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Keywords

plaintiffdefendantlitigationstatuteappealhearingsummary judgmentfiduciarycorporationstatute of limitationsfiduciary dutybreach of fiduciary duty
plaintiffdefendantlitigationhearingmotionsummary judgmentfiduciarycorporationfiduciary dutybreach of fiduciary duty

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Houle v. Low, 407 Mass. 810, 556 N.E.2d 51

Facts

The plaintiff formed Eye Health Services, Inc. with the individual defendants in 1971. In 1984, the individual defendants decided to create a surgical center without inviting the plaintiff to participate, informing him of their decision in early February. The surgical center was incorporated in January 1985, and the plaintiff filed suit against the defendants in January 1988, alleging fraud and breach of fiduciary duty. The court granted summary judgment for the defendants, but the plaintiff appealed, leading to a review of the case by the Supreme Judicial Court.

The plaintiff is an ophthalmologist who formed a corporation, the defendant, Eye Health Services, Inc. (Eye Health), with the individual defendants in 1971. He joins as defendants two affiliated corporations, New England Eye Surgical Center, Inc. (Surgical Center), and Eye Health Services—Optical Products, Inc. (Optical Products). The plaintiff sued individually and derivatively as a minority shareholder, charging fraud, breach of fiduciary duty, and misappropriation of corporate opportunities.

Issue

The main legal issues were whether the plaintiff's claims were barred by the statute of limitations and whether the use of a special litigation committee to determine the propriety of pursuing a derivative action was permissible under Massachusetts law.

The issues in this case are (1) whether Massachusetts law permits the use of a special litigation committee, appointed by a majority of directors, to determine the propriety of pursuing a derivative action, and (2) if so, what degree of judicial scrutiny should be applied to that committee's decision?

Rule

The court held that a special litigation committee appointed by a majority of directors can determine whether to pursue a derivative action, but its independence and the fairness of its procedures must be scrutinized by the court.

The court held that a special litigation committee appointed by a majority of directors can determine whether to pursue a derivative action, but its independence and the fairness of its procedures must be scrutinized by the court.

Analysis

The court found that the plaintiff's claims were time-barred as they accrued when he was informed of the vote not to include him in the new venture. However, it also determined that there were material issues of fact regarding the independence and bias of the special litigation committee, which warranted further examination rather than summary judgment.

The court found that the plaintiff's claims were time-barred as they accrued when he was informed of the vote not to include him in the new venture. However, it also determined that there were material issues of fact regarding the independence and bias of the special litigation committee, which warranted further examination rather than summary judgment.

Conclusion

The court affirmed the judgments in favor of the individual defendants but reversed the judgment for the corporation on the derivative action, remanding the case for an evidentiary hearing to assess the committee's independence.

The court affirmed the judgments in favor of the individual defendants but reversed the judgment for the corporation on the derivative action, remanding the case for an evidentiary hearing to assess the committee's independence.

Who won?

The individual defendants prevailed as the court affirmed the summary judgment in their favor, concluding that the plaintiff's claims were barred by the statute of limitations.

The plaintiff filed a motion for voluntary dismissal under Mass.R.Civ.P. 41(a)(2), 365 Mass. 803 (1974), as to Optical Products which he concedes had not been formed. Ultimately, final judgment was entered for all defendants as to all claims of the plaintiff.

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