O  T  H  E  R      D  E  C  I  S  I  O  N  S

Boylan v. Boston Sand & Gravel Co., 2009 WL 765404, 25 Mass. L. Rep. 209
(Jan. 23, 2009) (Gants, J.).

In 2007, we reported on Judge Gants’ summary judgment decision in this action, which concerns the three-part test for evaluating the propriety of a decision of a corporation to engage in a transaction with an interested party, for example one of the corporation’s officers or directors. See Houle v. Low, 407 Mass. 810 (1990). Under Houle, a court must determine 1) whether the directors who made the decision were independent, unbiased, and acted in good faith; and, if so, 2) whether the independent directors conducted a thorough and careful analysis; and, if so, 3) whether the decision was contrary to the great weight of the evidence. In his earlier opinion, Judge Gants denied Boston Sand’s motion for summary judgment because the record did not permit the Court to find, as a matter of law, that this test had been met. The Court then conducted a bench trial, and issued its findings and conclusions in this opinion.

In this second opinion, Judge Gants began by addressing a last ditch argument by Boston Sand that the Houle test did not apply. Citing the American Law Institute’s Principles of Corporate Governance, Boston Sand argued that the board’s decision to ratify the lease between the company and an interested board member was a “curative ratification,” which can only be overturned by the plaintiff demonstrating that “the terms of the transaction are so clearly outside the range of reasonableness that the directors who

authorized the transaction could not have reasonably concluded at the time of such authorization that the transaction was fair to the corporation.” Judge Gants rejected this argument, holding that Massachusetts law clearly requires that a decision to ratify an earlier transaction or to dismiss a lawsuit challenging such transaction, must be reviewed under the “heightened standard” of Houle. The Court held that Boston Sand could not avoid the more stringent standard by conveniently assigning this “curative ratification” label to the self-interested transaction.

Judge Gants then proceeded to apply the Houle test and concluded that Boston Sand did not meet its burden of proving that the directors who ratified the lease were independent, unbiased and acted in good faith. The Court found that one of the disinterested directors was a very close friend of the interested director, and therefore was not truly independent. As to the second disinterested director, the Court found his review of the transaction to be wholly deficient, as he in large part relied on information provided by an interested party and did not conduct a thorough or careful review. The Court found that the third disinterested director’s analysis of the transaction was even less rigorous than the second director.

Having failed to meet the Houle test, Boston Sand must demonstrate the substantive fairness of the transaction, which will be determined at a second evidentiary hearing.

Sovereign Bank v. Channel Technologies, Inc., 25 Mass. L. Rep. 269, 2009 WL 884622
(Jan. 12, 2009) (Neel, J.).

A borrower sought to enjoin the bank from foreclosing on commercial property secured by a mortgage on the basis that the bank unreasonably withheld consent to the guarantor’s sale of assets. A sale of assets by the guarantor without the permission of the lender constituted an event of default and the mortgage was silent as to the obligation of the lender to act reasonably in response to a request for consent. Accordingly, the only issue was whether the lender had an implied obligation not to unreasonably withhold consent to the guarantor’s asset sale.

The Court had little difficulty finding in favor of the bank and denying the motion for preliminary injunction. The Court

 analogized this case to landlord-tenant law, where a lease usually requires the tenant to obtain the consent of the landlord to sublet the premises. It is well-settled that in either a commercial or a residential lease, an obligation not to withhold consent unreasonably may not be implied. The Court, therefore, held that the borrower could not demonstrate that it was likely to succeed on its claims against Sovereign, as the mortgage did not contain an express obligation on the part of Sovereign to act reasonably. The Court also held that the borrower could not demonstrate that it would suffer irreparable harm in the absence of an injunction, as the damages were readily quantifiable..