The First Circuit today reversed the dismissal of claims (for breach of contract, professional negligence, and negligent misrepresentation) against a firm that, according to the complaint, appraised the Portland Shellfish Company, Inc., at less than half of its value. The decision turned on whether the plaintiff, the seller of Portland shares under a "buy-sell" agreement, can possibly show that the lowball appraisal caused him to sell his shares for too little.
The buy-sell allowed the plaintiff either to accept the offer to buy his shares at or above the appraisal price or to buy the offeror’s shares at a price higher than the offer price. The district court held that the plaintiff’s freedom to choose between selling and buying negated any causal connection between the negligent appraisal and the plaintiff’s loss from selling out cheap. The First Circuit disagreed, concluding that the bad valuation could have skewed the buy-sell process by setting an artificially low floor. Wetmore v. McDonald, Page, Schatz, Fletcher & Co., LLC, No. 06-2103 (1st Cir. Feb. 12, 2007).
The skewing concept, Blawgletter notes, has a firm foundation. In many price-fixing cases, for example, competitors agree to set their "list" or "rack" prices at certain levels or in certain ways. The high floor pushes prices for all buyers up. In this case, conversely, the seller alleges that a low floor pulled the price for his shares down. The court (per U.S. District Judge Milton Shadur, who knows a thing or two about price-fixing cases, sitting by designation) got it right.