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Murphy v. Murphy, 21
Mass. L. Rep. 572, 2006 Mass. Super. LEXIS 530
(Oct. 3, 2006) (Gants, J.) |
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This is a very lengthy decision issued by
Judge Gants after a six day bench trial on Plaintiffs’
claims for breach of fiduciary in connection with the
redemption of shares in the parties’ family businesses.
Plaintiff, in his capacity as trustee of two trusts
which owned shares of the family businesses, alleged
that his sister Sarah breached her fiduciary duty as
co-trustee by redeeming the Trusts’ shares at prices
that were too low. The crux of Plaintiff’s claim was
that Sarah had a conflict of interest: as a director and
officer of the companies, she had an interest in the
companies paying as little as possible for the Trusts’
shares, while as a co-trustee of the Trust (and a
beneficiary) she had an interest in obtaining the
highest price possible. Sarah argued that the Plaintiff
and the other beneficiaries consented to the
redemptions. The Court rejected this argument, finding
that there was only a general agreement that the Trusts’
holdings (which at the time consisted almost entirely of
shares of the companies) should be diversified, but that
no specific agreement had been reached as to the number
of shares to be redeemed or the timing or price of the
redemption.
Although the Court found that the
beneficiaries did not consent to the redemptions, the
Court held, as to certain redemptions, that Sarah had
not breached her fiduciary duties because the price was
fair to the beneficiaries. Plaintiff argued that Sarah
improperly used an appraisal from the prior year in
determining the share redemption price. The Court held
that it was reasonable for Sarah to use the |
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in a
significant delay. Delay would have exposed Sarah to
claims for breach of fiduciary duty for failure to
diversify. In addition, the Trust needed the money to
pay substantial legal bills.
The Court held that Sarah did breach her fiduciary duty
by using the same appraisal (from 1998) to determine the
price of the final redemption, which took place about
two years later. The Court held that the landscape had
changed significantly such that a delay associated with
conducting a new appraisal would not have harmed the
Trust’s beneficiaries.
As to the measure of damages, the Court
held that the proper measure was the difference between
the price established by the 1998 appraisal and the
higher price that would be have been established had an
appraisal been conducted in 2000. The Court rejected
Plaintiff’s claim that the appropriate price was the
price paid for the company’s shares in 2004, finding
that the beneficiaries would have approved redemption at
a 2000 appraisal price had they been presented with that
option.
Finally, the Court found that Sarah’s
sister, although not a trustee of the trust, was liable
for aiding and abetting Sarah’s breach. The Court
applied the well established principle that one who
knows of a breach of fiduciary duty and actively
participates in the breach can be liable to the same
extent as the fiduciary.
This an important read for BLS practitioners, as Judge
Gants methodically analyzes the duties and conduct of
fiduciaries who wear multiple hats.
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