Doppelt v. Perini Corp.

Frederick Doppelt, Arthur Caplan, and Michael Miller (collectively, Doppelt) (plaintiffs) each owned senior preferred stock in Perini Corporation (defendant), a construction corporation organized under Massachusetts law. The senior preferred stock was issued in June 1987 pursuant to a prospectus and registration statement with the Securities and Exchange Commission (SEC). The prospectus stated that each share was entitled to an annual cash dividend of $2.125. The prospectus further provided that dividends would be cumulative and that until full dividends had been paid, no cash dividends or other distributions could be paid to any junior shareholders. The prospectus stated that its terms did not purport to be complete and that they were subject to and qualified by the provisions of the certificate of vote. The certificate of vote, which was filed with the SEC, provided that so long as any senior preferred shares were outstanding, no cash dividends or other cash distributions could be made to any junior shareholders. Cash dividends were paid to the senior preferred shareholders from 1987 through 1995 without incident. However, in February 1996, Perini ceased making the dividend payments. In January 1997, Perini sold 150,150 shares of junior preferred stock for approximately $30 million. Subsequently, in March 2000, Perini authorized these junior preferred shareholders to exchange their shares for over seven million shares of common stock for a price of $5.50 per share, a discount from the then-current conversion price. Perini received over $41 million in this transaction, $11 million more than what was originally raised from the sale of the junior preferred shares. Perini also sold over nine million shares of common stock to a separate group for $4.25 per share for a total of $40 million. At the time of these two transactions, both of which were approved by the board of directors (defendant), the dividend arrears for the senior preferred stock amounted to approximately $9.5 million. Doppelt filed a lawsuit against Perini and the individual directors. The claim against Perini was based on breach of contract, and the claim against the individual directors was based on breach of fiduciary duty. Perini and the directors moved to dismiss. Perini argued that the preferred shareholders could not state a breach-of-contract claim because the relevant documents did not prohibit noncash distributions even if cash dividends were in arrears.