Heard: December 10, 2015.
Civil action commenced in the Superior Court Department on November 16, 2006.
After transfer to the business litigation session, the case was heard by Christine M. Roach, J.
Joseph L. Bierwirth, Jr. (Ryan P. McManus & Thomas J. Carey, Jr., with him) for the plaintiffs.
Kevin P. Martin (Katherine C. Sadeck with him) for the defendant.
Present: Gants, C.J., Spina, Cordy, Duffly, Lenk, & Hines, JJ.
This case considers whether there was a breach of the implied covenant of good faith and fair dealing in a contract dispute between two sophisticated investors. In 1998 and 1999, Robert James, acting on behalf of the Robert and Ardis James Foundation charitable foundation (foundation), agreed to advance over $650, 000 to Daniel Meyers, the defendant, to purchase shares of stock in what was then a young, privately held company that Meyers had cofounded, in exchange for a portion of the proceeds of an eventual sale of those shares. The agreement was memorialized in two single-page, non-integrated letters that set out formulas by which to calculate the distribution of proceeds, but did not discuss the timing of sale. In 2006, following nearly two years of unsuccessful efforts to get Meyers to discuss bringing the agreements to a close, the foundation filed a complaint against Meyers seeking specific performance and damages.
After a six-day bench trial in the business litigation session of the Superior Court in 2011, a judge found that Meyers had committed a breach of the implied covenant of good faith and fair dealing, and awarded damages based on a date of breach of July 31, 2006. The Appeals Court reversed, see Robert & Ardis James Found, v. Meyers, 87 Mass.App.Ct. 85, 86 (2015), and we granted the foundation's application for further appellate review. Meyers argues that he did not commit a breach of the implied covenant, and that the damages award should be vacated. We conclude that the trial judge's decision was not erroneous, and affirm the decision.
We recite the facts found by the trial judge, supported by relevant trial testimony and documentary evidence, reserving certain details for later discussion.Meyers graduated from Brandeis University in 1984 with an undergraduate economics degree, and spent the next seven years working in the financial services industry. In 1991, Meyers and Stephen Anbinder started a company that provided loan origination and related services for higher education students. The company was incorporated in 1995 as First Marblehead Corporation (First Marblehead), a privately held Delaware corporation with headquarters in Massachusetts. From its incorporation through 2005, Meyers served as First Marblehead's chief executive officer (CEO) and as the chair of its board of directors. Upon request from First Marblehead's board of directors, he returned to those positions in 2008.
Robert James, who was eighty-six years old at the time of trial, has been a professional investor for over forty years. He received a master's degree in business administration with honors from Harvard Business School and has had an extensive career in both public service and private industry, including time spent at the Central Intelligence Agency, in the United States Navy, and in the oil industry. Robert James is a trustee of the foundation, organized under the laws of New York as a charitable section 501(c) foundation. The purpose of the foundation is to "give [the James's accumulated] money away." At all relevant times, his wife, Ardis James, and children, Catherine James Paglia and Ralph James, were also trustees of the foundation. Like their father, Catherine James Paglia and Ralph James graduated from Harvard Business School.
During the 1990s, Catherine James Paglia was a principal of a private equity firm that invested in First Marblehead, and invested in First Marblehead personally. Ralph James served variously as First Marblehead's executive vice president, president and chief operating officer, and vice chairman. As a result of his children's connections to First Marblehead, Robert James developed a business friendship with Meyers, and they began to meet socially. Robert James considered the First Marblehead business plan "quite a brilliant thing." In November, 1997, he bought ten thousand shares of Meyers's privately held stock in First Marblehead for $360, 000.
a. The 1998 and 1999 agreements.
In 1998, First Marblehead offered its shareholders the right to purchase additional shares on a pro rata basis commensurate with each shareholder's percentage of existing ownership of the company. Because Meyers and Anbinder both lacked sufficient capital to participate in the rights offering, they were concerned that the offering would dilute their percentage of ownership of First ...