-
USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 95-1053
BOSTON CHILDREN'S HEART
FOUNDATION, INC.,
Plaintiff - Appellee,
v.
BERNARDO NADAL-GINARD,
Defendant - Appellant.
____________________
No. 95-1136
BOSTON CHILDREN'S HEART
FOUNDATION, INC.,
Plaintiff - Appellant,
v.
BERNARDO NADAL-GINARD,
Defendant - Appellee.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge] ___________________
____________________
Before
Selya and Boudin, Circuit Judges, ______________
and Lisi,* District Judge. ______________
_____________________
____________________
* Of the District of Rhode Island, sitting by designation.
Laura Steinberg, with whom Cynthia M. Clarke, Katherine J. _______________ __________________ ____________
Ross, Lisa F. Sherman and Sullivan & Worcester were on brief for ____ ________________ ____________________
Bernardo Nadal-Ginard.
Alexander H. Pratt, Jr., with whom Paul R. Devin, James H. _______________________ _____________ ________
Belanger, Robin E. Folsom, William M. Cowan and Peabody & Arnold, ________ _______________ ________________ ________________
were on brief for Boston Children's Heart Foundation, Inc.
____________________
January 12, 1996
____________________
-2-
LISI, District Judge. LISI, District Judge. ______________
I. INTRODUCTION I. INTRODUCTION
These appeals present us with the classic tale of a corporate
officer who, when caught using corporate funds for personal gain,
resists making amends for his misdeeds. In this instance, Dr.
Bernardo Nadal-Ginard was alleged to have misappropriated the
funds of the corporation of which he had served as both an
officer and director, the Boston Children's Heart Foundation
("BCHF"). Following an eighteen-day bench trial, the district
court found that Nadal-Ginard violated his fiduciary duties to
BCHF, and entered judgment in its favor in the amount of
$6,562,283.02. Notwithstanding allegations of error by both
parties, we affirm the district court s decision.
II. BACKGROUND II. BACKGROUND
Plaintiff-appellee BCHF is a non-profit corporation organized for
the purposes of conducting medical research in the field of
cardiology and providing medical services to patients at Boston
Children's Hospital ("Hospital"), a teaching hospital affiliated
with Harvard Medical School ("Medical School"). The defendant-
appellant, Nadal-Ginard, was the president and a member of the
Board of Directors of BCHF ("Board"). Nadal-Ginard was also
Chairman of the Department of Cardiology ("Department") at the
Hospital, as well as a member of the faculty of the Medical
School.
Nadal-Ginard first became associated with these
entities in 1982, when he accepted the chairmanship and faculty
-3-
position. Approximately one year later, with the assistance of
Boston attorney Douglas Nadeau, BCHF, a tax-exempt Massachusetts
corporation created to conduct the Department's clinical
activities, was organized.1 Like the other departments'
corporations, the Operating Agreement between the Hospital and
BCHF explicitly acknowledged the independent status of the
foundation. Indeed, control of the foundation was given to
BCHF's three directors: Nadal-Ginard, Donald Fyler, and Michael
Freed.2 Nadal-Ginard also served as president of BCHF until
1993, when the circumstances leading to this litigation began to
surface.
In addition to his duties at the Hospital, Medical
School, and BCHF, Nadal-Ginard accepted a position as an
investigator with the Howard Hughes Medical Institute ("HHMI") in
1986. In this position, he directed the activities of the Howard
Hughes Medical Institute Laboratory of Cellular and Molecular
Cardiology at the Hospital. Nadal-Ginard received a substantial
salary and some optional fringe benefits as compensation for his
services.
____________________
1 In 1980, the Hospital's Board of Trustees had adopted a Group
Practice Policy Statement which permitted the Hospital's
individual departments to conduct their clinical activities
through tax-exempt corporations established pursuant to chapter
180 of the Massachusetts General Laws. At the time BCHF was
established in 1983, several other corporations already had been
formed, all with the assistance of Nadeau. Twelve of the
Hospital's fifteen departments ultimately established chapter 180
corporations.
2 Fyler served on the Board until his retirement in 1989. On
December 31, 1989, James E. Lock was named as Fyler's
replacement.
-4-
There were never any questions as to Nadal-Ginard's
qualifications as a scientist and a physician. Several questions
did arise, however, with respect to certain actions Nadal-Ginard
took with respect to setting his salary, establishing a severance
benefit plan, and using BCHF funds for personal expenses. On
November 12, 1993, BCHF filed suit claiming that Nadal-Ginard
breached his fiduciary duties to the corporation.3 Following a
bench trial, the district court found most of the allegations to
be true and awarded damages to BCHF.
On appeal, Nadal-Ginard alleges that the district court
committed a plethora of errors in deciding in favor of BCHF.
BCHF cross-appeals on several issues which the district court
decided in favor of Nadal-Ginard. We examine each of these
alleged errors in the context of their common factual bases.
III. BCHF SALARY CLAIMS III. BCHF SALARY CLAIMS
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
____________________
3 BCHF filed its complaint in Massachusetts Superior Court.
Pursuant to Nadal-Ginard's motion, the case was removed to the
United States District Court on November 29, 1993.
-5-
BCHF members, including his or her own compensation. During his
tenure, Nadal-Ginard acted in accordance with the provisions
contained in these documents.
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.
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.
A. Breach of Fiduciary Duty A. Breach of Fiduciary Duty ________________________
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
-6-
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.
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, 79 ______ ______
N.E.2d 292, 293 (Mass. 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., 195 N.E. 769, 771 (Mass. 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., 8 N.E.2d 895, 904 (Mass. 1937). ___________________________
This basic standard of care is enhanced in situations
when an officer or director engages in self-dealing. See Johnson ___ _______
v. Witkowski, 573 N.E.2d 513, 522 (Mass. App. Ct. 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. _______
____________________
4 We stop at this point to note the fact that the district court
correctly found that corporate bylaws permitting conflicts of
interest by its officers or directors do not relieve that
individual of his obligation to act in good faith. See, e.g., ___ ____
Spiegel v. Beacon Participations, Inc., 8 N.E.2d 895, 907 (Mass. _______ ____________________________
-7-
Communications for Hospitals, Inc., 573 N.E.2d 996, 1000 (Mass. ___________________________________
App. Ct. 1991); see also Winchell v. Plywood Corp., 85 N.E.2d ________ ________ ______________
313, 317 (Mass. 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, ___ ____ _____ _____
508 N.E.2d 1371, 1378 (Mass. 1987); Cooke v. Lynn Sand & Stone _____ __________________
Co., 640 N.E.2d 786, 791 (Mass. App. Ct. 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). _____________________
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-
____________________
1937) (stating that organic documents which create conflicts of
interests for directors or officers provide no immunity to those
individuals for acting in bad faith). We need not elaborate on
this finding, as it is not challenged on appeal.
-8-
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.
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
____________________
5 At one point, Nadal-Ginard did suggest that his relationship
with HHMI amounted to an outside business activity, one that did
not constitute an usurpation of a BCHF corporate opportunity. He
argues that the absence of any such usurpation eliminates the
need for the disclosure of the relationship. We disagree. The
issue at bar does not concern the propriety of Nadal-Ginard's
relationship with HHMI. Indeed, there has been no suggestion
that Nadal-Ginard entered this relationship in violation of his
agreement with BCHF. As a result, his disclosure obligation did
not arise from the fact of his relationship with HHMI, but rather
because of his involvement in a self-interested transaction. We
note, however, that the terms of his agreement with HHMI
precluded Nadal-Ginard from accepting his BCHF salary.
-9-
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.
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.
B. Quantum Meruit Offset B. Quantum Meruit Offset _____________________
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 ______________
____________________
6 BCHF argues in its cross-appeal that the district court
incorrectly applied a three-year statute of limitations on its
cause of action, and therefore, its damages should include
amounts equal to the compensation Nadal-Ginard received prior to
November 12, 1990, as well. We address this claim below. See ___
infra part VII.A. _____
-10-
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.
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.
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.
-11-
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, 449 N.E.2d 320, ___ _________________________ _______
327 (Mass. 1983); Lydia E. Pinkham Medicine Co. v. Gove, 20 ________________________________ ____
N.E.2d 482, 486 (Mass. 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.
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). ___ ____
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
-12-
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, 162 N.E.2d 825, 830 (Mass. 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.
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.
Nadal-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, 189 N.E.2d 231, 232 (Mass. _________________________ ____
1963). In this instance, however, the district court was not
factoring the reputational harm into its damage calculations.
-13-
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
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.
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.
IV. INDEMNIFICATION CLAIM IV. INDEMNIFICATION CLAIM
Nadal-Ginard contends that the district court, "in a
rush to judgment," failed to thoroughly address his claims for
____________________
7 Even if the court's actions could be construed as invoking the
general damages rule, the exception to the rule is at work here.
That is, a plaintiff whose cause of action is based on an
officer s fiduciary breach is not required to show that it
suffered any injury in order to recover the officer's
compensation. See Chelsea Industries, Inc. v. Gaffney, 449 ___ __________________________ _______
N.E.2d at 328.
-14-
indemnification by BCHF. Specifically, he argues that the court
neglected to review the facts underlying two BCHF decisions, both
instances in which the court found Nadal-Ginard's participation
to amount to fiduciary breaches. Accordingly, he requests that
this court reverse the district court's denial of his
indemnification claims with respect to each decision. For
several reasons, we decline the invitation.
A thorough examination of the district court's opinion
does not bear out Nadal-Ginard's main contention. Indeed, while
the district court did not include a recitation of the facts
underlying these decisions in its indemnification discussion, it
had no reason to do so, as it had examined both circumstances in
great detail in previous sections of the opinion. The fact that
it incorporated these findings by reference into the
indemnification discussion does not constitute error. As such,
we turn to examine the validity of the district court's
conclusions.
We begin our analysis by examining the two grounds on
which Nadal-Ginard asserts his entitlement. Nadal-Ginard first
claims a right to indemnification from BCHF based on Article VIII
of the BCHF Bylaws.8 This provision provides that BCHF will
____________________
8 Article VIII of the BCHF Bylaws provides, in pertinent part:
Any person threatened with or made a
party to any action, suit or other
proceeding by reason of the fact that he
. . . is or was a Director, officer,
employee or other agent of the
Corporation . . . shall be indemnified by
the Corporation against all liabilities
-15-
indemnify any liabilities and expenses incurred by an officer or
director because of the position he or she holds. There is a
prerequisite that must be satisfied in order to be entitled to
indemnification, however: the BCHF director, officer, or
employee must have acted in good faith in the reasonable belief
that his or her action was in the best interests of BCHF.
Nadal-Ginard turns to Chapter 180, Section 6C, of the
Massachusetts General Laws for further support of his
indemnification claim. This statute provides that a officer or
director of a corporation shall not be held liable for the
performance of his or her duties if performed "in good faith and
in a manner he reasonably believes to be in the best interests of
the corporation, and with such care as an ordinarily prudent
person in a like position . . . would use under similar
circumstances." Mass. Gen. L. ch. 180, 6C. The statute
provides that an officer or director acts in good faith when
acting on, inter alia, the advice or opinions of counsel, ___________
providing the officer or director did not have knowledge
regarding his or her actions that would cause such reliance to be
unwarranted. See id. ___ ___
____________________
and expenses, . . . except that no ________________
indemnification shall be provided for any _________________________________________
person with respect to any matter as to _________________________________________
which he shall have been adjudicated in _________________________________________
any proceeding not to have acted in good _________________________________________
faith in the reasonable belief that his _________________________________________
action was in the best interests of the _________________________________________
Corporation . . . . ___________
Plaintiff's Exhibit #4, p. 17 (emphasis added).
-16-
It is the latter portion of the Massachusetts statute
on which Nadal-Ginard relies in asserting his claim. He argues
that BCHF should indemnify him for damages arising out of two
transactions, as, in both cases, he acted on the advice of an
attorney. We examine the merits of these claims after first
reviewing the underpinnings of the transactions in question.
The first fiduciary breach arose out of his involvement
in determining his BCHF salary. We need not tarry in reviewing
the circumstances underlying this transaction, as we have already
devoted a good portion of the opinion to doing so. See supra ___ _____
part III. We need only make note of the new wrinkle that Nadal-
Ginard adds in his effort to obtain indemnification: his
contention that he acted as he did because Nadeau represented to
him that to do so was legal.
The second fiduciary breach for which Nadal-Ginard
claims a right to indemnification arose out of his actions in
directing BCHF funds to be deposited into a Guardian Life
Insurance Escrow Account, established for the purpose of paying
premiums to the Guardian Life Insurance Company on a $6,000,000
life insurance policy in Nadal-Ginard's name.9 The court found
that Nadal-Ginard did not, at any time, disclose the existence of
the Escrow Account to the other BCHF Board members, nor did he
obtain authorization to make payments to such an account.
____________________
9 In its opinion, the district court noted that the evidence
showed that, in addition to being used to make premium payments
for the life insurance policy, the funds in the Escrow Account
were used to pay Nadal-Ginard's federal and state income taxes,
as well Nadal-Ginard's personal mortgage loan application fee.
-17-
Because this transaction was clearly self-interested, the court
held that the payment of BCHF funds to the Escrow Account
amounted to a breach by Nadal-Ginard of his fiduciary duty of
loyalty, and therefore included the sum total of the payments in
its judgment for BCHF.
The basis for Nadal-Ginard's indemnification argument
for the Escrow Account damages mirrors that with respect to his
compensation. He argues that the Guardian Escrow Account was
"the brainchild" of Gary Banks, an attorney to whom Nadal-Ginard
turned for advice in 1987. Nadal-Ginard claims that because
Banks created the Guardian Life Insurance Escrow Account, he
should have been able to assume that it was structured in
conformity with the law. As a result, he argues that he is
entitled to indemnification for the portion of the damages
equaling the BCHF payments to the Escrow Account.
At trial, Nadal-Ginard did not prevail on either
argument. First, the district court discredited Nadal-Ginard's
contention that he relied upon the advice of the attorneys.
Second, the district court found that neither attorney ever
affirmatively advised Nadal-Ginard as to the legality of his
actions in either transaction. On appeal, Nadal-Ginard does not
challenge the district court's interpretation of either the BCHF
Bylaw or the Massachusetts statute. Instead, he contends that
there was insufficient evidence on which to support the court's
conclusions.
-18-
In reviewing this claim, we are mindful that we review
findings of fact for clear error. See Texaco Puerto Rico, Inc. ___ ________________________
v. Department of Consumer Affairs, 60 F.3d 867, 875 (1st Cir. _______________________________
1995). When those findings of fact are based on the credibility
of witnesses, great deference is given to the district court's
findings. See Maness v. Star-Kist Foods, Inc., 7 F.3d 704, 708 ___ ______ ______________________
(8th Cir. 1993), cert. denied, 114 S. Ct. 2678 (1994); cf. Inwood ____________ ___ ______
Lab., Inc. v. Ives Lab., Inc., 456 U.S. 844, 855 (1982). Indeed, __________ _______________
"[i]n the absence of egregious lapses in such a perception,
appellate courts leave it undisturbed." Charves v. Western Union _______ _____________
Telegraph Co., 711 F.2d 462, 464-65 (1st Cir. 1983). _____________
Here, we find no error. Nadal-Ginard points to nothing
in the record, nor do we find anything on our own, to suggest
that the district court's discrediting of Nadal-Ginard's
testimony is egregious. Indeed, the district court pointed out
that Nadal-Ginard failed to comply with the requirements in the
documents as he understood them, never mind comply with
interpretations offered by counsel. Further, there is ample
evidence in the record unrelated to these transactions which
lends support to the district court's findings.
Even assuming that Nadal-Ginard's credibility was not
at issue, Nadal-Ginard fails to clear the next hurdle. That is,
Nadal-Ginard fails to direct this court to any place in the
record evidencing the fact that either attorney advised Nadal-
Ginard that he was legally entitled to act as he did. An ___
attorney's representation as to the legality of a particular
-19-
corporate structure does not mean that an officer or director can
act in any manner he or she chooses within the confines of that
structure. Indeed, an officer is bound further by the confines
of the law. So it is here: the fact that both Nadeau and Banks
advised Nadal-Ginard that the corporate structures in question
were legally valid does not absolve Nadal-Ginard from liability
incurred by his improper actions. Accordingly, we find no error
on the part of the district court, and now proceed to address
Nadal-Ginard's two remaining allegations of error.
V. THE BANKS PLAN V. THE BANKS PLAN
In 1985 or early 1986, the Board of Directors adopted a
severance benefit plan, referred to as the "Nadeau Plan," by
written consent.10 In early 1987, Nadal-Ginard presented the
Board with what he claims was a reconstruction of the Nadeau
Plan, a document that he contends was lost. In so doing, Nadal-
Ginard did not inform the Board that the Banks Plan provided far
more in benefits for Nadal-Ginard than the Nadeau Plan had. In
1992, upon Nadal-Ginard's initiative, the Banks Plan was
terminated and Nadal-Ginard received benefits in the form of cash
and securities valued at over $4,000,000.
The district court made several findings with respect
to the creation and adoption of the Banks Plan. First, it found
the terms of the plan to be so markedly different from the Nadeau
____________________
10 The district court found no evidence as to the exact date the
directors adopted this plan. However, it did find sufficient
evidence to conclude that it was legally adopted. This finding
is not challenged on appeal.
-20-
Plan that Nadal-Ginard's actions could not be construed as a
genuine effort to reconstruct the Nadeau Plan. Second, the
district court found that Nadal-Ginard's benefits under the Banks
Plan were of such a magnitude, and structured in such a way, that
had they been disclosed at the time the plan was presented to the
Board, the plan would not have been approved by the Board. The
district court concluded that Nadal-Ginard breached his fiduciary
duties to BCHF with respect to his involvement in the creation of
the plan and its presentation to the Board. Accordingly, the
court awarded damages to BCHF in the amount of $4,082,273.50.
While Nadal-Ginard disputes the district court's
factual findings, he does not challenge them on appeal. Rather,
Nadal-Ginard contends that ERISA explicitly exempts these types
of severance benefit plans from its fiduciary duty provisions.
Further, he alleges that 29 U.S.C. 1144, which provides for the
preemption of state law by ERISA, precludes the evaluation of
Nadal-Ginard's actions in light of fiduciary responsibilities
defined by state law.
The district court did not address the issue of the
whether the fiduciary provisions of ERISA applied to the Banks
Plan or whether it fell within the category of unfunded plans
which are excluded from the scope of those fiduciary standards.
The court did find that the fiduciary obligations created under
Massachusetts law were more favorable to Nadal-Ginard than those
imposed by ERISA, and, therefore, that a fiduciary breach under
Massachusetts law would necessarily constitute a breach of the
-21-
ERISA fiduciary obligations, if applicable. As neither party
challenges the conclusion that the Banks plan is exempt from
ERISA's fiduciary provisions, we concentrate solely on whether
ERISA preempts the application of state law in this instance.
"'ERISA is a comprehensive statute designed to promote
the interests of employees and their beneficiaries in employee
benefit plans.'" Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, __________________ _________
137 (1990) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, ____ _____________________
90 (1983)). In vast detail, ERISA imposes participation,
funding, and vesting requirements on such plans, as well as
establishes uniform standards for pension and welfare plans,
including rules concerning reporting, disclosure, and fiduciary
responsibility. See id. An inherent part of this system is ___ __
section 514(a), which provides that ERISA supersedes "any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan . . . ." 29 U.S.C. 1144(a); see also _________
Ingersoll-Rand Co. v. McClendon, 498 U.S. at 137. The statute ___________________ _________
defines the term "State law" to include "all laws, decisions,
rules, regulations, or other State action having the effect of
law, of any State." 29 U.S.C. 1144(c)(1); see also Carlo v. _________ _____
Reed Rolled Thread Die Co., 49 F.3d 790, 793 (1st Cir. 1995). ____________________________
Congress included 514(a) to ensure uniformity in such plans by
preventing states from imposing divergent obligations upon them.
See Simas v. Quaker Fabric Corp. of Fall River, 6 F.3d 849, 852 ___ _____ _________________________________
(1st Cir. 1993).
-22-
The Supreme Court has repeatedly interpreted the
preemption provision to cover any state law that "has a
connection with or reference to" an ERISA plan. District of ___________
Columbia v. Greater Washington Board of Trade, 506 U.S. 125, , ________ _________________________________ ___
113 S. Ct. 580, 583 (1992); see also Mackey v. Lanier Collection ________ ______ _________________
Agency & Service, Inc., 486 U.S. 825, 829 (1988); Shaw v. Delta _______________________ ____ _____
Air Lines, Inc., 463 U.S. 85, 96-97 (1983). Indeed, this _________________
provision is to be read expansively, see Rosario-Cordero v. ___ _______________
Crowley Towing & Transp. Co., 46 F.3d 120, 122 (1st Cir. 1995), _____________________________
and has the effect of preempting any state law that refers to, or
has a connection with, covered benefit plans, "even if the law is
not specifically designed to affect such plans, or the effect is
only indirect." District of Columbia v. Greater Washington Board ____________________ ________________________
of Trade, 506 U.S. at , 113 S. Ct. at 583 (citations and ________ ____
internal quotation marks omitted). Such a preemption is also
worked "regardless of whether there is a 'comfortable fit between
a state statute and ERISA's overall aims.'" Simas v. Quaker _____ ______
Fabric Corp. of Fall River, 6 F.3d at 852 (quoting McCoy v. MIT, __________________________ _____ ___
950 F.2d 13, 18 (1st Cir. 1991), cert. denied, 504 U.S. 910 ____________
(1992)).
State laws that have merely a "tenuous, remote, or
peripheral connection with a covered benefit plan" may not be
preempted by ERISA. Rosario-Cordero v. Crowley Towing & Transp. _______________ _________________________
Co., 46 F.3d at 123 (citation and internal quotation marks ___
omitted). Such is normally the case with respect to laws of
general applicability. See District of Columbia v. Greater ___ ______________________ _______
-23-
Washington Board of Trade, 506 U.S. at n.1, 113 S. Ct. at 583 _________________________ ___
n.1; Rosario-Cordero v. Crowley Towing & Transp. Co., 46 F.3d at _______________ ____________________________
123; Combined Mgt, Inc. v. Superintendent of the Bureau of ____________________ __________________________________
Insurance, 22 F.3d 1, 3 (1st Cir.), cert. denied, 115 S. Ct. 350 _________ ____________
(1994). A court cannot conclude that a state law is one of
general applicability, and as such is not preempted by ERISA,
based on the form or label of the law, however. See Carlo v. ___ _____
Reed Rolled Thread Die Co., 49 F.3d at 794 n.3; Zuniga v. Blue ___________________________ ______ ____
Cross and Blue Shield of Michigan, 52 F.3d 1395, 1401 (6th Cir. __________________________________
1995). Absent precedent on a closely related problem, the
inquiry into whether a state law "relates to" an ERISA plan or is
merely "tenuous, remote, or peripheral" requires a court to look
at the facts of particular case. See Rosario-Cordero v. Crowley ___ _______________ _______
Towing & Transp. Co., 46 F.3d at 125 n.2. ____________________
Here, the alleged breach of fiduciary duty relates to
Nadal-Ginard's action in establishing the Banks Plan without
disclosing information that a self-interested fiduciary would be
required to reveal to his fellow directors. Nadal-Ginard's
misconduct preceded the formal adoption of the plan. The legal
determination that Nadal-Ginard's conduct constitutes a fiduciary
breach does not require the resolution of any dispute about the
interpretation or administration of the plan. Further, the
application of state law in this instance does not raise the core
concern underlying ERISA preemption. Indeed, the fact that
Nadal-Ginard chose an ERISA plan rather than some other form of
-24-
compensation is peripheral to the underlying claim that Nadal-
Ginard breached his corporate responsibilities.
This being the case, it cannot be said that
Massachusetts fiduciary law must be preempted in this instance.
Therefore, we turn to address the merits of the district court's
conclusion that Nadal-Ginard's actions violated his fiduciary
duties.
As Nadal-Ginard does not allege error with respect to
the law which the district court applied in reaching its
conclusion, we need not revisit the duties of good faith and full
disclosure arising in self-interested transactions. See supra ___ _____
part III.A. Instead, we turn without delay to review the
validity of the district court's factual findings which served as
the basis for its legal conclusion, keeping in mind, once again,
that we do so in light of the clearly erroneous standard. See ___
Texaco Puerto Rico, Inc. v. Department of Consumer Affairs, 60 _________________________ _______________________________
F.3d at 874.
The district court made several findings of fact on
which it grounded its conclusion that Nadal-Ginard breached his
fiduciary duties. Chief among these was that Nadal-Ginard
intentionally had the Banks plan drafted in two parts in order
that the other Board members might enact the plan without
learning of the magnitude of his blatantly disproportionate share
of the benefits. The court determined that this effort met with
success, as it found that the other Board members did not learn
all the terms of the Banks plan until the fall of 1993. The
-25-
court reached these factual conclusions on the basis of the
testimony of the witnesses and an examination of the plan itself.
Further, the court expressly discredited Nadal-Ginard's
assertions.
In reviewing the vast record from the district court,
we find that Nadal-Ginard fails to meet the heavy burden which
the law places on him. That is, Nadal-Ginard offers no evidence
to suggest that the district court's findings were clearly in
error. As much of the court's findings are based on credibility
determinations of the witnesses who testified at trial, we
decline to reverse the conclusions reached below.
VI. DAMAGE CALCULATIONS VI. DAMAGE CALCULATIONS
In the fall of 1993, additional misdeeds on the part of
Nadal-Ginard were discovered. Four checks made out to third
parties bore questionable endorsements, each of which had been
deposited into Nadal-Ginard's personal bank accounts. Nadal-
Ginard thereafter wrote checks to BCHF to replace the funds that
had been traced to his accounts. On October 22, 1993, the Board
met to discuss this situation. At this meeting, Nadal-Ginard
allegedly informed the Board of his intention to seek a medical
leave of absence from his various Hospital and Medical School
positions, as well as from his duties as BCHF president. Nadal-
Ginard alleges that the Board approved this request, and that he
was subsequently hospitalized for treatment of acute depression.
Nadal-Ginard's final two allegations of error concern
the methods employed by the district court in calculating BCHF's
-26-
damages arising out of these facts. First, Nadal-Ginard alleges
that the district court erred in denying his request for an
offset in an amount equal to the disability payments to which he
claims he was entitled under the Nadeau Plan because of his
medical condition. Second, Nadal-Ginard contends that the
district court impermissibly awarded damages in an amount
equivalent to the interest BCHF would have earned on the
misappropriated funds absent Nadal-Ginard's actions. We address
each of these allegations in turn.
A. Disability Benefits A. Disability Benefits ___________________
At trial, Nadal-Ginard argued that because the district
court nullified the Banks Plan, it implicitly confirmed the
existence of the Nadeau plan.11 Nadal-Ginard further claimed
that, as a result of his medical condition, he was totally
disabled and therefore eligible for severance benefits under the
terms of the Nadeau plan. Accordingly, Nadal-Ginard sought to
reduce the amount of damages attributed to his fiduciary
transgressions with respect to the Banks plan in an amount equal
to the Nadeau plan severance benefits.
____________________
11 As BCHF notes in its brief, the district court did not
definitively establish the existence of the Nadeau plan. Rather,
the court prefaced its analysis of the merits of Nadal-Ginard's
claim by stating merely that "[a] plausible argument can be made
that the Nadeau plan is in effect . . . ." Because neither party
explicitly addresses the validity of such an assumption, as well
as the fact that we agree with the district court's ultimate
finding that Nadal-Ginard is not entitled to such benefits, we do
not address the issues surrounding the viability of the Nadeau
plan.
-27-
The district court denied Nadal-Ginard's claim on two
grounds. First, it found evidence that suggested that Nadal-
Ginard's BCHF employment was involuntarily terminated, thereby
working a forfeiture of any benefits to which he otherwise would
have been eligible. Second, the district court found that Nadal-
Ginard had failed to prove that he was "totally disabled," and
therefore was not eligible to receive benefits under the plan.
Nadal-Ginard challenges both findings on appeal. We begin our
analysis by detailing the severance benefit framework of the
Nadeau plan.
Under section 4.1 of this plan, a participant is
eligible for severance benefits upon "Total Disability." This ________
condition is defined in section 2.13 of the plan as an "inability
to perform usual and customary duties for [BCHF] as a result of a
medically determinable physical or mental impairment . . . ."
Section 2.13 further provides that "[t]he receipt by a
Participant of payments under any long term disability income
insurance policy . . . shall be deemed to be . . . prima facie
evidence of such Total Disability in the absence of a contrary
finding by [a] physician."
The mere fact that an individual is eligible to receive
severance benefits as a result of a disability does not necessary
entitle him to those benefits, however. Indeed, section 4.2 of _______
the plan provides for the forfeiture of all benefits by
participants in certain circumstances, including BCHF's
termination of a participant's employment.
-28-
The district court found that Nadal-Ginard was
involuntarily terminated from his position at BCHF.12 As
section 4.2 contains no language limiting the time frame during
which this provision applies, we find that the district court
correctly interpreted the provision as barring the receipt of any
benefits by Nadal-Ginard. As such, we need not address Nadal-
Ginard's claim of eligibility for the benefits as a result of his
medical condition, and we turn to address his final allegation of
error.
B. Misappropriated Checks B. Misappropriated Checks ______________________
As we noted above, in 1993, the Board discovered that
Nadal-Ginard had misappropriated a number of BCHF checks, each
drafted between 1991 and 1992, for his personal use. The court
found that Nadal-Ginard's actions with respect to these checks
constituted breaches of his fiduciary duties. Notwithstanding
the fact that Nadal-Ginard reimbursed BCHF for the principal
amounts of these checks, the district court awarded BCHF damages
for these breaches in an amount equivalent to the interest BCHF
would have earned on the money between the time the checks were
drafted and the time Nadal-Ginard reimbursed the funds.
In alleging error with respect to this damage award,
Nadal-Ginard does not contest BCHF's right to recover an amount
equal to the interest which it would have earned on the
misappropriated funds. Rather, Nadal-Ginard contends that BCHF
failed to meet its burden of submitting evidence to prove the
____________________
12 Nadal-Ginard does not challenge this finding on appeal.
-29-
amount of its damages, as it introduced no evidence of what the
prevailing market rate was during the time in question. Nadal-
Ginard contends that the trial court erred by awarding damages in
an amount equal to the market interest rate, which it calculated
based on the auction prices of 52-week United States Treasury
bills.
Interest is compensation fixed by law for the use of
money or, alternatively, as damages for its detention. See ___
Perkins School for the Blind v. Rate Setting Comm'n, 423 N.E.2d _____________________________ ___________________
765, 771-72 (Mass. 1981); Begelfer v. Najarian, 409 N.E.2d 167, ________ ________
170 (Mass. 1980). Massachusetts law differentiates between two
types of interest: interest reserved by the terms of a contract
and interest awarded by law. See Perkins School for the Blind v. ___ ____________________________
Rate Setting Comm'n, 423 N.E.2d at 772. The latter is ______________________
traditionally seen in the context of prejudgment or postjudgment
interest, the rate of which is traditionally fixed by statute and
which is calculated based on the amount of damages that a party
has sustained.
In this case, there is no question that BCHF bore its
burden of proving it was injured in an amount equivalent to the
interest it would have earned on the misappropriated funds.
Indeed, it sought to recover damages in an amount based on the
interest it would have received using the prejudgment rates
provided by statute. See Mass. Gen. L. ch. 231, 6H. The ___
application of that rate would have resulted in a windfall to
BCHF, however. In light of the fact that the interest is awarded
-30-
to ensure that a party is fully compensated for its injuries, the
fact that the district court relied on the United States Treasury
bill rates to determine the applicable interest rates did not
prejudice either Nadal-Ginard or BCHF.13 Therefore, we affirm
the district court's ruling with respect this aspect of the
damage award.
VII. BCHF'S CROSS-APPEAL VII. BCHF'S CROSS-APPEAL
Notwithstanding its agreement with most of the district
court's findings and conclusions, BCHF raises a number of errors
it alleges the court committed. We note that BCHF raises four
issues in its cross-appeal. Based on the fact that we have
already addressed the appropriate interest rate to be used in
calculating its damages for the misappropriated checks, see supra ___ _____
part VI.B, as well as the fact that in its brief it concedes that
this court need not address the circumstances surrounding Dr.
Freed's testimony if we find in its favor with respect to the
Banks plan, we address its two remaining claims below.
A. Statute of Limitations A. Statute of Limitations ______________________
BCHF first challenges the manner in which the district
court applied the Massachusetts statute of limitations to limit
its damages arising out of Nadal-Ginard's breaches. While BCHF
does not challenge the court's finding that Massachusetts law
imposes a three year limitation on breach of fiduciary duty
claims, see Mass. Gen. L. ch. 260, 2A, BCHF alleges that the ___
____________________
13 BCHF, in its cross-appeal, alleges that the district court
erred in not applying the prejudgment interest rate provided
under Massachusetts law with respect to these funds.
-31-
district court should have found the statute to have been tolled
because Nadal-Ginard concealed his misdeeds. As such, BCHF asks
this court to reverse the district court's judgment insofar as it
precludes the recovery of damages arising from its salary and
Escrow Account claims prior to November 12, 1990. We decline.
The general rule in Massachusetts is that a cause of
action in tort, in this case a claim based on the violation of a
fiduciary duty, must be commenced within three years of the time
the breach occurs. See id. As with any rule, however, there ___ __
exists at least one exception, which, in this case, is defined by
statute:
If a person liable to a personal action
fraudulently conceals the cause of such
action from the knowledge of the person
entitled to bring it, the period prior to
the discovery of his cause of action by
the person so entitled shall be excluded
in determining the time limited for the
commencement of the action.
Mass. Gen. L. ch. 260, 12.
In general, this statute "requires a plaintiff to show
an affirmative act of fraudulent concealment on the part of the
defendant." Maggio v. Gerard Freezer & Ice Co., 824 F.2d 123, ______ _________________________
130 (1st Cir. 1987). Once again, however, a relevant exception
exists. In cases where "a fiduciary relationship exists between
plaintiff and defendant . . . [the] mere failure to reveal
information may be sufficient to constitute fraudulent conduct ___
. . . ." Id. (emphasis added); see also Puritan Medical Center, __ ________ _______________________
Inc. v. Cashman, 596 N.E.2d 1004, 1010 (Mass. 1992). ____ _______
-32-
The district court applied both the statutory language
and the relevant case law to the facts at hand. That is, while
it recognized that Massachusetts law no longer required a
plaintiff to show active concealment on the part of the defendant
in order to toll the statute of limitations, it found that the
law did not require a tolling per se when the cause of action ______
concerned the breach of a fiduciary duty of disclosure.
Concluding that the facts below differed from those in Puritan in _______
that the information in question was either of general knowledge
or easily accessible to the other Board members, it declined to
apply the statute's tolling provisions.
We find no error in the district court's interpretation
of the applicable Massachusetts tolling provisions. Indeed, as
the court pointed out below, the cases hold only that the breach
of a duty to disclose may be sufficient to invoke the tolling ___
provisions. See Puritan Medical Center, Inc. v. Cashman, 596 ___ _____________________________ _______
N.E.2d at 1010; Maggio v. Gerard Freezer & Ice Co., 824 F.2d at ______ ________________________
130. There is no suggestion that such a breach requires the
tolling provisions to be applied in all cases. Indeed, such a
conclusion would be counterintuitive.14
An examination of the record reveals nothing to suggest
that the district court erred in refusing to find the statute
____________________
14 This would be so in a case in which Board members learned of
the non-disclosed information on their own, yet chose not to act.
In that case, they would be able to recover damages beyond the
traditional statute of limitations period notwithstanding their
inaction.
-33-
tolled. As such, we turn to address the final issue BCHF raises
in its cross-appeal.
B. BCHF Fringe Benefits B. BCHF Fringe Benefits ____________________
BCHF's second allegation of error arises out of the
district court's findings that Nadal-Ginard failed to disclose
his HHMI employment to the Board. Specifically, BCHF argues that
the district court erred by not finding that Nadal-Ginard
breached his fiduciary duties by failing to disclose to the Board
the fact that he was receiving a fringe benefits package from
HHMI. Once again, we find no error on the part of the district
court.
The district court, applying the principles underlying
fiduciary obligations that we have already detailed, see supra ___ _____
part III.A, found that BCHF failed to prove what the HHMI
benefits were and whether they were comparable to those provided
by BCHF. Thus, the court found nothing to suggest the HHMI
benefit information would have affected the outcome of the
Board's determination of Nadal-Ginard's BCHF fringe benefits
package. Therefore, it concluded that there was insufficient
evidence to find that Nadal-Ginard failed to act in good faith
with respect to the fringe benefits, and thus no basis for
finding he breached his fiduciary duties in this regard.
Having found nothing in the record to suggest that the
district court's factual finding with respect to the sufficiency
of the fringe benefit evidence was clearly erroneous, we find no
need to disrupt the district court's finding.
-34-
VIII. CONCLUSION VIII. CONCLUSION
For the foregoing reasons, the judgment of the district
court is affirmed. Two-thirds costs in favor of BCHF. affirmed. Two-thirds costs in favor of BCHF ____________________________________________
-35-
Document Info
Docket Number： 95-1053
Filed Date： 1/12/1996
Precedential Status： Precedential
Modified Date： 9/21/2015