Medical Air Technology Corp. v. Marwan Investment, Inc.

United States Court of Appeals
For the First Circuit
____________________
No. 01-2348
MEDICAL AIR TECHNOLOGY CORPORATION,
Plaintiff, Appellant,

v.

MARWAN INVESTMENT, INC.; MARWANI HOLDING COMPANY, N.V.;
MULTIFINANCE HOLDING CORPORATION; AND DR. K. PHILIP RAHBANY,
Defendants, Appellees.
____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]

____________________

Before
Torruella, Circuit Judge,
Coffin, Senior Circuit Judge,
and Lynch, Circuit Judge.

____________________

Louis N. Massery with whom Massery & Gillis, LLP, Albert L.
Farrah Jr., and Corwin & Corwin, LLP were on brief for appellant.
James W. Prendergast with whom Michael G. Bongiorno, Peter J.
Kolovos, Barbara Van Gorder, and Hale and Dorr LLP were on brief
for appellees.
____________________

August 14, 2002
____________________
 LYNCH, Circuit Judge. Medical Air Technology appeals a

judgment rendered after a bench trial involving a closely held

corporation's financial travails and allegations of fiduciary

violations by one of its investors. The plaintiff Medical Air, the

closely held corporation, presents two claims of error: 1) that the

district court applied the wrong legal standard for a shareholder's

fiduciary duty to a closely held corporation; and 2) that the

district court judge improperly found that Medical Air had waived

its right to a jury trial against all of the defendants, and not

just one of the defendants. We affirm the district court's
judgment, because the defendants were not in breach of any

fiduciary duties owed, and because there was no evidence that the
defendants' actions caused the harm that Medical Air suffered. The
reasoning we use in affirming that judgment renders Medical Air's

claim, if any, to a jury trial irrelevant and disposes of all
claims in the case.
I.

Medical Air is a closely held corporation, incorporated
in 1992, which sold air purification equipment to medical
facilities. In search of financing, Medical Air executed an

agreement in January 1996 with Multifinance Holding Company
("MFH"). MFH used two related holding companies, Marwan Investment
and Marwani Holding Company, to structure the deal. Dr. Kalil

Philip Rahbany was the President of MFH and an agent of Marwan
Investment and Marwani Holding.

2
 The agreement resulted in a total of $1.375 million in

funding for Medical Air: a $625,000 loan from Marwan Investment and

a $750,000 purchase of preferred stock by Marwani Holding. Medical
Air signed an Investment and Stockholders Agreement, a Secured

Promissory Note for the loan, and a Security Agreement. It also

amended its Articles of Organization. The Security Agreement was
executed by Medical Air and Marwan Investment only and served to

secure the loan from Marwan Investment. It contained a jury

waiver, which provided that:

Grantor [Medical Air] and Marwan hereby waive their
respective rights to a jury trial of any claim or cause
of action based upon or arising out of this Security
Agreement, the Investment and Stockholders Agreement or
any other agreement evidencing, securing, or otherwise
executed in connection with any Obligations.

The Security Agreement defines "Obligations" as:

any and all indebtedness, obligations, agreements and
liabilities of either Grantor to Marwan including,
without limitation, all indebtedness and obligations of
Grantor under the Investment and Stockholders Agreement,
the Notes executed pursuant thereto, and any other
indebtedness, obligations, agreements and liabilities of
Grantor to Marwan of every kind and description, direct
or indirect, absolute or contingent, due or to become
due, regardless of how they arose or were acquired, now
existing or hereafter arising.

MFH and Medical Air also entered into a Consulting Agreement, under

which MFH would provide specified consulting services to Medical

Air for the fee of $4,000 a month. Medical Air's President, Frank

Paradise, took the lead in negotiating the deal. Medical Air was

represented by counsel in the negotiations and the drafting of the

investment agreements, as were the defendants.

3
 Within a few months, the relationship had soured. In

May, 1996, Medical Air failed to meet the minimum net worth and net

working capital requirements to which it had agreed in the
Investment and Stockholders Agreement. The Investment and

Stockholders Agreement specified that if Medical Air defaulted on

these terms, then Marwan Investment could accelerate the loan,
making it immediately payable, and Marwani Holding could

immediately seek to redeem its stock. If Medical Air failed to

redeem the stock within six months, under the amended Articles of

Organization, its Board of Directors would double in size plus one,

and Marwani Holding could appoint the new Board members. Thus, if

the stock was not redeemed after default, control of Medical Air

would shift to Marwani Holding.
Medical Air attempted to obtain the defendants'

permission to issue additional stock in the hope that increased

funding would allow it to expand its production capacity to take
advantage of some inchoate sales opportunities. The defendants

opposed this plan, fearing it would dilute their interest in the

company. Medical Air then presented the defendants with the

possibility of a buy-out by an outside investor, but the defendants

were not interested.

Instead, between July 8 and August 15, 1996, the

defendants sent three separate notices of default to Medical Air

and threatened litigation. Efforts were made to restructure the

business, but these were unsuccessful. In the August 15 notice,

Marwan Investment exercised its right to demand acceleration of the

4
loan and, the following month, Marwani Holding requested that

Medical Air redeem its stock. In response, Medical Air began to

look for a new investor to buy out the defendants. During this
time, the defendants chose not to exercise their security rights

against Medical Air, waiting to see if Medical Air could secure new

funding. The parties agree that, by the fall of 1996, Medical Air
was out of money to fill orders and, to put it mildly, not doing

well.

A company called Nortek, Inc., expressed some interest in

a merger with Medical Air. On November 8, 1996, Nortek and Medical

Air signed a non-binding letter of intent, which proposed that

Medical Air's shareholders would receive 500,000 shares of Nortek

common stock, worth about seven to ten million dollars. Nortek
reserved decision on a final purchase price for Medical Air until

it saw whether Medical Air could meet its sales projections for the

fourth quarter of 1996. Medical Air quickly scheduled a
shareholders' meeting for January 8, 1997. Notices of the meeting

and proxy were sent to Medical Air shareholders on December 19,

1996.

On November 19, after receiving Nortek's letter of

intent, Rahbany requested from Medical Air the due diligence

material provided to Nortek. Under the Investment and Shareholders

Agreement, Marwani was entitled to receive any reasonably requested

information within five business days. Rahbany says he was

particularly interested in any financial forecasts Medical Air had

made, because he wanted to assess whether Nortek's interest in

5
Medical Air had a realistic basis. This concern was not unfounded;

at trial, Medical Air's financial adviser testified that he warned

Medical Air that, once Nortek had seen the due diligence materials,
it would attempt to negotiate a lower purchase price.

Rahbany says he repeatedly requested the information over

two months, but never received copies of what had been provided to
Nortek. Medical Air, in turn, was "reluctant to produce the

documents because" corporate officials felt that the defendants

were "going fishing" for evidence for their litigation in the

default suit. Medical Air also asked the defendants to identify

the specific items they wanted, and the reasons for each. The

defendants refused, and reiterated their request for all the due

diligence documents. At Medical Air's request, the defendants
signed a non-disclosure agreement, agreeing not to disclose any

information about the proposed merger.

Medical Air says that it supplied Rahbany with the
information that it judged to be necessary for Rahbany's review of

the proposed deal, including a listing of the due diligence

materials (but not the materials themselves). Medical Air's CEO

testified that he did not recall if he ever supplied the defendants

with the fourth quarter sales projections provided to Nortek.

Medical Air's financial adviser who worked on the merger deal

testified that he never provided the defendants with the due

diligence materials.

On December 31, 1996, Medical Air sent a draft merger

agreement and certain other draft documents to shareholders for

6
review. The defendants say that they were not able to assess the

deal in part because the terms, including the purchase price, had

not been finalized at that time. According to the Medical Air
attorney who worked on the deal, merger terms are never final until

the closing, and it is customary for shareholder votes to take

place before the merger documents are finalized. The defendants
also say that they were unable to assess the viability of the deal

because Medical Air's fourth quarter financial results were not yet

available. The defendants had certain other problems with the

draft documents: the draft merger agreement stated that Marwan

Investment's loan would be repaid at the original interest rate,

rather than the default interest rate triggered by Medical Air's

May 1996 default (a difference of less than $25,000); the shares
that Marwani Holding would receive in the proposed merger would not

be immediately saleable; and a portion of the shares would be

subject to loss if the warranties that Medical Air made in the
merger proved to be false. Finally, the draft merger failed to

give Marwani Holding preferred shareholder rights, although Medical

Air's amended Articles of Organization stated that any merger would

make "appropriate provisions" to provide the same privileges to

preferred stockholders "as nearly as may be, with respect to any

shares of stock or securities" received in a merger.

Five days before the scheduled vote, the parties met to

discuss the proposed merger. At that meeting, the defendants asked

for five pieces of information: a statement from Nortek that due

diligence was satisfactory; a patent assignment release; an

7
explanation of how the default loan interest rate would be dealt

with; a copy of the November financial statements; and a valuation

of the company. Medical Air says it provided the November
financial statements, and a valuation of the defendants' stock

under the proposed merger plan (between $1.4 and $1.8 million) to

the defendants' counsel on the following day. Rahbany says he was
not given sufficient information to determine if that valuation was

a credible number, and says that he never received the November

financial statements. At that time, the December financial

statements were not yet ready. Rahbany admitted at trial that he

never reviewed the public records of Nortek to try to assess the

basis for Nortek's interest in Medical Air.

Medical Air failed to meet its fourth quarter 1996
projections; it had projected sales of $750,000 for the quarter,

but realized only $236,000. Medical Air blames this failure on its

problems with the defendants, which it said were distracting its
principal officers from business and demoralizing its sales force.

A day or two before the vote, Medical Air's president,

Frank Paradise, was told by an associate of his that Marwani

planned to vote against the deal. Medical Air says that, as a

result of learning that Marwani intended to vote against the deal,

it reopened negotiations with Nortek on the day before the

scheduled vote. The memory of Nortek's representative was that the

negotiations were reopened because Medical Air had failed to meet

its fourth quarter projections.

8
 At the January 8 vote, Marwani Holding voted against the

merger. All other shareholders voted for the merger. Marwani

Holding, holding almost 15% of the shares, was able to single-
handedly defeat the merger because Nortek, as part of the proposed

merger agreement, had required a minimum of 95% stockholder

agreement. Still, the terms of the Investment and Stockholders
Agreement appeared to allow Medical Air to proceed with a merger

without the defendants' approval if the Medical Air Board of

Directors certified that the purchase price met a certain

"qualifying price" defined in the Agreement. This was never done.1

Rahbany testified that he voted against the merger

because

I wanted at the same time to know how viable, to find the
basis, because I had a fiduciary responsibility to cast
a vote, and I had to have a reasonable basis for my
action. And when you don't know what you're doing, you
don't do anything.

He also testified that he voted against the deal because he did not

think that the deal was viable. He admitted that one of the

purposes of his vote was to advance the purposes of Marwan
Investment, but stated that he "had in mind the multiple entities
that [he] represented all the time and also the separateness all

the time." After the shareholders' meeting, Marwani's attorney,
who tendered the proxy vote, told Medical Air's attorney that the

1
Rahbany testified that one of the reasons justifying his
suspicions of the deal was Medical Air's failure to certify the
purchase price, although he did not voice that suspicion to Medical
Air at the time.

9
Medical Air principals would make a lot of money from the proposed

merger, while Rahbany was coming up short.

Medical Air and Nortek continued negotiations, and later
in January 1997 Nortek signed a second letter of intent offering

250,000 shares, while providing that the purchase price would not

exceed $6.25 million. The defendants, for their part, continued to
request more information. The merger ultimately did not go

through, and Medical Air blames this on the legal problems caused

by the defendants. Medical Air does not argue, however, that the

defendants violated any fiduciary duty with respect to their

actions following the January 8 vote.

II.

In April 1997, Medical Air filed a diversity suit in the
District of Massachusetts, seeking a declaration that it was not in

default to the defendants, an injunction against the sale of its

assets, and damages for breach of contract, negligence and other
claims based on Marwani Holding's vote against the merger. On

January 26, 1998, the district court found that, as of May 1996,

Medical Air was in default of its responsibilities under the

Investment and Stockholders Agreement, and permitted Marwan

Investment to sell Medical Air's assets. Medical Air Tech. Corp.

v. Marwan Inv., Inc., No. 97-10764-JLT (D. Mass. Jan. 26, 1998).

Medical Air does not appeal this judgment.

The defendants did not immediately enforce their security

rights against Medical Air; they say they were waiting to see if

Medical Air could find a way to pull itself out of its financial

10
hole. In August 1998, Marwan Investment began foreclosure

proceedings against Medical Air. At public auction in November

1998, Marwan Investment bought all of Medical Air's remaining
assets with a credit bid of $150,000. Marwan says Medical Air

still owed a debt of $1,015,236 to Marwan on the 1996 loan. The

defendants then moved for a dismissal of Medical Air's case,
arguing that their foreclosure purchase had included Medical Air's

rights in this case. The district court denied that motion on June

22, 1999. It also denied a motion by Medical Air's shareholders to

intervene.

On August 10, 2000, the defendants filed a motion to

strike Medical Air's jury demand. On January 12, 2001, the court

heard argument on the jury waiver issue. Medical Air's counsel
argued that when Medical Air signed the Security Agreement it did

not understand that it was waiving jury trial, but he conceded that

the Security Agreement effected a valid waiver of the right to jury
with respect to Marwan Investment. Nonetheless, he argued that

Medical Air had not waived jury trial for any of the other

defendants. The district court judge expressed concern about the

feasibility of having a bench trial for one defendant and a

simultaneous jury trial for the others. The defendants argued that

the plaintiff had presented a claim under Mass. Gen. L. ch. 93A,

which could not be considered by a jury, and so the judge "would

have to make findings that would be the mirror findings of" the

jury findings. The court did not conduct an evidentiary hearing

(none had been requested), but both parties had submitted

11
affidavits. The court allowed the motion to strike the jury demand

without issuing a written order explaining the basis for its

decision. However, it appears that the trial judge believed that,
in a case arising out of a single transaction and presenting claims

against multiple defendants, a waiver against one was a waiver

against all.2
After the court ruled on the defendants' summary judgment

motion, three of Medical Air's claims remained for trial: 1) breach

of contract and of the implied covenant of good faith and fair

dealing as to MFH and Marwani Holding; 2) breach of fiduciary duty

as to Marwani Holding; and 3) tortious interference with

contractual and business relations as to all the defendants.

At the conclusion of the four day bench trial, the
district court ruled for the defendants on each of Medical Air's

remaining claims and entered judgment in the amount of $1,015,236,

plus post-trial interest, for Marwan Investment on its counterclaim

2
The court initially noted, "If I understand correctly,
regardless of whether you think -- you talk in terms of integrated
documents or anything else, it is very, very clear that the
plaintiff waived jury; is that right?" Medical Air's counsel
responded by arguing that the only waiver was in the Security
Agreement, and it applied only to Marwan Investment. The judge
then said:
But you did waive. With respect to this case, you waived
jury.
. . .
Do you know of any precedent where you can waive with respect
to one defendant and not with respect to another? I have
never tried a case like that. I would not know how to preside.
. . . I am just talking about within the cast, the traditional
cast, of a transaction, one plaintiff, four people, some
actual signatory, some by inference, perhaps, but the
plaintiff says, I waive jury. Doesn't that count for
everything?

12
based on Medical Air's default of the Investment Agreement. It

also ruled for the plaintiffs on the defendants' good faith

counterclaim. Med. Air Tech. Corp. v. Marwan Inv., Inc., No. 97-

10764-JLT (D. Mass. Aug. 21, 2001).

III.

On appeal to this court, Medical Air primarily challenges

two of the district court's rulings: its order dismissing the jury

demand, and its ruling that Marwani Holding was not in breach of

its fiduciary duty as a stockholder. The defendants defend the

court's rulings on the grounds given by the district court. They
also argue, in the alternative, that the district court's judgment

should be upheld because Marwan Investment became the assignee of
Medical Air's right to pursue this case when it bought all Medical
Air's assets in foreclosure.

A. Jury Trial

Medical Air argues that the trial judge erred in granting
the defendants' motion to strike Medical Air's jury demand as to

its claims against Dr. Rahbany, MFH, and Marwani Holding, because
only Marwan Investment was party to the Security Agreement which
contained the jury waiver.

The confusion on this issue evident in the record leads
us to review basic principles. There is a presumption against
denying a jury trial based on waiver, and waivers must be strictly

construed.3 Aetna Ins. Co. v. Kennedy ex rel. Bogash, 301 U.S.

3
The circuits are currently split on the question of which
party bears the burden of proof as to whether a contractual jury

13
389, 393 (1937) ("[A]s the right of jury trial is fundamental,

courts indulge every reasonable presumption against waiver.");

Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1166
n.21 (9th Cir. 1996). In a diversity jurisdiction suit, the

enforcement of a jury waiver is a question of federal, not state,

law. See Simler v. Conner, 372 U.S. 221, 222 (1963).

In general, a contractual waiver binds only the parties

who sign the contract. See EEOC v. Waffle House, Inc., 122 S. Ct.

754, 764 (2002) ("It goes without saying that a contract cannot

bind a nonparty."). In Waffle House, the Supreme Court held that

the EEOC was not bound by an employer-employee contractual

arbitration agreement, reasoning that "[a]bsent some ambiguity in

the agreement, . . . it is the language of the contract that
defines the scope of disputes subject to arbitration," and

therefore even the federal policy favoring arbitration does not

"authorize[] a court to compel arbitration . . . by any parties .
. . that are not already covered in the agreement." Id. at 762.

There are some exceptions to this rule. For instance,

some courts have applied a theory of equitable estoppel for suits

against non-signatories arising out of the contract itself,

trial waiver was knowing and voluntary. See Pierce v. Atchison
Topeka & Santa Fe Ry. Co., 110 F.3d 431, 435 n.4 (7th Cir. 1997)
(collecting cases); Hulsey v. West, 966 F.2d 579, 581 (10th Cir.
1992). We have not yet ruled on this point, although a district
court within this circuit has held that the party seeking to
enforce the waiver bears the burden. See Luis Acosta, Inc. v.
Citibank, N.A., 920 F. Supp. 15, 18 (D.P.R. 1996). In the
analogous situation of a release of claims against an employer, we
have held that the party seeking to enforce the release bears the
burden of proof. See Melanson v. Browning-Ferris Indus., 281 F.3d
272, 276 (1st Cir. 2002). We need not resolve the issue here.

14
reasoning that the party seeking the benefit of a contract could

not refuse to be bound by a clause contained within it. E.g.,

Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527-31
(5th Cir.), cert. denied, 531 U.S. 1013 (2000); MS Dealer Serv.

Corp. v. Franklin, 177 F.3d 942, 947-48 (11th Cir. 1999); Hughes

Masonry Co. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836,
841 & n.9 (7th Cir. 1981).

In general, though, we look to the plain language of the

contract's jury waiver to determine whether it unambiguously covers

the claims asserted. In cases where the contractual language is

ambiguous, simultaneously executed documents may be relevant as a

matter of contractual interpretation. In Massachusetts, "if the

parties execute two or more documents, with a manifested intent
that the documents together express their entire agreement, a court

reads the documents together, rather than construing each as if it

stood alone." Donoghue v. IBC USA (Publ'ns), Inc., 70 F.3d 206,

212 (1st Cir. 1995); see also FDIC v. Singh, 977 F.2d 18, 21-22

(1st Cir. 1992); Chase Comm. Corp. v. Owen, 32 Mass. App. Ct. 248,

588 N.E.2d 705, 707 (1992); cf. Paracor Fin., 96 F.3d at 1165

(holding that this is "a principle of interpretation [which] does

not mean that contemporaneously executed documents somehow become

a single unified contract binding all signatories to all

provisions").

Even once it is determined that a contractual jury waiver

clause does encompass the asserted claims, courts will not enforce

the jury waiver unless it was entered into knowingly and

15
voluntarily. See Seaboard Lumber Co. v. United States, 903 F.2d

1560, 1563 (Fed. Cir. 1990); Telum, Inc. v. E.F. Hutton Credit

Corp., 859 F.2d 835, 837 (10th Cir. 1988) (jury waiver may not be
fraudulently induced); K.M.C. Co. v. Irving Tr. Co., 757 F.2d 752,

755-56 (6th Cir. 1985). In cases such as this, where the jury

waiver was part of a separate contract, signed only by certain
parties to the larger transaction, non-signatory parties seeking

enforcement of the waiver may have a more difficult task in showing

that the waiver was voluntary and knowing. This is, however, a

fact-based inquiry.4 See Smart v. Gillette Co. Long-Term

Disability Plan, 70 F.3d 173, 182 (1st Cir. 1995).

Medical Air has conceded that it made a valid jury waiver

with regards to all claims against Marwan Investment. The record
is sparse as to the basis for the trial court's ruling. We do not,

though, need to decide the issue. As we hold below, no reasonable

jury could find liability for breach of fiduciary duty against
Marwani Holding nor a causal link between Marwani Holding's vote at

the January 8 board meeting and the failure of the proposed merger

with Nortek.

4
In analogous situations we have looked to the "totality
of the circumstances," including factors such as the waiving
party's education and business experience, the respective roles of
the parties in determining the terms of the waiver, the clarity of
the agreement, the amount of time the waiving party had to consider
the waiver, whether the waiving party was represented by counsel,
and the consideration offered for the waiver, to determine if the
waiver was knowing and voluntary. Melanson, 281 F.3d at 276 & n.4
(waiver of Title VII rights through release of claims against
employer); Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d
173, 181-82 (1st Cir. 1995) (waiver of ERISA pension benefits).

16
 Because the core ruling is correct and none of Medical

Air's claims could survive a motion for judgment as a matter of

law, the jury waiver question is no longer viable. See Segrets

v. Gillman Knitwear Co., 207 F.3d 56, 64 (1st Cir. 2000); In re N-

500L Cases, 691 F.3d 15, 25 (1st Cir. 1982). See generally 9 C.

Wright & A. Miller, Federal Practice and Procedure § 2322 n.6 (2d
ed. 1995 & Supp. 2002) (collecting cases).

B. Fiduciary Duty

1. Alleged Breach of Duty

Under Massachusetts law, shareholders in a close

corporation owe a fiduciary duty of "utmost good faith and

loyalty." Zimmerman v. Bogoff, 402 Mass. 650, 524 N.E.2d 849, 853

(1988) (quoting Donahue v. Rodd Electrotype Co. of New England, 367
Mass. 578, 328 N.E.2d 505, 515 (1975)) (internal quotation marks

omitted). This is a higher standard than a simple "good faith and

inherent fairness" standard. Donahue, 328 N.E.2d at 515-16. The
Massachusetts Supreme Judicial Court (SJC) has articulated a two-

part test for determining if this fiduciary duty has been violated.
First, the defendant must show a legitimate business purpose for

its action that allegedly is a breach. If the defendant makes such

a showing, the burden shifts to the plaintiff to show that "the

proffered legitimate objective could have been achieved through a

less harmful, reasonably practicable, alternative mode of action."

Zimmerman, 524 N.E.2d at 853. Then the court "must weigh the

legitimate business purpose, if any, against the practicability of

a less harmful alternative." Wilkes v. Springside Nursing Home,

17
370 Mass. 842, 353 N.E.2d 657, 663 (1976). In applying this test,

courts must be sure not to "unduly hamper . . . effectiveness in

managing the corporation in the best interests of all concerned."
Id. Moreover, "mere errors of judgment" do not constitute a

fiduciary breach. Spiegel v. Beacon Participations, 297 Mass. 398,

8 N.E.2d 895, 904 (1937).
Donahue itself involved an attempt by majority

stockholders to freeze out minority shareholders. 328 N.E.2d at

509-11. See generally Peter M. Rosenblum, Corporate Fiduciary

Duties in Massachusetts and Delaware, in How to Incorporate and

Counsel a Business (Massachusetts Continuing Legal Education, Inc.

1999). By contrast, this case involves actions by 15% minority

shareholders. Massachusetts law is clear that minority
shareholders in close corporations also have fiduciary

responsibilities. See A.W. Chesterton Co. v. Chesterton, 128 F.3d

1, 5-6 (1st Cir. 1997); Zimmerman, 524 N.E.2d at 853; Donahue, 328
N.E.2d at 517; Smith v. Atl. Props., Inc., 12 Mass. App. Ct. 201,

422 N.E.2d 798, 801-02 (1981). Chesterton and Smith involved

situations in which unilateral action by minority shareholders

would result in dire tax consequences to the majority shareholders.

See A.W. Chesterton Co., 128 F.3d at 3; Smith, 422 N.E.2d at 800.

Further, because the financial obligations were owed to the

government, there was no market mechanism to determine the

consequences of the action. In that sense, the minority

shareholders had effective control over one aspect of corporate

finances. Here, by contrast, the defendants did not inherently

18
have effective control. Their 15% was needed only because the

outside purchasers set as a condition of sale that 95% of the

shareholders approve the merger. The Donahue rule itself involves
a balancing of legitimate interests, and the scope of the duties

owed may depend, in part, on context. See Zimmerman, 524 N.E.2d at

853 ("[T]he Donahue remedy is not intended to place a strait jacket
on legitimate corporate activity.")

The district court here found that "[l]acking th[e]

information [concerning the basis for the merger, the final terms

of the merger, or the price that would be paid], Marwani certainly

had a legitimate business reason for voting against the merger"

and, further, that Medical Air's refusal to provide the requested

information "left Marwani with no choice but to vote against
merger." The district court then found that the only alternative

advanced by Medical Air was for Marwani simply to vote for the

Nortek merger, an alternative that totally failed to address the
problems with the deal itself. This showing does not meet the

plaintiff's burden.

Medical Air argues that the district judge improperly

construed the Massachusetts law governing fiduciary duty in closely

held relationships by holding that Marwani Holding's own business

interests could be a proper motivating factor for the vote. It

argues that Marwani's vote against the merger was not motivated by

legitimate business interests, saying that the vote was really

motivated by the defendants' own self-interest -- specifically,

that Marwani wanted more of the proceeds of the merger to go to

19
Marwan, rather than the Medical Air principals. It says that

Marwani's vote against the merger was intended to pave the way for

Marwan's foreclosure of Medical Air's assets, given that Medical
Air's financial situation was so desperate in January 1997 that the

merger was the only way to salvage the business. Medical Air

relies heavily on Rahbany's testimony admitting that he did take
Marwan Investment's and Marwani Holding's interests into

consideration in his decision. It also relies on the statement

that Marwani Holding's counsel allegedly made after the January 8

vote, complaining that Rahbany would not make enough money out of

the proposed deal.

Medical Air mischaracterizes the trial court's holding.

The trial court held that Marwani Holding had a legitimate purpose
in voting against the merger when it had not been provided material

information about the merger and perceived a risk that the proposed

merger was made of gossamer. That legitimate purpose is not
negated if Marwani Holding's vote also coincided with its self-

interest.

We reject Medical Air's argument that a minority

shareholder may never, under the Donahue rule, take its own

interest into account in deciding its vote. Such an argument is

both unrealistic and too biased. The SJC has observed that

stockholders in a close corporation "may not act out of avarice,

expediency, or self-interest in derogation of their duty of loyalty

to the other stockholders and to the corporation." Blank v.

Chelmsford OB/Gyn, P.C., 420 Mass. 404, 649 N.E.2d 1102, 1105

20
(1995) (emphasis added); see also Donahue, 328 N.E.2d at 515 (using

same language). But self-interest may be a proper motive for a

stockholder's actions, so long as that interest does not result in
acts in derogation of the stockholder's fiduciary duty. The SJC

has held that majority stockholders "have certain rights to what

has been termed 'selfish ownership' in the corporation which should
be balanced against the concept of their fiduciary obligation."

Wilkes, 353 N.E.2d at 663. We think that principle extends, at

least in part, to minority stockholders, although their interests

are somewhat different in character. See A.W. Chesterton Co., 128

F.3d at 7 (noting that minority stockholders may control some

aspects of a corporation but not others). Admittedly, there may be

tensions between the two types of interests -- loyalty to the
corporation and selfish ownership. Difficult cases will arise

where the dividing line is not clear. This is not one of those

cases.
The district court correctly found that Marwani Holding

had shown a legitimate business rationale for the vote against the

merger. To begin with, Marwani Holding did lack material

information about the proposed merger and Medical Air had failed to

provide Marwani Holding with the requested due diligence materials.

Marwani Holding also had a suspicion, reasonable in context, that

the deal was based on unrealistic assumptions that would ultimately

doom it, and that it served only as a distraction from the real

problems facing Medical Air. This suspicion was well-founded;

Medical Air's CEO admitted at trial that the fourth quarter sales

21
estimates for 1996 provided to Nortek were above what Medical Air

had ever accomplished before and far exceeded its actual fourth

quarter sales results. These reasons more than suffice to show a
legitimate business reason for Marwani's vote.

Upon this showing, the burden shifted to Medical Air to

show that there was "a less harmful, reasonably practicable,
alternative mode of action" other than the vote against the merger.

Medical Air has not made any such showing. The district court

found that Medical Air's proposed alternative -- that Marwani could

have simply voted for the merger -- is not a reasonable and

practicable alternative, given Marwani's legitimate concerns about

what form the deal would ultimately take, or whether the whole deal

was simply a chimera. Its finding was compelled by the evidence.
2. Causation

The defendants argue in the alternative that, even if

Marwani Holding had violated a fiduciary duty in voting against the
merger, it was not the cause of the merger's failure. We agree.

Nortek's CEO testified at trial (through deposition) that after

Nortek saw the fourth quarter sales results, it decided that it

should pay less than was offered in the original letter of intent

and reopened negotiations with Medical Air. The renegotiated offer

from Nortek, as expressed in the second letter of intent, provided

only half what was offered in the deal before the Board at the

January 8 vote. It is clear that Nortek was not willing to go

through with the terms of the earlier proposed merger put before

the Board that Marwani voted against. Even if Marwani Holding had

22
voted for the proposed merger, it would have made no difference.

Medical Air still would have been in the same position as it was

after the January 8 vote, negotiating new terms with Nortek. No
reasonable jury could find that Marwani Holding's vote was the

proximate cause of the demise of the proposed Nortek merger.

C. Other Claims

The plaintiff's other claims are similarly lacking in

merit. The remaining questions decided by the district court in

the bench trial were: a claim against MFH for breach of the

consulting agreement; a breach of the implied covenant of good

faith and fair dealing against Marwani Holding based on its vote

against the Nortek merger; and tortious interference with

contractual relations against Rahbany, MFH, and Marwani Holding for

their actions with regard to the Nortek merger.5 The latter two

claims must fail, for the same reasons that the fiduciary duty
claim against Marwan Holding fails. Neither Rahbany nor MFH took
any actions with regards to the Nortek deal that were separate from

the actions taken by Marwan Holding, discussed above. Medical Air
has not presented any evidence to indicate that these actions,
rather than Medical Air's inability to meet fourth quarter sales

projections, caused the proposed merger before the Board on January
8 to fail. Without causation, there can be no claim for tortious
interference, see United Truck Leasing Corp. v. Geltman, 406 Mass.

5
Medical Air did not appeal the merits of the district
court's rulings on these claims. We consider the question only for
the purpose of Medical Air's appeal of the denial of a jury trial
on all of its claims against MFH, Rahbany and Marwani Holding.

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811, 551 N.E.2d 20, 21 (1990), or for a breach of the implied

covenant of good faith and fair dealing, see Druker v. Roland Wm.

Jutras Assocs., 370 Mass. 383, 348 N.E.2d 763, 765 (1976) ("'[I]n
every contract there is an implied covenant [of good faith and fair

dealing] that neither party shall do anything which will have the

effect of destroying or injuring the right of the other party to
receive the fruits of the contract . . . .'") (quoting Uproar Co.

v. Nat'l Broad. Co., 81 F.2d 373, 377 (1st Cir. 1936));

MacGillivary v. W. Dana Bartlett Ins. Agency of Lexington, Inc., 14

Mass. App. Ct. 52, 436 N.E.2d 964, 967 (1982).

That leaves only Medical Air's claim that MFH violated

its contractual obligations under the consulting agreement. The

district court outlined the alleged claim well in its opinion. The

consulting agreement required MFH to provide "financial and
strategic corporate planning services" to Medical Air "including,
by way of example: (i) assisting [Medical Air] in attracting a new

senior leader; (ii) evaluating and helping source transactions such
as acquisitions, joint ventures and public offerings; and (iii)
assisting [Medical Air] in developing financial and operating

reporting systems." Medical Air's CEO, Stephen Hague, testified

that MFH did nothing to help attract a new lender or to develop

financial and operating reporting systems. However, Hague also

testified that he met on a monthly basis for a few hours with the
consultant provided by MFH, as well as speaking with him on the
phone for a few hours each month. During these meetings, the

24
consultant reviewed the operation of the company and proposals for

the company. According to Hague, the consultant encouraged Medical

Air to expand its sales force rapidly; assisted in putting together
an expansion plan; recommended and outlined the creation of a

business advisory board; and investigated at least one possible

acquisition. The consultant also occasionally interviewed or spoke

with sales representatives. In addition, Medical Air did effect

changes in its accounting procedures during this time period; the

consultant was copied on the relevant documents, but the record is

not clear as to what his level of participation was.

In August 1996, the consultant who had been working with

Medical Air ceased to work for MFH. In September, Medical Air

stopped paying the $4,000 per month consultancy fee. In October

1996, Medical Air met with a new individual that MFH had appointed

to replace the previous consultant, but that was the last service

provided under the consultancy agreement. At this point, Medical

Air was already in default of its obligations under the Investment

and Stockholders Agreement.6
Based on the information provided by Medical Air's CEO,

we doubt that Medical Air has presented enough evidence on this
claim for it to go to a jury. It is undisputed that the MFH
consultant worked with Medical Air throughout the relevant time

period and provided input on the business's development. As the

6
Medical Air did not argue that MFH's breach was based on
the failure to provide ongoing consultancy services after September
1996.

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district court noted, the fact that the MFH consultant did not

achieve all of the goals laid out "by way of example" in the

consulting agreement did not constitute breach, given how quickly
the entire relationship disintegrated and the agreement's lack of

any time frame for achieving these goals.

Regardless of the strength of the claim, however, the

claim is no longer Medical Air's to make. Marwan Investment

purchased all the assets of Medical Air at the foreclosure sale in

November 1998. The description of assets included "all rights,

claims, counterclaims, crossclaims, demands, recoveries and
defenses in connection with or asserted or which may be asserted by

Medical Air in that certain litigation styled Medical Air

Technology Corporation v. Marwan Investment . . . pending in the
United States District Court for the District of Massachusetts."

Under Massachusetts law, claims for breach of contract are
generally assignable.7 Raymer v. Bay State Nat'l Bank, 384 Mass.

310, 424 N.E.2d 515, 518 (1981); see also SAPC, Inc. v. Lotus Dev.

Corp., 921 F.2d 360 (1st Cir. 1990). Although there may be cases

in which public policy concerns merit the creation of an exception
to that rule when the claim has been involuntarily assigned through

a foreclosure sale, this is not such a case. If the claim for

breach of the consulting agreement constituted a defense to the

defendants' claim of default, or if it would have saved Medical Air

7
The defendants have argued that all of Medical Air's
claims are assignable, whether or not they sound in contract. We
need not decide this point, as we have disposed of Medical Air's
other claims on other grounds.

26
as an ongoing concern, than Medical Air should have raised this as

a defense to the defendants' summary judgment motion on the default

claim. Medical Air did not do so, nor did it raise any
contemporaneous objection to the inclusion of its rights in this

matter in the assets foreclosure sale.

Conclusion

The district court's decision is affirmed. No costs are

awarded.

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