Charlesbank Equity v. Blinds To Go, Inc. ( 2006 )

United States Court of Appeals
For the First Circuit
No. 05-2029
No. 05-2030
IN RE: BLINDS TO GO SHARE PURCHASE LITIGATION.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Reginald C. Lindsay, U.S. District Judge]
Before
Selya, Lynch and Howard, Circuit Judges.
David H. Erichsen, with whom Peter A. Spaeth, Eric D. Levin,
Michael R. Dube, and Wilmer Cutler Pickering Hale and Dorr LLP were
on brief, for appellants, cross-appellees Blinds to Go, Inc. and
its shareholders.
John T. Montgomery, with whom Mark D. Meredith, Sara M.
Beauvalot, and Ropes & Gray LLP were on brief, for appellees,
cross-appellants Charlesbank Equity Fund II, Limited Partnership
and Harvard Private Capital Holdings, Inc.
March 22, 2006
SELYA, Circuit Judge. This case poses a puzzling
question about when an affiliate is not an affiliate. Cf. William
Shakespeare, Romeo and Juliet, act II, sc. ii (1595) ("What's in a
name? [T]hat which we call a rose [b]y any other name would smell
as sweet[.]"). The district court agreed with Blinds to Go, Inc.
(BTG) and its shareholders that Harvard Private Capital Holdings,
Inc. (Holdings) violated their right of first refusal when it
transferred all of BTG's preferred shares to the putative
affiliate, Charlesbank Equity Fund II, Limited Partnership (the
Fund). Accordingly, the court rescinded the transaction.
The district court's decision pleased no one. Holdings
and the Fund argue that they are in fact affiliates and assail the
district court's finding that the transfer inter sese violated the
right of first refusal. For their part, BTG and its shareholders
excoriate the district court's choice of remedy. Reexamining the
matter afresh, we conclude, as did the lower court, that a breach
of the right of first refusal occurred. We therefore reject the
appeal brought by Holdings and the Fund. We also conclude that the
district court's choice of remedy for that breach (voiding the
transfer rather than decreeing specific performance) was consistent
with the contract and with equitable remedial principles. We
therefore reject the appeal taken by BTG and its shareholders.
I. BACKGROUND
BTG is a closely held Canadian corporation that
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manufactures, sells, and installs custom-made window treatments.
Its seven shareholders include six Canadian corporations and Nkere
Udofia, BTG's vice-chairman.1
Holdings is a not-for-profit Massachusetts corporation.
Its sole member is the designee of the President and Fellows of
Harvard College (Harvard). The Fund is a limited partnership
organized under Massachusetts law. Its general partner is
Charlesbank Equity Fund II GP, Limited Partnership (the General
Partner); its limited partners are three charitable corporations
wholly owned by Harvard, namely, Holdings, Phemus Corp., and
Shipping Venture Corp. Structurally, the General Partner is itself
a Massachusetts limited partnership; its general partner is
Charlesbank Capital Partners, LLC (the LLC), a Massachusetts
limited liability company owned by its individual members. The
General Partner has one Class C limited partner, namely, Harvard
Private Capital Properties, Inc. (Harprop), a Delaware corporation
wholly owned by Harvard.
A venture capital transaction set in motion the events
leading to this litigation. In 1995, pursuant to the BTG Preferred
Share Purchase Agreement (the Purchase Agreement), Holdings
injected $15,000,000 in capital into BTG in exchange for
1
The corporate shareholders are S. & D. Shillgroup Inc.,
Davler Investments Inc., Stevler Investments Inc., Au Bon Marché,
Davjosh Holdings Inc., and Zakbran Holdings Inc. All of them are
owned, directly or indirectly, by BTG's chief executive officer
(Stephen Shiller) or its board chairman (David Shiller).
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approximately 20,000,000 shares of BTG's preferred stock. On
December 31, 1997, the parties executed an amended and restated
shareholders' agreement (the Shareholders' Agreement) which, along
with the Purchase Agreement, governs their relationship. Among
other things, the Shareholders' Agreement provides the BTG
shareholders with a right of first refusal vis-à-vis the stock
owned by Holdings. The right of first refusal attaches to any
transaction other than one involving an affiliate.2
In or around 1998, Harvard began to restructure its
investment portfolio for purposes of tax advantage and business
convenience. In 2001, as part of this restructuring, Holdings' in-
house counsel, without troubling to read the relevant document,
2
Section 3.1 of the Shareholders' Agreement memorializes the
right of first refusal. It provides:
[Holdings] . . . shall not sell, assign,
transfer, grant a participation in or
otherwise dispose of any or all [BTG] Shares
owned by [it], other than to an Affiliate . .
. , unless (i) [Holdings] shall have received
a bona-fide offer to purchase such Shares . .
. from a third party . . . , (ii) such third
party is acting at arm's length from
[Holdings] and (iii) [Holdings] first submits
a written offer . . . to [the BTG
Shareholders] . . . , together with a copy of
the . . . Third Party Offer identifying the
third party to whom [Holdings'] Shares are
proposed to be sold and the terms of the
proposed sale and offering, [to the BTG
Shareholders], the opportunity to purchase
such Shares on terms and conditions, including
price, not less favorable than those on which
[Holdings] proposes to sell such Shares to
such third party . . . .
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informed BTG that Holdings planned to make a permitted transfer of
its BTG shares to an affiliate. Holdings proceeded to convey those
shares to the Fund. The parties recorded the transfer at book
value (i.e., $15,000,000). In exchange, Holdings received a 12.4%
ownership interest in the Fund. Because it transferred other
assets as well, Holdings' total ownership interest in the Fund
reached 52.9%.
On January 14, 2002, Holdings and the Fund sought to
exercise a "put" right contained in the Purchase Agreement. That
right allowed Holdings or its lawful successor in interest to
demand, at either of two specified times, that BTG redeem all of the
preferred shares. Under the Purchase Agreement, the redemption
price was to be established through a formula emphasizing BTG's
earnings before interest, taxes, depreciation, and amortization
(EBITDA) for the preceding twelve months.
Storm clouds began to gather when the redemption price,
as tentatively calculated by BTG, proved to be far less munificent
than Holdings and the Fund expected. See Charlesbank Equity Fund
II v. Blinds to Go, Inc., 370 F.3d 151, 154-55 (1st Cir. 2004)
(explicating more completely the factual background of the put and
the attempted redemption). The storm broke when the Fund, invoking
diversity jurisdiction, see 28 U.S.C. § 1332(a), filed suit against
BTG in the United States District Court for the District of
Massachusetts. The Fund asserted common law claims arising out of
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an alleged manipulation of BTG's finances with a view toward
reducing the value of the put. Holdings soon joined the fray as an
additional plaintiff. BTG denied the essential allegations of the
complaint and posited, as an affirmative defense, that it owed
nothing on the put because Holdings had breached the Shareholders'
Agreement when it transferred the shares to the Fund without
honoring the right of first refusal.3
On July 23, 2003, the BTG shareholders filed a separate
action in the district court seeking (i) a declaration as to whether
the transfer between Holdings and the Fund was a transfer to an
affiliate as that term is defined in the Shareholders' Agreement and
(ii) relief for Holdings' purported breach of the Shareholders'
Agreement. On October 15, 2003, the district court consolidated
that action with the original action.
After much procedural maneuvering, see, e.g., Charlesbank,
370 F.3d at 153, BTG and its shareholders moved for summary judgment
on all claims and counterclaims. Not to be outdone, Holdings and
the Fund cross-filed for partial summary judgment on the right of
first refusal claim. Following a hearing, the district court, in
a bench decision, granted summary judgment in favor of the BTG
shareholders on the right of first refusal claim, denied the cross-
3
BTG and its shareholders also countersued in a Canadian court
to enforce the right of first refusal. That action has been stayed
pending resolution of the Massachusetts proceedings. See Blinds to
Go Inc. v. Harvard Private Capital Holdings Inc., 261 N.B.R.2d 365
(2003).
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motion for partial summary judgment, and reserved decision on the
remaining issues in the case. The court concluded (i) that the Fund
was not an affiliate of Holdings within the contemplation of the
Shareholders' Agreement; (ii) that compliance with the right of
first refusal constituted a condition precedent to the proposed
transfer; (iii) that because Holdings did not abide by the right of
first refusal provision, the transfer was void ab initio; and (iv)
that the appropriate remedy was to unravel the transaction and
require the Fund to return the stock to Holdings. The district
court later entered a partial final judgment to this effect. See
Fed. R. Civ. P. 54(b). These timely appeals ensued.
II. ANALYSIS
Given the district court's detailed findings, we do not
doubt our appellate jurisdiction over these interlocutory appeals.
See Spiegel v. Trs. of Tufts Coll., 843 F.2d 38, 42-44 (1st Cir.
1988) (delineating the requirements for invocation of Rule 54(b)).
We therefore proceed to assess the district court's conclusions. We
divide our discussion into two segments.
A. Operation of the Right of First Refusal.
Holdings and the Fund contest the district court's
construction of the right of first refusal provision. They contend
that they are in fact affiliates as that term is defined in the
Shareholders' Agreement and that, therefore, the transaction between
them never triggered, much less violated, the right of first refusal.
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This contention is the logical starting point for our analysis; after
all, if Holdings and the Fund are correct, then the share transfer
was valid, the right of first refusal was not implicated, and there
would be no need for us to address the remedial aspect of the
district court's decision.
In approaching this question, we replay a familiar
standard of review. "A district court may enter summary judgment
upon a showing 'that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter
of law.'" Houlton Citizens' Coal. v. Town of Houlton, 175 F.3d 178,
183 (1st Cir. 1999) (quoting Fed. R. Civ. P. 56(c)). We review an
entry of summary judgment de novo and, therefore, apply the same
analytic framework here. See id. at 184. That framework is not
affected by the existence of a cross-motion for summary judgment.
See Blackie v. Maine, 75 F.3d 716, 721 (1st Cir. 1996).
On this issue, we are faced with a question of contract
interpretation: do Holdings and the Fund qualify as affiliates under
the Shareholders' Agreement? Section 2.4 of that agreement creates
the benchmark. It provides:
An "Affiliate" of a person or entity shall mean
another person or entity that is directly or
indirectly controlling, controlled by or under
common control with such person or entity.
"Control" shall mean the right to cast,
directly or indirectly, more than 50% of the
voting interests in a person or entity.
The Shareholders' Agreement recites that it is governed by
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Massachusetts law and, thus, we look there for the substantive rules
of decision.
Under Massachusetts law, an unambiguous contract must be
interpreted according to its terms. See Freelander v. G. & K. Realty
Corp., 258 N.E.2d 786, 788 (Mass. 1970); see also Fairfield 274-278
Clarendon Trust v. Dwek, 970 F.2d 990, 993 (1st Cir. 1992) (applying
Massachusetts law). In such a situation, contract construction
presents an unadulterated question of law. See Daley v. J. F. White
Contracting Co., 197 N.E.2d 699, 702 (Mass. 1964).
A contract is ambiguous only when its terms "are
inconsistent on their face" or when "the phraseology can support
reasonable difference of opinion as to the meaning of the words
employed." Suffolk Constr. Co. v. Lanco Scaffolding Co., 716 N.E.2d
130, 133 (Mass. App. Ct. 1999) (quoting Fashion House, Inc. v. K mart
Corp., 892 F.2d 1076, 1083 (1st Cir. 1989)). There is no ambiguity
simply because a dispute exists between the contracting parties, each
lobbying for its own preferred interpretation. Id.We discern no ambiguity in the relevant text of section
2.4. That section defines the term "[a]ffiliate" with considerable
precision and, in doing so, not only endows the word "control" with
decretory significance but also assigns that word a specific meaning.
We therefore rely on the plain language of the provision to resolve
the legitimacy of the transfer.
Holdings is fully controlled (under any definition of the
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word) by Harvard. In determining who "controls" the Fund, however,
we cannot rely on general usage but, rather, must apply the specific
definition agreed upon by BTG and Holdings. See Rogaris v. Albert,
730 N.E.2d 869, 871 (Mass. 2000) (stating that a contract's terms
will not "be taken in their plain and ordinary sense" if "otherwise
indicated by the contract"); see also Charles I. Hosmer, Inc. v.
Commonwealth, 19 N.E.2d 800, 804 (Mass. 1939) (explaining that "every
phrase and clause must be presumed to have been designedly
employed"). Because that definition turns on voting rights, we
conclude, without serious question, that the Fund is directly
controlled by the General Partner (after all, pursuant to the Fund's
organic document — its limited partnership agreement — only the
General Partner has the power to "vote, give assent and otherwise .
. . exercise all rights, powers, privileges and other incidents of
ownership or possession with respect to" the Fund's assets). While
Holdings is a limited partner, the limited partnership agreement
specifically declares that it "shall take no part in the conduct or
control of the Partnership business."
The General Partner itself is, of course, a limited
partnership. This is scant solace to Holdings and the Fund, however,
as its limited partnership agreement states unequivocally that "[t]he
Partnership shall be managed exclusively" by its general partner (the
LLC). Thus, the LLC controls the General Partner. In turn, the LLC
is controlled by a manager and various individual members (a group
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that excludes both Harvard and Holdings).
Given this hierarchy, it is readily evident that neither
Harvard nor Holdings occupies a place in the Fund's chain of voting
control. Neither Harvard nor Holdings controls the Fund "directly"
(a status reserved to the General Partner). By the same token,
neither Harvard nor Holdings controls the Fund "indirectly" (a status
reserved to the LLC and its members). Holdings and the Fund are,
therefore, not affiliates within the narrow compass of the definition
contained in the Shareholders' Agreement.
In an effort to blunt the force of this reasoning,
Holdings and the Fund make three points. First, they argue that
because Harvard (through Holdings, Phemus, and Shipping Venture)
continues to own virtually all of the beneficial interest in the Fund
— 99.92% — it, in effect, "controls" the Fund. Second, they posit
that because Holdings itself owns a majority interest in the Fund —
52.9% — it has the power under the partnership agreement to require
the Fund to reconvey its assets to the limited partners; this power
of reconveyance, they say, amounts to "control." Third, Harvard,
through Harprop (the only Class C limited partner of the General
Partner), can direct the LLC (the general partner of the General
Partner) to distribute the Fund's assets to its limited partners, so
it "controls" the Fund in that sense as well.
To be sure, these scenarios suggest "control" in a lay
sense. This case, however, is not concerned with the ordinary
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meaning of "control." Where the parties to a contract take pains to
define a key term specially, their dealings under the contract are
governed by that definition. See J. A. Sullivan Corp. v.
Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986) (recognizing that "[a]
contract is to be construed to give reasonable effect to each of its
provisions"). So it is here. The parties to the Shareholders'
Agreement crafted a specific definition of the word "control."
Holdings and the Fund cannot now gloss over that definition — nor can
we. See Charles I. Hosmer, Inc., 19 N.E.2d at 804 (explaining that
all phraseology in a contract "must be given meaning and effect,
whenever practicable"). The mere fact that the transaction, viewed
without regard to the Shareholders' Agreement, represented a transfer
from one Harvard pocket to another is not enough to override the
explicit language that the parties chose to insert into the
instrument.
Holdings and the Fund insist that the word "indirect,"
used twice in section 2.4, expands voting control to include
practical control of any kind. That word, however, cannot carry
the weight that Holdings and the Fund place upon it. In context,
the word refers only to corporate structure (e.g., the LLC
"indirectly controls" the Fund because it "directly controls" the
General Partner, which, in turn, "directly controls" the Fund). It
would be unreasonable to read the word as a fundamental alteration
of the precise definition of "control" that accompanies it.
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At bottom, then, the arguments mounted by Holdings and
the Fund represent thinly veiled attempts to redefine "control" to
comport with economic realities rather than with voting rights.
Whatever the merits of this perspective in the abstract, we cannot
countenance so blatant an attempt to rewrite a clearly defined
contract term. See Freelander, 258 N.E.2d at 788 (observing that
when "[t]here is nothing ambiguous in [a contract's] language . .
. [a] court cannot subvert its plain meaning"). Consequently, we
conclude, as did the court below, that Holdings and the Fund are
not affiliates as that term is defined in the Shareholders'
Agreement.
That ends this aspect of the matter. Since it is
undisputed that Holdings did not afford the BTG shareholders the
specified opportunity to exercise their right of first refusal, the
transfer violated the Shareholders' Agreement.4
B. Choice of Remedy.
The focus of the appeal taken by BTG and its shareholders
is the district court's choice of remedy. Citing Town of Sudbury
v. Scott, 787 N.E.2d 536 (Mass. 2003), they insist that specific
4
Holdings and the Fund have a fallback position to the effect
that the BTG shareholders forfeited their right of first refusal by
not acting on that right within the thirty days allotted under
section 3.2 of the Shareholders' Agreement. That argument need not
detain us. Under the terms of the Shareholders' Agreement, the
thirty-day window is not opened by notice of a non-affiliate
transfer but, rather, by receipt of an offer to exercise the first
refusal right. Neither Holdings nor the Fund tendered such an
offer to the BTG shareholders.
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enforcement of a disregarded right of first refusal is the
exclusive remedy permitted under Massachusetts law. Accordingly,
their thesis runs, the district court should have ordered Holdings
to offer the preferred shares to the BTG shareholders on the same
terms as were made available to the Fund. We think that this
thesis takes too crabbed a view of a trial court's equitable powers
under Massachusetts law.
To facilitate this phase of our inquiry, we assume for
argument's sake that the Fund's acquisition of the shares met the
initial requirements set forth in section 3.1 of the Shareholders'
Agreement (i.e., that there was an offer, which was bona fide and
led to an arm's length transaction). See supra note 2. This set
of assumptions primes the pump and brings us directly to the
question of remediation.
The anodyne that the BTG shareholders seek (specific
performance) and the anodyne that the district court decreed
(rescission) are both equitable remedies. See, e.g., Kenda Corp.
v. Pot O'Gold Money Leagues, Inc., 329 F.3d 216, 224 (1st Cir.
2003); Pritzker v. Yari, 42 F.3d 53, 72 (1st Cir. 1994). Two
abiding truths about equitable remedies are pertinent here. First,
in choosing among equitable remedies, a nisi prius court has the
ability — indeed, the duty — to weigh all the relevant facts and
circumstances and to craft appropriate relief on a case-by-case
basis. See Rosario-Torres v. Hernandez-Colon, 889 F.2d 314, 321
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(1st Cir. 1989) (en banc). Second, in shaping an equitable remedy,
a nisi prius court typically has a range of appropriate options.
As long as the court's ultimate choice falls within this range, it
will withstand review even if it is not, in the appellate court's
opinion, the best option within the range. See id. at 324(describing a district court's choice of equitable remedies as
"quintessentially a judgment call" and noting that, absent clear
error, it does not matter whether the court of appeals might have
made some other choice).
Viewed against this backdrop, it should come as no
surprise that the standard of review applicable to a district
court's choice among available equitable remedies is deferential.
A deferential standard is particularly appropriate where, as here,
the trial court must balance conflicting factors and deal with
issues of judgment. See Charlesbank, 370 F.3d at 158. Therefore,
we review the trial court's choice among available equitable
remedies for abuse of discretion. See Texaco P.R., Inc. v. Dep't
of Consumer Affairs, 60 F.3d 867, 875 (1st Cir. 1995); Rosario-
Torres, 889 F.2d at 323. Because the district court "is in a
considerably better position to bring the scales into balance than
an appellate tribunal," we will not normally find an abuse of
discretion unless, upon whole-record review, we are convinced that
the district court committed a significant error in judgment.
Rosario-Torres, 889 F.2d at 323.
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Of course, a material error of law constitutes an abuse
of discretion. Rosario-Urdaz v. Rivera-Hernandez, 350 F.3d 219,
221 (1st Cir. 2003). Invoking this principle, BTG and its
shareholders cite Town of Sudbury for the proposition that
Massachusetts law limits the range of remedies available in this
instance to one: specific performance. But the Massachusetts
Supreme Judicial Court (the SJC) has emphasized that "[e]quitable
remedies are flexible tools," Demoulas v. Demoulas, 703 N.E.2d
1149, 1169 (Mass. 1998), and we do not believe that it has
constrained the inherently flexible nature of equity as severely as
BTG suggests.
In Town of Sudbury, the SJC addressed a municipality's
claim against a purchaser of agrarian land. The purchaser had paid
a reduced price to the original owner on the understanding that he
would maintain the land for agricultural use. See Town of Sudbury,
787 N.E.2d at 538. Had he bought it for any other use, the town
would have been entitled to a statutory right of first refusal.5
5
The relevant statute provides:
Land which is valued, assessed and taxed on
the basis of its agricultural or horticultural
use . . . shall not be sold for or converted
to residential, industrial or commercial use
while so valued, assessed and taxed unless the
city or town in which such land is located has
been notified of intent to sell for or convert
to such other use . . . . [S]aid city or town
shall have, in the case of an intended sale, a
first refusal option to meet a bona fide offer
to purchase said land, or in the case of an
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See id. at 541.
Only months after the acquisition, the purchaser began to
prepare the site for non-agricultural use and soon entered into a
purchase-and-sale agreement with a third party who intended to
carry out the non-agricultural use. See id. at 538-40. When the
town learned of the impending sale, it sought to exercise its right
of first refusal as to the transaction between the original owner
and the purchaser. Receiving a cold shoulder, the town filed suit
in state court. See id. at 540.
On those facts, the SJC remanded the case for a
determination of the purchaser's intent at the time he took title.
Id. at 546. In language celebrated by BTG and its shareholders,
the court concluded that "[a]t common law, a right of first refusal
ripens into an option to purchase when the condition set forth in
the instrument creating the right is met. . . . The holder is
entitled to specific performance of the option as to a subsequent
owner who purchased with notice of the holder's right of first
refusal." Id. at 543 (footnote omitted). Although the SJC's
commentary in Town of Sudbury is relatively broad, the case is
readily distinguishable from the case at hand on at least two
intended conversion not involving sale, an
option to purchase said land at full and fair
market value . . . .
Town of Sudbury, 787 N.E.2d at 541 n.10 (quoting Mass. Gen. Laws
ch. 61A, § 14).
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levels: the purpose underlying the right of first refusal and the
centrality of the remedy to the litigation.
As to the first, the Massachusetts statute granting the
right of first refusal in Town of Sudbury was passed under the
aegis of the legislature's power to regulate "for the purpose of
developing and conserving agricultural or horticultural lands."
Mass. Const. amend. art. 99; see Town of Sudbury, 787 N.E.2d at
544-46. Thus, specific performance embodied the only remedy that
would comport with the right's purpose: only by acquiring the land
could the town maintain it for agricultural use. In contrast,
BTG's right of first refusal was negotiated by the parties to the
Shareholders' Agreement in order to ensure that Harvard (and not
some stranger who did not have BTG's blessing) would retain control
of BTG's preferred shares. Rescission of the unauthorized transfer
returns the shares to a Harvard entity (Holdings) and, thus,
adequately serves the original purpose of the right. Specific
performance, however, would return the shares to BTG, negating any
opportunity for a further relationship between Harvard and the
company — a relationship clearly valued at the time of contracting.
The second distinction is equally compelling. In Town of
Sudbury, the trial court's remedial choice was hardly central to
the litigation; in fact, the language to which BTG and its
shareholders cling so tightly is dictum, pure and simple. That is
understandable; the issue actually litigated in Town of Sudbury was
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whether notice of an intended change of use as opposed to actual
change of use triggered the town's statutory first refusal right.6
See Town of Sudbury, 787 N.E.2d at 544. The court's choice of
remedy was seemingly uncontroversial. No matter whether the court
rescinded the transaction (and, thus, returned the land to the
original owner) or specifically enforced the right of first refusal
(and, thus, required the land to be offered to the town), the
purchaser would lose the opportunity to develop it for a non-
agricultural purpose.
Here, however, the consequences of the remedial choice
are quite different. Although Holdings and the Fund are not
affiliates as that term is defined in the Shareholders' Agreement,
they nonetheless are related entities. As such, their interests
are much more closely aligned than those of the original owner and
purchaser in Town of Sudbury. Holdings and the Fund are not
indifferent to the choice of remedy — nor should they be. If
rescission stands, the BTG shares will remain in a Harvard pocket,
but if specific performance is ordered, the shares (and their
apparently enhanced value) will escape completely from the fold.
On the basis of these distinctions, we conclude that the
district court committed no error of law when it declined to order
specific performance in this instance. Even so, BTG and its
6
We already have dispatched the analogous question here —
whether Holdings and the Fund were affiliates and, thus, whether
the first refusal right came into play.
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shareholders have a fallback position. They asseverate that the
district court misapplied Massachusetts law in two other respects.
Accordingly, we examine those asseverations.
First, BTG and its shareholders assert that the court's
remedial decision offends basic canons of contract interpretation
by transforming a right of first refusal into a mere veto right.
This assertion lacks force. Although we agree that courts must
enforce contracts as written, see, e.g., Hakim v. Mass. Insurers'
Insolvency Fund, 675 N.E.2d 1161, 1164 (Mass. 1997), the
shareholders' characterization of the district court's actions is
unfair. By ordering rescission, the district court did not alter
the underlying contract — if Holdings were to attempt to retransfer
the shares to the Fund (or any other non-affiliate, for that
matter), it would still need to abide by the right of first
refusal.
Second, BTG and its shareholders hypothesize that the
district court selected an incorrect remedy. They find fault
because the remedy imposed does not place them in the same position
that they would have occupied had Holdings performed as required by
the right of first refusal. That argument assumes too much.
While it is the goal of specific performance to place
parties in the same position as they would occupy had the contract
been carried out, that is not the goal of all contract remedies.
Cf. VMark Software, Inc. v. EMC Corp., 642 N.E.2d 587, 590 n.2
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(Mass. App. Ct. 1994) (contrasting "[t]he long-established general
rule for breach of contract recovery in Massachusetts . . . that
the wronged party should . . . be placed in the same position as if
the contract had been performed" with an "alternative" remedy
designed to place a plaintiff in as good a position as he would
have occupied had no transaction occurred). Rescission is a remedy
of a different kind — a remedy that, in this case, aims to place
BTG and its shareholders in as good a position as they would have
enjoyed had the offending transaction not occurred at all. Given
the district court's superior coign of vantage, we are not
persuaded that the court committed legal error in weighing the
equities, favoring some remedial interests over others, and
concluding that rescission was the remedy of choice.
An additional circumstance buttresses our view that the
district court exercised its judgment reasonably. Even without
specific performance, BTG likely will end up with the entirety of
its preferred shares through the put, which Holdings has already
tried to exercise. Given the incestuous nature of the relationship
between Holdings and the Fund — while they are not affiliates
within the isthmian confines of the definition embedded in the
Shareholders' Agreement, they are, as we have said, plainly related
parties — the put price may well represent a fairer approximation
of the worth of the stock at or near the time of the attempted
transfer than would the terms agreed upon by Holdings and the
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Fund.7
The BTG shareholders most bruited response to this
reasoning is that a weighing of the equities rewrites the district
court's remedial rationale. This position relies heavily on the
district judge's casual statement that he was "not doing equity."
Yet, the judge retreated from that remark almost immediately
thereafter, saying "I guess maybe I am specifically enforcing it in
the sense that I'm saying that the shares have to be
retransferred." Given that these comments were made from the bench
and were not repeated in the Rule 54(b) findings, we deem it wise
to embrace substance over form. See, e.g., United States v.
Hilton, 946 F.2d 955, 958 (1st Cir. 1991) ("We think it is
unrealistic to expect that busy trial judges, ruling from the
bench, will be infinitely precise in their choice of language.").
To cinch matters, the judge characterized the transaction as "void
ab inito" — a characterization more consistent with rescission than
with specific performance.
We need go no further. Finding, as we do, that the
district court was not limited to a single remedy under
Massachusetts law, that rescission of the transfer was within the
armamentarium of permissible choices available to the court, and
7
The put option calls for calculation of the value of the
shares as of January 14, 2002, only a matter of weeks after the
date of the transaction between Holdings and the Fund (November 1,
2001).
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that rescission was reasonable under the circumstances, we conclude
that the court acted within the encincture of its discretion in
simply voiding the transfer.
III. CONCLUSION
We summarize succinctly. Holdings and the Fund are not
affiliates within the purview of the Shareholders' Agreement.
Thus, Holdings breached that agreement when it did not offer the
BTG shareholders an opportunity to exercise their right of first
refusal prior to effecting the challenged transfer. Considering
all the circumstances of this case, however, the lower court was
not obliged to order specific performance of the first refusal
right. Rather, the court acted within its equitable discretion
when, after mulling both specific performance and rescission, it
chose the latter.
The decision of the district court is affirmed in all
respects and the case is remanded for further proceedings. All
parties shall bear their own costs.
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