Title: Vale v. Valchuis
Citation: N/A
Docket Number: SJC-11744
State: Massachusetts
Issuer: Massachusetts Supreme Court
Date: May 22, 2015

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SJC-11744 
 
MICHAEL A. VALE  vs.  DAVID J. VALCHUIS & another.1 
 
 
 
Middlesex.     February 4, 2015. - May 22, 2015. 
 
Present:  Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, 
& Hines, JJ. 
 
 
Corporation, Close corporation, Valuation of stock, Transfer of 
shares.  Massachusetts Arbitration Act.  Uniform 
Arbitration Act.  Arbitration, Appeal of order compelling 
arbitration, Arbitrable question. 
 
 
 
 
Civil action commenced in the Superior Court Department on 
July 8, 2013. 
 
 
A motion to compel arbitration was heard by Kenneth V. 
Desmond, Jr., J. 
 
 
The Supreme Judicial Court granted an application for 
direct appellate review. 
 
 
 
Euripides D. Dalmanieras (James W. Bucking with him) for 
New England Cleaning Services, Inc. 
 
Robert R. Berluti (Edward F. Whitesell, Jr., with him) for 
the plaintiff. 
 
Ben Robbins & Martin J. Newhouse, for New England Legal 
Foundation, amicus curiae, submitted a brief. 
 
 
                                                          
 
 
1 New England Cleaning Services, Inc. (NECS). 
2 
 
 
CORDY, J.  In this case we decide whether the valuation of 
stock, pursuant to a stock transfer restriction, is a proper 
subject for arbitration and, if so, whether and when a selling 
shareholder may terminate the arbitration process.  The transfer 
restriction in this case required the shareholder first to offer 
his stock to the company at his desired price, and then, if the 
company rejected it, to offer it at a price to be determined by 
arbitrators.  The plaintiff, Michael A. Vale, invoked this 
process by tendering an offer to the defendant, New England 
Cleaning Services, Inc. (NECS).  After doing so, however, he 
changed his mind regarding his desire to sell and sought to 
withdraw from the process of valuing his stock.  NECS moved to 
compel arbitration. 
 
A judge in the Superior Court denied the motion to compel, 
relying on the doctrine of Palmer v. Clark, 106 Mass. 373, 389 
(1871), which distinguishes arbitration from appraisal.  The 
judge concluded that a mere disagreement over the value of stock 
was legally insufficient to give rise to arbitration.  On 
appeal, NECS argues that Palmer and its progeny were abrogated 
by G. L. c. 251, inserted by St. 1960, c. 374, § 1, as amended 
(Arbitration Act), which, among other things, provides that a 
written contract providing for the arbitration "of any existing 
controversy" is "valid, enforceable and irrevocable" except on 
3 
 
grounds that exist for "the revocation of any contract."  See G. 
L. c. 251, § 1. 
 
We conclude that the distinction between arbitration and 
appraisal remains valid, but affirm the judge's denial of the 
motion to compel on other grounds.  A stock valuation may be 
conducted through arbitration, so long as an actual controversy 
exists regarding the value of the stock.  A rejected offer to 
sell the stock creates such a controversy, provided that the 
shareholder still desires to sell the stock and the transfer 
restriction requires him to offer it first to the company.  A 
shareholder may not, however, unilaterally withdraw the 
controversy from arbitration once it has commenced.  Because the 
shareholder in this case decided not to sell the stock prior to 
the commencement of arbitration, the controversy to be 
arbitrated was rendered moot.2 
 
1.  Background.  Vale is a fifty per cent shareholder of 
NECS, a Massachusetts close corporation.  The only other 
shareholder is Vale's brother, David J. Valchuis.  Vale and 
Valchuis formed NECS in 1977 and both remain directors of the 
company.  In 2005, Vale and Valchuis experienced a breakdown in 
their business relationship, after Vale stepped down as NECS's 
president.  On several occasions over the ensuing eight years, 
                                                          
 
 
2 We acknowledge the amicus brief submitted by the New 
England Legal Foundation. 
4 
 
Vale expressed a desire to sell his NECS stock.  Article 5 of 
NECS's articles of incorporation (Article 5) describes a 
discrete process that a shareholder must follow if he desires to 
sell his stock.3  Vale did not invoke Article 5 during these 
initial discussions regarding the sale of his stock. 
 
In June, 2013, NECS suspended shareholder distributions on 
the asserted grounds of increased labor costs and other 
expenses.  In response, Vale filed a complaint against NECS and 
Valchuis in Superior Court, alleging breach of fiduciary duty 
and seeking an accounting.  Vale contended in essence that the 
                                                          
 
 
3 Article 5 of the articles of organization (Article 5) of 
NECS provides, in relevant part: 
 
"Any stockholder . . . desiring to sell, transfer or pledge 
such stock owned by him or them, shall first offer it to 
the corporation through the Board of Directors, in the 
manner following: 
 
"He shall notify the directors of his desire to sell or 
transfer by notice in writing, which notice shall contain 
the price at which he is willing to sell or transfer and 
the name of one arbitrator.  The directors shall within 
thirty days thereafter either accept the offer, or by 
notice to him in writing name a second arbitrator, and 
these two shall name a third.  It shall then be the duty of 
the arbitrators to ascertain the value of the stock, and if 
any arbitrator shall neglect or refuse to appear at any 
meeting appointed by the arbitrators, a majority may act in 
the absence of such arbitrator.  
 
"After the acceptance of the offer, or the report of the 
arbitrators as to the value of the stock, the directors 
shall have thirty (30) days within which to purchase the 
same at such valuation, but if at the expiration of thirty 
days, the corporation shall not have exercised the right so 
to purchase, the owner of the stock shall be at liberty to 
dispose of the same in any manner he may see fit. . . ." 
5 
 
suspension of distributions was designed to force him to sell 
his shares at a reduced price.  NECS filed a counterclaim, 
alleging breach of fiduciary duty and breach of contract.  The 
basis of the breach of contract claim was Vale's failure to 
comply with Article 5. 
 
In October, 2013, during the pendency of the litigation, 
Vale specifically invoked Article 5 in a letter sent to Valchuis 
in the latter's capacity as a director of NECS.  In the letter, 
Vale offered his shares to NECS at the price of $5 million and, 
and as required by Article 5, named one arbitrator.  Consistent 
with Article 5, Vale's letter also stated that "the Board of 
Directors must within thirty (30) days of this notice either 
accept this offer, or notify me in writing the name of an 
arbitrator selected by NECS."  On November 1, 2013, NECS 
declined Vale's offer and named a second arbitrator accordingly.  
Under the provision of Article 5, the two named arbitrators were 
then to select a third arbitrator for the purpose of arbitrating 
(or "ascertaining") the value of the stock. 
 
On November 8, 2013, Vale argued in his motion before the 
Superior Court that because he had invoked Article 5, NECS's 
counterclaim for breach of contract was moot.  The following 
week, prior to the selection of the third arbitrator, Vale 
informed NECS that he was "no longer interested in selling his 
NECS stock" and that the "arbitration that has not yet commenced 
6 
 
. . . is therefore moot."  NECS responded that Vale had no power 
to terminate the arbitration proceedings that he commenced by 
invoking Article 5. 
 
NECS filed a motion to compel Vale to arbitrate the value 
of his stock.  The judge concluded that, notwithstanding its 
references to "arbitrators," Article 5 called for a valuation 
proceeding in the nature of an appraisal rather than 
arbitration.  Finding that there was no agreement to arbitrate 
and, therefore, that the Arbitration Act did not apply, the 
judge denied NECS's motion to compel arbitration.  NECS filed an 
interlocutory appeal pursuant to G. L. c. 251, §§ 2, 18, and we 
granted NECS's application for direct appellate review. 
 
2.  Discussion.  The validity and scope of arbitration 
agreements have been governed by statute in the Commonwealth 
since at least 1786.  See St. 1960, c. 374; St. 1925, c. 294; 
Rev. St. 1901, c. 194; Pub. St. 1881, c. 188; Gen. St. 1855, 
c. 147; Rev. St. 1835, c. 114; St. 1786, c. 21.  In an early 
case, Fowler v. Bigelow, 8 Mass. 1, 2 (1811), this court 
construed the 1786 statute as limiting arbitration to disputes 
in the nature of personal actions at law and, as a result, held 
that an arbitrator had no jurisdiction to determine title to 
real estate.  In 1835, the Legislature, citing Fowler, expanded 
the realm of arbitrable disputes to include "[a]ll 
controversies, which might be the subject of a personal action 
7 
 
at law, or of a suit in equity."  Rev. St. 1835, c. 114.  The 
question then arose whether a contractual provision calling for 
a valuation of property created an agreement to arbitrate. 
 
In Palmer, 106 Mass. at 389, this court concluded that it 
did not, observing that a "reference to a third person to fix by 
his judgment the price, quantity or quality of material, to make 
an appraisement of property and the like, especially when such 
reference is one of the stipulations of a contract founded on 
other and good considerations, differs in many respects from an 
ordinary submission to arbitration."  In an appraisal, for 
example, "[t]he decision may be made without notice to or 
hearing of the parties . . . and it may be made upon such 
principles as the person agreed on may see fit honestly to 
adopt, or upon such evidence as he may choose to receive."  Id.  
Our subsequent cases continued to apply the doctrine of Palmer, 
firmly entrenching the "distinction between the arbitration of a 
controversy and a contract one term of which calls for the 
ascertainment by designated persons of values, quantities, 
losses or similar facts."  Franks v. Franks, 294 Mass. 262, 266 
(1936).  See Eliot v. Coulter, 322 Mass. 86, 90 (1947). 
 
The scope of arbitrable disputes remained unchanged until 
the passage of the present Arbitration Act, which provides that 
"a provision in a written contract to submit to arbitration any 
controversy thereafter arising between the parties shall be 
8 
 
valid, enforceable and irrevocable, save upon such grounds as 
exist at law or in equity for the revocation of any contract."  
G. L. c. 251, § 1.  Notably absent from the Arbitration Act is 
the long-standing limitation of arbitration to actions in law 
and equity.  NECS makes much of this omission, arguing that the 
Arbitration Act rendered Palmer and its progeny obsolete.  We 
disagree. 
 
Although NECS is correct that the Arbitration Act expanded 
the scope of arbitrable controversies, the fact of the matter is 
that a controversy actually must exist to be submitted for 
arbitration.  The long line of cases distinguishing arbitration 
from appraisal was largely concerned with the absence of a 
controversy and other indicia of arbitration, rather than the 
valuation proceeding's genesis in law or equity.  Thus, in 
Franks, 294 Mass. at 266-267, quoting Matter of Fletcher, 237 
N.Y. 440, 451 (1924), we explained that the "provisions of the 
Arbitration Law are properly applicable to any contract where 
the parties have agreed to substitute for the courts an informal 
tribunal of their choice in the settlement of a controversy." 
 
Here, the motion judge ruled that Article 5 did not create 
a controversy and, thus, did not contain an arbitration clause.  
Relying on Eliot, 322 Mass. at 89, the judge reasoned that 
although "[t]here may be a dispute about the value of NECS stock 
. . . such a difference of opinion regarding value does not 
9 
 
convert the valuation process into an arbitration determinative 
of the rights and liabilities of the parties."  The Eliot case 
does not support this proposition. 
 
In Eliot, supra, we observed that our understanding of the 
distinction between appraisal and arbitration was in accord with 
that of the United States Supreme Court in Omaha v. Omaha Water 
Co., 218 U.S. 180 (1910) (Omaha Water Co.).  In that case, the 
Court held that a valuation proceeding was an appraisal, rather 
than arbitration, where there was "no antecedent disagreement as 
to price."  Id. at 196.  The notion that an arbitration of value 
required an antecedent disagreement was drawn from an English 
case, Collins v. Collins, 53 Eng. Rep. 916 (1858), in which 
"there was a contract for the sale of a brewery at a price to be 
fixed by persons called arbitrators, one chosen by each party 
and a third by these two, before entering upon valuation."  
Omaha Water Co., supra at 194.  In Collins, the English court 
observed that although "fixing the price of a property may be 
'arbitration,'" the case before the court involved a mere 
appraisal.  Collins, supra at 918.  The court explained the 
distinction as follows: 
"An arbitration is a reference to the decision of one or 
more persons, either with or without an umpire, of some 
matter or matters in difference between the parties.  It is 
very true that in one sense it must be implied that 
although there is no existing difference, still that a 
difference may arise between the parties; yet I think the 
distinction between an existing difference and one which 
10 
 
may arise is a material one, and one which has been 
properly relied upon in the case.  If nothing has been said 
respecting the price by the vendor and purchaser between 
themselves, it can hardly be said that there is any 
difference between them.  It might be that if the purchaser 
knew the price required by the seller, there would be no 
difference, and that he would be willing to give it.  It 
may well be that if the vendor knew the price which the 
purchaser would give, there would be no difference, and 
that he would accept it.  It may well be that the decision 
of a particular valuer appointed might fix the price and 
might be equally satisfactory to both; so that it can 
hardly be said that there is a difference between them. 
Undoubtedly, as a general rule, the seller wants to get the 
highest price for his property, and the purchaser wishes to 
give the lowest, and in that sense it may be said that an 
expected difference between the parties is to be implied in 
every case, but unless a difference has actually arisen, it 
does not appear to me to be an 'arbitration.'  Undoubtedly, 
if two persons enter into an arrangement for the sale of 
any particular property, and try to settle the terms, but 
cannot agree, and after dispute and discussion respecting 
the price, they say, 'We will refer this question of price 
to A.B., he shall settle it,' and thereupon they agree that 
the matter shall be referred to his arbitration, that would 
appear to be an 'arbitration,' in the proper sense of the 
term, and within the meaning of the [Common Law Procedure 
Act]; but if they agree to a price to be fixed by another, 
that does not appear to me to be an arbitration." 
 
Id. at 918-919. 
 
The analysis of the English court in Collins is consistent 
with our precedent.  The Palmer and Eliot cases each involved 
valuation clauses in contracts similar to that of the Collins 
case, that is, clauses that did not presuppose an antecedent 
disagreement regarding value.  The contracts merely stated that 
value would be determined by a third party.  Palmer, 106 Mass. 
at 386 ("By the terms of the contract, and as a mode of fixing 
compensation, the amount of gravel deposited in filling it to a 
11 
 
fixed grade was to be measured on the ground by the city 
engineer, whose measurements were to be conclusive");  Eliot, 
322 Mass. at 87 (lease set annual rent at percentage of "fair 
valuation of the land comprised in the premises; said fair 
valuation to be determined . . . by three [3] disinterested 
parties or a majority of them, one to be chosen by the lessors, 
one by the lessees and one by the two so chosen").  As such, the 
contracts did not call for arbitration. 
 
Nonetheless, our cases -- both prior to and following the 
Arbitration Act -- have recognized that value may be arbitrable 
so long as an actual controversy exists.  For example, in 
Franks, 294 Mass. at 265, we explained that if, "before the 
agreement to arbitrate was entered into the plaintiff had 
completed a sale delivery of stock to the defendants on terms 
which obligated the defendants to pay a fair price for it, an 
issue as to price would be a controversy which might be the 
subject of a personal action, and so also a proper subject for 
statutory arbitration."  Although we concluded that no 
controversy existed in that case, in other cases we have 
enforced arbitration clauses triggered by antecedent 
disagreements regarding value.  See, e.g., Berkshire Mut. Ins. 
Co. v. Burbank, 422 Mass. 659, 660 (1996) (contract provided for 
submission of damages valuation only if agreement could not be 
reached); Trustees of Boston & Me. Corp. v. Massachusetts Bay 
12 
 
Transp. Auth., 363 Mass. 386, 387 (1973) (contract provided for 
submission of price to arbitration only after objection to offer 
price). 
 
Here, there clearly was -- at least initially -- an 
arbitrable disagreement regarding the value of Vale's shares.  
Acting pursuant to Article 5, Vale offered his shares to NECS at 
the price of $5 million.  NECS rejected that offer, ostensibly 
disputing the value of the shares.  See 1 Williston on Contracts 
§ 5:3 (4th ed. 2007) ("As a general principle, any words or acts 
of the offeree indicating that the offer has been declined . . . 
amount to a rejection").  At that juncture, a controversy 
existed that properly could be submitted to arbitration.  See 
Collins, 53 Eng. Rep. at 918-919.  Although not dispositive, the 
fact that Article 5 repeatedly refers to "arbitrators" suggests 
that the parties intended the valuation proceeding to be an 
arbitration.  General Convention of New Jerusalem in the U.S. of 
Am., Inc. v. MacKenzie, 449 Mass. 832, 835 (2007) ("When the 
words of a contract are clear, they must be construed in their 
usual and ordinary sense").  Had the valuation proceeding gone 
forward, NECS would have, pursuant to Article 5, received an 
enforceable right to purchase the shares at the price determined 
by the arbitrators.  See Franks, 294 Mass. at 267 (arbitrations 
result in judgments enforceable in court).  See also G. L. 
c. 251, § 16 (court has jurisdiction to enforce arbitration 
13 
 
awards).  Consequently, we hold that Article 5 contains an 
agreement to arbitrate future controversies regarding valuation, 
which is properly within the scope of the Arbitration Act. 
 
Vale argues that even if Article 5 contains an arbitration 
agreement, he was entitled to withdraw his offer to sell his 
shares at any time prior to NECS's acceptance of the price 
determined by the arbitrators.  NECS counters that Vale is 
precluded from withdrawing his offer, because his invocation of 
Article 5's arbitration provisions, i.e., the naming of an 
arbitrator, was irrevocable.  NECS argues further that allowing 
Vale to invoke and withdraw from arbitration would destroy NECS' 
right to receive the fruits of Article 5.  Neither party's 
interpretation of Article 5 is sound. 
 
We interpreted a nearly identical stock transfer 
restriction in Merriam v. Demoulas Super Mkts., Inc., 464 Mass. 
721, 731 (2013).4  In that case, we explained that the "text of 
                                                          
 
 
4 The stock transfer restriction in Merriam v. Demoulas 
Super Mkts., Inc., 464 Mass. 721, 723 n.9 (2013), likewise 
contained in the articles of organization, provided: 
 
"Any stockholder . . . desiring to sell, assign, transfer, 
pledge, or hypothecate in any manner such stock owned by 
him, shall first offer it to the corporation through the 
Board of Directors, in the manner following: 
 
"He shall notify the directors of his desire to sell . . . 
in writing, which notice shall contain the price and all 
other terms at which he is willing to sell . . . and the 
name of one arbitrator. The directors shall within [thirty] 
days thereafter either accept the offer or by notice to him 
14 
 
[the stock transfer restriction] begins with a requirement that 
a shareholder first offer his shares to the corporation, but 
thereafter describes a discrete process of valuation and 
subsequent offer at a price determined by arbitrators."  Id. at 
731.  Here, Article 5 operates in the same manner.  It 
prescribes an initial offer of shares at Vale's desired price, 
which NECS is free to accept or reject.  As explained herein, 
the rejection of that offer creates a controversy, which is to 
be resolved by arbitration.  The question then, is not whether 
Vale was able to withdraw his offer, but whether he was able to 
withdraw the controversy from arbitration.5 
 
At common law and under earlier statutes, the general rule 
was that a party could withdraw an issue from arbitration at any 
                                                                                                                                                                                           
in writing, name a second arbitrator, and these two shall 
name a third. It shall . . . then be the duty of the 
arbitrators to ascertain the value of the stock. . . . 
 
"After the acceptance of the offer, or the report of the 
arbitrators as to the value of the stock, the directors 
shall have thirty (30) days within which to purchase the 
same at such valuation, but if at the expiration of thirty 
(30) days, the corporation shall not have exercised the 
right to so purchase, the owner of the stock shall be at 
liberty to dispose of the same in any manner he may see 
fit." 
 
 
5 Had the arbitration gone forward, the arbitrators' 
decision would have conferred on NECS the option to purchase the 
shares within thirty days at the price their decision set.  See 
Merriam, 464 Mass. at 728 (characterizing same language as 
creating option); Stapleton v. Macchi, 401 Mass. 725, 729 n.6 
(1988) ("An option is simply an irrevocable offer creating a 
power of acceptance in the optionee"). 
15 
 
time prior to the arbitrator's award.  See, e.g., Wallis v. 
Carpenter, 13 Allen 19, 24 (1866) ("submission to arbitrators is 
a power; and it is generally true that a power may be revoked at 
any time before execution"); Allen v. Watson, 16 Johns. 205, 208 
(N.Y. Sup. Ct. 1819) ("revocation of the powers of the 
arbitrators stripped them of all pretence of authority to act as 
such; and, in the strictest truth, the instrument to which they 
put their hands and seals, was no award under the submission, 
for the submission itself was at an end").  This rule arose from 
the long-standing judicial hostility toward arbitration 
agreements.  See La Stella v. Garcia Estates, Inc., 66 N.J. 297, 
299 (1975) ("English common law at the time of the American 
Revolution was undoubtedly hostile to arbitrations. . . .  Thus 
it permitted either party to an arbitration of an existing 
dispute to withdraw at any time before the actual award and, 
beyond that, it declared that an agreement to arbitrate future 
disputes was against public policy and not enforceable").  
Today, however, the law "express[es] a strong public policy 
favoring arbitration as an expeditious alternative to litigation 
for settling commercial disputes."  Home Gas Corp. of Mass., 
Inc. v. Walter's of Hadley, Inc., 403 Mass. 772, 774 (1989), 
quoting Danvers v. Wexler Constr. Co., 12 Mass. App. Ct. 160, 
163 (1981).  See Gilmer v. Interstate/Johnson Lane Corp., 500 
U.S. 20, 24 (1991) ("purpose [of Federal Arbitration Act] was to 
16 
 
reverse the longstanding judicial hostility to arbitration 
agreements that had existed at English common law and had been 
adopted by American courts, and to place arbitration agreements 
upon the same footing as other contracts"). 
 
The consensus among courts construing modern statutory 
arbitration clauses is that "a party to a binding, irrevocable 
arbitration cannot unilaterally withdraw from participation in 
the arbitration after it has begun."  Crihfield v. Brown, 224 W. 
Va. 407, 412 (2009).  See, e.g., Brown v. Engstrom, 89 Cal. App. 
3d 513, 523 (1979); Cabus v. Dairyland Ins. Co., 656 P.2d 54, 56 
(Colo. Ct. App. 1982); Juhasz v. Costanzo, 144 Ohio App. 3d 756, 
762 (2001); Godfrey v. Hartford Cas. Ins. Co., 142 Wash. 2d 885, 
897 (2001).  See generally 6 C.J.S. Arbitration § 85 (2004) 
("Where the agreement is irrevocable, a party may not 
unilaterally withdraw an issue from arbitration").  Sound policy 
justifications support this view.  Allowing withdrawal after the 
parties have expended resources in preparing for and 
participating in the arbitration would be antithetical to the 
Arbitration Act's purpose of "further[ing] the speedy, 
efficient, and uncomplicated resolution of business disputes."  
Floors, Inc. v. B.G. Danis of New England, Inc., 380 Mass. 91, 
96 (1980).  See Cabus, supra ("to allow one party to withdraw 
such an issue after going through the arbitration process does 
not comport with the policy favoring arbitration").  See also 
17 
 
Manatt, Phelps, Rothenberg & Tunney v. Lawrence, 151 Cal. App. 
3d 1165, 1171 (1984) (noting unfairness that would result if 
withdrawal were allowed "after testimony had been taken, 
evidence received and documents produced and filed").  Moreover, 
a party should not be permitted to commence arbitration and then 
withdraw without prejudice to avoid an unfavorable outcome.  See 
Godfrey, supra (parties may not "submit a dispute to arbitration 
only to see if it goes well for their position").  Here, NECS 
argues that Vale commenced arbitration when he invoked Article 
5.  We do not agree. 
 
Arbitration is commonly understood to commence with the 
filing of a submission agreement or a demand for arbitration.  
6 C.J.S. Arbitration, supra at § 9 ("agreement for the 
submission of an issue to arbitrators constitutes the charter of 
the entire arbitration proceedings, is a prerequisite to the 
commencement of a valid proceeding, and defines or limits the 
issues to be decided"); 1 Domke on Commercial Arbitration § 18:2 
(3d ed. Supp. 2014) ("demand for arbitration . . . must contain 
the name of the parties, the arbitration clause upon which it is 
based, the nature of the dispute and the relief sought").  The 
submission agreement or demand is generally "considered to be in 
effect when the parties agree on arbitrators and the controversy 
is submitted to them for their determination."  21 Williston on 
Contracts § 57:45 (4th ed. 2001).  See P.A. Finn, B.J. Mone, & 
18 
 
J.N. Seich, Mediation and Arbitration § 12:1 (2004).  Thus, 
unless otherwise provided in the contract or rules governing the 
arbitration, the mere selection of an incomplete panel of 
arbitrators does not constitute a commencement of arbitration.  
See Norfleet v. Safeway Ins. Co., 144 Ill. App. 3d 838, 842 
(1986) ("in our view, the appointment of a partial board of 
arbitrators cannot logically constitute 'initiation' of 
arbitration proceedings.  At the very least, there must be a 
full panel of arbitrators selected before the proceedings could 
commence").  Cf. Northcom, Ltd. v. James, 848 So. 2d 242, 247 
(Ala. 2002) ("Appointing an arbitrator does not initiate the 
arbitration process as provided in the Commercial Arbitration 
Rules"). 
 
Here, Article 5 does not set forth the rules for 
arbitration, nor does it articulate a particular point at which 
arbitration is deemed to commence.  It merely describes a 
process for appointing arbitrators, which process remained 
incomplete at the time Vale changed his mind about selling his 
shares.  The record does not reflect that a formal submission 
agreement or demand for arbitration was ever filed with the 
arbitrators in this case.  Permitting a shareholder to retract 
his desire to sell at this preliminary stage undercuts neither 
the express terms of Article 5 nor the policies disfavoring 
withdrawal from arbitration.  See Invicta Plastics, U.S.A., Ltd. 
19 
 
v. Superior Court, 120 Cal. App. 3d 190, 193 (1981) (mere change 
of mind prior to commencement of arbitration not equivalent to 
unilateral withdrawal from arbitration). 
 
NECS speculates that allowing Vale to terminate the Article 
5 process -- even at this preliminary stage -- will provide 
incentive for Vale repeatedly to invoke and terminate the 
process, thereby disrupting NECS's business operations and 
pressuring it to buy his shares at an exorbitant price.  The law 
is clear, however, that the invocation and termination of the 
Article 5 process must be in good faith.  Merriam, 464 Mass. at 
727 ("Although a shareholder in a close corporation always owes 
a fiduciary duty to fellow shareholders, good faith compliance 
with the terms of an agreement entered into by the shareholders 
satisfies that fiduciary duty").  Cf. Certain Underwriters at 
Lloyd's London v. Argonaut Ins. Co., 500 F.3d 571, 575 (7th Cir. 
2007) (withdrawal of arbitration demand did not render 
controversy moot where withdrawal constituted procedural 
maneuvering aimed to defeat counterparty's ability to obtain 
judicial determination of rights).  Thus, if Vale were to engage 
in such vexatious conduct, NECS would have recourse. 
 
Moreover, allowing Vale to change his mind prior to the 
commencement of arbitration does not destroy NECS's ability to 
enjoy the fruits of Article 5.  The purpose of Article 5 is to 
provide shareholders in a close corporation the opportunity to 
20 
 
sell their shares at a fair price, while protecting the company 
against an infusion of undesirable new shareholders.  See 
Merriam, 464 Mass. at 731 ("Valuation processes like those 
described by [the stock transfer restriction] are often employed 
in close corporations because there is no ready market for stock 
in a close corporation").  Should Vale decide to sell his shares 
in the future, NECS will have the opportunity to purchase them 
pursuant to Article 5.  In view of the foregoing, Vale was 
entitled to change his mind regarding his desire to sell his 
shares, thereby rendering moot the controversy to be arbitrated.6  
Without a controversy, there can be no arbitration.  G. L. 
c. 251, § 1. 
 
3.  Conclusion.  For the reasons set forth herein, we 
conclude that Article 5 of NECS's articles of incorporation 
contained a valid agreement to arbitrate future controversies 
regarding the value of NECS's stock, but that no such 
controversy existed at the time of NECS's motion to compel 
arbitration.  Therefore, for reasons other than those set forth 
                                                          
 
 
6 It does not follow, however, that NECS would be entitled 
to terminate the Article 5 process.  As the Appeals Court 
explained in Brodie v. Jordan, 66 Mass. App. Ct. 371, 383-384, 
S.C., 447 Mass. 866 (2006), refusing to proceed with arbitration 
could improperly hinder Vale's ability to sell his shares on the 
open market. 
21 
 
by the motion judge, the order denying NECS's motion to compel 
arbitration is affirmed.7 
 
 
 
 
 
 
 
So ordered. 
                                                          
 
 
7 In consequence of this conclusion, we need not reach 
Vale's remaining arguments that NECS waived Article 5, that 
NECS's board of directors never properly rejected Vale's initial 
offer, or that Article 5 was superseded by a subsequent 
declaration of trust.