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Vale v. Valchuis

Supreme Judicial Court of Massachusetts, Middlesex

May 22, 2015

Michael A. Vale
v.
David J. Valchuis & another. [1]

Argued: February 4, 2015.

Civil action commenced in the Superior Court Department on July 8, 2013.

A motion to compel arbitration was heard by Kenneth V. Desmond, Jr., J.

The Supreme Judicial Court granted an application for direct appellate review.

Euripides D. Dalmanieras ( James W. Bucking with him) for New England Cleaning Services, Inc.

Robert R. Berluti ( Edward F. Whitesell, Jr., with him) for the plaintiff.

Ben Robbins & Martin J. Newhouse, for New England Legal Foundation, amicus curiae, submitted a brief.

Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, & Hines, JJ.

OPINION

[30 N.E.3d 833] Cordy, J.

In this case we decide whether the valuation of stock, pursuant to a stock transfer restriction, is a proper subject for arbitration and, if so, whether and when a selling shareholder may terminate the arbitration process. The transfer restriction in this case required the shareholder first to offer his stock to the company at his desired price, and then, if the company rejected it, to

Page 496

offer it at a price to be determined by arbitrators. The plaintiff, Michael A. Vale, invoked this process by tendering an offer to the defendant, New England Cleaning Services, Inc. (NECS). After doing so, however, he changed his mind regarding his desire to sell and sought to withdraw from the process of valuing his stock. NECS moved to compel arbitration.

A judge in the Superior Court denied the motion to compel, relying on the doctrine [30 N.E.3d 834] of Palmer v. Clark, 106 Mass. 373, 389 (1871), which distinguishes arbitration from appraisal. The judge concluded that a mere disagreement over the value of stock was legally insufficient to give rise to arbitration. On appeal, NECS argues that Palmer and its progeny were abrogated by G. L. c. 251, inserted by St. 1960, c. 374, § 1, as amended (Arbitration Act), which, among other things, provides that a written contract providing for the arbitration " of any existing controversy" is " valid, enforceable and irrevocable" except on grounds that exist for " the revocation of any contract." See G. L. c. 251, § 1.

We conclude that the distinction between arbitration and appraisal remains valid, but affirm the judge's denial of the motion to compel on other grounds. A stock valuation may be conducted through arbitration, so long as an actual controversy exists regarding the value of the stock. A rejected offer to sell the stock creates such a controversy, provided that the shareholder still desires to sell the stock and the transfer restriction requires him to offer it first to the company. A shareholder may not, however, unilaterally withdraw the controversy from arbitration once it has commenced. Because the shareholder in this case decided not to sell the stock prior to the commencement of arbitration, the controversy to be arbitrated was rendered moot.[2]

1. Background.

Vale is a fifty per cent shareholder of NECS, a Massachusetts close corporation. The only other shareholder is Vale's brother, David J. Valchuis. Vale and Valchuis formed NECS in 1977 and both remain directors of the company. In 2005, Vale and Valchuis experienced a breakdown in their business relationship, after Vale stepped down as NECS's president. On several occasions over the ensuing eight years, Vale expressed a desire to sell his NECS stock. Article 5 of NECS's articles of incorporation (Article 5) describes a discrete process that a share-

Page 497

holder must follow if he or she desires to sell his or her stock.[3] Vale did not invoke Article 5 during these initial ...


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