Opinion
No. 12–P–285.
2012-11-19
Rick CLAY, administrator, & another v. J.L. HAMMETT COMPANY & others.
By the Court (GRASSO, FECTEAU & AGNES, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiffs, administrator and trustee of the respective estates of two minority shareholders (George R. Clay, II, and Judith Warren Bartos) of J.L. Hammett & Company (Hammett), a closely held corporation, brought this shareholder derivative action against Richmond Y. Holden, Jr. (Richmond), Jeffrey Holden (Jeffrey), Carl E. Olson, and Alvin Dubin, in their various capacities as officers, directors, and majority shareholders of Hammett. The plaintiffs contend that the defendants breached a fiduciary duty to Hammett and its minority shareholders in connection with the sale of a significant portion of Hammett's business to School Specialty, Inc. (SSI). More particularly, they assert that the defendants failed to disclose that (1) the $81 million sale price included payments of approximately $2.75 million to Richmond and Jeffrey for a five-year noncompetition agreement, and (2) prior to the shareholder vote on the sale, the board voted to pay bonuses of over $4 million to the individual defendants. The plaintiffs maintain that through these breaches of fiduciary duty the individual defendants diverted to themselves monies that rightfully belong to Hammett and its shareholders. A Superior Court judge granted the defendants summary judgment, and the plaintiffs appeal. We affirm, substantially for the reasons in the judge's well-reasoned memorandum of decision. 1. The noncompetition agreement. On the summary judgment record, the judge concluded that the statute of limitations barred the claim of breach of fiduciary duty predicated upon a failure to disclose the noncompetition agreement payments. We discern no error in that determination. Viewed in the light most favorable to the plaintiffs, the summary judgment record establishes that there is no disputed issue of material fact and the defendants are entitled to judgment as matter of law. See Yakubowicz v. Paramount Pictures Corp., 404 Mass. 624, 626 (1989); Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991).
In November, 2000, Clay and Bartos were on actual notice, both written and oral, of facts sufficient to inform them of the existence and amount of the noncompetition payments to Richmond and Jeffrey. Accordingly, the plaintiffs' claim, filed on December 29, 2005, falls outside the three-year limitations period of G.L. c. 260, § 2A. See Houle v. Low, 407 Mass. 810, 812–813 (1990).
On November 6, 2000, Richmond sent a letter to Clay, Bartos, and John Newton, Hammett's three largest minority shareholders, advising them that (1) the sale price was $81.75 million, less transactional expenses, (2) the price included a noncompetition agreement, and (3) “two of [Hammett's] key management personnel” would be paid for agreeing not to compete with SSI for five years.
A balance sheet attached to the letter detailed the sale price as consisting of approximately $78 million to Hammett and $2,748,500 for the noncompetition agreement. Richmond's uncontroverted deposition testimony establishes that he followed up by initiating conversations with Clay and Bartos during which he discussed the existence and amounts of the noncompetition agreement payments to Richmond and Jeffrey. We agree with the judge that no genuine issue of material fact arises from the bare contention that details in the summary judgment record cast doubt on the accuracy of Richmond's memory of his conversations with Clay and Bartos. “When a motion for summary judgment is made and properly supported, the non-moving party may not simply rest on pleadings, but his response, by affidavits or as otherwise provided in [ Mass.R.Civ.P. 56, 365 Mass. 824 (1974) ], must set forth specific facts showing that there is a genuine issue for trial.... Conflicts in the summary judgment materials and all logically permissible inferences are made in the motion opponent's favor, ... but mere assertions of the existence of disputed facts without evidentiary support cannot defeat the summary judgment motion.” Bergendahl v. Massachusetts Elec. Co., 45 Mass.App.Ct. 715, 718–719 (1998) (quotations and citations omitted). The mere hope that the fact finder might disbelieve Richmond's testimony that he discussed the noncompetition payments with Clay and Bartos because he did not have a similar conversation with John Newton does not create a genuine issue of material fact. See LaLonde v. Eissner, 405 Mass. 207, 209 (1989) (nonmoving party cannot rest on pleadings and mere assertions of disputed facts).
There is no dispute that a noncompetition agreement with Richmond and Jeffrey was a sine qua non of SSI's purchase of Hammett's assets. Moreover, the amount of the noncompetition payments was calculated by SSI based upon its own formula.
Because the statute of limitations bars the noncompetition payments claim, we need not address the defendants' argument that the noncompetition payments are not a corporate asset of Hammett in any event.
2. The bonus payments. The judge did not err in concluding that the defendants did not breach a fiduciary duty by failing to disclose prior to the shareholders' vote that the board had voted to award the individual defendants bonuses upon completion of the sale to SSI.
The majority interests in a close corporation have great discretion in setting the compensation rates of corporate officers. See Merola v. Exergen Corp., 423 Mass. 461, 464 (1996). We agree with the judge that no facts in the summary judgment record would establish a violation of the business judgment rule. Indeed, the only evidence was that the bonus payments were reasonable. Both the defendants' and the plaintiffs' experts agreed that the bonuses paid to Richmond, Jeffrey, Olson, and Dubin did not exceed amounts customarily paid in connection with corporate transactions of this magnitude. See Charlette v. Charlette Bros. Foundry, Inc., 59 Mass.App.Ct. 34, 43 (2003).
The bonus payments were not a term of the sale.
The plaintiffs' suggestion that prior disclosure of the bonuses may have affected the shareholders' decision to approve the sale is sheer speculation. The plaintiffs have not alleged that the sale was not in the best interests of Hammett or its shareholders. Nor could they reasonably do so given their expert's opinion that the sale was a wise management decision.
Summary judgment affirmed.