## Facts

- Lewis Rosenthal created a family-controlled group of closely held corporations and trusts, including Bo-ed, Inc., which owned and operated a Holiday Inn in Brunswick, Maine.
- Theodore Rosenthal and Robert Rosenthal worked in the family enterprises for years; Robert later transferred one share of Bo-ed stock to his wife, Rona, making Theodore, Robert, and Rona the shareholders and directors.
- By the late 1970s, Theodore and Robert’s relationship deteriorated and became adversarial.
- In 1979, Theodore sold his interests in the family enterprises to Robert and Rona for approximately $1.4 million.
- Theodore later alleged he was pressured into selling at an unfairly low price and that Robert and Rona used their insider positions to exclude him and to advantage themselves.
- Theodore sued for breach of fiduciary duty, violation of a confidential relationship, and wrongful interference with business relations.
- A jury found for Theodore on breach of fiduciary duty and confidential relationship, found no damages for interference, and awarded $2,800,001; judgment entered accordingly.
- Robert and Rona appealed, challenging the jury instructions on fiduciary duty, the business judgment rule, the confidential-relationship theory, and the failure to instruct on their substituted contract (accord and satisfaction) defense tied to the 1979 agreements.

## Issues

1. What fiduciary duties, if any, do participants in a family-controlled, closely held business enterprise owe each other in connection with internal management and a buy-out?
2. Whether the jury was properly instructed on fiduciary duty and the business judgment rule, including whether jurors could impose liability based on perceived imprudence rather than fraud, bad faith, or self-dealing.
3. Whether the evidence supported instructing the jury on a “confidential relationship” as an independent basis for liability given the parties’ longstanding conflict.
4. Whether defendants were entitled to an instruction that the 1979 sale agreements and releases constituted a substituted contract (accord and satisfaction) barring earlier claims.

## Decision

- The Supreme Judicial Court of Maine vacated the judgment and remanded for a new trial on the fiduciary-duty claim.
- The court held the fiduciary-duty instruction was erroneous to the extent it suggested a duty to “further one another’s interests,” rather than requiring good faith and loyalty in relation to the enterprise.
- The court held the business judgment rule was misstated because the instructions permitted jurors to second-guess the prudence of business decisions, instead of limiting liability to decisions infected by fraud, bad faith, or self-dealing.
- The court concluded the record did not justify the broad confidential-relationship instruction given, particularly in light of years of adversarial dealings.
- The court held defendants were entitled to an instruction on their substituted contract theory based on the 1979 agreements and releases.

## Legal Principles

- In closely held, family-dominated enterprises, fiduciary obligations may exist among insiders, but they are framed as duties of good faith and loyalty connected to the enterprise and co-owners’ rights, not a general duty to advance another participant’s personal financial interests.
- The business judgment rule shields good-faith business decisions from liability; factfinders may not impose liability merely because a decision appears imprudent or produces an unfavorable result absent fraud, bad faith, or self-dealing.
- A confidential relationship requires actual, ongoing trust and confidence accepted by the other party; longstanding conflict and adversarial bargaining can defeat the factual basis for such an instruction.
- A buy-out agreement and related releases may operate as a substituted contract (accord and satisfaction) that extinguishes prior claims; when properly raised, the defense requires a jury instruction unless the agreement is invalidated on recognized grounds.

## Conclusion

The court set aside a multimillion-dollar jury verdict because the jury was misinstructed on fiduciary duty and the business judgment rule, was given an unsupported confidential-relationship theory, and was not instructed on a substituted-contract defense arising from the parties’ 1979 buy-out agreements; the case was remanded for a new trial under correct legal standards.


Rosenthal v. Rosenthal, 543 A.2d 348 (Me. 1988)