             United States Court of Appeals
                        For the First Circuit


No. 06-2103

                          FRANK U. WETMORE,

                         Plaintiff-Appellant,

                                  v.

        MACDONALD, PAGE, SCHATZ, FLETCHER & COMPANY, LLC,

                         Defendant-Appellee.


             APPEAL FROM THE UNITED STATES DISTRICT COURT

                      FOR THE DISTRICT OF MAINE

      [Hon. George Z. Singal, United States District Judge]


                                Before

                        Howard, Circuit Judge,
                    Selya, Senior Circuit Judge,
                 and Shadur,* Senior District Judge.



     James T. Kilbreth, with whom Peter S. Black and Verrill Dana,
LLP were on brief, for appellant.

     Bruce W. Hepler, with whom Laurence H. Leavitt and Friedman,
Gaythwaite, Wolf & Leavitt were on brief, for appellee.


                          February 12, 2007


__________

     *Of the Northern District of Illinois, sitting by designation.
             SHADUR, Senior District Judge. This diversity action was

brought in the United States District Court for the District of

Maine   in   February   2006     by   Frank   Wetmore    (“Wetmore”)    against

Macdonald, Page, Schatz, Fletcher & Co., LLC (“Macdonald Page”), a

Maine limited liability company none of whose members shares

Wetmore’s Massachusetts citizenship.           Wetmore’s complaint alleges

that Macdonald Page committed professional negligence, breach of

contract     and   negligent    misrepresentation       when   it   appraised   a

business in which Wetmore was a shareholder for less than half its

actual value.

             When Macdonald Page moved to dismiss the action under

Fed. R. Civ. P. (“Rule”) 12(b)(6), a magistrate judge recommended

granting its motion, and the district court then upheld that

recommendation.      Wetmore has filed a timely appeal challenging the

dismissal.

                               STANDARD OF REVIEW

             As taught in such cases as Epstein v. C.R. Bard, Inc.,

460 F.3d 183, 187 (1st Cir. 2006):

             We review a Rule 12(b)(6) dismissal de novo,
             considering all well-pleaded facts in the
             complaint to be true.

That familiar principle adheres to the seminal teaching of Conley

v. Gibson, 355 U.S. 41, 45-56 (1957) that “a complaint should not

be dismissed for failure to state a claim unless it appears beyond

doubt that the plaintiff can prove no set of facts in support of


                                       -2-
his claim which would entitle him to relief.”                 To that end, in

addition to the acceptance of all well-pleaded allegations and all

reasonable inferences from those allegations as well, Nisselson v.

Lernout, 469 F.3d 143, 150 (1st Cir. 2006) explains:

            Facts distilled in that fashion may be
            augmented by reference to (i) documents
            annexed to it [the complaint] or fairly
            incorporated into it, and (ii) matters
            susceptible to judicial notice.

                                    BACKGROUND

            Wetmore’s complaint concerns the sale of his stock in

Portland Shellfish Company, Inc. (“Company”), a Maine-based close

corporation whose chief business is processing live shellfish.                  As

one of the two owners, Wetmore held 300 voting and 150 non-voting

shares of Company stock, while the remaining 300 voting shares were

held by Donna Holden.     Ms. Holden’s husband Jeff (hereafter simply

“Holden”) served as President of the Company and managed its daily

operations, including production, procurement and sales.

            Under the Company’s Shareholders’ and Officers’ Agreement

(“Agreement,”   attached       to   the    complaint   as    an    exhibit),   the

Company’s   board   of   directors        was   restricted    to    two   members:

Wetmore and Holden.       By late 2001 number of disagreements had

arisen between Wetmore and the Holdens over the management and

direction of the Company.           After unsuccessful efforts to resolve

those   differences,     the   Holdens       invoked   the   deadlock-breaking

provision of Agreement §11.5.5:


                                       -3-
     In the event the operations of the Company are impaired
     because of deadlock on the board of directors, the
     shareholders agree that they shall each have the right to
     acquire the other shareholder’s stock, as follows. In
     the event of a deadlock, the directors shall hire an
     accountant at MacDonald Page & Co., South Portland,
     Maine, to determine the value of the outstanding shares.
     Once the value is reported to the directors by the
     accountant, the directors shall call a meeting, each
     shareholder shall have the right to buy out the other
     shareholder(s)’ interest, at a price equal to or greater
     than the price determined by the accountant. The highest
     offer made by any shareholder at the meeting shall be
     binding upon the other shareholder(s). The shareholder
     who is acquiring the stock shall be required to close on
     the acquisition within 90 days of the meeting of the
     shareholders.

          In   accordance    with   that   provision,   Wetmore      and   the

Holdens retained Macdonald Page to evaluate the Company’s shares by

identifying the fair market value of a 100% common equity interest.

In its engagement letter Macdonald Page defined “fair market

value”:

     The price at which the property would change hands
     between a willing buyer and a willing seller, neither
     being under a compulsion to buy or sell and both having
     reasonable knowledge of relevant facts.

          As called for by the Agreement and Macdonald Page’s

engagement   letter,   it   delivered     its   valuation   report   to    the

Company, estimating “the fair market value of the common stock of

[the Company] at June 30, 2002, to be approximately $1,090,000.”

Ms. Holden then offered to purchase Wetmore’s shares at a price

equal to 60% (Wetmore’s proportionate share) of Macdonald Page’s

valuation.   Wetmore, however, resisted that offer and countered by

offering $1.25 million for Ms. Holden’s shares if Holden would sign

                                    -4-
a non-compete agreement.         Alternatively Wetmore offered to join in

selling the Company to a third party.

            In   response   the    Holdens    rejected     both   of     Wetmore’s

offers. Ms. Holden insisted that Wetmore was obligated to sell his

shares pursuant to Agreement §11.5.5, stating that she would sue if

he refused.      Facing the threat of litigation, Wetmore sold his

shares to Ms. Holden for $750,705, a price that represented 60% of

the Macdonald Page evaluation after adjustment to eliminate a 7%

“marketability discount” included in Macdonald Page’s report.

            As stated at the outset, Wetmore’s Complaint asserts that

Macdonald Page’s valuation “was well less than half the actual

value” of the Company’s total stock, which Wetmore attributes to

factors including Macdonald Page’s disregard for “commonly accepted

and   reliable    methods   of    valuation   in   favor    of    less   reliable

methods.”        More   specifically,    Count     I   charges     professional

negligence, Count II charges breach of contract and Count III

charges negligent misrepresentation.

                        REQUIRED ELEMENTS OF PROOF

            All three of Wetmore’s claims stem from the common

law--two sound in tort, one in contract.           And all three were found

wanting by the district court based on its determination that

Wetmore would be unable to prove causation, a critical element in




                                      -5-
each.1

            Thus Graves v. S.E. Downey Land Surveyor, P.A., 885 A.2d

779, 782 (Me. 2005)(emphasis added) instructs that “[t]he plaintiff

in a professional negligence action must establish the appropriate

standard of care, demonstrate that the defendant deviated from that

standard, and prove that the deviation caused the plaintiff’s

damages.”    Similarly, Maine Energy Recovery Co. v. United Steel

Structures, Inc., 724 A.2d 1248, 1250 (Me. 1999)(emphasis added)

identifies the required elements of proof in a breach of contract

action as comprising “(1) breach of a material contract term;

(2) causation; and (3) damages.”   Finally, Chapman v. Rideout, 568

A.2d 829, 830 (Me. 1990) holds that Maine recognizes the tort of

negligent misrepresentation as defined in Restatement (Second) of

Torts, §552(1) (1977)(emphasis added)):

     One who, in the course of his business, profession or
     employment, or in any other transaction in which he has
     a pecuniary interest, supplies false information for the
     guidance of others in their business transactions, is
     subject to liability for pecuniary loss caused to them by
     their justifiable reliance upon the information, if he
     fails to exercise reasonable care or competence in
     obtaining or communicating the information.

            With all other components of each of Wetmore’s theories

of recovery plainly being met by his complaint’s allegations, the

central issue on this appeal is whether Wetmore’s well-pleaded



     1
        Throughout this opinion we look to the substantive law of
Maine, which Agreement §15 designates as providing the rules of
decision.

                                 -6-
facts support a claim that Macdonald Page’s negligent valuation

caused him to receive less than fair market value for his shares.

We turn to that question.

                                CAUSATION ELEMENT

               As we have said in Napier v. F/V Deesie, Inc., 454 F.3d

61, 68 (1st Cir. 2006), “[i]n order for the negligent act to

constitute         proximate   cause,   the   act    or   omission   must   be    a

substantial factor in bringing about the harm and the injury

incurred must have been a reasonably foreseeable consequence.”2

Merriam v. Wanger, 757 A.2d 778, 780-81 (Me. 2000) has put the same

concept in these terms:

       Evidence is sufficient to support a finding of proximate
       cause if the evidence and inferences that may reasonably
       be drawn from the evidence indicate that the negligence
       played a substantial part in bringing about or actually
       causing the injury or damage and that the injury or
       damage was either a direct result or a reasonably
       foreseeable consequence of the negligence.      The mere
       possibility of such causation is not enough, and when the
       matter remains one of pure speculation or conjecture, or
       even if the probabilities are evenly balanced, a
       defendant is entitled to judgment.

               Notably, Merriam does not insist that a defendant’s

conduct must be the only cause of the harm--instead it must have

contributed substantially to the harm suffered.               We therefore look

to the question whether under the facts as pleaded a reasonable

jury       could   conclude    that   Macdonald     Page’s   negligence     was   a



       2
        Although Napier was a case sounding in admiralty, its
stated principles of proximate causation are universally applied.

                                        -7-
substantial factor in Wetmore’s recieving less than the full market

value of his shares.

           According to the district court, Wetmore cannot establish

causation because “[n]othing in the Agreement or in the other

factual allegations of the complaint required the plaintiff to

accept Donna Holden’s offer.”         Instead “[a]ll he had to do was

offer her the same amount or more per share for her shares than she

had offered him for his.”         It was the district court’s view that

the deadlock provision required Wetmore to accept Ms. Holden’s

offer only if and when he determined that he was unwilling to offer

more money per share to purchase her stock.          Through the district

court’s lens Wetmore “had many options, ranging from challenging

the appraisal in any of a number of ways to offering Donna Holden

the same amount per share to offering her more per share.”

           In that light the district court ultimately held that

Macdonald Page’s valuation was not and could not have been a cause,

substantial or otherwise, of Wetmore’s loss.          We disagree.

           Under the Agreement the parties, in the event of a

deadlock, were required to hire Macdonald Page in what would be the

first   step   in   potentially    resolving   the   stalemate.      It   was

Macdonald Page’s role to provide a valuation that the parties would

use to begin a bidding process.            As the plain language of the

Agreement put it, the purpose of the Macdonald Page valuation was

“to determine the value of the outstanding shares” so that at the


                                     -8-
ensuing shareholders’ meeting “each shareholder shall have the

right to buy out the other shareholder(s)’ interest, at a price

equal to or greater than the price determined by the accountant”

(emphasis added).     In brief, Macdonald Page’s figure was to serve

as a floor--the lowest possible bid.           To say that a negligently-

arrived-at valuation that set an artificially low floor would not

have a substantial effect on a shareholder in Wetmore’s position

ignores the logic of cause and effect.

             Importantly, Wetmore was under no compulsion to enter the

active bidding process.       If for any reason he felt himself unable

to compete on a level playing field after acquiring total ownership

of the Company (it will be remembered that the Holdens would be

free to engage in the same business post-sale, with Holden having

the operating experience that Wetmore lacks), he had the absolute

right to accept Ms. Holden’s offer so long as it equaled or

exceeded Macdonald Page’s valuation figure.            And that meant he had

the right to rely on Macdonald Page to generate a valuation that

set a fair price for the shares.

             Instead, under the allegations of the complaint that must

be   accepted   as   gospel   for   present    purposes,    Macdonald     Page

improperly promulgated a figure that was less than half the true

value   of   Wetmore’s   shares.     To   be   sure,    Wetmore   could   have

responded by offering Ms. Holden more for her shares, but being

limited to that route deprived him of the full benefit of his


                                    -9-
bargain by foreclosing his opportunity to sell at a fair price.

Once Macdonald Page rendered its negligent undervaluation of the

Company, it was too late--indeed, impossible--for Wetmore to choose

to exercise that equally absolute right.           Wetmore’s allegations

thus offer far more than “pure speculation or conjecture” (Merriam,

757 A.2d at 781) as to Macdonald Page’s improper valuation being a

substantial factor in Wetmore’s asserted loss.

           It should be added that Wetmore’s injury was entirely

foreseeable.    What Macdonald Page’s alleged misfeasance imposed on

Wetmore was precisely the type of bind that shareholders in a close

corporation seek to avoid when they include buy-sell provisions in

their agreements. Protections afforded by buy-sell provisions that

set a bidding floor are fully meaningful only if the initial

valuation of the company is performed accurately.          Otherwise, as

here, the distortion of that base valuation skews the entire

process.

           In   this   instance   the    parties   selected   a   buy-sell

provision that would have been evenhanded if the valuation had been

properly arrived at.    By contrast, it is entirely foreseeable that

a shareholder who receives an improperly low bid based on a

negligently-reached valuation will suffer a loss based on the

undervaluation of his or her shares.         And here Macdonald Page’s

engagement letter expressly confirmed its own understanding that

its valuation would play a key role in the bidding process:


                                  -10-
      We understand that our valuation conclusion will be used
      in conjunction with the Company’s “Shareholder’s and
      Officer’s Agreement” dated February 1, 1994, paragraph
      11.5.5....

To   argue   that     Wetmore’s     loss   was     not    foreseeable     would    be

disingenuous, given that plain language confirming Macdonald Page’s

duty to the Company’s shareholders.

             In its decision the district court also reasoned that if

Macdonald Page’s valuation had been higher, there is no guaranty

that Ms. Holden would have made an offer.                We too lack an unclouded

crystal   ball   to    tell    us   what   would    have     transpired    had    the

valuation been performed without negligence.                  There are multiple

possibilities, including the prospect that an unsuccessful bidding

process might for example have led the parties to resolve their

differences, breaking their deadlock, or might instead have led to

the invocation of Maine’s statutory provision for the resolution of

corporate deadlocks.          But such speculation plays no part in the

determination at the pleading stage whether Wetmore has stated a

cognizable claim--he clearly has. We emphasize that there are many

factual questions and matters of proof that remain unresolved, but

those will require a more developed record--they simply are not

before us at the Rule 12(b)(6) stage.

                                    CONCLUSION

             For the reasons that have been stated here we REVERSE the

district court’s dismissal of Wetmore’s complaint and REMAND for

further proceedings consistent with this opinion.

                                       -11-
