United States Court of Appeals

For the First Circuit

No. 06-2103

FRANK U. WETMORE,

Plaintiff-Appellant,

v.

MACDONALD, PAGE, SCHATZ, FLETCHER & COMPANY, LLC,

Defendant-Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. George Z. Singal, United States District Judge]

Before

 Howard, Circuit Judge, 

Selya, Senior Circuit Judge, 

and Shadur,* Senior District Judge.

James T. Kilbreth, with whom Peter S. Black and Verrill Dana,

LLP were on brief, for appellant.

Bruce W. Hepler, with whom Laurence H. Leavitt and Friedman,

Gaythwaite, Wolf & Leavitt were on brief, for appellee.

February 12, 2007

__________

*Of the Northern District of Illinois, sitting by designation.
-2-

SHADUR, Senior District Judge. This diversity action was

brought in the United States District Court for the District of

Maine in February 2006 by Frank Wetmore (“Wetmore”) against

Macdonald, Page, Schatz, Fletcher & Co., LLC (“Macdonald Page”), a

Maine limited liability company none of whose members shares

Wetmore’s Massachusetts citizenship. Wetmore’s complaint alleges

that Macdonald Page committed professional negligence, breach of

contract and negligent misrepresentation when it appraised a

business in which Wetmore was a shareholder for less than half its

actual value.

When Macdonald Page moved to dismiss the action under

Fed. R. Civ. P. (“Rule”) 12(b)(6), a magistrate judge recommended

granting its motion, and the district court then upheld that

recommendation. Wetmore has filed a timely appeal challenging the

dismissal.

STANDARD OF REVIEW

As taught in such cases as Epstein v. C.R. Bard, Inc.,

460 F.3d 183, 187 (1 Cir. 2006): st

We review a Rule 12(b)(6) dismissal de novo,

considering all well-pleaded facts in the

complaint to be true.

That familiar principle adheres to the seminal teaching of Conley

v. Gibson, 355 U.S. 41, 45-56 (1957) that “a complaint should not

be dismissed for failure to state a claim unless it appears beyond

doubt that the plaintiff can prove no set of facts in support of
-3-

his claim which would entitle him to relief.” To that end, in

addition to the acceptance of all well-pleaded allegations and all

reasonable inferences from those allegations as well, Nisselson v.

Lernout, 469 F.3d 143, 150 (1 Cir. 2006) explains: st

Facts distilled in that fashion may be

augmented by reference to (i) documents

annexed to it [the complaint] or fairly

incorporated into it, and (ii) matters

susceptible to judicial notice.

BACKGROUND

Wetmore’s complaint concerns the sale of his stock in

Portland Shellfish Company, Inc. (“Company”), a Maine-based close

corporation whose chief business is processing live shellfish. As

one of the two owners, Wetmore held 300 voting and 150 non-voting

shares of Company stock, while the remaining 300 voting shares were

held by Donna Holden. Ms. Holden’s husband Jeff (hereafter simply

“Holden”) served as President of the Company and managed its daily

operations, including production, procurement and sales. 

Under the Company’s Shareholders’ and Officers’ Agreement

(“Agreement,” attached to the complaint as an exhibit), the

Company’s board of directors was restricted to two members:

Wetmore and Holden. By late 2001 number of disagreements had

arisen between Wetmore and the Holdens over the management and

direction of the Company. After unsuccessful efforts to resolve

those differences, the Holdens invoked the deadlock-breaking

provision of Agreement §11.5.5:
-4-

In the event the operations of the Company are impaired

because of deadlock on the board of directors, the

shareholders agree that they shall each have the right to

acquire the other shareholder’s stock, as follows. In

the event of a deadlock, the directors shall hire an

accountant at MacDonald Page & Co., South Portland,

Maine, to determine the value of the outstanding shares.

Once the value is reported to the directors by the

accountant, the directors shall call a meeting, each

shareholder shall have the right to buy out the other

shareholder(s)’ interest, at a price equal to or greater

than the price determined by the accountant. The highest

offer made by any shareholder at the meeting shall be

binding upon the other shareholder(s). The shareholder

who is acquiring the stock shall be required to close on

the acquisition within 90 days of the meeting of the

shareholders.

In accordance with that provision, Wetmore and the

Holdens retained Macdonald Page to evaluate the Company’s shares by

identifying the fair market value of a 100% common equity interest.

In its engagement letter Macdonald Page defined “fair market

value”:

The price at which the property would change hands

between a willing buyer and a willing seller, neither

being under a compulsion to buy or sell and both having

reasonable knowledge of relevant facts.

As called for by the Agreement and Macdonald Page’s

engagement letter, it delivered its valuation report to the

Company, estimating “the fair market value of the common stock of

[the Company] at June 30, 2002, to be approximately $1,090,000.” 

Ms. Holden then offered to purchase Wetmore’s shares at a price

equal to 60% (Wetmore’s proportionate share) of Macdonald Page’s

valuation. Wetmore, however, resisted that offer and countered by

offering $1.25 million for Ms. Holden’s shares if Holden would sign
-5-

a non-compete agreement. Alternatively Wetmore offered to join in

selling the Company to a third party.

In response the Holdens rejected both of Wetmore’s

offers. Ms. Holden insisted that Wetmore was obligated to sell his

shares pursuant to Agreement §11.5.5, stating that she would sue if

he refused. Facing the threat of litigation, Wetmore sold his

shares to Ms. Holden for $750,705, a price that represented 60% of

the Macdonald Page evaluation after adjustment to eliminate a 7%

“marketability discount” included in Macdonald Page’s report.

As stated at the outset, Wetmore’s Complaint asserts that

Macdonald Page’s valuation “was well less than half the actual

value” of the Company’s total stock, which Wetmore attributes to

factors including Macdonald Page’s disregard for “commonly accepted

and reliable methods of valuation in favor of less reliable

methods.” More specifically, Count I charges professional

negligence, Count II charges breach of contract and Count III

charges negligent misrepresentation.

REQUIRED ELEMENTS OF PROOF

All three of Wetmore’s claims stem from the common

law--two sound in tort, one in contract. And all three were found

wanting by the district court based on its determination that

Wetmore would be unable to prove causation, a critical element in
 Throughout this opinion we look to the substantive law of 1

Maine, which Agreement §15 designates as providing the rules of

decision.

-6-

each.1

Thus Graves v. S.E. Downey Land Surveyor, P.A., 885 A.2d

779, 782 (Me. 2005)(emphasis added) instructs that “[t]he plaintiff

in a professional negligence action must establish the appropriate

standard of care, demonstrate that the defendant deviated from that

standard, and prove that the deviation caused the plaintiff’s

damages.” Similarly, Maine Energy Recovery Co. v. United Steel

Structures, Inc., 724 A.2d 1248, 1250 (Me. 1999)(emphasis added)

identifies the required elements of proof in a breach of contract

action as comprising “(1) breach of a material contract term;

(2) causation; and (3) damages.” Finally, Chapman v. Rideout, 568

A.2d 829, 830 (Me. 1990) holds that Maine recognizes the tort of

negligent misrepresentation as defined in Restatement (Second) of

Torts, §552(1) (1977)(emphasis added)):

One who, in the course of his business, profession or

employment, or in any other transaction in which he has

a pecuniary interest, supplies false information for the

guidance of others in their business transactions, is

subject to liability for pecuniary loss caused to them by

their justifiable reliance upon the information, if he

fails to exercise reasonable care or competence in

obtaining or communicating the information.

With all other components of each of Wetmore’s theories

of recovery plainly being met by his complaint’s allegations, the

central issue on this appeal is whether Wetmore’s well-pleaded
 Although Napier was a case sounding in admiralty, its 2

stated principles of proximate causation are universally applied.

-7-

facts support a claim that Macdonald Page’s negligent valuation

caused him to receive less than fair market value for his shares.

We turn to that question.

CAUSATION ELEMENT

As we have said in Napier v. F/V Deesie, Inc., 454 F.3d

61, 68 (1 Cir. 2006), “[i]n order for the negligent act to st

constitute proximate cause, the act or omission must be a

substantial factor in bringing about the harm and the injury

incurred must have been a reasonably foreseeable consequence.”2

Merriam v. Wanger, 757 A.2d 778, 780-81 (Me. 2000) has put the same

concept in these terms:

Evidence is sufficient to support a finding of proximate

cause if the evidence and inferences that may reasonably

be drawn from the evidence indicate that the negligence

played a substantial part in bringing about or actually

causing the injury or damage and that the injury or

damage was either a direct result or a reasonably

foreseeable consequence of the negligence. The mere

possibility of such causation is not enough, and when the

matter remains one of pure speculation or conjecture, or

even if the probabilities are evenly balanced, a

defendant is entitled to judgment.

Notably, Merriam does not insist that a defendant’s

conduct must be the only cause of the harm--instead it must have

contributed substantially to the harm suffered. We therefore look

to the question whether under the facts as pleaded a reasonable

jury could conclude that Macdonald Page’s negligence was a
-8-

substantial factor in Wetmore’s recieving less than the full market

value of his shares.

According to the district court, Wetmore cannot establish

causation because “[n]othing in the Agreement or in the other

factual allegations of the complaint required the plaintiff to

accept Donna Holden’s offer.” Instead “[a]ll he had to do was

offer her the same amount or more per share for her shares than she

had offered him for his.” It was the district court’s view that

the deadlock provision required Wetmore to accept Ms. Holden’s

offer only if and when he determined that he was unwilling to offer

more money per share to purchase her stock. Through the district

court’s lens Wetmore “had many options, ranging from challenging

the appraisal in any of a number of ways to offering Donna Holden

the same amount per share to offering her more per share.”

In that light the district court ultimately held that

Macdonald Page’s valuation was not and could not have been a cause,

substantial or otherwise, of Wetmore’s loss. We disagree.

Under the Agreement the parties, in the event of a

deadlock, were required to hire Macdonald Page in what would be the

first step in potentially resolving the stalemate. It was

Macdonald Page’s role to provide a valuation that the parties would

use to begin a bidding process. As the plain language of the

Agreement put it, the purpose of the Macdonald Page valuation was

“to determine the value of the outstanding shares” so that at the
-9-

ensuing shareholders’ meeting “each shareholder shall have the

right to buy out the other shareholder(s)’ interest, at a price

equal to or greater than the price determined by the accountant”

(emphasis added). In brief, Macdonald Page’s figure was to serve

as a floor--the lowest possible bid. To say that a negligentlyarrived-at valuation that set an artificially low floor would not

have a substantial effect on a shareholder in Wetmore’s position

ignores the logic of cause and effect. 

Importantly, Wetmore was under no compulsion to enter the

active bidding process. If for any reason he felt himself unable

to compete on a level playing field after acquiring total ownership

of the Company (it will be remembered that the Holdens would be

free to engage in the same business post-sale, with Holden having

the operating experience that Wetmore lacks), he had the absolute

right to accept Ms. Holden’s offer so long as it equaled or

exceeded Macdonald Page’s valuation figure. And that meant he had

the right to rely on Macdonald Page to generate a valuation that

set a fair price for the shares.

Instead, under the allegations of the complaint that must

be accepted as gospel for present purposes, Macdonald Page

improperly promulgated a figure that was less than half the true

value of Wetmore’s shares. To be sure, Wetmore could have

responded by offering Ms. Holden more for her shares, but being

limited to that route deprived him of the full benefit of his
-10-

bargain by foreclosing his opportunity to sell at a fair price.

Once Macdonald Page rendered its negligent undervaluation of the

Company, it was too late--indeed, impossible--for Wetmore to choose

to exercise that equally absolute right. Wetmore’s allegations

thus offer far more than “pure speculation or conjecture” (Merriam,

757 A.2d at 781) as to Macdonald Page’s improper valuation being a

substantial factor in Wetmore’s asserted loss.

It should be added that Wetmore’s injury was entirely

foreseeable. What Macdonald Page’s alleged misfeasance imposed on

Wetmore was precisely the type of bind that shareholders in a close

corporation seek to avoid when they include buy-sell provisions in

their agreements. Protections afforded by buy-sell provisions that

set a bidding floor are fully meaningful only if the initial

valuation of the company is performed accurately. Otherwise, as

here, the distortion of that base valuation skews the entire

process.

In this instance the parties selected a buy-sell

provision that would have been evenhanded if the valuation had been

properly arrived at. By contrast, it is entirely foreseeable that

a shareholder who receives an improperly low bid based on a

negligently-reached valuation will suffer a loss based on the

undervaluation of his or her shares. And here Macdonald Page’s

engagement letter expressly confirmed its own understanding that

its valuation would play a key role in the bidding process:
-11-

We understand that our valuation conclusion will be used

in conjunction with the Company’s “Shareholder’s and

Officer’s Agreement” dated February 1, 1994, paragraph

11.5.5....

To argue that Wetmore’s loss was not foreseeable would be

disingenuous, given that plain language confirming Macdonald Page’s

duty to the Company’s shareholders.

In its decision the district court also reasoned that if

Macdonald Page’s valuation had been higher, there is no guaranty

that Ms. Holden would have made an offer. We too lack an unclouded

crystal ball to tell us what would have transpired had the

valuation been performed without negligence. There are multiple

possibilities, including the prospect that an unsuccessful bidding

process might for example have led the parties to resolve their

differences, breaking their deadlock, or might instead have led to

the invocation of Maine’s statutory provision for the resolution of

corporate deadlocks. But such speculation plays no part in the

determination at the pleading stage whether Wetmore has stated a

cognizable claim--he clearly has. We emphasize that there are many

factual questions and matters of proof that remain unresolved, but

those will require a more developed record--they simply are not

before us at the Rule 12(b)(6) stage.

CONCLUSION

For the reasons that have been stated here we REVERSE the

district court’s dismissal of Wetmore’s complaint and REMAND for

further proceedings consistent with this opinion.