Wetmore v. Macdonald, Page, Schatz, 06-2103.

Citation476 F.3d 1
Decision Date12 January 2007
Docket NumberNo. 06-2103.,06-2103.
PartiesFrank U. WETMORE, Plaintiff-Appellant, v. MACDONALD, PAGE, SCHATZ, FLETCHER & COMPANY, LLC, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

James T. Kilbreth, with whom Peter S. Black and Verrill Dana, LLP were on brief, for appellant.

Bruce W. Hepler, with whom Laurence H. Leavitt and Friedman, Gaythwaite, Wolf & Leavitt were on brief, for appellee.

Before HOWARD, Circuit Judge, SELYA, Senior Circuit Judge, and SHADUR,* Senior District Judge.

SHADUR, Senior District Judge.

This diversity action was brought in the United States District Court for the District of Maine in February 2006 by Frank Wetmore ("Wetmore") against Macdonald, Page, Schatz, Fletcher & Co., LLC ("Macdonald Page"), a Maine limited liability company none of whose members shares Wetmore's Massachusetts citizenship. Wetmore's complaint alleges that Macdonald Page committed professional negligence, breach of contract and negligent misrepresentation when it appraised a business in which Wetmore was a shareholder for less than half its actual value.

When Macdonald Page moved to dismiss the action under Fed.R.Civ.P. ("Rule") 12(b)(6), a magistrate judge recommended granting its motion, and the district court then upheld that recommendation. Wetmore has filed a timely appeal challenging the dismissal.

STANDARD OF REVIEW

As taught in such cases as Epstein v. C.R. Bard, Inc., 460 F.3d 183, 187 (1st Cir.2006):

We review a Rule 12(b)(6) dismissal de novo, considering all well-pleaded facts in the complaint to be true.

That familiar principle adheres to the seminal teaching of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." To that end, in addition to the acceptance of all well-pleaded allegations and all reasonable inferences from those allegations as well, Nisselson v. Lernout, 469 F.3d 143, 150 (1st Cir.2006) explains:

Facts distilled in that fashion may be augmented by reference to (i) documents annexed to it [the complaint] or fairly incorporated into it, and (ii) matters susceptible to judicial notice.

BACKGROUND

Wetmore's complaint concerns the sale of his stock in Portland Shellfish Company, Inc. ("Company"), a Maine-based close corporation whose chief business is processing live shellfish. As one of the two owners, Wetmore held 300 voting and 150 non-voting shares of Company stock, while the remaining 300 voting shares were held by Donna Holden. Ms. Holden's husband Jeff (hereafter simply "Holden") served as President of the Company and managed its daily operations, including production, procurement and sales.

Under the Company's Shareholders' and Officers' Agreement ("Agreement," attached to the complaint as an exhibit), the Company's board of directors was restricted to two members: Wetmore and Holden. By late 2001 number of disagreements had arisen between Wetmore and the Holdens over the management and direction of the Company. After unsuccessful efforts to resolve those differences, the Holdens invoked the deadlock-breaking provision of Agreement § 11.5.5:

In the event the operations of the Company are impaired because of deadlock on the board of directors, the shareholders agree that they shall each have the right to acquire the other shareholder's stock, as follows. In the event of a deadlock, the directors shall hire an accountant at MacDonald Page & Co., South Portland, Maine, to determine the value of the outstanding shares. Once the value is reported to the directors by the accountant, the directors shall call a meeting, each shareholder shall have the right to buy out the other shareholder(s)' interest, at a price equal to or greater than the price determined by the accountant. The highest offer made by any shareholder at the meeting shall be binding upon the other shareholder(s). The shareholder who is acquiring the stock shall be required to close on the acquisition within 90 days of the meeting of the shareholders.

In accordance with that provision, Wetmore and the Holdens retained Macdonald Page to evaluate the Company's shares by identifying the fair market value of a 100% common equity interest. In its engagement letter Macdonald Page defined "fair market value":

The price at which the property would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of relevant facts.

As called for by the Agreement and Macdonald Page's engagement letter, it delivered its valuation report to the Company, estimating "the fair market value of the common stock of [the Company] at June 30, 2002, to be approximately $1,090,000." Ms. Holden then offered to purchase Wetmore's shares at a price equal to 60% (Wetmore's proportionate share) of Macdonald Page's valuation. Wetmore, however, resisted that offer and countered by offering $1.25 million for Ms. Holden's shares if Holden would sign a non-compete agreement. Alternatively Wetmore offered to join in selling the Company to a third party.

In response the Holdens rejected both of Wetmore's offers. Ms. Holden insisted that Wetmore was obligated to sell his shares pursuant to Agreement § 11.5.5, stating that she would sue if he refused. Facing the threat of litigation, Wetmore sold his shares to Ms. Holden for $750,705, a price that represented 60% of the Macdonald Page evaluation after adjustment to eliminate a 7% "marketability discount" included in Macdonald Page's report.

As stated at the outset, Wetmore's Complaint asserts that Macdonald Page's valuation "was well less than half the actual value" of the Company's total stock, which Wetmore attributes to factors including Macdonald Page's disregard for "commonly accepted and reliable methods of valuation in favor of less reliable methods." More specifically, Count I charges professional negligence, Count II charges breach of contract and Count III charges negligent misrepresentation.

REQUIRED ELEMENTS OF PROOF

All three of Wetmore's claims stem from the common law—two sound in tort, one in contract. And all three were found wanting by the district court based on its determination that Wetmore would be unable to prove causation, a critical element in each.1

Thus Graves v. S.E. Downey Land Surveyor, P.A., 885 A.2d 779, 782 (Me.2005)(emphasis added) instructs that "[t]he plaintiff in a professional negligence action must establish the appropriate standard of care, demonstrate that the defendant deviated from that standard, and prove that the deviation caused the plaintiff's damages." Similarly, Maine Energy Recovery Co. v. United Steel Structures, Inc., 724 A.2d 1248, 1250 (Me.1999)(emphasis added) identifies the required elements of proof in a breach of contract action as comprising "(1) breach of a material contract term; (2) causation; and (3) damages." Finally, Chapman v. Rideout, 568 A.2d 829, 830 (Me.1990) holds that Maine recognizes the tort of negligent misrepresentation as defined in Restatement (Second) of Torts, § 552(1) (1977)(emphasis added):

One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

With all other components of each of Wetmore's theories of recovery plainly being met by his complaint's allegations, the central issue on this appeal is whether Wetmore's well-pleaded facts support a claim that Macdonald Page's negligent valuation caused him to receive less than fair market value for his shares. We turn to that question.

CAUSATION ELEMENT

As we have said in Napier v. F/V Deesie, Inc., 454 F.3d 61, 68 (1st Cir.2006), "[i]n order for the negligent act to constitute proximate cause, the act or omission must be a substantial factor in bringing about the harm and the injury incurred must have been a...

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