. at 771. Finding

that the directors had breached their fiduciary duty, the court

upheld a decree directing that each of them must refund to the

corporation "the excess of salary [received as a result of the

vote] beyond the fair value of his services" as determined by a

special master. Id. at 771-72. The court explained that

fiduciaries have a "responsibility to refrain from taking an undue

advantage of the corporation" and that a breach of fiduciary duty

may lie "even in the absence of moral turpitude." Id. at 771.

Viewed against this backdrop, Shear's claim that

disgorgement was not an available remedy goes up in smoke. His

most loudly bruited argument — that a claim of breach of fiduciary

duty requires a showing of damages — runs headlong into a wall of

precedent. The case law holds with conspicuous clarity that when

a fiduciary has secured an undue advantage by virtue of his

position, equitable relief is available even in the absence of

direct economic loss to the complaining party.7 See Chelsea

7 Groping for support, Shear directs us to a few cases that
list "damages" as an "element" of a claim for breach of fiduciary
duty. See, e.g., Qestec, Inc. v. Krummenacker, 367 F. Supp. 2d
89, 97 (D. Mass. 2005); Hanover Ins. Co. v. Sutton, 705 N.E.2d
279, 288 (Mass. App. Ct. 1999). Once again, Shear fails to
appreciate that breach-of-fiduciary-duty claims can have both

- 33 -
Indus., 449 N.E.2d at 327; Sagalyn, 195 N.E. at 771; see also In

re Cumberland Farms, 284 F.3d at 229.

The Massachusetts decisions align comfortably with

decisions elsewhere. The better-reasoned view is that harm is

required "only for [the legal remedy of] damages, not for the

equitable remedy of disgorgement." Huber v. Taylor, 469 F.3d 67,

77 (3d Cir. 2006). Embracing this principle, the D.C. Circuit has

explained that the equitable remedy of forfeiture does not require

a showing of injury to a victim because forfeiture is aimed at

"deter[ing] . . . misconduct, a goal worth furthering regardless

of whether a particular [person] has been harmed. It also fulfills

a longstanding and fundamental principle of equity — that

fiduciaries should not profit from their disloyalty." Hendry v.

Pelland, 73 F.3d 397, 402 (D.C. Cir. 1996) (internal citations

omitted). This reasoning applies four-square to the circumstances

at hand. Requiring a controlling shareholder who had breached his

fiduciary duty to disgorge the fruits of his misconduct serves a

legal and equitable dimensions. In the bargain, he ignores the
SJC's repeated affirmation that equitable relief can be provided
for such claims. See, e.g., Allison, 98 N.E.3d at 154; Chelsea
Indus., 449 N.E.2d at 327.
Billings, cited hopefully by Shear, is not to the contrary.
867 N.E.2d 714. The language to which Shear adverts is from the
court's recitation of the case's procedural history, see id. at
719, and Billings never considered whether equitable relief could
have been available absent a showing of economic harm.

- 34 -
valid societal purpose regardless of whether the innocent

shareholders have been injured by his misconduct.

Relatedly, Shear argues that disgorgement is an

inappropriate remedy for a breach of fiduciary duty and that its

availability should be limited to claims for unjust enrichment.

This is much too crabbed a view.

A breach of fiduciary duty is historically an equitable

claim, see In re Evangelist, 760 F.2d at 29, and a court faced

with such a breach has the authority to choose an appropriate

remedy from the wide armamentarium of equitable remedies, see

Demoulas, 703 N.E.2d at 1169. Ordering a fiduciary to relinquish

the undue advantage obtained through a breach of his fiduciary

duty is an unremarkable exercise of this authority. See Chelsea

Indus., 449 N.E.2d at 327; Sagalyn, 195 N.E. at 771; see also Bos.

Children's Heart Found., 73 F.3d at 433.

Shifting gears, Shear argues that the jury's verdict —

specifically, the jury's finding that the plaintiff class suffered

no economic loss — foreclosed any equitable remedy. He frames

this argument in terms of the Seventh Amendment, which he says

forbids a district court from applying equitable doctrines that

depend to any degree on factual predicates previously rejected by

a jury verdict. We believe that Shear is trying to fit a square

peg into a round hole.

- 35 -
 In the proceedings below, MAZ sought both legal and

equitable relief. The district court tried the legal claims to a

jury and reserved ruling on the equitable claims. This bifurcation

was not only agreed to by the parties but also tracked generally

accepted procedures: when a single issue may be viewed as either

legal or equitable (depending upon what relief is forthcoming),

the issue should first be tried to a jury even though the court,

taking into account the jury's findings, may later have to

determine whether to grant equitable relief. See Dairy Queen,

Inc. v. Wood, 369 U.S. 469, 479 (1962); Boit v. Gar-Tec Prods.,

Inc., 967 F.2d 671, 677 (1st Cir. 1992); see also 9 Charles Alan

Wright et al., Federal Practice and Procedure § 2306 (3d ed. 2018).

To support his position that disgorgement is unavailable

once a jury has found no damages, Shear pins his hopes to the

decision in National Railroad Passenger Corp. v. Veolia

Transportation Services, Inc., 886 F. Supp. 2d 14 (D.D.C. 2012).

But there, the court found "[n]o shattered fiduciary relationship

between [the parties that] require[d] the court's protection."

Id. at 19. Such a finding distinguishes Veolia from this case —

a differentiating circumstance that is made luminously clear by

the Veolia court's careful distinguishing of cases permitting

disgorgement. See id. at 18-19.

We add, moreover, that the district court's disgorgement

order was not at odds with the jury's verdict. Contrary to Shear's

- 36 -
importunings, the disgorgement order did not contradict the jury's

finding that the plaintiff class had sustained no economic loss.

Rather, the court accepted that finding and relied on the jury's

other findings — particularly its findings that Shear was a

controlling shareholder and that the process leading up to the

merger had not been entirely fair — to form an acceptable predicate

for equitable relief. See MAZ II, 265 F. Supp. 3d at 119. This

process accorded with the procedure endorsed by the SJC. See

Demoulas, 703 N.E.2d at 1172-73 (upholding order for equitable

relief when jury had made determinations regarding wrongdoing).

The Seventh Amendment figures into Shear's

asseverational array in yet another way. He urges us to find that

the disgorgement order is an unconstitutional additur. Here, too,

Shear is foraging in an empty cupboard.

The prohibition against unconstitutional additurs is

rooted in the Seventh Amendment's guaranty of the right to trial

by jury. See Dimick v. Schiedt, 293 U.S. 474, 485 (1935). As

such, the prohibition only applies to jury awards on legal claims.

See Haskins v. City of Boaz, 822 F.2d 1014, 1015 (11th Cir. 1987)

(per curiam). It follows inexorably that the Seventh Amendment

has no application to an equitable remedy (such as a dollars-and-

cents disgorgement order) issued to remediate an equitable

violation. See id.

- 37 -
 That ends this aspect of the matter. Exercising de novo

review, we conclude that, in the circumstances of this case, the

equitable remedy of disgorgement was available in principle.

2. Appropriateness. Our holding that disgorgement was

an available remedy does not speak to whether the district court's

crafting of the disgorgement order was an appropriate exercise of

its discretion. We turn next to that question.

The baseline premise is that "[e]quitable remedies are

flexible tools to be applied with the focus on fairness and

justice." Demoulas, 703 N.E.2d at 1169. Acting in accordance

with this premise, the district court purposed to fashion a two-

step disgorgement order. First, the order stripped Shear of the

unfair advantage — his share of the inflated portion of the Class

B premium — gained through his breach of fiduciary duty. Second,

the order redistributed those gains to the plaintiff class. The

court's methodology is not in issue. Based on comparable

transactions, the court identified the portion of the $5,000,000

Class B premium that represented fair compensation for the enhanced

voting rights carried by the Class B shares ($1,820,000). The

remainder of the Class B premium ($3,180,000), the court found,

was unjustified. Based on Shear's percentage ownership of the

Class B shares, the court calculated that Shear had received

$2,964,396 in unjustified compensation. The court ordered that

- 38 -
Shear disgorge this amount and, at the same time, awarded those

funds to the plaintiff class, together with interest.

Chaffing under this regime, Shear asseverates that

disgorgement, even if theoretically available, was wholly

inappropriate in this instance and, thus, an abuse of discretion.

We reject this asseveration and conclude that, in the circumstances

at hand, the disgorgement order was well within the compass of the

district court's discretion.

We need not tarry. Given Shear's breach of fiduciary

duty, forcing him to disgorge the fruits of his inequitable

behavior seems an altogether fitting remedy. Indeed, when a

conflicted fiduciary gains an unfair advantage through a breach of

his fiduciary duty, it is hard to imagine equitable relief more

appropriate than an order compelling him to disgorge the fruits of

his breach. It is, therefore, unsurprising that the SJC has

approved the use of disgorgement as a remedy in highly analogous

circumstances. See Sagalyn, 195 N.E. at 771 (upholding order that

fiduciaries refund portion of compensation in excess of fair value

as determined by special master).

Shear's rejoinder is unavailing. He says that the

plaintiff class sustained no loss and, accordingly, did not need

disgorgement in order to be made whole. That is true as far as it

goes — but it does not take Shear very far. The district court

dealt effectively with this argument. It acknowledged that the

- 39 -
disgorgement order resulted in something of a windfall for the

plaintiff class and that such windfalls should generally be

avoided. See MAZ II, 265 F. Supp. 3d at 120. Refusing to order

disgorgement, though, would have resulted in a windfall to Shear.

See id. Faced with this quandary, the court reasonably determined

that it was more equitable that any windfall accrue to the

plaintiff class rather than to the self-dealing fiduciary. See

id. at 120-21.

We think that this choice was a supportable exercise of

the district court's broad discretion. If a windfall is in

prospect, time-honored principles of equity favor bestowing the

windfall upon the wronged party as opposed to allowing the

wrongdoer to retain it. See Lawton v. Nyman, 327 F.3d 30, 45 (1st

Cir. 2003) (explaining that it is "more appropriate to give the

defrauded party the benefit even of windfalls than to let the

fraudulent party keep them" (quoting Janigan v. Taylor, 344 F.2d

781, 786 (1st Cir. 1965))); cf. Law v. Griffith, 930 N.E.2d 126,

132 (Mass. 2010) (stating that, under collateral source rule,

"avoiding a windfall to a tortfeasor is preferable even if a

plaintiff thereby receives an excessive recovery in some

circumstances").

Shear's citation to Brodie v. Jordan, 857 N.E.2d 1076

(Mass. 2006), for the proposition that a "remedy should neither

grant the minority a windfall nor excessively penalize the

- 40 -
majority" does not undermine this conclusion. Id. at 1080. Brodie

is inapposite: that case did not involve the disgorgement of a

financial benefit improperly gained by a fiduciary through his

position.

The short of it is that the disgorgement order was

comfortably within the district court's authority and was suitably

tailored to redress Shear's inequitable conduct. Consequently, we

find the disgorgement order to be an appropriate exercise of the

district court's discretion.

D. Recapitulation.

To recapitulate, we conclude that this suit was

appropriately brought directly against Shear as a "controlling

shareholder who also is a director." Tucci, 70 N.E.3d at 926.

Given Shear's controller status, the district court correctly

applied the fairness standard to his course of conduct and quite

properly allocated the burden of proving fairness to him. After

a supportable finding of breach of fiduciary duty, disgorgement

was well within the wide armamentarium of equitable remedies

available to the district court. Last but not least, we conclude

that the district court did not abuse its discretion in crafting

a disgorgement order designed to ensure that Shear would not be

allowed to enjoy the fruits of his breach.

- 41 -
III. MAZ'S APPEAL

There is one last leg to our journey. MAZ appeals the

district court's denial of its motion for a new trial. In support,

MAZ submits that the district court abused its discretion in

allowing Shear, during the jury-trial phase of the case, to

introduce evidence of Acadia's "more than ten-fold" increase in

its stock price post-merger (over the course of nearly four years).

MAZ objected to the stock-price evidence below, and this claim of

error is preserved for purposes of appeal.

Where, as here, the denial of a motion for new trial

hinges on a preserved challenge to an evidentiary ruling, we review

the underlying evidentiary ruling for abuse of discretion. See

Ira Green, 775 F.3d at 18. Even if we find that an abuse of

discretion occurred, we will not order a new trial unless we also

find that "the error in admitting evidence 'had a substantial and

injurious effect or influence upon the jury's verdict.'" Id.

(quoting Gomez v. Rivera Rodríguez, 344 F.3d 103, 118 (1st Cir.

2003)). Here, however, we discern no abuse of discretion in the

admission of the challenged evidence, so our consideration stops

short of any harmless-error inquiry.

To be admissible, evidence must be relevant, that is, it

must have a "tendency to make" the existence of any fact that is

of consequence to the determination of the action "more or less

probable than it would be without the evidence." Fed. R. Evid.

- 42 -
401. Even so, a court may preclude the admission of relevant

evidence "if its probative value is substantially outweighed by a

danger of . . . unfair prejudice, confusing the issues, [or]

misleading the jury." Fed. R. Evid. 403. When the balancing of

probative value and unfair prejudice ends in equipoise, Rule 403

tilts the decisional calculus in favor of admissibility. See

United States v. Whitney, 524 F.3d 134, 141 (1st Cir. 2008).

The court below determined that the stock-price evidence

was relevant to the issues raised during the trial. This

determination was unimpugnable: among other things, the evidence

was relevant to the reasonableness of the directors' judgment in

pursuing the merger as a means of creating value for shareholders.

And as the district court supportably found, this evidence was

also relevant because the plaintiff class was challenging both the

reasonableness of the stock-for-stock swap and the structure of

the merger. Finally, as in Gonsalves v. Straight Arrow Publishers,

Inc., 701 A.2d 357, 362 (Del. 1997), the challenged data was

relevant to "show that plans in effect at the time of the merger

[had] born fruition."

Of course, the finding of relevance gets us only halfway

home. Even relevant evidence may be excluded if it is unfairly

prejudicial. The emphasis on unfair prejudice (as opposed to

prejudice simpliciter) is not an idle formality. After all,

"[v]irtually all evidence is meant to be prejudicial, and Rule 403

- 43 -
only guards against unfair prejudice." United States v. Sabean,

885 F.3d 27, 38 (1st Cir. 2018). And it is no easy task to show

unfair prejudice: we have made pellucid that, once a district

court overrules a Rule 403 challenge and admits relevant evidence,

"[o]nly rarely — and in extraordinarily compelling circumstances

— will we, from the vista of a cold appellate record, reverse [the]

district court's on-the-spot judgment concerning the relative

weighing of probative value and unfair effect." Freeman v. Package

Mach. Co., 865 F.2d 1331, 1340 (1st Cir. 1988).

In the case at hand, MAZ asserts that the admission of

the stock-price evidence was unfairly prejudicial because it may

have tainted the jury's perception of whether Shear's alleged

breach of fiduciary duty caused the plaintiff class to sustain any

economic loss. In effect, MAZ suggests that the admission of this

evidence allowed Shear to make what amounted to a "no harm, no

foul" argument even though the district court explicitly

foreclosed such an argument. As MAZ sees it, this enabled Shear

to introduce through the back door a line of defense that the

district court had forbidden him to introduce through the front

door.

There is, however, a clearly visible fly in the ointment:

Shear never made a "no harm, no foul" argument to the jury. MAZ

suggests, though, that given the stock-price evidence and what it

showed about the profit that inured to the shareholders, the "no

- 44 -
harm, no foul" argument was the elephant in the room (and,

therefore, the jury likely gave it weight).

We do not dismiss MAZ's suggestion lightly. At a

minimum, there was some risk that the jury might have thought along

"no harm, no foul" lines without any prompting from Shear. The

district court concluded, however, that this risk did not

substantially outweigh the probative value of the stock-price

evidence.

Where Rule 403 is in play, battles over how to strike

the balance between probative value and unfairly prejudicial

effect are usually won or lost in the district court. This is not

a mere fortuity: a trial court is in the best position to evaluate

both the force of particular evidence and the likelihood of unfair

prejudice. See Galarneau v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 504 F.3d 189, 206 (1st Cir. 2007) (noting that district court

"observ[es] first-hand the nuances of trial" and, thus, merits

substantial discretion when balancing probative value and

prejudicial effect). In this instance, we do not think that the

risk of unfair prejudice loomed so disproportionately large as to

warrant second-guessing the district court's on-the-spot balancing

of probative worth and prejudicial effect.

This conclusion is fortified by what transpired when the

specter of prejudice from the stock-price evidence was brought

front and center during a sidebar conference. After hearing from

- 45 -
the parties, the district court offered to give the jury a

prophylactic instruction, limiting the permissible use of the

stock-price evidence to relevant issues. MAZ refused the offer,

opting instead for no instruction.

We long have recognized the value of limiting

instructions. See, e.g., Rubert-Torres v. Hosp. San Pablo, Inc.,

205 F.3d 472, 479 (1st Cir. 2000); Daigle v. Me. Med. Ctr., Inc.,

14 F.3d 684, 690 (1st Cir. 1994). Such instructions, skillfully

employed by a district court, often will eliminate — or at least

mitigate — a risk of unfair prejudice. See United States v.

Mehanna, 735 F.3d 32, 64 (1st Cir. 2013). When a party who objects

to evidence declines the trial court's offer to caution the jury

about the limited utility of that evidence, the objecting party is

in a perilously poor position to complain, after the fact, that

the evidence was unduly prejudicial. See United States v. Walter,

434 F.3d 30, 35 (1st Cir. 2006); United States v. Cintolo, 818

F.2d 980, 999 (1st Cir. 1987); Dente v. Riddell, Inc., 664 F.2d 1,

6 n.5 (1st Cir. 1981). So it is here.

We add a coda. Common sense suggests that MAZ's claim

of prejudice is severely undermined by the jury's finding that the

process undertaken by the directors in structuring the merger was

not entirely fair. This finding is a telltale sign that, rather

than succumbing to an unstated "no harm, no foul" argument, the

jury found a foul and called it.

- 46 -
 To say more about the challenged evidentiary ruling

would be to paint the lily. We conclude that the ruling was not

an abuse of the district court's broad discretion. It follows,

therefore, that MAZ's attack on the denial of its new-trial motion

is without force.

IV. CONCLUSION

We need go no further. For the reasons elucidated above,

the judgment of the district court is

Affirmed. Two-thirds costs shall be taxed in favor of the

plaintiff.

- 47 -