## Facts

- Rodd Electrotype Company of New England, Inc. was a closely held, family-run Massachusetts corporation with no ready market for its shares.
- Harry C. Rodd long controlled the corporation; Joseph Donahue held a minority stake, later inherited by Joseph’s widow, Euphemia Donahue (a minority shareholder).
- After retiring, Harry sought to dispose of his large holdings, transferring many shares to his children by gift or private sale.
- The board, dominated by Harry’s sons (Charles and Frederick Rodd), caused the corporation to repurchase 45 of Harry’s shares for $800 per share ($36,000), holding them as treasury stock.
- After learning of the repurchase, Euphemia offered to sell her shares to the corporation on the same $800-per-share terms; the board refused.
- Euphemia sued, alleging breach of fiduciary duty by the corporation’s controllers and directors for arranging a selective repurchase benefiting the controlling shareholder without providing her an equal opportunity.
- The trial court dismissed on the merits; the Appeals Court affirmed; the Supreme Judicial Court (SJC) granted further review and reversed.

## Issues

1. Whether directors and controlling shareholders of a close corporation breach fiduciary duties by causing the corporation to repurchase shares from a controlling shareholder without offering minority shareholders an equal opportunity to sell a ratable number of shares on equivalent terms.
2. Whether shareholders in a close corporation owe one another a heightened fiduciary duty comparable to partners’ obligations.
3. What relief is appropriate for a selective stock repurchase that violates those fiduciary duties.

## Decision

- The SJC reversed the dismissal and remanded for further proceedings.
- The court held that shareholders in a close corporation owe each other a fiduciary duty of “utmost good faith and loyalty,” akin to partners.
- The court held that causing the corporation to repurchase shares from a controlling shareholder, while denying minority shareholders a substantially equal, ratable opportunity to sell on the same terms, breaches that fiduciary duty.
- The court indicated remedies could include rescission of the repurchase (with repayment to the corporation, plus interest) or an order requiring the corporation to extend an equal opportunity to the minority shareholder on identical terms.

## Legal Principles

- In a close corporation, controlling shareholders and directors must act with “utmost good faith and loyalty” toward minority shareholders.
- A selective repurchase of shares by a close corporation that confers a special benefit on an insider is treated as a distribution-like transaction requiring equal treatment of shareholders.
- When a close corporation purchases shares from one shareholder (especially a controller), it must offer all shareholders the chance to sell a ratable number of shares on substantially equal terms, absent a legitimate justification consistent with fiduciary obligations.
- Compliance is not established merely by showing a “fair” price, asserted good faith, or lack of measurable financial prejudice; exclusion from equal participation in the opportunity can itself constitute the breach.
- A minority shareholder may sue directly to enforce the personal right to equal treatment in such a transaction.

## Conclusion

The SJC held that close-corporation controllers and directors owe partner-like fiduciary duties and violate those duties when they arrange a selective corporate share repurchase for a controlling shareholder without providing minority shareholders an equal, ratable opportunity to sell on the same terms, warranting rescission or equivalent equal-opportunity relief.


Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 328 N.E.2d 505 (Mass. 1975)