International Brotherhood of Electrical Workers Local No. 129 Benefit Fund v. Tucci

NOTICE: All slip opinions and orders are subject to formal

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SJC-12137

INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS LOCAL NO. 129

BENEFIT FUND1 vs. JOSEPH M. TUCCI & others2 (and eight

consolidated cases3).

Suffolk. November 7, 2016. - March 6, 2017.

Present: Gants, C.J., Botsford, Lenk, Hines, Gaziano, Lowy, &

Budd, JJ.

Corporation, Stockholder's derivative suit, Merger, Sale of

assets, Valuation of stock, Board of directors. Practice,

Civil, Class action, Dismissal.

1

Individually and on behalf of all others similarly

situated.

2

Joseph M. Tucci, Jose E. Almeida, Michael W. Brown, Donald

J. Carty, Randolph L. Cowen, James S. Distasio, John R. Egan,

William D. Green, Edmund F. Kelly, Jami Miscik, Paul Sagan,

Laura J. Sen, EMC Corporation, Denali Holding Inc., Dell Inc.,

and Universal Acquisition Co.

3

Breffni Barrett vs. Joseph M. Tucci & others; City of

Miami Police Relief and Pension Fund vs. Joseph M. Tucci &

others; Karl Graulich IRA & others vs. Joseph M. Tucci & others;

Lawrence Frank Vassallo vs. EMC Corporation & others; Howard

Lasker vs. EMC Corporation & others; Local Union No. 373 U.A.

Pension Plan vs. EMC Corporation & others; City of Lakeland

Employees' Pension and Retirement Fund vs. Joseph M. Tucci &

others; Su Ma vs. Joseph M. Tucci & others.

2

Civil actions commenced in the Superior Court Department on

October 15, October 16, October 19, October 20, October 23,

October 28, and October 29, 2015.

After consolidation, a motion to dismiss was heard by

Edward P. Leibensperger, J.

The Supreme Judicial Court granted an application for

direct appellate review.

Jason M. Leviton (Michael G. Capeci, of New York, & Joel A.

Fleming also present) for International Brotherhood of

Electrical Workers Local No. 129 Benefit Fund & others.

Thomas J. Dougherty (Kurt Wm. Hemr also present) for Joseph

M. Tucci & others.

John Pagliaro & Martin J. Newhouse, for New England Legal

Foundation, amicus curiae, submitted a brief.

Ian D. Roffman & Matthew J. Connolly, for Associated

Industries of Massachusetts, amicus curiae, submitted a brief.

BOTSFORD, J. In these consolidated cases, shareholders of

a publicly traded corporation claim that a merger transaction

proposed by the board of directors will result in the effective

sale of the corporation for an inadequate price. The question

we consider is whether they may bring that claim directly

against the board members, or must bring it as a derivative

claim on behalf of the corporation. We answer that the claim

must be brought derivatively.4

4

We acknowledge the amicus briefs submitted by Associated

Industries of Massachusetts and New England Legal Foundation.

3

Background. The plaintiffs appeal from the dismissal of

their first amended class action complaint (complaint)5 alleging

breaches of fiduciary duty by the board of directors of EMC

Corporation (EMC) arising from a merger between EMC and Denali

Holding Inc. and Dell Inc. (collectively, Dell). At the time

that they commenced these actions, the plaintiffs were

shareholders of EMC; the proposed merger would result in the

shareholders receiving a cash payment in exchange for their EMC

stock. The plaintiffs' complaint alleges that they bring the

actions on behalf of a class consisting of "all other

shareholders of EMC . . . who are or will be deprived of the

opportunity to maximize the value of their shares of EMC as a

result of the [directors'] breaches of fiduciary duty and other

misconduct." The plaintiffs assert that the members of EMC's

board of directors violated their fiduciary duties, allegedly

owed to both EMC and the shareholders, by "(i) failing to take

steps to maximize the value of EMC stock; and (ii) agreeing to

unreasonably preclusive deal protection provisions, thereby

hindering any potential bid that may have been superior" to the

sale of EMC to Dell.

5

The first amended class action complaint (complaint) was

filed by the International Brotherhood of Electrical Workers

Local No. 129 Benefit Fund (IBEW). The actions brought by the

other plaintiffs were consolidated with IBEW's action prior to

the dismissal of the complaint.

4

We recite the pertinent facts alleged in the complaint,

taking as true its factual allegations and drawing all

reasonable inferences in the plaintiffs' favor. Blank v.

Chelmsford Ob/Gyn, P.C., 420 Mass. 404, 407 (1995). EMC is a

Massachusetts corporation providing information technology

products and services in a global market, with its principal

place of business in Hopkinton. Its stock is traded on the

NASDAQ stock exchange.

EMC has a federation structure; that is, it acts as parent

company to numerous related but independently functioning

businesses. The defendant Joseph M. Tucci, the long-time chief

executive officer of EMC and the architect of this federated

structure, wanted to keep the federation of companies together.

This caused EMC's shares to trade at a "conglomerate discount"

because investors valued the large company less than they would

its individual components. In the fall of 2014, an investor in

EMC, Elliott Management (Elliott), began advocating for EMC to

sell off the most valuable subsidiaries of the federation to

provide maximum value to EMC's shareholders; the individual

sales of some or all of EMC's subsidiaries would yield higher

value per share for EMC shareholders than would sale of the

company as a whole. Elliott argued for an alternative to the

conglomerate discount in which VMware, one of EMC's most

valuable subsidiaries, would be sold separately and EMC would

5

inquire into acquisition for the remaining components. Tucci,

fearing that Elliott would prevail in breaking up the EMC

federation, reached an agreement with Elliott in January, 2015,

by which Elliott was permitted to participate in the appointment

of new directors but agreed to a limit on stock it could buy for

a period of time. Tucci and EMC used this period to strategize

the sale of the company to Dell. Tucci had scheduled his

retirement several times, but continually extended the date. He

negotiated the sale of EMC and all its subsidiaries to Dell via

his long-time friend and business associate, Michael Dell, in

order to keep the company's federated structure intact. Tucci

is to receive approximately $27 million in "change-in-control"

benefits as a result of selling the entire company, a sum that

Tucci would not have received if he had retired as planned. The

proposed transaction also permits Dell to shelter significant

tax liability and to retain the value locked in the subsidiaries

through a potential break-up of the EMC federation in the

future.

In October, 2015, Tucci announced that Dell agreed to

acquire all of EMC for approximately $67 billion.6 Tucci used

his influence over the other board members to convince them to

approve the merger. The transaction was unanimously approved by

6

There appears to be a discrepancy in the complaint as to

the exact value of the transaction. Both $67 billion and $64

billion are figures used to describe its value.

6

the board and announced on October 12, 2015. In approving the

proposed merger, the board also agreed to termination fees that

further dissuaded competing companies from placing a higher bid

on EMC than Dell: the merger agreement between EMC and Dell

included a $2 billion termination fee that any higher bidder

would have to pay before it could top the Dell bid.

Under the proposed transaction's terms, EMC shareholders

are to receive $24.05 in cash per share and an estimated 0.111

shares of "tracking stock" of VMware; the tracking stock does

not provide the same rights that shares in VMware common stock

provide. According to Elliott, selling EMC's interest in VMware

separately would have yielded a total value for EMC's

shareholders of over forty dollars per share. In addition, just

before the transaction was announced, VMware announced a new

business venture with an expected revenue of several hundreds of

millions of dollars in 2016. This value would have been

realized by EMC shareholders, but as a result of the transaction

will be realized by Dell.

The plaintiff International Brotherhood of Electrical

Workers Local No. 129 Benefit Fund (IBEW) filed a complaint on

October 15, 2015, as a direct action against members of EMC's

board of directors in their individual capacities. The

defendants moved to dismiss the complaint for failure to state a

claim pursuant to Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754

7

(1974), after which eight other actions were consolidated with

IBEW's action. After a hearing, the judge allowed the motion,

ruling that the board owed no fiduciary duty directly to the

shareholders in this case and that the action was necessarily

derivative because any alleged harm to shareholders was not

distinct from harm to the corporation. He reasoned that there

were no allegations that any EMC shareholder would receive more

per share in this proposed transaction than any other

shareholder, nor were there allegations that any one shareholder

or group of shareholders controlled the company to assure a

positive vote on the transaction. A judgment of dismissal

entered on December 24, 2015. The plaintiffs timely filed an

appeal, and we subsequently granted the plaintiffs' application

for direct appellate review.7

Discussion. The parties agree that EMC is a large,

publicly traded Massachusetts corporation, and that the

corporate statute under which it operates is the Massachusetts

Business Corporation Act, G. L. c. 156D (act). They also agree

that the plaintiffs' legal claim is one for breach of fiduciary

7

The defendants inform us in their brief that at a special

shareholder meeting held on July 19, 2016, ninety-eight per cent

of voting EMC shareholders voted to approve the merger

transaction. See Form 8-K submitted by EMC Corporation to

United States Securities and Exchange Commission (Sept. 9,

2016), available at https://www.sec.gov/Archives/edgar/data/

790070/000119312516706576/d258881d8k.htm [https://perma.cc/8KTL-

XAGW].

8

duty by the members of EMC's board of directors and particularly

by Tucci for failing to take steps to maximize the value of the

shareholders' EMC stock in arranging for the merger transaction.

As indicated at the outset, the principal question raised is

whether the plaintiffs, as shareholders who challenge the

fairness or validity of a proposed merger on the ground that it

will effectively result in the sale of EMC and for them a loss

of personal property -- their EMC stock holdings -- for an

inadequate price, must bring their claim against the directors

as a derivative action on behalf of the corporation, or may

bring it directly on their own behalf. We review the judge's

allowance of the motion to dismiss de novo. Curtis v. Herb

Chambers I-95, Inc., 458 Mass. 674, 676 (2011).

1. Derivative actions and claims. "The derivative form of

action permits an individual shareholder to bring 'suit to

enforce a corporate cause of action against officers, directors,

and third parties.' . . . Devised as a suit in equity, the

purpose of the derivative action was to place in the hands of

the individual shareholder a means to protect the interests of

the corporation from the misfeasance and malfeasance of

'faithless directors and managers'" (emphasis in original;

citations omitted). Kamen v. Kemper Fin. Servs., Inc., 500 U.S.

90, 95 (1991).

"The derivative action seeks, after management has failed

9

or refused to act, to redress a wrong to a corporation or

association (usually by a few of its shareholders or

members) . . . . [T]he wrong underlying a derivative

action is indirect, at least as to the shareholders. It

adversely affects them merely as they are the owners of the

corporate stock; only the corporation itself suffers the

direct wrong . . . . [A] complaint alleging mismanagement

or wrongdoing on the part of corporate officers or

directors normally states a claim of wrong to the

corporation: the action, therefore, is properly

derivative" (emphasis in original; citation omitted).

Jackson v. Stuhlfire, 28 Mass. App. Ct. 924, 925 (1990). See

Bessette v. Bessette, 385 Mass. 806, 809-810 (1982) (plaintiff

minority stockholders' claim that majority stockholder and

director was paid excessive salary qualifies as wrong to

corporation that plaintiffs were required to pursue as

derivative claim; plaintiffs' direct action against majority

stockholder properly dismissed). To determine whether a claim

belongs to the corporation, and is therefore derivative, "a

court must inquire whether the shareholders' injury is distinct

from the injury suffered generally by the shareholders as owners

of corporate stock" (citation omitted). Stegall v. Ladner, 394

F. Supp. 2d 358, 364 (D. Mass. 2005) (applying Massachusetts

law).

2. Direct versus derivative. As the plaintiffs recognize,

whether a claim asserted by stockholders of a Massachusetts

corporation is one that may be pursued directly by them against

the corporation's directors or must be pursued derivatively

depends on whether the harm they claim to have suffered resulted

10

from a breach of duty owed directly to them, or whether the harm

claimed was derivative of a breach of duty owed to the

corporation. See Bessette, 385 Mass. at 809. See also Stegall,

394 F. Supp. 2d at 364, quoting Branch vs. Ernst & Young U.S.,

U.S. Dist. Ct., No. Civ. A. 93-10024-RGS (D. Mass. Dec. 22,

1995). The plaintiffs also recognize that the act's provisions

defining the standards of conduct applicable to corporate

directors governs, or at least has a direct bearing on, the

determination whether corporate directors owe a fiduciary duty

directly to the corporation's shareholders. We turn to the act.

3. The act. Section 8.30 of the act defines the standards

of conduct a director of a Massachusetts corporation is required

to follow. The section provides in relevant part:

"(a) A director shall discharge his duties as a

director, including his duties as a member of a committee:

"(1) in good faith;

"(2) with the care that a person in a like position

would reasonably believe appropriate under similar

circumstances; and

"(3) in a manner the director reasonably believes to

be in the best interests of the corporation. In

determining what the director reasonably believes to be in

the best interests of the corporation, a director may

consider the interests of the corporation's employees,

suppliers, creditors and customers, the economy of the

state, the region and the nation, community and societal

considerations, and the long-term and short-term interests

of the corporation and its shareholders, including the

possibility that these interests may be best served by the

continued independence of the corporation.

11

". . .

"(c) A director is not liable for any action taken as

a director, or any failure to take any action, if he

performed the duties of his office in compliance with this

section."

G. L. c. 156D, § 8.30.

The plaintiffs argue that the provisions of § 8.30 (a)

demonstrate that corporate directors owe a fiduciary duty to

shareholders, but the logic and thread of their argument are

difficult to follow. They claim that the standards set out in

§ 8.30 (a) (1)-(3) are "conjunctive," and directors are required

to "satisfy all three prongs," but then assert that in fact the

three "prongs" are separate. They reason that although § 8.30

(a) (3) speaks directly about a duty owed by a director to the

corporation, § 8.30 (a) (1) as well as § 8.30 (a) (2) --

presumably by not explicitly referencing a duty owed to the

corporation -- "delineate duties owed to both the corporation

and its shareholders" (emphasis in original).

The plain words of the statute contradict the plaintiffs'

interpretation. By its terms, § 8.30 (a) sets forth the three

components of a unitary standard that is to govern a corporate

director in performing all the duties and actions he or she

performs as a director.8 That is, the plaintiffs' statement that

8

The comment to G. L. c. 156D, § 8.30, supports our

reading. The comment states in relevant part: "[Section 8.30]

sets forth the standard by focusing on the manner in which the

12

§ 8.30 (a) (1) through (a) (3) are to be read conjunctively is

correct: every duty and action by a director as director is to

be undertaken (1) in good faith, (2) with an appropriate level

of care, and (3) "in a manner the director reasonably believes

to be in the best interests of the corporation." Moreover,

although § 8.30 (a) (3) makes clear that a director may

consider, among other interests, "the long-term and short-term

interests of the corporation and its shareholders" (emphasis

added), it first specifies that the director may do so only in

the context of "determining what the director reasonably

believes to be in the best interests of the corporation."

Particularly in light of this specification, the plaintiffs'

proposed interpretation of § 8.30 (a) as implicitly imposing or

recognizing a fiduciary duty owed by a corporate director

directly to the shareholders must fail. Rather, both the

language and structure of § 8.30 (a) persuade us that if the

Legislature had wished to impose or recognize such a duty owed

director performs his duties, not the correctness of his

decisions, and by emphasizing the decision-making process, not

the decision itself. Section 8.30 (a) thus requires a director

to perform his duties in good faith, with the care that a person

in a like position would reasonably believe appropriate under

similar circumstances and in a manner he believes to be in the

best interests of the corporation." "The comments to [c. 156D]

were prepared by the attorneys who drafted the [a]ct and were

intended to be a valuable tool in interpreting the [a]ct."

Halebian v. Berv, 457 Mass. 620, 625 (2010).

13

to shareholders, it would have inserted into the statute an

explicit provision to that effect.9

The plaintiffs argue that our interpretation of the statute

is flawed, or in any event not dispositive of their claim,

because in Chokel v. Genzyme Corp., 449 Mass. 272, 278 (2007),

we stated that "[d]irectors owe a fiduciary duty to their

shareholders." Chokel, however, was a very different case --

even though it involved a corporation that, like EMC, was

publicly traded. The plaintiff in Chokel owned shares of the

company's biosurgery division tracking stock (biosurgery stock)

and challenged a decision of the board of directors to exchange

the biosurgery stock for the company's general division stock as

provided for in the company's articles of organization. See id.

at 273. The plaintiff claimed that the directors' decision

constituted a breach of the covenant of good faith and fair

dealing implied in those articles, and also of the fiduciary

duty owed by the directors to the shareholders. Id. In

affirming a Superior Court judge's decision allowing the

defendant directors' motion to dismiss, we concluded that,

accepting as true the allegations in the plaintiff's complaint,

9

It goes without saying that our interpretation of G. L.

c. 156D, § 8.30 (a) (1)-(3), as not imposing or reflecting a

duty owed by a corporate director to the company's shareholders

does not mean that the section authorizes a corporate director

to act in bad faith or with a lack of care that a person in a

like position would reasonably believe appropriate with respect

to the corporation's shareholders.

14

no provable set of facts presented a viable claim of breach of

the contractual implied covenant. Id. at 278. And although, as

the plaintiffs here point out, we stated that directors owe

their shareholders a fiduciary duty, we concluded that "[w]hen a

director's contested action falls entirely within the scope of a

contract between the director and the shareholders, it is not

subject to question under fiduciary duty principles." Id. But

more to the point is that, in Chokel itself, the only cases we

cited in support of the statement that corporate directors owe

their stockholders a fiduciary duty were cases that involved

close corporations. See id., citing Demoulas v. Demoulas Super

Mkts., Inc., 424 Mass. 501, 528-529 (1997), and Blank, 420 Mass.

at 408. As next discussed, although directors of close

corporations owe a fiduciary duty to the shareholders of such

corporations, that is not the rule in Massachusetts for

corporations generally. The statement in Chokel, 449 Mass. at

278, that "[d]irectors owe a fiduciary duty to their

shareholders" was not necessary to the resolution of that case,

and we think it was too broad. The statement does not apply

here.

4. Massachusetts corporate law principles. As reflected

in § 8.30 (a), its antecedent statute, G. L. c. 156B, § 65,10 and

10

General Laws c. 156B, § 65, provides in pertinent part:

15

decisions reflecting our common-law principles,11 the general

rule of Massachusetts corporate law is that a director of a

Massachusetts corporation owes a fiduciary duty to the

corporation itself, and not its shareholders -- although, as

indicated in the previous paragraph and as the motion judge

recognized, there are at least two exceptions. First, there is

a special rule for close corporations: "[i]n the case of a

close corporation, which resembles a partnership, duties of

loyalty extend to shareholders, who owe one another

substantially the same duty of utmost good faith and loyalty in

"A director, officer or incorporator of a corporation

shall perform his duties as such, including, in the case of

a director, his duties as a member of a committee of the

board upon which he may serve, in good faith and in a

manner he reasonably believes to be in the best interests

of the corporation, and with such care as an ordinarily

prudent person in a like position would use under similar

circumstances. . . . The fact that a director, officer or

incorporator so performed his duties shall be a complete

defense to any claim asserted against him . . . ."

(Emphasis added.)

11

See, e.g., Leventhal v. Atlantic Fin. Corp., 316 Mass.

194, 199 (1944) ("a stockholder does not stand in any fiduciary

relation with the other stockholders or with the directors of

the company"); Spiegel v. Beacon Participations, Inc., 297 Mass.

398, 410 (1937) ("The directors of an ordinary business

corporation often have been called trustees and their relation

to the corporation is at least fiduciary. They are bound to act

with absolute fidelity and must place their duties to the

corporation above every other financial or business

obligation"); Jernberg v. Mann, 358 F.3d 131, 137 (1st Cir.

2004) ("the same duty of trust and strict good faith owed by

directors and officers to the corporation itself did not extend

from them to the individual stockholders," discussing Goodwin v.

Agassiz, 283 Mass. 358, 360-361 [1933]).

16

the operation of the enterprise that partners owe to one

another, a duty that is even stricter than that required of

directors and shareholders in corporations generally" (footnote

omitted). Demoulas, 424 Mass. at 528-529. See Donahue v. Rodd

Electrotype Co. of New England, 367 Mass. 578, 593-594 (1975)

("stockholders in the close corporation owe one another

substantially the same fiduciary duty in the operation of the

enterprise that partners owe to one another" and direct cause of

action against directors could be maintained in this context).

Second, where a controlling shareholder who also is a director

proposes and implements a self-interested transaction that is to

the detriment of minority shareholders, a direct action by the

adversely affected shareholders may proceed. Coggins v. New

England Patriots Football Club, Inc., 397 Mass. 525, 532-533

(1986), S.C., 406 Mass. 666 (1990). Neither of these

exceptions, however, applies in this case.12 EMC is a very

12

We also consider and reject the plaintiffs' claim that

G. L. c. 156D, § 2.02 (b) (4), assumes a fiduciary duty between

directors and shareholders always exists. Section 2.02 (b) (4)

provides that a corporation may include a provision in its

bylaws limiting the liability of a director, but if it chooses

to include such a provision, it may not limit the liability of a

director for a breach of fiduciary duties owed to the

corporation or its shareholders. Id. Although this section

recognizes that a fiduciary duty may be owed by corporate

directors to the corporation's shareholders and, if so, it may

not be eliminated or limited through adoption of an exculpatory

bylaw, we interpret the section to mean that if a director owes

a fiduciary duty to the corporation's shareholders -- which we

recognize to be the case in at least the two circumstances

17

large, publicly traded corporation with over 1.9 billion shares

of stock outstanding, and there is no differential between any

class of stock or group of shareholders. This is also not a

transaction proposed by a director-majority shareholder that

affects minority shareholders adversely as compared to the

majority shareholders. As the motion judge noted, the wrong

alleged by the plaintiffs, undervaluing EMC to secure the merger

and sale of the federation of companies, qualifies as a direct

injury to the corporation, the entity to which the directors

clearly owed a fiduciary duty of good faith and loyalty.

Flowing from that alleged injury is a claimed derivative injury

to each shareholder, whose individual shares, as a consequence

of the asserted undervaluing of EMC itself, are consequently

undervalued as well. We agree with the motion judge that the

injury posited by the plaintiffs, and the alleged wrong causing

it, fit squarely within the framework of a derivative action.

Because the plaintiffs did not bring their claim as a derivative

action, their complaint was properly dismissed.13

described here in the text -- liability for a breach of that

duty may not be eliminated through the vehicle of a bylaw.

13

Derivative proceedings brought on behalf of a

Massachusetts corporation are governed by the act. Halebian,

457 Mass. at 623. See G. L. c. 156D, §§ 7.40–7.47. There is no

dispute that the plaintiffs did not follow the pertinent

requirements of the act, including the requirement of making "a

written demand . . . upon [EMC] to take suitable action." G. L.

c. 156D, § 7.42 (1).

18

5. Delaware law. In reaching this result, we necessarily

have rejected the plaintiffs' argument that shareholders

claiming the loss of their stock at an unfair price on account

of allegedly improper actions by the board of directors is a

direct rather than a derivative claim. The plaintiffs have a

response, however, which is that we should change our approach

and follow those corporate law jurisdictions, including in

particular Delaware, that treat the plaintiffs' type of claim --

a challenge to the fairness of a merger transaction on the

ground that the consideration is inadequate -- as a direct

rather than a derivative claim. See Parnes v. Bally

Entertainment Corp., 722 A.2d 1243, 1245 (Del. 1999) ("A

stockholder who directly attacks the fairness or validity of a

merger alleges an injury to the stockholders, not the

corporation . . ."). See also Tooley v. Donaldson, Lufkin, &

Jenrette, Inc., 845 A.2d 1031, 1033, 1037-1039 (Del. 2004).14 We

14

As a general matter, the plaintiffs urge us to adopt the

approach of the Delaware Supreme Court to the determination

whether a particular shareholder claim is direct or derivative.

The Delaware court has concluded that the determination in each

case must "turn solely on the following questions: (1) who

suffered the alleged harm (the corporation or the suing

stockholders, individually); and (2) who would receive the

benefit of any recovery or other remedy (the corporation or the

stockholders, individually)?" Tooley v. Donaldson, Lufkin, &

Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004). The court in

Tooley rejected the concept that a suit must be maintained

derivatively if, as here, the claimed injury is one suffered

equally by all shareholders, concluding that the concept was

confusing and inaccurate. Id. at 1037. As we indicate in the

19

decline to do so. Delaware's General Corporation Law, Del.

Code. Ann. tit. 8, c. 1, differs from the act, and has no

equivalent of § 8.30. Delaware also has a history of asserting

that directors stand in a fiduciary relation to stockholders of

the company, in contrast to our own precedent. See In re MONY

Group, Inc. Shareholder Litig., 853 A.2d 661, 676 (Del. Ch.

2004) (board of directors "owes its fiduciary duties to

corporation and its stockholders"); Crescent/Mach I Partners,

L.P. v. Turner, 846 A.2d 963, 979 (Del. Ch. 2000) ("Directors

have an unyielding fiduciary duty to protect the interests of

the corporation and the stockholders alike").

6. Equitable relief. The plaintiffs claim that the result

we reach is unjust because even if they had sought to follow the

statutory procedures governing derivative claims, see G. L.

c. 156D, §§ 7.40–7.47, it was likely that the defendants would

have taken steps to assure that the merger occurred before any

derivative suit could be concluded, and, under our law, once the

plaintiffs were no longer shareholders, they could not have

continued to seek derivative relief because their ownership

rights in EMC would have been extinguished. We agree that if a

text, Delaware corporate law principles and those of

Massachusetts are not always congruent. We continue to adhere

to the view that whether a claim is direct or derivative is

governed by whether the harm alleged derives from the breach of

a duty owed by the alleged wrongdoer -- here the directors -- to

the shareholders or the corporation. See Bessette v. Bessette,

385 Mass. 806, 809 (1982).

20

shareholder no longer owns shares in a corporation, as a general

rule, the shareholder would no longer have standing to pursue a

derivative claim on behalf of the corporation. See Billings v.

GTFM, LLC, 449 Mass. 281, 296 (2007). But we disagree that this

means it is unfair or inequitable to require the plaintiffs and

similarly situated shareholders to pursue derivative relief in a

case such as this one.

The act clearly illustrates the procedures to follow to

bring a derivative claim. A shareholder must make a demand

pursuant to G. L. c. 156D, § 7.42. The corporation then must

determine whether it would be in the best interests of the

corporation to take over the shareholder's claim, and the

statute specifies alternative ways that the corporation may

undertake to make this determination. G. L. c. 156D,

§ 7.44 (b). If the demand is rejected, the shareholder may

commence suit, in accordance with the time requirements in

§ 7.42 (2). In this case, at any time between the time the

proposed merger transaction was announced on October 12, 2015,

and the date the merger transaction was completed, September 7,

2016, the plaintiffs could have made a derivative demand on EMC.

They did not do so.15 We find nothing in the statutory

15

Moreover, if the plaintiffs had filed suit after having

made such a demand that was rejected, and it appeared that the

proposed merger might likely be completed while the suit was

21

provisions governing derivative proceedings to indicate or

suggest that it offered the plaintiffs here, and other

shareholders in the plaintiffs' position, a hollow or inadequate

form of relief.16

Conclusion. For the foregoing reasons, the Superior

Court's order dismissing the plaintiffs' complaint is affirmed.

So ordered.

pending, the plaintiffs could have sought preliminary injunctive

relief.

16

In that regard, it is important to keep in mind that a

stockholder's derivative action is equitable in nature, and

"[e]quitable considerations are relevant." Martin v. F.S. Payne

Co., 409 Mass. 753, 760 (1991). See Samia v. Central Oil Co. of

Worcester, 339 Mass. 101, 123-124 (1959). See also Marquis

Theatre Corp. v. Condado Mini Cinema, 846 F.2d 86, 92 n.5 (1st

Cir. 1988) ("Generally speaking, any recovery in a stockholder's

derivative action suit belongs to the corporation. . . . Under

some circumstances, however, the courts have allowed the direct

compensation of minority shareholders on a pro rata basis . . ."

[emphasis in original; citation omitted]).