Demoulas v. Demoulas Super Markets, Inc.
424 Mass. 501 | Massachusetts Supreme Judicial Court | 1997
What This Case Means for Subcontractors
A shareholder sued company executives for secretly taking business opportunities that belonged to the company. The Massachusetts Supreme Court ruled that shareholders can sue for this kind of wrongdoing, even if the company's voting trust agreement tried to block such lawsuits. The court said you cannot use contract language to prevent someone from suing over breach of fiduciary duty—it violates public policy. This matters to subcontractors because it reinforces that company owners and managers cannot hide behind agreements to shield themselves from accountability when they divert business opportunities.
Key Takeaways
- •Exculpatory clauses that block shareholder derivative suits for breach of fiduciary duty are unenforceable, even if written into voting trust agreements or corporate documents.
- •If a company owner or manager diverts a business opportunity that should have gone to the company, shareholders can sue on behalf of the company regardless of what the operating agreement says.
- •As a subcontractor, understand that your client company's shareholders retain the right to sue management for misconduct—this protects the company's assets and your payment priority.
Exculpatory provisions barring shareholder derivative actions are unenforceable as contrary to trust law principles.
Frequently Asked Question
Can a company's shareholders sue management for stealing business opportunities, even if the company bylaws say they can't?
Yes. Massachusetts courts ruled that exculpatory clauses blocking shareholder derivative suits are unenforceable as against public policy. Shareholders retain the right to sue on behalf of the company for breach of fiduciary duty, including corporate opportunity diversion, regardless of what the voting trust or operating agreement says.
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