Barr v. Dyke

Yes, at long last, it's time to start blogging about recent decisions of note.  The first is from the Maine SJC in August – Barr v. Dyke, 2012 ME 108.  []

The facts, first.  Bushmaster Firearms issued approximately 29% of its stock to two senior employees many years ago, for no consideration.  The employees were eventually terminated, yet continued to own the stock and earn dividends on the stock.  The company grew over time. The ex-employee stock holders sued the company directors alleging breaches of fiduciary duty, principally relating to compensation and benefits which they asserted to be unreasonable.  That litigation was settled, documented by stock purchase agreements and releases, with the stock repurchased.  As the opinion recites, the agreements contained carefully drafted, comprehensive language to the effect that the company was making only limited representations and that the sellers were not relying on the company or its principals for anything other than those very limited representations, and had had a full opportunity to consult with legal, valuation, tax and other advisors (and had in fact done so), were fully familiar with the company, its financial results, business, prospects, etc., and had received all documents and information requested in connection with the settlement and buyout.

Just over 2 years after this buyout closed, the company sold its assets for $76 million.  After a period of time, the bought out shareholders brought suit in the business court, alleging fraud and related claims.  The Business Court, Horton J., granted summary judgment to the defendants, represented by Gerry Petrucelli, and the SJC affirmed.  

The decision contains some valuable practice pointers about the effective drafting of releases and related provisions in settlements of this type, as well as the circumstances under which, notwithstanding proper drafting, such efforts to settle can be susceptible of reopening.  CJ Saufley provides a helpful listing of the potentially applicable criteria (such as sophistication of the settling parties, representation of such settling parties by counsel, if a fiduciary relationship is in place, whether in light of events the settling parties could reasonably be expected to trust or rely on those fiduciaries, and whether the relevant language was hidden boilerplate or rather was negotiated.  The opinion is valuable, I am told by our corporate gurus, due to its clarity and its applicability to a wide array of factual and legal situations, despite the somewhat unusual facts of the case.  Notably, the Chief took pains (as Bushmaster did in its briefing and argument )  to differentiate this situation from those involving consumers or “contracts of adhesion.”