## Facts

- A professional football franchise was placed into a Massachusetts corporation with voting common stock held by founders and nonvoting common stock later sold to the public.
- William H. Sullivan, Jr. regained complete control of the corporation’s voting stock in 1975 through a leveraged acquisition financed by personal bank loans.
- The loan terms contemplated that Sullivan would reorganize the corporation so its income and assets could support repayment and provide collateral for those personal loans.
- After obtaining voting control, Sullivan replaced the board with directors aligned with him and resumed operating control.
- Sullivan formed a new corporation with substantially overlapping directors and caused the old corporation to merge into the new one.
- The merger cashed out minority holders of nonvoting stock for $15 per share.
- Minority shareholders challenged the transaction as a freeze-out designed to benefit Sullivan personally and as unfair in price and process, especially given the price Sullivan effectively paid for voting control.
- The trial court entered judgment for defendants on fiduciary-duty and related claims; the Supreme Judicial Court reversed in part in 1986 and later addressed remedy in a 1990 decision after remand.

## Issues

1. What fiduciary duties does a controlling shareholder owe minority shareholders in a cash-out merger where the controller and directors effectively stand on both sides of the transaction?
2. Who bears the burden to prove that such a freeze-out serves a legitimate corporate purpose and is fair to minority shareholders?
3. What remedy is appropriate when a freeze-out merger is found unlawful, particularly after substantial time has passed since consummation?

## Decision

- The Supreme Judicial Court held the controlling shareholder and overlapping directors owed minority shareholders a duty of utmost good faith and loyalty in the freeze-out merger.
- The court placed the burden on the controlling shareholder to prove both a legitimate corporate purpose and overall fairness to the minority.
- The defendants failed to meet that burden; the cash-out merger was held unfair and unlawful.
- On remand, the court determined that rescission, though ordinarily favored for an unlawful merger, was impracticable after a decade of intervening changes.
- The court approved appraisal-type monetary relief to compensate the minority class rather than unwinding the merger.

## Legal Principles

- A controlling shareholder who is effectively on both sides of a squeeze-out transaction must act with utmost good faith and loyalty toward minority shareholders.
- In such controller self-dealing, the controller bears the burden to prove (1) a legitimate corporate purpose for the transaction and (2) fairness to the minority, including fair dealing and fair price.
- Use of corporate structure and assets primarily to advance a controller’s personal financing objectives can defeat any claimed corporate purpose.
- Rescission is a standard equitable remedy for an unlawful merger, but equity may substitute monetary, appraisal-style relief when unwinding the transaction would be impractical or inequitable due to the passage of time and changed circumstances.

## Conclusion

The court treated the freeze-out merger as controller self-dealing subject to stringent fiduciary review and burden-shifting, found the merger unlawful for lack of legitimate corporate purpose and fairness, and ultimately awarded appraisal-type monetary relief rather than rescission because undoing a long-completed merger was not feasible.


Coggins v. New England Patriots Football Club, Inc., 397 Mass. 525, 492 N.E.2d 1112 (1986)