Aceto, Bonner & Cole PC

Massachusetts SJC reinstates $45 million judgment for breach of implied covenant

January 28, 2017

On behalf of Greg Aceto at Aceto, Bonner & Cole PC

Reinstatement of judgment in breach of implied covenant of good faith and fair dealing case shows how parties to a contract must carefully honor the express terms of the contract.

The Supreme Judicial Court of Massachusetts (the "SJC") on April 21, 2016, reinstated a judgment in the amount of $45 million dollars in a case regarding whether or not there can be a breach of the implied covenant of good faith and fair dealing absent an express provision in an agreement addressing such an issue.

Details of the case

In James Foundation v. Meyers, the Plaintiffs agreed to advance roughly $650,000 to the Defendant to purchase 31,107 shares of stock in a company, which the Defendant had cofounded, in exchange for a portion of the potential future proceeds of the eventual sale of those shares. The agreement, however, never specifically addressed a time limit for the Defendant to sell the shares of stock. After two years of unsuccessful efforts by the Plaintiffs to persuade the Defendant to sell the stocks and close the agreements, the Plaintiffs filed a complaint seeking specific performance and damages.

In April, 2011, the trial judge found in favor of the defendant on all counts except the count regarding breach of the implied covenant of good faith and fair dealing. The judge found that the Defendant breached the implied covenant of good faith and fair dealing on July 31, 2006. The court ruled that July, 2006 marked the end date of the agreements based on "two years of efforts by plaintiff's to achieve sale of the stock." Thus, the judge awarded to the Plaintiffs $45 million dollars in damages based on the fair market value of the shares of stock owned by the Plaintiffs at the time of the breach.

The Defendant appealed the judgment. The issue on appeal was whether the Defendant breached the implied covenant of good faith and fair dealing by not selling the stocks when the Plaintiffs asked him to. The appeals court held (1) that the record did not support the judge's conclusion that the Defendant was required to reach an agreement with the Plaintiffs within twenty-one months of their initial requests; (2) that the judge erred when she reached her conclusion that the implied covenant of good faith was violated; and (3) that the date of breach was arbitrarily determined. Therefore, the appeals court reversed the part of the judgment regarding the Defendant's breach of the implied covenant of good faith and fair dealing.

The Plaintiffs sought further appellate review and the case was reviewed by the SJC. The SJC affirmed the trial court judge's findings. The Court recognized that there was an element of uncertainty in the assessment of damages and thus deferred to the trial judge. Further, the SJC reasoned that the date of July 31, 2006 was three weeks after the Plaintiffs' final letter to the Defendant demanding the sale of stock. This letter followed roughly two years of Plaintiffs' requests to discuss the sale, which the Defendant chose to ignore. As a result, the SJC held that the trial judge did not error in her findings and re-affirmed the trial court's judgment.

Impact of the Holding

A recent article in Massachusetts Lawyers Weekly discussed the reinstatement of the $45 million dollar judgment, noting that the Court's reinstatement of the judgment shows that Massachusetts takes an expansive view of the implied covenant in order to ensure contracting parties honor their respective obligations and the express terms are performed. More specifically, the decision is important because it "reversed an Appeal Court ruling that took too narrow a view of the doctrine while failing to give adequate deference to the trial judge's view of the evidence."

The important lesson this case provides is that it is prudent for a contracting party to seek experienced legal advice and counsel prior to entering into a contract of this magnitude in order to ensure that the contract terms are clear and explicit thereby eliminating the need for an unpredictable application of the covenant of good faith and fair dealing. The experienced attorneys at Aceto, Bonner & Cole PC can help assist you and ensure that your interests are protected.

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