The First Circuit recently addressed that question in In Re: Blinds to Go Share Purchase Litigation. The case involves a dispute among the shareholders of Blinds to Go, Inc. (BTG). BTG and its shareholders alleged that Harvard Private Capital Holdings, Inc. (Holdings) violated their right of first refusal when it transferred all of BTG's preferred shares to the putative affiliate, Charlesbank Equity Fund II, Limited Partnership (the Fund). The trial court agreed, concluding that the transaction should be rescinded.
On appeal, Holdings and the Fund argued that they are affiliates and their transaction therefore did not violate anyone’s right of first refusal. BTG and its shareholders, in turn, challenged the district court's choice of remedy. They argued that the court should have ordered specific performance. The First Circuit held that Holdings and the Fund were not affiliates, that their transaction breached the right of first refusal, and that the district court's choice of remedy was consistent with the contract and with equitable remedial principles.
The affiliate issue turned on the interpretation of the shareholder agreement, which defined an affiliate as a person or entity “directly or indirectly controlling, controlled by or under common control with such person or entity.” The term "control" was defined to mean the right to cast, directly or indirectly, more than 50% of the voting interests in a person or entity.
Applying Massachusetts law, the court first held that the shareholder agreement defined the term "affiliate" “with considerable precision and, in doing so, not only endows the word ‘control’ with decretory significance but also assigns that word a specific meaning.” Having so concluded, the court next turned to whether Holdings and the Fund were affiliates within the meaning of the agreement.
The court identified the various limited partnerships in the Fund’s chain of voting control. It quickly concluded that neither Harvard nor Holdings occupied a place in that chain. It ruled that Holdings and the Fund are not affiliates within the meaning of the shareholders' agreement. Because it was undisputed that Holdings did not afford the BTG shareholders an opportunity to exercise their right of first refusal, the transfer violated the shareholders' agreement.
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