For Massachusetts attorney Kurt Hemr, disputes involving family businesses and other closely-held corporations call to mind a classic quote from Leo Tolstoy’s Ana Karenina: “Happy families are all alike; every unhappy family is unhappy in its own way.”
In all-new Special Commentary featured in the 2023 Edition of Massachusetts Laws Governing Business Entities Annotated, Hemr examines case law that legal practitioners should keep in mind when addressing the unique circumstances that come with conflicts in closely-held companies.
“The Massachusetts Business Corporation Act (Chapter 156D) provides ready answers to many legal questions that a corporation organized under Massachusetts law will face,” Hemr notes. “For questions involving family businesses and other closely-held corporations, however, the corporate attorney will also have to look to case law and consider the interplay between that Massachusetts statute and the Massachusetts precedents on close corporations and controlling shareholders which have maintained their force side-by-side with that act.”
Hemr goes on to provide insightful analysis of cases that address shareholder claims for closely-held corporations, such as Cushing v. Sheehan:
Cushing v. Sheehan[1] presented a dispute among members of a family that owned a number of beer distributorships and other business assets through a number of corporate entities variously organized under the laws of Massachusetts, Delaware, and New York. Eventually, certain family members asserted that they had been treated unfairly by other members of the family with respect to the family’s business, and various claims, counter-claims, and cross-claims were filed. Judge Krupp, sitting in the Business Litigation Session, analyzed whether the plaintiffs’ claims for unjust enrichment and breach of fiduciary duty were claims that must be asserted derivatively or whether they could be asserted directly. The court determined that with respect to the Massachusetts entities, “the second [IBEW v.] Tucci exception” applied because one defendant was alleged to be a controlling shareholder of those entities who engaged in self-dealing transactions to the detriment of minority shareholders.[2]
Hemr writes that “the proliferation of disputes involving family-owned and other closely-held corporations is unfortunately not new to Massachusetts courts. Determining whether shareholder claims are direct or derivative in such situations can be difficult; just as ‘every unhappy family is unhappy in its own way,’ every close corporation dispute presents distinctive facts, and those facts may not map cleanly to Massachusetts precedents.”
The author provides a final thought for family businesses and their counsel: “One piece of advice is perennial: it is always tempting to believe that a family’s business interests—or the interests of a small shareholder group—will be blessedly free from conflict and accordingly the company’s counsel can efficiently handle any legal issues that may arise. Not so. Where there is the potential for conflict, shareholders are better served by having their own independent counsel. There is no efficiency to be had in a joint representation that will give rise to a series of charges and counter-charges of fiduciary breach.”
CSC’s Massachusetts Laws Governing Business Entities Annotated is a comprehensive collection of annotated Massachusetts business statutes and regulations and is an essential resource for business law practitioners in the state and the region.
The 2023 edition is updated with the latest legislation through Chapter 6 of the 2023 Massachusetts legislative session, along with the latest case notes from state and federal courts interpreting the law. Also included in this edition are four full-text cases covering recent legal developments regarding depositions, the business judgment rule, freeze-outs, and the employee rights of LLC members.
Other features include a Massachusetts Business Fee Schedule for business filings and 200 Massachusetts forms for incorporation and formation, qualification, mergers, dissolution, and name reservation for all entity types. Forms are available via the LexisNexis® Store download center. The forms appendix provides a list of forms and contact information for the Massachusetts Division of Corporations.
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To learn more about the 2023 Edition of Massachusetts Laws Governing Business Entities Annotated, call 1.800.533.1637 or visit us online at lexisnexis.com/csc.
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*Kurt Hemr is a partner in the Boston offices of Skadden, Arps, Meagher & Flom LLP whose practice focuses on securities and insurance product litigation, intellectual property litigation, corporate governance disputes, and other forms of complex civil litigation. The views expressed in the Special Commentary section of Massachusetts Laws Governing Business Entities Annotated are those of the author and not the firm.
[1] No. 20-2931-BLS1, 2023 WL 2744334 (Mass. Super. Ct. Mar. 6, 2023).
[2] Id. at *8-9.