Minturn v. Monrad ( 2023 )

United States Court of Appeals
For the First Circuit
No. 22-1200
ROBERT B. MINTURN,
Plaintiff, Appellee,
v.
BRUCE H. MONRAD, individually and as special personal
representative of the estate of Ernest E. Monrad, PETER J.
BLAMPIED, GEORGE P. BEAL, and CHARLES R. DAUGHERTY,
Defendants, Appellants,
NORTHEAST INVESTORS TRUST,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Barron, Chief Judge,
Selya and Lynch, Circuit Judges.
Shikha Garg, with whom Alison C. Barnes, Kramer Levin Robbins
Russell, E. Page Wilkins, David Lurie, and Lurie Friedman LLP were
on brief, for appellants.
Douglas W. Salvesen, with whom Richard J. Yurko and Yurko
Partners, P.C. were on brief, for appellee.
March 30, 2023
SELYA, Circuit Judge. This is an old-fashioned contract
dispute. It requires us to construe contractual provisions under
which plaintiff-appellee Robert B. Minturn claims entitlement to
certain retirement compensation allegedly due to him from
Northeast Investors Trust (the Trust), where he served as a
trustee. Concluding, as we do, that the plain language of the
controlling agreement entitles the plaintiff to the claimed
compensation, we affirm the district court's grant of partial
summary judgment and its subsequent entry of judgment in the
plaintiff's favor for the sum of $794,500.
I
We briefly rehearse the relevant facts (which are
largely undisputed) and then chronicle the travel of the case.
The Trust is a Massachusetts business trust organized in 1950. It
operates as a mutual fund, the assets of which are managed by a
board of trustees (the Trustees) for the benefit of passive
investors, known as shareholders. From 1978 until his retirement
in 2013, the plaintiff served the Trust in various capacities,
including as clerk, chief legal officer, and vice president. He
also served as a member of the board of trustees from 1980 until
2005.
In 1989, the Trustees executed an agreement (the
Agreement) among themselves that outlined compensation and
retirement compensation due to each trustee then in office. Under
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the terms of the Agreement, the plaintiff (or his heirs, as the
case may be) was entitled to quarterly payments amounting to
$100,000 a year for ten years following his retirement, death,
disability, or other incapacitating event. This annual rate would
increase by $25,000 for each additional $100,000,000 in net assets
held by the Trust at his retirement (beyond the total assets held
by the Trust on March 31, 1989).
Under the Trust's Declaration of Trust, all trustee
compensation must be paid out of a management fee, which is derived
quarterly from the Trust's net assets at a fixed percentage. The
management fee also pays for "all research and statistical
services" and the Trust's office space.
The Agreement included two other relevant provisions.
The first such provision, section 8, outlined a process for the
independent (that is, non-management) trustees to reduce certain
annual trustee retirement compensation by extending the total
payment period in the event that specific circumstances — including
the decline in value of trust assets by more than forty percent —
transpired and the independent trustees deemed the reduction
"advisable and in the best interests of the shareholders . . . in
order to ensure the availability [of] adequate current
compensation for the Trustees." The second such provision, section
11 — the meaning of which the parties dispute — read as follows:
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Subject always to the best interests of the
shareholders, it is contemplated and intended
as between the Trustees of Northeast Investors
Trust who are signatories hereto that this
Agreement and the provisions hereof for the
benefit of the individual Trustees, including
provisions with regard to entitlement to
payments of additional compensation, shall
survive and continue and be made binding upon
successor trustees, advisors, management
companies, or any other individuals or
entities becoming entitled to trustee,
advisory and/or management fees from the
Trust, however and in whatever form they are
paid, despite any change of form or manner of
management or operation of the Trust.
The Agreement was thrice amended (in 1994, 1998, and
2005), but none of these amendments directly affected the
plaintiff's retirement compensation. In 2008, however, the
Agreement was supplemented. This supplement (the Supplement)
addressed federal tax-law changes and resulted in the
characterization of the retirement compensation limned in the
Agreement as deferred compensation that was deemed "earned and
vested" as of December 31, 2004. The documents memorializing these
revisions (that is, the three amendments and the Supplement)
ratified the Agreement and were signed by all of the Trustees then
in office — a group which, since at least 2005, included all of
the defendants.
The plaintiff retired in 2013. At that time, the net
assets of the Trust had increased by over $300,000,000, raising
his retirement compensation to $175,000 per year. The Trustees
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paid him equal quarterly payments totaling $175,000 annually
through early 2018. In February of 2018, though, the Trustees did
an about-face: they voted to reduce the plaintiff's retirement
compensation to quarterly payments of $10,000, citing a sharp
decline in the value of trust assets. The plaintiff received
quarterly payments at this reduced rate until April of 2019. Then,
the Trustees stopped paying the plaintiff's retirement
compensation altogether.
The plaintiff did not go quietly into this bleak night.
Instead, he sued the Trust and the Trustees then in office (Ernest
E. Monrad, Bruce H. Monrad, Peter J. Blampied, George P. Beal, and
Charles R. Daugherty)1 in the United States District Court for the
District of Massachusetts, alleging that the defendants improperly
withheld his retirement compensation in violation of the
Agreement. He also alleged, in the alternative, that the
defendants were liable for wrongful denial of benefits and breach
of fiduciary duty under the Employee Retirement Income Security
Act (ERISA). See 29 U.S.C. § 1132(a)(1)(B), (a)(3), (g). The
defendants answered, denying the material allegations of the
During the pendency of the litigation, Ernest E. Monrad
1
died. Bruce H. Monrad was then substituted in Ernest E. Monrad's
place and stead, so that he is named as a defendant both
individually and as special personal representative of Ernest E.
Monrad's estate.
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complaint and counterclaiming for a declaratory judgment. See 28
U.S.C. § 2201.
The defendants next moved to dismiss the plaintiff's
complaint for lack of subject matter jurisdiction and failure to
state a claim. See Fed. R. Civ. P. 12(b)(1), (6). The district
court granted the motion to dismiss as to the plaintiff's claims
against the Trust but denied it in all other respects. See Minturn
v. Monrad, 2020 WL 6363909, at *4 (D. Mass. Oct. 29, 2020).
Following the close of discovery, the plaintiff moved for partial
summary judgment on his breach-of-contract claim. See Fed. R.
Civ. P. 56(a). The district court granted the motion, holding
that section 11 of the Agreement was "precatory, i.e., advisory,"
and that the phrase "[s]ubject always to the best interests of the
shareholders" had "no bearing on the substantive obligations set
forth" elsewhere in the Agreement. Minturn v. Monrad, 585 F. Supp.
3d 123, 127-28 (D. Mass. 2022).
With the consent of all the parties, the plaintiff's
ERISA claims and the defendants' counterclaim were later
dismissed. On March 1, 2022, judgment was entered for the
plaintiff in the amount of $794,500 for quarterly payments due
under the Agreement up through January 2022 (which amount included
prejudgment interest). This timely appeal followed.
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II
We review a district court's grant of summary judgment
de novo. See Pleasantdale Condos., LLC v. Wakefield, 37 F.4th
728, 732 (1st Cir. 2022). Summary judgment is appropriate when
the moving party has shown that there is no genuine issue as to
any material fact and that he is entitled to judgment as a matter
of law. See Fed. R. Civ. P. 56(a). In conducting this tamisage,
we construe the facts in the light most favorable to the non-
moving parties (here, the defendants) and draw all reasonable
inferences therefrom to their behoof. See Pleasantdale Condos.,
37 F.4th at 733. We are not tied to the district court's rationale
but, rather, may affirm the judgment on any ground made manifest
by the record. See Houlton Citizens' Coal. v. Town of Houlton,
175 F.3d 178, 184 (1st Cir. 1999).
Here, the district court entered judgment for the
plaintiff on a state-law claim. See Minturn, 585 F. Supp. 3d at
128. That claim was in federal court by reason of supplemental
jurisdiction. See 28 U.S.C. § 1367(a). Thus, state law — in this
instance Massachusetts law — supplies the substantive rules of
decision. See Lawless v. Steward Health Care Sys., LLC, 894 F.3d
9, 21 (1st Cir. 2018); see also Borden v. Paul Revere Life Ins.
Co., 935 F.2d 370, 375 (1st Cir. 1991) (confirming that federal
court may accept parties' plausible agreement as to which state's
law supplies the controlling rules of decision).
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A
The singular question presented on appeal is whether the
defendants breached the Agreement by reducing and then terminating
the plaintiff's retirement compensation. In order to answer this
question, we begin with first principles.
To demonstrate a breach of contract under Massachusetts
law, "the plaintiff must prove that a valid, binding contract
existed, the defendant breached the terms of the contract, and the
plaintiff sustained damages as a result of the breach." Young v.
Wells Fargo Bank, N.A., 828 F.3d 26, 32 (1st Cir. 2016) (quoting
Young v. Wells Fargo Bank, N.A., 717 F.3d 224, 232 (1st Cir.
2013)). Only the second of these three elements — whether the
defendants' actions constituted a breach — is at issue in this
appeal.
The interpretation of an unambiguous contractual
provision presents a question of law for the court. See Gen. Hosp.
Corp. v. Esoterix Genetic Lab'ys, LLC, 16 F.4th 304, 308 (1st Cir.
2021) (applying Massachusetts law). So, too, the determination of
whether the provision is ambiguous is for the court. See Bukuras
v. Mueller Grp., LLC, 592 F.3d 255, 261 (1st Cir. 2010) (applying
Massachusetts law). A contract is ambiguous either where its
"terms are inconsistent on their face or where the phraseology can
support reasonable differences of opinion as to the meaning of the
words employed and obligations undertaken." Farmers Ins. Exch. v.
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RNK, Inc., 632 F.3d 777, 783 (1st Cir. 2011) (quoting Bank v. Int'l
Bus. Machs. Corp., 145 F.3d 420, 424 (1st Cir. 1998)) (applying
Massachusetts law).
If a court determines that the terms of the contract are
unambiguous, it should resolve interpretive disputes based on the
language of the contract, without resort to extrinsic evidence.
See Esoterix, 16 F.4th at 308. In that process, the court must
interpret the contract to effectuate the parties' discerned
intent, which "must be gathered from a fair construction of the
contract as a whole." VFC Partners 26, LLC v. Cadlerocks
Centennial Drive, LLC, 735 F.3d 25, 29 (1st Cir. 2013) (quoting
Bukuras, 592 F.3d at 262) (applying Massachusetts law). The
contract should be interpreted "in a reasonable and practical way,"
reading words that are "plain and free from ambiguity" in their
"usual and ordinary sense." Esoterix, 16 F.4th at 308 (quoting
Bukuras, 592 F.3d at 262).
1
To determine whether the defendants breached the
Agreement, we start with section 11 (reproduced in full above).
The defendants claim that section 11 conferred upon them not only
the power but also the fiduciary obligation to depart from the
schedule of retirement compensation laid out in the Agreement and
to modify that schedule whenever doing so was in "the best
interests of the shareholders." The plaintiff demurs, responding
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that section 11 is merely a precatory (that is, a non-binding)
expression of the signatories' intention and, consequently,
conferred neither any such power nor any such obligation. The
parties offer dueling versions of syntactical rules that they
suggest may be of assistance. To us, however, the result is clear:
as we explain below, we read section 11, taken as a whole and
construing its words in their usual and ordinary sense, as
precatory. There is no ambiguity.
We turn first to the significance of "it is contemplated
and intended." The parties spar over whether that phrase indicates
that what follows — that is, that the Agreement and its provisions
"shall survive and continue and be made binding upon" successor
trustees — is precatory. The case law strongly favors the
plaintiff's interpretation that "contemplated" and "intended,"
whether considered singly or in combination, do not signal a
binding obligation. See, e.g., Advanced Water Techs., Inc. v.
Amiad U.S.A., Inc., 457 F. Supp. 3d 313, 320 (S.D.N.Y. 2020)
(collecting cases concluding that agreements "characterized by
precatory language, such as 'It is the intention of [the
parties],' . . . [are] unenforceable" (alterations in original)
(quoting Dragon Head LLC v. Elkman, 987 N.Y.S.2d 60, 61 (N.Y. App.
Div. 2014))); Sec. Bank & Tr. Co. v. Bogard, 494 N.E.2d 965, 969
(Ind. Ct. App. 1986) ("[T]he mere expression of an intention is
not a promise."); Dauray v. Gaylord, 402 S.W.2d 948, 950-51 (Tex.
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Civ. App. 1966) (concluding that "contemplate" is precatory);
Hansen v. Catsman, 123 N.W.2d 265, 267 (Mich. 1963) (stating that
"[o]rdinarily, the word 'contemplates' indicates an expectation or
intention rather than a promise or undertaking"). Although there
is a minority view, see, e.g., Denker v. Twentieth Century-Fox
Film Corp., 210 N.Y.S.2d 241, 244 (N.Y. Sup. Ct. 1960) (explaining
that "contemplate" may "connote a binding obligation"), we find
that view unconvincing.
That said, we renounce any per se rule to the effect
that the phrase "it is contemplated and intended" always renders
what follows precatory. Just as no specific words are necessary
to form a binding promise, see E.I. Du Pont De Nemours & Co. v.
Claiborne-Reno Co., 64 F.2d 224, 227 (8th Cir. 1933), no specific
words are necessary to form a precatory provision. The defendants
concede that phraseology such as "it is contemplated and intended"
might indicate, in some contexts, that a provision is precatory.
They nonetheless assert that, when used here, those words are at
least ambiguous.
Taken in a vacuum, the defendants' point may have some
superficial appeal — but contract interpretation does not take
place in a vacuum, and the absence of a per se rule does not get
the defendants very far. They still must face up to the reality
that phrasing such as "it is contemplated and intended" ordinarily
implies that what follows expresses a non-binding intention (and,
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thus, is precatory). And the mere fact that those words, standing
alone, do not resolve the interpretive question as to whether
section 11 is precatory does not render section 11 ambiguous. That
fact only means that we must look to the surrounding text for
further clarification. See Nat'l Tax Inst. v. Topnotch at Stowe
Resort & Spa, 388 F.3d 15, 18 (1st Cir. 2004) (applying
Massachusetts law) (finding that "related provisions may cast
light on meaning" even when phrase considered alone is
inconclusive).
2
Considering its text as a whole and reading its words in
their usual and ordinary sense, it is clear to us that section 11
is precatory. That section goes on to express what is
"contemplated and intended": that the Agreement, including the
provisions for trustee retirement compensation, "shall survive and
continue and be made binding upon" anyone who becomes "entitled to
trustee, advisory and/or management fees from the Trust,"
notwithstanding "any change of form or manner of management or
operation of the Trust." A prefatory clause qualifies that
statement as "[s]ubject always to the best interest of the
shareholders."
The plain and unambiguous meaning of section 11 is to
express an intention for a future time during which the signatories
(who were also the beneficiaries of the Agreement) are no longer
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in charge of the management of the Trust. The signatories
"contemplated and intended" that the Agreement would "survive" and
"continue" should such changes occur while the provisions of the
Agreement were still relevant. At such time, those provisions
would "be made binding" — the passive voice implying that someone
other than the signatories would be undertaking that effort — upon
the persons who, in the future, would be charged with making
management decisions for the Trust (but whom the Agreement did not
yet bind). Effectuating that intention was, of course, conditioned
upon the Agreement continuing to be in "the best interests of the
shareholders." The signatories' aim, as reflected in the text,
was to indicate to future management-fee recipients the
signatories' intent that the Agreement remain in place even though
they were no longer in a position to enforce it. There is simply
no textual basis for concluding that the language was meant to
provide a general override to every other section of the Agreement.
Contrary to the defendants' importunings, reading
section 11 as precatory does not lead to the conclusion that it is
meaningless. The signatories had no power to ensure that future
management-fee recipients would be bound to the Agreement. See
Platten v. HG Bermuda Exempted Ltd., 437 F.3d 118, 129-30 (1st
Cir. 2006) (applying Massachusetts law) (concluding that non-
parties are not bound by agreement and, thus, cannot be held liable
for breach). Nor did they have any power to ensure that the
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Agreement would "survive and continue" after they were no longer
trustees. Read against that background, section 11 expresses the
signatories' intention that the terms of the Agreement should
remain intact for future management-fee recipients. The bare fact
that section 11 does not create a binding legal obligation does
not render it meaningless. See Restatement (Second) of Contracts
§ 203 cmt. b (1981) ("The preference for an interpretation which
gives meaning to every part of an agreement does not mean that
every part is assumed to have legal consequences."); see also Byrne
v. Perry, 421 N.E.2d 1248, 1249 (Mass. App. Ct. 1981).
The defendants' attempts to circumvent the plain meaning
of the text are unpersuasive. They first suggest an interpretation
of section 11 that would bypass "it is contemplated and intended"
altogether, such that whether the Agreement "shall survive and
continue and be made binding upon" future trustees is directly
"[s]ubject always to the best interests of the shareholders." But
this suggestion has an obvious flaw: it fails to account for the
intervening words ("it is contemplated and intended"), which both
basic grammatical rules and common sense instruct must qualify the
three verbs that follow and convincingly imply that what follows
is precatory. See Lieber v. President & Fellows of Harvard Coll.,
179 N.E.3d 19, 26 n.15 (Mass. 2022) (explaining that "it is a
fundamental principle of interpretation 'that every word and
phrase of an instrument is if possible to be given meaning, and
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none is to be rejected as surplusage if any other course is
rationally possible'" (quoting Balles v. Babcock Power Inc., 70
N.E.3d 905, 914 n.17 (Mass. 2017))).
The defendants rejoin that "survive and continue and be
made binding upon" is the "nearest reasonable referent" following
the opening clause. But that rejoinder is struthious and ignores
the language used by the signatories. Cf. Fishman v. LaSalle Nat'l
Bank, 247 F.3d 300, 302-03 (1st Cir. 2001) (applying Massachusetts
law) (warning that party's argument, though "strong on canons and
doctrine," failed to provide rational interpretation of challenged
text). The defendants would have us treat "it is contemplated and
intended" as entirely redundant — but they offer no principled
basis for us to do so. See DeWolfe v. Hingham Ctr., Ltd., 985
N.E.2d 1187, 1196 (Mass. 2013) ("[Plaintiff's] construction of the
clause is to be favored, because the construction offered by the
defendants fails to give effect to [specific] words.").
Next, the defendants assert that the district court
incorrectly determined that "[s]ubject always to the best
interests of the shareholders" applies only to "be made binding,"
thus failing to account for "survive" and "continue." They further
assert that — when properly considered — "[t]he ordinary meaning
of the words 'survive' and 'continue' confirms that Section 11 was
intended to affect the conditions under which the Agreement would
persist." One of those conditions, their thesis runs, is that the
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Agreement would be "[s]ubject always to the best interests of the
shareholders."
We accept the defendants' premise that the district
court's opinion was imprecise in its discussion of the three verbs.
See Minturn, 585 F. Supp. 3d at 127. We agree, moreover, that it
would be folly not to account for "survive" and "continue" in
construing section 11. See Jasty v. Wright Med. Tech., Inc., 528
F.3d 28, 36 (1st Cir. 2008) (applying Massachusetts law)
("[C]onstructions that render contract terms meaningless should be
avoided." (alteration in original) (quoting Summit Packaging Sys.,
Inc. v. Kenyon & Kenyon, 273 F.3d 9, 12 (1st Cir. 2001))). The
clause "[s]ubject always to the best interests of the shareholders"
should apply to all three verbs — mediated (as discussed above) by
"it is contemplated and intended."
Here, however, our review is de novo, see Pleasantdale
Condos., 37 F.4th at 732, and accounting for all three verbs does
not weaken the conclusion that section 11 is precatory. The
defendants' contrary assertion only holds water if we adopt the
unnatural and stilted reading that subjects the Agreement's
survival and continuation directly to the best interests of the
shareholders. The three verbs still have meaning if section 11 is
precatory: section 11 relates the intention that the Agreement
remain in effect should the "management or operation" of the Trust
change. That includes the intention that the Agreement remain in
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existence after the change (that is, that the Agreement "survive"
the change); that it go uninterrupted (that is, that the Agreement
"continue"); and that the Agreement "be made binding" on future
management-fee recipients.
The defendants contest this common-sense construction.
They claim that it blurs together the definitions of "survive" and
"continue." This claim does not withstand scrutiny: although the
definitions may overlap, they are distinct. And even though it is
important to avoid interpretations of contractual language that
render a word superfluous or redundant, see Starr v. Fordham, 648
N.E.2d 1261, 1270 (Mass. 1995), we are not so formalistic as to
demand that each word in a contract must have a perfectly defined
dominion that in no way impinges upon the dominion of another word.
To be sure, the words of a contractual provision matter.
See Bukuras, 592 F.3d at 262. Even so, "the words are to be read
as elements in a practical working document and not as a crossword
puzzle." Id. (quoting Fleet Nat'l Bank v. H & D Ent., 96 F.3d
532, 538 (1st Cir.1996)). On such a reading, section 11 is plainly
precatory.
3
The other sections of the Agreement reinforce the
conclusion that section 11 is precatory and does not provide an
avenue for overriding the specific obligations delineated in the
Agreement. See Starr, 648 N.E.2d at 1269 (explaining that contract
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obligations should be determined by looking both to immediate
context and to all other contractual provisions).
a
The first interpretive clue is found in section 8, which
provides a framework for modifying retirement compensation in the
event of a decline in the Trust's net assets. Even though the
defendants paid no heed to section 8 when reducing the plaintiff's
retirement compensation, that section sheds a bright light on the
meaning of section 11.
In contrast to section 11, section 8 is detailed: it
explains under what conditions reductions in retirement
compensation can be made and which persons are subject to such
reductions; it pegs any such reductions to the total decline in
assets and the pool of retirees receiving compensation; and it
requires any reductions to be offset by a corresponding increase
in years of payment (such that the total compensation remains the
same). Section 8 also confers upon the independent trustees the
power to determine whether trustee compensation should be reduced.
That determination must be based on the independent trustees'
assessment of whether a reduction "is advisable and in the best
interests of the shareholders . . . in order to ensure the
availability [of] adequate current compensation for the Trustees."
The defendants claim that section 11 allows them to
abrogate or modify retirement compensation without any limitation
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except that such an action is in "the best interests of the
shareholders." That interpretation irreconcilably conflicts with
section 8. Contracts must be read as a whole, and specific
provisions customarily trump more general provisions. See
Easthampton Congregational Church v. Church Mut. Ins. Co., 916
F.3d 86, 92 (1st Cir. 2019) (applying Massachusetts law). Section
8 is specific, whereas section 11 is general. It defies logic to
think that contracting parties would include a detailed provision
for when and how retirement compensation may be reduced and then
include another provision allowing reductions essentially without
limit. See Topnotch at Stowe Resort & Spa, 388 F.3d at 18-19.
This is especially true inasmuch as the independent trustees'
decision to trim compensation under section 8 is already made
subject to "the best interests of the shareholders," with the
result that the application of essentially the same clause in
section 11 would be redundant.
As we have said, contracts should be interpreted "as
rational business instrument[s]." Starr, 648 N.E.2d at 1270. The
detailed process spelled out in section 8 convincingly
demonstrates the signatories' understanding that modifications to
trustee retirement compensation could become necessary if the
circumstances of the Trust changed materially, but that any such
changes should be cabined by stipulated guidelines and procedures.
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This makes good sense: retirement compensation is something that
recipients count on and would not want modified arbitrarily.
The defendants' attempts to resist this conclusion are
futile. First, they argue that section 8 is "irrelevant" in this
context because the stipulated conditions have not been met. They
suggest that, until those conditions eventuate, section 11's
"general" power governs modifications of the Agreement.
This threadbare suggestion will not wash. It would be
unreasonable to interpret the Agreement as allowing modification
(let alone complete abrogation) of specific obligations up to the
time the stipulated conditions are met, without regard to any of
the safeguards specified in section 8, and then abruptly subject
such modifications to the specified safeguards once the conditions
have been met. The only reasonable interpretation is that the
Trustees had no power to modify the retirement compensation
described in the Agreement unless the conditions in section 8
occurred, at which point the independent trustees could agree to
reduce the compensation in accordance with the terms of that
section.
The defendants try to erect one last buffer to shield
them from the impact of section 8. They suggest that section 8 is
irrelevant because it does not apply to the plaintiff's retirement
compensation. This suggestion has a patina of plausibility:
section 8 is not a model of clarity, and at one point, it seems to
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indicate that only the annual compensation of two other trustees
(Ernest Monrad and William Oates, Jr.) may be modified if the
Trust's assets decline. At another point, though, section 8
explains that any compensation "so reduced" should still — over
time — equal the total dollar amounts guaranteed to Monrad, Oates,
and the plaintiff.
We need not resolve this ambiguity because it makes no
difference here. See Brigade Leveraged Cap. Structures Fund Ltd.
v. PIMCO Income Strategy Fund, 995 N.E.2d 64, 70 & n.11 (Mass.
2013). The relevance of section 8 to our analysis is that it
furnishes compelling evidence that there is a specific provision
in the Agreement that would be in conflict with section 11 if we
were to interpret section 11 to allow the Trustees free reign to
modify the Agreement. The two sections would be in conflict
regardless (if not in application to the plaintiff, then in
application to Monrad and Oates).
We add, moreover, that if section 8 does not apply to
the plaintiff, the reasonable inference is that such an exclusion
was deliberate. And it would follow that the Trustees cannot
reduce the plaintiff's retirement compensation under any
circumstances. See F.D.I.C. v. Singh, 977 F.2d 18, 22-23 (1st
Cir. 1992) (explaining that "Massachusetts law embraces the maxim
'expressio unius est exclusio alterius,'" meaning that when
"objects embraced by a contract" are enumerated, similar items not
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included may be assumed to have been excluded intentionally
(quoting Chatham Pharms., Inc. v. Angier Chem. Co., 196 N.E.2d
852, 854-55 (Mass. 1964))). That would be a rational choice: the
plaintiff was expecting a significantly lower retirement-
compensation package than Monrad and Oates. Accordingly, the
drafters may not have been as concerned about the effects of a
downturn in asset value with respect to paying the plaintiff's
retirement compensation.
To sum up, section 8 falls short of crystalline clarity.
Nevertheless, we can see no scenario in which its presence in the
Agreement fails to support the conclusion that section 11 would
conflict with it if section 11 were to be construed to give the
Trustees the power to modify the retirement-compensation
provisions in the Agreement. Cf. Blackie v. Maine, 75 F.3d 716,
722 (1st Cir. 1996) (holding that contractual provision, though
"not a model of syntax," was nonetheless unambiguous when "[r]ead
as a whole, the [provision] can sustain only one reasonable
interpretation").
b
Yet another provision of the Agreement undercuts the
proposition that section 11 gives the defendants unbridled
discretion to reduce the plaintiff's retirement compensation. The
Supplement, which was incorporated into the Agreement in 2008,
characterizes the retirement compensation specified in the
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Agreement (including the plaintiff's retirement compensation) as
"earned and vested" as of December 31, 2004, such that it was "not
subject to Internal Revenue Code Section 409A." In turn, section
409A (which was enacted in 2004) excluded certain deferred
compensation from current taxation if the compensation had been
deferred before January 1, 2005. See I.R.C. § 409A; 26 C.F.R.
§ 1.409A-6(a)(2) (2008). For compensation to qualify, the
recipient must already have "had a legally binding right to be
paid the amount, and the right to the amount [must have been]
earned and vested." 26 C.F.R. § 1.409A-6(a)(2) (2008). If the
payor "retained discretion to reduce the amount," the recipient
was deemed not to have a legally binding right to that
compensation. Id."[T]he law of Massachusetts demands that we harmonize
[provisions within a contract] rather than strain to create an
imaginary conflict." Singh, 977 F.2d at 24. Harmonizing section
11 with the Supplement requires us to reject the defendants'
interpretation of section 11. After all, an interpretation of
section 11 that grants the Trustees discretion to reduce the
plaintiff's retirement compensation would conflict head-on with
the Supplement's characterization of his compensation as "earned
and vested."
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4
In an effort to blunt the force of this reasoning, the
defendants contend that section 11 generally — and the phrase
"[s]ubject always to the best interests of the shareholders"
specifically — should be read as formalizing the Trustees'
fiduciary duties to the shareholders. Building on this foundation,
they further contend that when the asset value of the Trust
plummeted, the Trustees had a fiduciary duty under section 11 to
revise the plaintiff's retirement compensation.
These contentions, in turn, rest on the defendants'
notion that the Trustees must have understood that — in order to
comply with their fiduciary duties — the specific obligations in
the Agreement could only be binding within the limits of those
duties. The text of section 11 must therefore be interpreted, the
defendants submit, through the prism of that understanding.
The defendants' attempt to convert their fiduciary
duties into an off-ramp that would allow them to detour around
their contractual obligations does not put any points on the board.
As we already have indicated, see supra Part II(A)(2), the text of
section 11 unambiguously indicates that it is precatory. The
defendants' "fiduciary duty" argument conveniently overlooks that
text. And while the inclusion of the clause "[s]ubject always to
the best interests of the shareholders" may indicate the Trustees'
awareness of their fiduciary duties, that clause does nothing to
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define specifically what the boundaries of those duties may be.
Moreover, its applicability still extends only to the assessment
of whether the Agreement, once it is no longer in force, should
"survive and continue" on a going-forward basis (and, thus, "be
made binding").
If more were needed — and we doubt that it is — the
defendants have failed to articulate a comprehensible system as to
how their fiduciary duties would pertain here (whether through
section 11 or as an extra-contractual backstop). The defendants'
"fiduciary duty" argument is not accompanied by any workable
limiting principle: it would require the Trustees to subject every
action that they take to the best interests of the shareholders,
treating that clause as a continual condition precedent. The
Trustees' ability to abrogate or modify any contract based on their
fiduciary duties would be wholly unfettered: they could throw
overboard any contract, including a contract with an unrelated
third party, through the simple expedient of declaring that such
a contract was no longer "in the best interests of the
shareholders."
The defendants have not identified any pertinent
authority sufficient to support so expansive a view of fiduciary
duties. And that is no wonder: it is hard to imagine why anyone
would enter into a contract with the Trust if such a free-wheeling
regime was in place. Cf. Cofman v. Acton Corp., 958 F.2d 494, 497
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(1st Cir. 1992) (applying Massachusetts law) (expressing
"fundamental principle that a contract is to be construed as
meaningful and not illusory"). Saddling third parties with losses
simply to avoid imposing them on shareholders is not a rational
result.2 See Homeowner's Rehab, Inc. v. Related Corp. V SLP, L.P.,
99 N.E.3d 744, 754 (Mass. 2018).
III
We need go no further. Because we conclude that the
Agreement is unambiguous as to the plaintiff's right to his agreed
retirement compensation, we need not look to the extrinsic evidence
proffered by the parties. Nor does section 11 of the Agreement
undermine this conclusion. Taken together, the other provisions
in the Agreement confirm what the text of section 11 already tells
us: that section 11 is precatory. It cannot (and did not) relieve
the defendants of the specific obligations provided in the
Agreement, even in the event that they consider those obligations
no longer to be in the best interests of the shareholders.
Consequently, we affirm both the district court's grant of partial
Laboring to avoid the weight of this analysis, the Trustees
2
suggest that such an abrogation or modification would be acceptable
only if the perceived conflict affected the Trust's viability.
This suggestion, too, is unaccompanied by any persuasive
authority. And we discern no justification for us to blaze a new
trail through this uncharted terrain. Cf. Jones v. Secord, 684
F.3d 1, 10-11 (1st Cir. 2012) (warning that federal court applying
state substantive law should be reluctant about getting out ahead
of state courts and expanding state law).
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summary judgment and its subsequent entry of judgment for the
plaintiff.
Affirmed.
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