## Facts

- A family-owned paper-products business evolved into Statler Industries, Inc., a close corporation whose shares were originally held in roughly equal amounts by three branches of the Sugarman family.
- Over time, Leonard Sugarman consolidated control, ultimately holding about 61% of the stock and controlling management; the plaintiffs (minority shareholders) held about 21.78%.
- The minority shareholders alleged a coordinated “freeze-out” designed to deny them the economic benefits of ownership.
- Conduct supporting the freeze-out claim included: no dividends despite profitability, allegedly excessive compensation to Leonard, a substantial pension paid to Leonard’s father but not to plaintiffs’ father (a longtime manager), denial of company positions to the plaintiffs, and an offer to purchase plaintiffs’ stock at $3.33 per share that the court found far below book value (about $16.30 per share).
- After a bench trial, the district court found Leonard breached fiduciary duties owed to minority shareholders in a close corporation and entered a monetary award that included damages tied to the pension disparity and inadequate buyout offer, plus prejudgment interest and attorney’s fees.
- Leonard and the corporation appealed, challenging both liability and components of the remedy.

## Issues

1. Whether the controlling shareholder in a close corporation breached fiduciary duties to minority shareholders by engaging in a freeze-out shown through a pattern of dividend, compensation, pension, employment, and buyout decisions.
2. Whether the district court applied the correct Massachusetts prejudgment interest statute.
3. Whether attorney’s fees were properly included in the judgment.

## Decision

- The First Circuit affirmed the judgment as to liability for breach of fiduciary duty based on a freeze-out of minority shareholders.
- The court held the district court used an incorrect Massachusetts statute for prejudgment interest and remanded for recalculation under the correct statute, increasing the interest component.
- The court held attorney’s fees were not recoverable in the manner awarded and ordered that component removed on remand.
- The case was modified and remanded for recalculation of the award consistent with the corrected interest analysis and exclusion of attorney’s fees.

## Legal Principles

- In a close corporation, controlling shareholders owe minority shareholders a fiduciary duty comparable to the duty among partners and may not use corporate control to advance personal interests at the minority’s expense.
- A freeze-out can be proven through the combined effect of multiple majority-controlled decisions; courts may assess the aggregate pattern rather than requiring any single act to be dispositive.
- Appellate review defers to trial-level factual findings unless clearly erroneous; disagreement with how evidence was weighed does not justify reversal absent clear error or legal mistake.
- Prejudgment interest must be calculated under the Massachusetts statute applicable to the type of judgment at issue.
- Attorney’s fees are not included in damages absent a proper legal basis for shifting fees.

## Conclusion

The First Circuit sustained liability for a controlling shareholder’s freeze-out of minority owners in a close corporation based on a pattern of self-interested actions, but it required recalculation of the monetary award to apply the correct prejudgment interest rule and to exclude attorney’s fees.


Sugarman v. Sugarman, 797 F.2d 3 (1st Cir. 1986)