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Murphy v. Murphy,
Docket No. 2004-3937-BLS2, 2006 Mass. Super. Lexis 530
(Sept. 29, 2006) (Gants, J.). |
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The Murphy opinion offers some clear
statements about the procedural and substantive
requirements for a trustee to follow in a conflicted
transaction – i.e., one where the trustee is
standing on both sides of the deal – here as buyer and
seller.
The facts are pretty complicated as the
plaintiff asserted a variety of claims arising out a
series of stock redemptions in a closely held company,
which operated several businesses in Wellesley,
including a hardware and garden center, a lumber
business, a home heating business, and a rental real
estate business.
At the time of the redemptions, one of
the defendants served as both a trustee of a family
trust that was selling stock back to the company, and
simultaneously as a director and officer of the company.
Accordingly, the defendant was in a conflicted position.
In her role as trustee, her duty was to secure the
highest price possible for the stock. In her role as
com-pany officer and director, her duty was to secure
the lowest price. See id. at *41.
There was a series of redemptions over a
relatively long period of time, all based |
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on a single earlier valuation. The
Court held that the trustee should have presented the
proposed redemptions to the disinterested trustee (who
had pretty much abdicated his role). Having failed to do
so, the trustee bore the burden to prove the
transactions were fair to the beneficiaries.
The Court held that the trustee had
carried her burden to prove fairness with respect to all
but the last redemption, by which time circum-stances
had changed sufficiently that the transaction was not
fair because the earlier valuation no longer could be
viewed as accurately reflecting the fair value of the
stock.
The Court did not fix the damages, but held that they
were equal to the difference between what was paid to
the beneficiaries and what would have been fair at the
time of the transaction (as opposed to a much later date
championed by the plaintiff). The Court instructed the
parties to confer to see whether they could stipulate to
a number, or return for a second phase of the trial. The
Murphy decision is useful both for the procedural
and substantive standards to be applied to a fiduciary
in a conflicted transaction.
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