[NOT FOR PUBLICATION]
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1491
PAUL G. GAY,
Plaintiff, Appellant,
v.
ROBERT P. AXLINE, JR., ET AL.,
Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. A. David Mazzone, Senior U.S. District Judge]
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Before
Torruella, Circuit Judge,
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Coffin, Senior Circuit Judge,
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and Boudin, Circuit Judge.
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Gerald H. Abrams for appellant.
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Steven E. Kramer for appellees.
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COFFIN, Senior Circuit Judge. In late 1990, plaintiff Paul
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Gay, founder and president of Plastic Card Systems, Inc., sold
his stock in the company to the defendants, who are PCSI's other
officers and directors. In this securities action, he alleges
that the defendants intentionally failed to disclose a
substantial business prospect for PCSI, causing him to sell his
stock for substantially less than its real value. The district
court, following a bench trial, found no violation of law. We
affirm.
I. Background
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Paul Gay founded PCSI in 1987 and initially was its sole
shareholder, director and officer. Defendant Robert Axline
joined the company, which distributes thermal printing machines
for an Austrian manufacturer,1 as a fifty percent shareholder
and chief executive officer the next year. When the other
defendants became shareholders in 1990, Gay and Axline each
retained 38.5 percent ownership.
In late 1988, PCSI collaborated with FIMA S.p.A., an Italian
company, to form FIMA USA, Inc. (FIMA USA). Gay and Axline each
owned 20 percent of FIMA USA, and FIMA S.p.A. owned 60 percent.
Axline became president of FIMA USA and Gay became executive vice
president. FIMA USA distributed plastic cards, personalization
equipment for credit cards, and other plastic card and metal
plate devices, as well as equipment for producing such cards.
The company served as exclusive marketing agent for PCSI's line
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1 These machines are used for printing on plastic cards.
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of thermal printers, and also marketed a line of embossing
machines for FIMA S.p.A. PCSI and FIMA USA shared the same
premises.
In mid-1990, FIMA S.p.A. ordered Gay's termination as an
officer and director of FIMA USA. Gay remained, however, the
president, a director, and the controlling shareholder of PCSI.
He became entitled to vote the majority of the PCSI shares until
all debt owed by PCSI to him and all debt owed by Axline to PCSI
was paid in full. After his termination from FIMA USA, Gay went
to the office only irregularly and, following a birthday party
for him on October 29, he did not return.
A few days after the party, Gay initiated discussions with
Axline about ending their PCSI relationship. Axline originally
offered to sell his PCSI shares to Gay for about $50,000, their
approximate book value at the time as calculated by Gay with
assistance from PCSI's accountant. The company's assets
consisted virtually entirely of 36 thermal printing machines. It
had no employees, and neither Gay nor Axline placed any value on
possible projects that were in various stages of discussion. In
the course of negotiations, Gay and Axline changed buying/selling
positions and, on about December 12, they agreed that Gay would
receive a total of $50,000 consideration for his shares ($42,000
in book value and $8,000 in loan forgiveness). A closing on this
deal took place on December 20, 1990.
Meanwhile, on November 30, 1990, an inactive FIMA USA
distributor, Dave Campbell, had called the company asking for the
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use of a PCSI machine for a demonstration for a possible sale in
Mexico. In subsequent phone calls early in December, Campbell
explained that a Kodak affiliate in Mexico was bidding on a
project involving plastic voter identification cards. At
Campbell's request, Axline provided a letter detailing FIMA USA's
financial condition and experience with ID cards. FIMA USA sent
Campbell a machine for the demonstration, and a technician who
regularly worked as an independent contractor on PCSI machines
also traveled to Mexico on December 9 to assist. Campbell had
offered to pay for this technical support.
The original indication from Campbell was that the Mexico
project would involve the purchase of 17 or 18 machines. The
number increased to 48 by December 4, and eventually grew to 82.
Although Axline remained in contact with Campbell through
December, he testified that he gave little consideration to the
project because it seemed an unlikely prospect. The
specifications called for processes outside the capability of the
PCSI machines, Kodak was competing with several other contractors
for the job, and PCSI was competing as subcontractor with a large
company (DataCard) whose technology was considered superior to
its own.
The nature of FIMA USA and PCSI's involvement with the
Mexico project changed at the end of December, when Campbell
dropped out as an intermediary and Axline began direct contact
with Kodak. On two occasions in early January, Axline and
another FIMA USA officer, Peter Kline, met with Kodak officials
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in Rochester. After the second meeting, which was held on
January 10, FIMA USA informed its Austrian supplier of the
possibility of a large sale. A contract was signed between Kodak
and the Mexican government on January 14, and defendants
testified that they were informed on January 22 of the Mexican
government's intent to order 82 PCSI machines. The equipment was
shipped between February and April.
Gay subsequently filed this securities action, alleging that
the defendants' failure to tell him about the Mexican project
before the stock closing violated various state and federal laws,
including Section 10(b) of the Securities Exchange Act of 1934,
15 U.S.C. 78j(b), and SEC Rule 10b-5. He claims that, if
defendants had disclosed the deal, he would have waited to sell
his stock, and would have received substantially more for it.
The district court denied a motion for summary judgment
filed by defendants because an affidavit from a former PCSI
employee, Sobieski, suggested that defendants deliberately
withheld from Gay all information about the Mexican project. In
a footnote to its pretrial order, however, the court noted that,
"[a]s stated in Court on January 26, 1993 [the date of the
unrecorded summary judgment hearing], the facts as stated in the
defendant's motion for summary judgment are deemed admitted
except as specifically controverted by the plaintiff." In the
court's view, all that remained to be resolved was the affiant's
credibility, which would lead to a finding of who knew what, and
when, regarding the Mexican project.
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Following a non-jury trial, the court found that the Mexican
project was in such a preliminary stage at the time of the
closing that it was not "material" information that defendants
had an obligation to disclose under either Rule 10b-5 or state
fiduciary duty standards. The court found incredible Sobieski's
testimony that defendants took measures to conceal the project
from Gay. It therefore granted judgment for defendants on all
claims.
On appeal, Gay asserts that the district court's judgment
suffers from both procedural and substantive defects. First, he
argues that the district court improperly considered affidavits
and depositions that were submitted in connection with the
summary judgment motion but were not admitted into evidence at
trial. Second, he contends that the district court improperly
resolved factual disputes at the summary judgment hearing, and
erred in excluding those issues from the trial. Finally, Gay
contests the district court's determination that defendants
violated neither federal securities law nor state fiduciary duty
standards.
II. Procedural Matters
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Gay claims that the district court mishandled this case in
two ways. In our view, these asserted problems, even if error,
neither undermine the court's decision nor require extended
discussion.
A. Depositions and Affidavits.
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The district court stated in its opinion that, in reaching
its decision, it had considered depositions and "the
uncontroverted portions of affidavits" that were submitted in
support of defendants' motion for summary judgment. Gay
complains that these materials were not admitted into evidence at
trial, that they constituted inadmissible hearsay, and that the
court's reliance on them therefore was reversible error.
Gay accepts, however, that an appellate court will not
reverse a trial court in a non-jury case based on the admission
of incompetent evidence unless it appears from the record that
the court relied upon that evidence to make an essential finding
that otherwise would not have been made. See generally Hampton
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School Dist. v. Dobrowolski, 976 F.2d 48, 52-53 (1st Cir. 1992)
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(district court judgment will not be reversed for technical
errors that do not affect substantial rights of the parties);
DaSilva v. American Brands, Inc., 845 F.2d 356, 363 (1st Cir.
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1988) (retrial not required when erroneous findings are not
prejudicial). Gay identifies only a single deposition and a
limited series of findings as problematic.
Scott Pomerantz, the head of the Mexican project for Kodak,
was deposed but did not testify at trial. The district court's
opinion included the following statements about FIMA USA's
prospects early in January:
Pomerantz had not made any decision as to who would
supply the machines if Kodak were awarded the contract.
Kodak was competing with at least two other prime
contractors, and FIMA USA was competing with another
subcontractor, DataCard Corporation, a very large
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competitor with technology considered more suitable for
the project.
Gay contends that these were "critical findings relating to the
state of mind of Kodak and Pomerantz," that they evidently were
drawn from Pomerantz' inadmissible deposition, and that they
unfairly led the court to conclude that PCSI was unlikely to
obtain the Kodak subcontract.
Whether or not the district court considered Pomerantz'
deposition in making these findings is immaterial because
testimony elicited at trial warranted the same inferences.
Axline testified that, at the time he and Kline traveled to
Rochester on January 2, 1990, they knew that they were competing
with DataCard. He stated that he saw DataCard equipment at the
Kodak facility, and was told by Kodak officials that they still
were considering DataCard.
Kline also testified that the Rochester trip on January 2
was for the purpose of demonstrating that the PCSI machine could
perform as well as DataCard's, which apparently was preferred at
that time because it was believed to have better printing
quality. Because Pomerantz was the person with whom Axline and
Kline dealt in Rochester, the court properly could find based on
their testimony that Pomerantz had not yet decided which company
would supply the machines if Kodak won the Mexican contract.
Thus, regardless of the propriety of the court's reliance on
summary judgment depositions and affidavits -- and we make no
ruling on that issue -- no reversible error occurred. The only
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findings that Gay identifies as crucial were otherwise proven
through admissible evidence.
2. Disputed facts at summary judgment
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As noted earlier, see supra at 5, the district court's
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pretrial order stated that all facts contained in defendants'
motion for summary judgment and not specifically controverted
would be deemed admitted. The court, however, did not list any
particular facts as already determined. At the opening of trial,
the court observed that the proceeding was being held "to
conclude the fact finding," and indicated that the remaining
factual dispute concerned Sobieski's testimony; specifically, was
Sobieski telling the truth in charging that the defendants
concealed the Mexico project from Gay knowing that it was a
lucrative opportunity for PCSI.2
Gay claims that, in confining the trial to Sobieski's
credibility, the district court essentially found disputed facts
on the motion for summary judgment, thus improperly denying him a
full hearing on his claims. He points to three issues that he
believes were improperly found at the summary judgment stage:
*DataCard remained in contention to supply the machines for
the Mexican project until mid-January 1991;
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2 Sobieski testified that he had been instructed not to tell
Gay anything about the Mexican project because "there was [a] lot
of money for all to be made in this deal . . . [a]nd he no longer
was a part of the company." He also claimed to have been told to
take various security measures to limit Gay's access to the PCSI
office and warehouse space, such as fixing window blinds so that
Gay could not see in and keeping certain doors locked "in case of
an unannounced visit." Sobieski was fired from PCSI in 1991
because of insubordination and poor job performance.
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*the project was unlikely for FIMA USA and PCSI because the
specifications included processes outside the capability of the
PCSI machines; and
*pricing information was first submitted to Kodak's Mexico
affiliate on January 16, 1991.
We think it unnecessary to explore the proper boundaries of
the district court's authority to resolve these issues following
the summary judgment hearing because any such findings were
revisited fully at trial,3 and Gay was given ample opportunity
to disprove them. During the course of the two-day proceeding,
the district court heard extensive testimony about all aspects of
the Mexican deal from the principals of FIMA USA and PCSI, as
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3 Indeed, it is not clear that the court actually viewed the
facts contested by Gay as having been found before trial. The
court at one point described broadly the matters that needed to
be explored at trial:
Motions for summary judgment . . . were denied because
there was an issue of fact; that is, what Mr. Gay knew
and when did he know it and who told him, and what Mr.
Axline and others knew and what they concealed from Mr.
Gay, if they did, and the role that Mr. Sobieski plays
in this case.
The judge later noted that it was unnecessary to hear testimony
on the background facts concerning Gay's founding of PCSI and his
relationship with the company because "[w]e all know that. That
was undisputed." He went on:
The question now is what happened in November and
December of 1990, what was concealed from Mr. Gay by
Axline and others, and what they said to Mr. Sobieski
about his role.
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well as from the plaintiff and his witnesses. Each of the three
points raised as crucial by Gay was addressed.4
We already have noted evidence identifying DataCard as a
competitor of PCSI's through at least the beginning of January.
See supra at 7-8. Whether that status continued for another week
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or so is of no consequence, since the crucial point of reference
is the December 20th closing. As for the date pricing
information was provided to Kodak, the district court heard ample
testimony explaining that the pricing originally was done through
the distributor Campbell and that FIMA USA first submitted a
price list directly to Kodak on January 16th or 17th. Axline's
testimony at trial also permitted the district court to find
that, regardless of the capability of the PCSI machines to meet
the specifications of the Mexican project as they ultimately were
defined, FIMA USA's principals initially felt the deal was beyond
their range because PCSI's equipment could not accommodate the
Mexican government's desire to include a photograph on the voter
ID card.
In sum, the district court allowed the parties wide scope in
presenting evidence at trial notwithstanding its limited
articulation of the issues that remained to be resolved. We have
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4 Gay has not identified any testimony or other evidence on
these issues that he was barred from presenting as a result of
the district court's pretrial order. Indeed, at the opening of
the trial, Gay's attorney noted his view that, despite the
pretrial order, he viewed the major issues as controverted and
therefore sought to introduce all of his proposed 25 exhibits
into evidence. The court allowed all the exhibits, reserving
ruling on their credibility, relevance and weight.
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no basis for concluding that the court made its factfinding
prematurely on any significant issues. Moreover, at no time
following issuance of the amended pretrial order did Gay
meaningfully seek reconsideration or clarification of the court's
ruling.5 Certainly in these circumstances there was no
reversible error in the court's procedure.
III. Securities Claim
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To prevail with a claim under section 10(b) of the
Securities and Exchange Act, and associated Rule 10b-5, a
plaintiff must prove scienter, a material omission or
misrepresentation by the defendant, reliance and due diligence.
See Milton v. Van Dorn Co., 961 F.2d 965, 969 (1st Cir. 1992);
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Holmes v. Batson, 583 F.2d 542, 551 (1st Cir. 1978). The
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district court in this case reached only the material omission
element. It concluded that the information about the Mexican
project known by the defendants at the time of Gay's December
20th stock closing was not material and that, consequently, their
failure to disclose it was not actionable.
Gay argues that the evidence unequivocally demonstrated that
the information was material, and he attributes the court's
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5 At the end of his pretrial memorandum, following the list
of exhibits to be introduced at trial, Gay noted that the
document was filed in accordance with footnote two of the
district court's amended pretrial order. He then stated:
"Plaintiff objects to the ruling in said footnote and reserves
his rights with respect thereto." A similar statement was made
in another memorandum filed with the court before trial.
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erroneous conclusion at least in part to its mistaken view of
certain critical facts. We agree that the court's opinion
reflects two relevant factual mistakes, see infra at 14, and we
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consequently have reviewed the record and the court's opinion
with particular care. We believe that neither error, nor both in
combination, is sufficiently crucial to undermine the court's
finding on materiality.
The standard used in our circuit for determining whether
undisclosed information is material follows the formulation set
out by the Supreme Court in TSC Industries, Inc. v. Northway,
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Inc., 426 U.S. 438, 449 (1976): "whether there is `a substantial
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likelihood that, under all the circumstances, the omitted fact
would have assumed actual significance in the deliberations of a
reasonable shareholder,'" SEC v. McDonald, 699 F.2d 47, 49 (1st
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Cir. 1983). See Milton, 961 F.2d at 969. As we recently
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emphasized, not every piece of relevant information will be
deemed material:
The mere fact that an investor might find
information interesting or desirable is not sufficient
to satisfy the materiality requirement. Rather,
information is "material" only if its disclosure would
alter the "total mix" of facts available to the
investor and "if there is a substantial likelihood that
a reasonable shareholder would consider it important"
to the investment decision.
Milton, 961 F.2d at 969 (emphasis omitted).
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We further have recognized that if an alleged omission
involves "speculative judgments about future events," id.
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(emphasis omitted), materiality will depend upon "a balancing of
both the indicated probability that the event will occur and the
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anticipated magnitude of the event in light of the totality of
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the company activity," id. (emphasis in original). See also
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McDonald, 699 F.2d at 50. In other words, the fact that
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discussion has begun about a project with a potentially
substantial impact on a company's stock price ordinarily would
not be material if the likelihood of its happening were extremely
remote.
The district court concluded that the defendants were not
required to inform Gay about the Mexican project because, at the
time of the closing, the deal was "extremely uncertain and
contingent in nature." The court noted that both "the
anticipated magnitude of the sale and the probability that it
would occur were both small as of December 20." The court also
deemed significant Gay's lack of interest in other pending PCSI
projects of which he was aware. It observed that Gay consciously
placed no value on these business opportunities in the
negotiations.
The district court's analysis suffers from two factual
flaws. First, its statement that the anticipated magnitude of
the Mexican project as of December 20 was small does not square
with the undisputed evidence that the number of machines needed
had swelled to 48 by early December. This number exceeded PCSI's
inventory. Because the inventory constituted virtually all of
PCSI's assets, the Mexican project's potential impact on the
company's value fairly could be described only as substantial
once the deal encompassed all of the remaining machines.
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Second, in noting Gay's lack of interest in other ongoing
PCSI business dealings, the court singled out a project for
American Express. In fact, PCSI was not involved in that
project. The American Express deal was the subject of testimony
at trial because it was a significant opportunity for FIMA USA,
but it would have had no effect on PCSI's value.
In our view, these errors are not fatal to the district
court's materiality analysis, which rested much more heavily on
the uncertain nature of the Mexican project than on its scope.
That the court erroneously described the project as small may
chip the foundation of its analysis, but the weight of the
probability finding prevents its collapse. See infra at 16-17.
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The mistaken reference to the American Express project likewise
has limited impact. The court cited Gay's failure to inquire
about the progress of that deal as illustrative of his general
attitude toward various ongoing business dealings involving PCSI.
Although Gay argues that the American Express project was unique
because it was so developed and had great potential (and thus was
more similar to the Mexican deal), the district court did not
single out the American Express deal on that basis. It described
American Express as "one of several other projects during the
pre-closing period which were more advanced and more likely to
bear fruit." The finding for which the district court used the
American Express project -- that Gay valued his PCSI stock based
solely on its equipment inventory -- remains supported even
without American Express. See infra at 18.
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Having concluded that the court's errors do not require
reversal of its judgment, we now turn to a more complete review
of its determination that defendants did not violate section
10(b) in failing to disclose what they knew about the Mexican
project before the December 20th closing. Our review, of course,
is only for clear error. See Crellin Technologies, Inc. v.
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Equipmentlease Corp., No. 93-1615, slip op. at 13-15 (1st Cir.
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March 8, 1994) (findings in a bench trial are reviewed with
"considerable solicitude"); Gamma Audio & Video, Inc. v. Ean-
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Chea, 11 F.3d 1106, 1111 (1st Cir. 1993) (factual findings and
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mixed questions of fact and law both reviewed under clearly
erroneous standard).
As indicated above, the district court based its materiality
ruling on two primary determinations -- that the probability of
the sale was small as of December 20th and that Gay had
demonstrated a lack of interest in prospective PCSI projects.
Neither of these can be termed clearly erroneous.
The Mexican project first came to PCSI's attention in the
phone call from Campbell, the distributor, on November 30th. By
the time of the closing, three weeks later, the following events
had occurred: Michael Rochette, an independent contractor who
worked on PCSI machines, had traveled to Mexico at Campbell's
request and expense to participate, with other competitors, in a
demonstration for the Mexican government; also at Campbell's
request, Axline had faxed a letter containing financial and other
background information about FIMA USA to Mexico; Axline had been
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in regular contact with Campbell, from both Campbell's home base
in Canada and from Mexico, throughout December; the number of
machines at stake in the project had increased from an original
estimate of 17 or 18 to at least 48.
There is no evidence that, during this period, Axline or any
other defendant was given reason to believe that FIMA USA had
more than a remote chance of obtaining the Mexican business. The
demonstration in which Rochette participated on about December
10th included three different Kodak proposals (only one involving
PCSI machines) as well as efforts by two other companies. Not
only did Axline and others testify that they believed the PCSI
machines could not perform the work, but there also was
skepticism about Campbell's ability to land a deal in Mexico from
his base in Canada. See, e.g., Testimony of Frank Gubello,
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national service manager for FIMA USA, Tr. II, at 88-89 ("It
sounded kind of fishy to me . . . . [I]t just didn't sound like
it was going to come off."). Axline testified that FIMA USA's
activity in December simply was routine effort to support a
dealer: "It was just another one of those things that come in on
a regular basis which you work on . . . . We gave it very limited
potential. In fact, [we] didn't think much about it."
Nothing cited by the plaintiff, with the exception of
Sobieski's affidavit and testimony, contradicts the defendants'
assertion that the deal appeared to be no more than a long shot
until early January, after Axline and Kline's visits to
Rochester. The district court found Sobieski's testimony to be
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"inherently implausible," and we will not second-guess this
credibility judgment. See Gamma Audio & Video, Inc., 11 F.3d at
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1115 ("It is established beyond cavil that the trial judge is in
the best position to assess the credibility of witnesses . . .
."). The district court's summary of the evidence on probability
is therefore uncontradicted: "What little contact the defendants
had with the project prior to December 20 was merely in the
nature of an inquiry by a distributor and a demonstration of
machines which had, as far as these defendants were concerned,
very little chance of ripening into a sale."
Gay claims that the court improperly ignored the imminence
of the Mexican government's decision on a contractor, and argues
that the court should have recognized that a reasonable investor
would have held his stock pending the decision. Although the
advantage of hindsight gives this assertion some appeal, the
court's supportable conclusion was that there was nothing of
substance to wait for as of December 20th. Had the closing been
ten days later, after the direct contact between FIMA USA and
Kodak, Gay's point would be more compelling, even with no other
evidence of FIMA USA's chances of winning the subcontract. At
that stage, unlike on December 20th, there was a basis for
viewing FIMA USA and PCSI's relationship with the project as more
than just a distributor's inquiry.6
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6 Gay cites language from SEC. v. McDonald, 699 F.2d 47, 50
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(1st Cir. 1983), to the effect that "[a] `reasonable, if
speculative, investor' would consider information indicating even
the possible occurrence of an event of magnitude to be
important." This statement did not mean that a major event would
-18-
The court's assessment of materiality also was informed by
evidence demonstrating Gay's lack of interest in other pending
PCSI projects. Although he remained president of PCSI until he
sold his stock, Gay stopped coming to the office after October 29
because he felt uncomfortable being in an office where everyone
else was employed by FIMA USA. At no time did he ask the status
of any of the "development ideas and projects" in which he knew
PCSI had a hand at the time he and Axline began to discuss a
stock buyout, including a project with the United States Post
Office that had resulted in the sale of a machine.
Gay maintains that none of these other possibilities was as
significant in size or as imminent as the Mexican project, and he
insists that his lack of interest in them is therefore irrelevant
in determining the materiality of the Kodak deal. In so arguing,
however, Gay presumes that the Mexican project was so developed
before December 20th that it obviously was distinguishable from
PCSI's other opportunities. The district court, in rejecting
Sobieski's testimony and crediting defendants', found to the
contrary.
In our view, the evidence indicating that Campbell's bid on
behalf of PCSI was a long-shot, together with Gay's explicit
testimony that he was uninterested in "incipient business ideas,"
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be deemed material within the meaning of Rule 10b-5 even if
wholly improbable. In McDonald, the probability was strong that
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the relevant event would take place, see id. at 49, and the
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court's finding was that "the future event was sufficiently large
to remain material even discounting for whatever uncertainty may
be thought to have existed." Id. at 50.
___
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supports the district court's finding that disclosure of what
defendants knew about the Mexican project as of December 20th
would not have "alter[ed] the `total mix' of facts available to
the investor," Milton, 961 F.2d at 969 (emphasis omitted). This
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is enough to foreclose us from finding that the court clearly
erred. We therefore affirm its judgment on the 10(b) claim.
IV. Fiduciary Duty Claim
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Gay argues that, even if the district court properly found
that defendants were not required to disclose the Mexican project
under Rule 10b-5, they still may be found responsible for
violating state fiduciary duty standards. He contends that the
burden of disclosure for fiduciaries under Massachusetts law is
greater than that imposed by federal securities law.
Gay relies heavily on Donahue v. Rodd Electrotype Co. of New
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England, 367 Mass. 578, 328 N.E.2d 505 (1975), in which the
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Massachusetts Supreme Judicial Court quoted language from an
opinion by Justice Cardozo describing the standard of behavior
among partners in a joint venture as "[n]ot honesty alone, but
the punctilio of an honor the most sensitive." 367 Mass. at 594.
See also Wartski v. Bedford, 926 F.2d 11, 13 (1st Cir. 1991)
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(quoting Donahue). Gay maintains that, under the "punctilio of
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honor" standard, whatever information defendants had about the
Mexican project should have been disclosed in advance of the
stock closing.
We cannot agree. The basic fiduciary requirement under
Massachusetts law is that business partners and stockholders in
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close corporations refrain from acting out of "avarice,
expediency or self-interest in derogation of their duty of
loyalty to the other stockholders and to the corporation,"
Donahue, 367 Mass. at 593; 328 N.E.2d at 515. In quoting
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Cardozo's language, the SJC in Donahue simply was restating this
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strict good faith standard and distinguishing it from what the
SJC viewed as the lesser standard of "good faith and inherent
fairness" to which directors and stockholders must adhere in the
normal discharge of their responsibilities.7
We see nothing to be gained from discussing, as a
categorical matter, whether the Massachusetts fiduciary duty
standard requires greater disclosure than Rule 10b-5. But see
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Sugarman v. Sugarman, 797 F.2d 3, 8 (1st Cir. 1986) ("Majority
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shareholders . . . must fully disclose all the material facts and
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circumstances surrounding or affecting a proposed transaction.")
(emphasis added); Pavlidis v. New England Patriots Football Club,
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675 F. Supp. 696, 698 (D. Mass. 1987) ("The fiduciary duty
imposed on a majority shareholder under Massachusetts law is to
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7 In fact, the full Cardozo quotation in Donahue more
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clearly reflects the distinction being made between simple
"honesty" and fiduciary duty:
Joint adventurers, like copartners, owe to one another,
while the enterprise continues, the duty of the finest
loyalty. Many forms of conduct permissible in a
workaday world for those acting at arm's length, are
forbidden to those bound by fiduciary duties. . . . Not
honesty alone, but the punctilio of an honor the most
sensitive, is then the standard of behavior.
367 Mass. at 594 (quoting Meinhard v. Salmon, 249 N.Y. 458, 463-
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64 (1928)).
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disclose material information.") (citing Sugarman). It suffices
________
to say that, in this case, the district court did not err in
rejecting Gay's fiduciary duty claim.
The record fails to demonstrate that defendants took actions
to benefit themselves without regard for, or in spite of, their
obligation of loyalty to Gay. The court permissibly found that
it did not occur to them to discuss the Mexico project simply
because of their good faith belief that the project was not a
realistic opportunity for PCSI. It further found that Gay was
not in a disadvantaged position vis-a-vis the defendants because,
as president and majority shareholder of PCSI, he had "every
opportunity to look after his own interests." Defendants had
neither superior business knowledge nor more substantial
experience than Gay, a well educated businessman who was advised
throughout the negotiations process by a lawyer and accountant.8
In short, Gay has failed to prove a violation of the
standard of "utmost good faith and loyalty," Donahue, 367 Mass.
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at 593. We consequently find no error in the district court's
ruling on the fiduciary duty claim, and for similar reasons,
endorse the judgment for defendants on Gay's claim under Mass.
Gen. Laws Ann. ch. 93A.
Affirmed.
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8 We are unpersuaded by Gay's argument that he was at a
disadvantage because all of the information about the Mexican
project was channeled through FIMA USA, not PCSI. PCSI's
machines were the target of Campbell's inquiry, and there is no
basis for concluding that he would have been outside the loop had
he stayed abreast of recent company activity either through
inquiry or visits to the office.
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