## Facts

- Exergen Corporation was a Massachusetts close corporation controlled by Francesco Pompei, its president and majority shareholder.
- Steven Merola joined Exergen full time in 1982 as vice president of operations and became a minority shareholder, purchasing over 5,000 shares between 1982 and 1983.
- Merola’s employment agreement permitted termination without cause (at will).
- In April 1987, Pompei terminated Merola’s employment as an officer and employee.
- Merola later sold his shares back to the corporation in 1991 for $17 per share.
- Merola sued, alleging (1) deceit based on false promises of continuing employment and (2) breach of fiduciary duty by Pompei as majority shareholder for terminating him and denying him an opportunity to become a major stockholder.
- A jury found no deceit and gave advisory findings supporting fiduciary-duty breach and $50,000 damages; the trial judge entered judgment for Merola on the fiduciary-duty claim.
- On further appellate review, the Supreme Judicial Court reversed.

## Issues

1. Whether a majority shareholder in a close corporation breaches fiduciary duties to a minority shareholder by terminating the minority shareholder’s at-will employment when the termination complies with the employment contract.
2. Whether termination and subsequent stock redemption constitute an actionable freeze-out absent proof that employment rights were linked to stock ownership or that the redemption was unfair or opportunistic.

## Decision

- The Supreme Judicial Court reversed the judgment for Merola on the fiduciary-duty claim.
- The court held that terminating Merola in accordance with his at-will employment contract, coupled with fair compensation for redemption of his minority shares, did not establish a fiduciary-duty violation.
- The court rejected imposing fiduciary-duty liability based solely on an asserted expectation of continued employment tied to minority stock ownership, without proof of an actual policy or agreement linking the two.

## Legal Principles

- Shareholders in a Massachusetts close corporation owe one another heightened fiduciary duties comparable to those among partners, but those duties do not eliminate legitimate majority discretion in business decisions.
- Not every termination of an at-will employee who is also a minority shareholder constitutes a breach of fiduciary duty.
- A freeze-out theory based on job termination requires more than the employee’s subjective expectation; it requires evidence that the corporation adopted a policy or agreement coupling continued employment with stock ownership, or proof of bad faith, self-dealing, or unfair deprivation of economic value.
- Where the minority shareholder receives fair value for redeemed shares and the record does not show the termination was for the majority’s financial advantage or otherwise wrongful, fiduciary-duty liability is not established.

## Conclusion

The Supreme Judicial Court held that a close-corporation majority shareholder does not breach fiduciary duties by terminating an at-will employee-shareholder pursuant to the employment contract when the minority shares are redeemed for fair value and the evidence does not show an agreement linking employment to equity or an opportunistic freeze-out.


Merola v. Exergen Corp., 423 Mass. 461, 668 N.E.2d 351 (1996)