Opinion ID: 196516
Heading Depth: 1
Heading Rank: 3

Heading: bchf salary claims

Text: 11 Nadal-Ginard's first allegation of error relates to the district court's finding that he violated his fiduciary duties to BCHF by setting his BCHF salary without making any disclosure to the Board of his receipt of an annual salary from HHMI. The BCHF Articles of Organization authorized the payment of reasonable compensation to its employees and members. The Hospital's Group Practice Policy Statement defined the procedures to be used in calculating the compensation, delegating exclusive authority to the BCHF president to determine the compensation levels of all BCHF members, including his or her own compensation. During his tenure, Nadal-Ginard acted in accordance with the provisions contained in these documents. 12 The district court found that Nadal-Ginard's setting his own salary constituted a self-interested transaction under Massachusetts law. As such, the validity of this action depended on whether the other Board members had approved the corporate action after receiving all information relevant to the decision. Finding that Nadal-Ginard failed to disclose his HHMI income to the other Board members, information the court found material to any discussion by the Board regarding the appropriate amount of his BCHF compensation, the court held that Nadal-Ginard violated his fiduciary duties. Accordingly, the court awarded damages equal to three years of his BCHF salary, an amount totaling $801,172.90. 13 Nadal-Ginard alleges that the district court committed two errors relating to his BCHF salary. First, he challenges the court's finding that he breached any fiduciary duties through his participation in the Board's salary decision. Second, he argues that the district court erred in denying a quantum meruit offset to any liability arising from such participation. We address these contentions separately.
14 Nadal-Ginard contends that the district court ignored well-established law and stipulated facts in finding that he breached his fiduciary duties to BCHF with respect to his BCHF salary. Specifically, he argues that his compensation was at all times fair and reasonable in light of the services he rendered, precluding any such finding. We disagree. 15 The basic standard of care of corporate officers or directors is well-established under Massachusetts law. In essence, it is the standard of complete good faith plus the exercise of reasonable intelligence. Murphy v. Hanlon, 322 Mass. 683, 79 N.E.2d 292, 293 (1948). Under this standard, officers or directors are not responsible for mere errors of judgment or want of prudence in the performance of their duties. See Sagalyn v. Meekins, Packard & Wheat, Inc., 290 Mass. 434, 195 N.E. 769, 771 (1935). Further, if officers or directors act in good faith, albeit imprudently, they are not subject to personal liability absent clear and gross negligence in their conduct. See Spiegel v. Beacon Participations, Inc., 297 Mass. 398, 8 N.E.2d 895, 904 (1937). 16 This basic standard of care is enhanced in situations when an officer or director engages in self-dealing. See Johnson v. Witkowski, 30 Mass.App. 697, 573 N.E.2d 513, 522 (1991). Courts subject these transactions to vigorous scrutiny, obligating the officers or directors to prove two elements: first, that the officer or director acted in good faith with respect to the transaction; and, second, that the transaction is inherently fair from the corporation's point of view. 4 Crowley v. Communications for Hospitals, Inc., 30 Mass.App. 751, 573 N.E.2d 996, 1000 (1991); see also Winchell v. Plywood Corp., 324 Mass. 171, 85 N.E.2d 313, 317 (1949). The former element requires a corporate officer to fully and honestly disclose any information relevant to the transaction, thereby permitting a disinterested decision maker to exercise informed judgment. See, e.g., Dynan v. Fritz, 400 Mass. 230, 508 N.E.2d 1371, 1378 (1987); Cooke v. Lynn Sand & Stone Co., 37 Mass.App. 490, 640 N.E.2d 786, 791 (1994). The latter element emanates from the officer's or director's responsibility to refrain from taking an undue advantage of the corporation, and gives rise to a fiduciary breach in a situation where an officer determines his or her salary when that individual's salary exceeds the fair value of services rendered. Sagalyn v. Meekins, Packard & Wheat, Inc., 195 N.E. at 771; see also Heise v. Earnshaw Publications, 130 F.Supp. 38, 40 (D.Mass.1955). 17 The district court found a lack of good faith on Nadal-Ginard's part as a result of two factual findings: first, that Nadal-Ginard failed to disclose his HHMI salary and benefits to the other BCHF directors; and, second, that this information was material to any decision concerning the amount of Nadal-Ginard's BCHF salary. We accept the former as true, as Nadal-Ginard alleges no error with respect to this finding. 5 Nadal-Ginard suggests error with respect to the latter finding, however, arguing that the district court reached this conclusion because it erroneously believed that BCHF and HHMI paid him for the same or related research activities. Specifically, Nadal-Ginard argues that the district court grossly mischaracterized the services Nadal-Ginard rendered to BCHF and its affiliates. In so doing, we believe that it is Nadal-Ginard who offers a mischaracterization. 18 The district court found only that the HHMI salary information was material to any decision on the appropriate compensation paid by BCHF for the same or related research activities.... Trial Court Opinion, p. 32. Nowhere in its opinion did the court conclude that Nadal-Ginard engaged in the same or related work for both BCHF and HHMI. Rather, this statement merely indicates that the court believed that the BCHF Board, armed with the information about the HHMI salary, might have found that Nadal-Ginard engaged in similar or related research. Indeed, in the succeeding paragraph, the court stated that [i]f the defendant had disclosed his salary from [HHMI], BCHF may have determined  that it could have used part of Nadal-Ginard's salary for other purposes. Trial Court Opinion, p. 32 (emphasis added). Because we believe that the district court did not make the finding Nadal-Ginard suggests is erroneous, we find no error on the part of the district court. 19 Notwithstanding the district court's finding of an absence of good faith, Nadal-Ginard argues that he could not have breached his fiduciary duties to BCHF because his salary was at all times fair and reasonable. In so doing, however, Nadal-Ginard neglects to address the first predicate of the legal analysis. When, as in this case, a court finds that an officer failed to act in good faith, it follows that a fiduciary breach exists, and the need to determine whether or not an officer's salary is objectively reasonable is obviated.
20 Nadal-Ginard next suggests that, even if the district court correctly found that he breached his fiduciary duties, it erroneously calculated his liability for this breach to be the total compensation he received from BCHF after November 12, 1990. 6 Nadal-Ginard contends that principles of equity, specifically the theory of quantum meruit, required the district court to exclude from BCHF's damages that portion of Nadal-Ginard's salary which represented the reasonable value of the services he rendered to BCHF. Nadal-Ginard alleges two ways in which the district court erred with respect this issue. 21 First, Nadal-Ginard argues that the district court erroneously decided that it was precluded from applying such an offset in cases in which a defendant has committed an unexcused fiduciary breach. We dispense with this allegation forthwith, as even a cursory review of the district court's opinion fails to reveal such a pronouncement. Indeed, the district court expressly assumed that it was permitted to weigh such considerations: I assume, without deciding, that a court has authority when determining the appropriate measure of damages for breach of fiduciary duty, in a context such as this, to weigh the harm caused by the defendant's breach with the benefits to the plaintiff from the defendant's overall performance of his duties. Trial Court Opinion, pp. 46-47. 22 Nadal-Ginard next asserts that the district court erred in factoring the harm to BCHF's reputation that resulted from his fiduciary breach into its damages equation. Although Nadal-Ginard couches this claim in terms of a denial of what he refers to as a quantum meruit offset, in reality, he is challenging the method by which the district court applied the quantum meruit analysis. In whatever light this allegation is viewed, however, it must fail. 23 Under Massachusetts law, trial courts are vested with the discretion to determine the amount of damages for fiduciary breaches according to the peculiar factors of each individual case. See Chelsea Industries, Inc. v. Gaffney, 389 Mass. 1, 449 N.E.2d 320, 327 (1983); Lydia E. Pinkham Medicine Co. v. Gove, 303 Mass. 1, 20 N.E.2d 482, 486 (1939). Notwithstanding the existence of this discretion, courts have consistently followed the same routine in determining whether such an offset is warranted. We examine Nadal-Ginard's allegation of error after synthesizing this routine. 24 Most courts begin their analyses with the baseline proposition that a court can require a corporate officer, director, or trust agent or employee to forfeit the right to retain or receive his or her compensation for conduct in violation of his or her fiduciary duties. See, e.g., Chelsea Industries, Inc. v. Gaffney, 449 N.E.2d at 326-27; Lydia E. Pinkham Medicine Co. v. Gove, 20 N.E.2d at 486. Such a forfeiture can be required even absent a showing of actual injury to the employer. See Chelsea Industries, Inc. v. Gaffney, 449 N.E.2d at 327. Indeed, [a] trustee who commits a breach of trust or an agent who is guilty of disloyal conduct ... imperils his right to compensation. Lydia E. Pinkham Medicine Co. v. Gove, 20 N.E.2d at 486 (emphasis added). 25 The courts next proceed to determine whether they should stray from the baseline and require a disloyal employee to repay only that portion of his or her compensation, if any, in excess of the value of his or her service to the employer. See, e.g., Chelsea Industries, Inc. v. Gaffney, 449 N.E.2d at 327; Anderson Corp. v. Blanch, 340 Mass. 43, 162 N.E.2d 825, 830 (1959); Lydia E. Pinkham Medicine Co. v. Gove, 20 N.E.2d at 486. Courts weigh two factors when contemplating whether such a deviation is warranted: first, whether the defendant has met his or her burden of establishing the value of the services rendered, see Chelsea Industries, Inc. v. Gaffney, 449 N.E.2d at 327; and, second, the nature of the defendant's conduct, see, e.g., Production Mach. Co. v. Howe, 99 N.E.2d at 36. It is only when a court is satisfied that a defendant has established the value of his services, and that his or her conduct was not egregious, that such an offset is factored into the damage equation. 26 Nadal-Ginard asserts that the district court erred in examining the harm to the reputation, services, and functions of BCHF that would naturally flow from the public disclosure of Nadal-Ginard's conduct because the plaintiff failed to prove such harm. In so asserting, Nadal-Ginard has the right church, but wrong pew. 27 Nadel-Ginard is correct in his assertion that a plaintiff normally can recover only those damages which he or she has proven to have incurred. See Hendricks & Assocs., Inc. v. Daewoo Corp., 923 F.2d 209, 217 (1st Cir.1991); Snelling & Snelling of Mass., Inc. v. Wall, 345 Mass. 634, 189 N.E.2d 231, 232 (1963). In this instance, however, the district court was not factoring the reputational harm into its damage calculations. Rather, the court considered this harm only in its analysis of whether an equitable offset to the damages to which BCHF was entitled was warranted. The court committed no error in doing so. 7 28 In charging that BCHF failed to meet its burden in proving damages, Nadal-Ginard overlooks the fact that the main reason the district court denied the offset was because he failed to meet his. That is, the district court found the evidence he presented with respect to the value of his services to be conflicting and speculative at best. Trial Court Opinion, p. 33. Close examination of the record evidences nothing to suggest that the district court erred in reaching such a conclusion. Nowhere in the record is there any evidence of the specific value of Nadal-Ginard's services. Indeed, Nadal-Ginard relies only on broad, self-aggrandizing statements in support of his argument. 29 Having addressed all of Nadal-Ginard's allegations of error relating to his BCHF salary, we turn our sights to the next area in which he alleges error, that is, with respect to his claim of entitlement to indemnification from BCHF.