Court Opinion

ID: 2802925
Source: CourtListenerOpinion
Date Created: 2015-05-22 14:21:12.990429+00
Date Added: 2024-06-11T12:12:12.669621
License: Public Domain

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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.