NOTICE: All slip opinions and orders are subject to formal
revision and are superseded by the advance sheets and bound
volumes of the Official Reports. If you find a typographical
error or other formal error, please notify the Reporter of
Decisions, Supreme Judicial Court, John Adams Courthouse, 1
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us

SJC-12112

               ERIC N. BALLES   vs.   BABCOCK POWER INC.



       Middlesex.       November 8, 2016. - March 6, 2017.

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


Executive. Employment, Termination. Corporation, Stockholder,
     Close corporation, Liability of officers. Contract,
     Employment, Performance and breach. Fiduciary.



     Civil action commenced in the Superior Court Department on
December 21, 2010.

    The case was heard by Douglas H. Wilkins, J.

     The Supreme Judicial Court granted an application for
direct appellate review.


     Mark C. Fleming (Jonathan A. Cox also present) for the
defendant.
     Thomas J. Carey, Jr. (Jody L. Newman also present) for the
plaintiff.
     Ben Robbins & Martin J. Newhouse, for New England Legal
Foundation, amicus curiae, submitted a brief.


    LENK, J.     The dispute before us chiefly concerns the

meaning and application of the stockholders' agreement between a
                                                                    2


company, Babcock Power Inc. (Babcock or company), and its former

executive, Eric N. Balles.   To a lesser extent, it also concerns

the separate employment agreement between the two.

    Babcock terminated Balles's employment when it discovered

that he was engaged in an ongoing extramarital affair with a

young female subordinate.    Babcock's board of directors (board)

subsequently concluded that Balles had been terminated "for

cause" under the terms of his stockholders' agreement with the

company, thereby allowing the board to repurchase his stock at a

minimal price.   The board withheld subsequent dividends,

amounting to approximately $900,000 in total, and refused to pay

Balles any severance.

    Years of litigation followed, with Balles seeking

declaratory relief to the effect that the stock be returned to

him, along with the withheld dividends.    Babcock responded with

counterclaims on various grounds.   Following a bifurcated trial,

a Superior Court jury rejected Babcock's counterclaims, and

although Balles prevailed at a jury-waived trial on his claim

for declaratory relief, a portion of his prior salary was

subjected to equitable forfeiture and he was unsuccessful in his

bid to receive severance pay.   Babcock appealed from the
                                                                    3


judgment at the jury-waived trial, and we allowed its

application for direct appellate review.   We affirm.1

     1.   Background.   We recite the facts found by the trial

judge, which the parties acknowledged at oral argument they do

not challenge.   We have supplemented those findings by reference

to facts in the record that the parties do not dispute.

     a.   Stockholders' agreement and employment agreement.      When

his employment at Babcock began in 2002,2 Balles entered into two

agreements:   a stockholders' agreement and an employment

agreement.3   Under the terms of the stockholders' agreement,

Balles, one of seventeen "management investors" in Babcock,4

received 100,000 shares of common stock in the company at a

price of $0.001 per share.

     Section 5 of the stockholders' agreement sets forth the

rights of management investors in the event of their


     1
       We acknowledge the amicus brief submitted by New England
Legal Foundation in support of the defendant.
     2
       Balles joined the conglomerate that would become Babcock
Power Inc. (Babcock or company) in 2001, when he became the
senior vice-president of technology development for Babcock
Borsig Power, Inc. (Borsig). In 2002, Borsig combined with
several other affiliated companies to form a new entity,
Babcock.
     3
       At all times relevant to this dispute, prior to his
termination, Balles served as an executive of various
subsidiaries of Babcock.
     4
       Balles entered into the stockholders' agreement partially
in consideration for relinquishing his rights in Borsig.
                                                                  4


termination.   Section 5(d) states that, if a management

investor's employment is terminated without cause, the

stockholders' agreement continues to apply to his or her stock.

By contrast, section 5(e) provides that if a management

investor's employment is terminated "for cause," as defined in

the stockholders' agreement, Babcock's board of directors must

repurchase his or her stock at the nominal price of $0.001 per

share.

    "Cause," in turn, is defined under section 1 of the

stockholder's agreement as follows:

    "(a) fraud, embezzlement or gross insubordination on the
    part of the Management Investor; (b) the Management
    Investor's conviction of or plea of nolo contendere to any
    felony; (c) the Management Investor's willful and material
    breach of or willful failure or refusal to perform and
    discharge, his duties, responsibilities or obligations to
    the Company (other than by reason of disability or death)
    that is not corrected within thirty (30) days following
    written notice thereof to the Management Investor by the
    Company, such notice to state with specificity the nature
    of the breach, failure or refusal; provided, that if such
    breach, failure or refusal cannot reasonably be corrected
    within thirty (30) days of written notice thereof, such
    thirty (30) day period shall be extended for so long as may
    be reasonably necessary to correct the same; or (d) any act
    of willful misconduct by the Management Investor which (i)
    is intended to result in substantial personal enrichment of
    the Management Investor at the expense of the Company or
    any of its subsidiaries or affiliates or (ii) is intended
    to and does have a material adverse impact on the business
    or reputation of the Company or any of its subsidiaries or
    affiliates. For purposes of this Agreement, a
    determination of 'Cause' may only be made by the Board of
    Directors of the Company."
                                                                     5


    The stockholders' agreement also provides for a jury-waived

trial to adjudicate any claims arising under it, stating in

relevant part that "each party acknowledges and agrees that any

controversy which may arise under [the stockholders' agreement]

is likely to involve complicated and difficult issues," and that

the parties "waive[] any right such party may have to a trial by

jury in respect of any litigation directly or indirectly arising

out of or relating to the [stockholders' agreement]."

    The employment agreement between Balles and Babcock

provided that he would serve as an employee "at will" and could

be terminated at any time for any reason.     The employment

agreement also stated that, in the event of Balles's

termination, he would be entitled to severance pay unless he was

terminated for cause, "as defined in [the] [s]tockholders'

[a]greement."

    b.   Relationship with female subordinate.     The female

subordinate began working at Babcock as an intern when she was

still an undergraduate student.     She eventually obtained a full-

time position at the company as an "Engineering Management

Assistant/Engineering Coordinator."     After receiving two raises

while serving in this role, she eventually was promoted to the

position of "Operations Associate/Engineering."     Balles was her

supervisor at all relevant times.
                                                                    6


     In the summer of 2008, Balles began an intimate

extramarital relationship with the female subordinate, which

continued through his termination in 2010.   The pair pursued

their relationship on business trips funded by Babcock, and

exchanged sexually explicit text messages on their personal

cellular telephones.   Balles uploaded, downloaded, and saved

photographs of the female subordinate, some depicting sexual

content, on his Babcock-issued laptop computer.5   To conceal his

relationship with the female subordinate from Babcock, Balles

falsified the details of at least one travel reimbursement

request, but did not intentionally claim any fiscal

reimbursement from Babcock to which he was not entitled under

company policy.6

     On August 30, 2010, Michael LeClair, the president and

chief executive officer of Babcock, learned of the relationship

between Balles and the female subordinate.   Soon thereafter, Jim

Dougherty, president and chief executive officer of a subsidiary

of Babcock, hand-delivered a memorandum to Balles stating that


     5
       Balles gave several conflicting explanations as to how the
photographs of the female subordinate ended up on his Babcock-
issued laptop computer, none of which was credited by the trial
judge.
     6
       The trial judge found that Balles did not intentionally
deprive Babcock of any funds during his relationship with the
female subordinate. He did find, however, that Balles
apparently inadvertently requested $316.43 in reimbursements to
which he was not entitled.
                                                                    7


his employment was suspended "pending an investigation into

allegations of misconduct and improper workplace behavior

relating to [his] relationship with a female subordinate

employee."    Babcock's investigation included an in-depth review

of Balles's documents, text messages, and electronic mail

messages, all of which were stored on his company-issued

computer.    The investigation disclosed more than one hundred

photographs and thousands of text messages between Balles and

the female subordinate.    Several of the messages described

executives, as well as Balles's "negative feelings about working

for [Babcock] and about his superiors."    LeClair came to the

conclusion that "Balles failed to perform his job from the

moment" that he began his affair with the female subordinate.

    During the investigation, Balles repeatedly requested a

face-to-face meeting with the board, which Babcock declined to

provide.    He received a letter on September 15, 2010, informing

him that his employment had been terminated effective September

1, 2010, and that the board would be meeting shortly to

determine whether his conduct met the definition of "[c]ause"

under the stockholders' agreement.    Babcock's attorney sent

notice separately that it would not be necessary for Balles to

provide information relating to the allegations of misconduct
                                                                    8


against him.   The parties engaged in settlement negotiations but

were unable to come to an agreement.7

     At the subsequent board meeting to determine whether

Balles's conduct constituted "cause" within the meaning of the

stockholders' agreement, LeClair summarized the investigation

and recommended that the board terminate Balles "for cause"

pursuant to clauses (a), (c), and (d) of the definition of

"[c]ause" in section 1 of the stockholders' agreement.    The

board, after discussion, unanimously agreed, as noted in its

minutes, that Balles's conduct constituted "cause" under the

stockholders' agreement.   The minutes reflected the board's

determination that there was "overwhelming and irrefutable

evidence that . . . Balles engaged in serious misconduct during

his employment and [that] such misconduct was a breach of

fiduciary duty to the [c]ompany, including a breach of his duty

of loyalty."   Because the board terminated Balles for cause, it

went on to "repurchase" all of Balles's shares pursuant to

section 5(e) of the stockholders' agreement, "amounting to

100,000 shares of capital stock of [Babcock] for a repurchase

price of $0.001 per share."

     c.   Prior proceedings.   Shortly after the board voted to

terminate him "for cause," Balles commenced this action against

     7
       Balles's settlement offer included a forfeiture of
$500,000 in dividends and a limited noncompete agreement.    The
board summarily rejected this offer.
                                                                      9


Babcock in the Superior Court.    He sought a declaratory judgment

invalidating the board's repurchase of his shares under the

stockholders' agreement and alleged that the board had committed

a breach of the agreement by denying him subsequent dividend

payments.   He also asserted that the company had committed a

breach of his employment agreement by declining to pay him

severance upon his termination.   The company denied the

allegations and asserted seven counterclaims.8   The proceedings

in the Superior Court were bifurcated into a jury trial to

adjudicate the majority of Babcock's counterclaims, and a jury-

waived trial to resolve Balles's declaratory judgment and

contract claims, along with Babcock's counterclaim asserting a

breach of fiduciary duty and the duties of loyalty and good

faith.9

     The jury found for Balles on Babcock's counterclaims.      The

trial judge, moreover, ruled in favor of Balles on the

declaratory judgment and breach of contract claims, concluding


     8
       The counterclaims included "breach of fiduciary duty and
the duties of loyalty and good faith," which the company alleged
arose from Balles's occupation of "a position of trust and
confidence at [Babcock]"; waste of corporate assets; fraud;
misrepresentation; nondisclosure; conversion; and breach of the
implied covenant of good faith and fair dealing.
     9
       The trial judge referred to this claim as the "equitable
forfeiture claim," presumably because Babcock requested the
equitable forfeiture of Balles's salary during the period of his
affair with the female subordinate on the basis of his alleged
breach.
                                                                  10


that Balles "was not fired 'for cause' as defined in the

[s]tockholders' [a]greement" and that he was therefore "entitled

to the return of his stock and payment of all dividends and

other benefits provided by Babcock . . . as if he had own[ed]

the stock continuously."   The judge found in favor of Babcock on

its remaining counterclaim, concluding that Balles had committed

a breach of his fiduciary duty of loyalty to the company, owed

pursuant to his status as an employee.   On this basis, the judge

assessed Balles $412,000 in equitable forfeiture of his past

salary.   The judge also rejected Balles's claim for severance

pay under the employment agreement, on the ground that Balles

had committed a material breach of the agreement through his

disloyal actions.

     Babcock appealed from the judgment, raising issues arising

only from the jury-waived trial, and we allowed its application

for direct appellate review.10

     2.   Discussion.   Babcock advances three arguments on

appeal.   First, it contends that the trial judge should have

accorded deference to the board's decision and reviewed it only

to ascertain whether it was arbitrary, capricious, or made in




     10
       Balles did not appeal from the denial of his claim for
severance under the employment agreement, or from the allowance
of Babcock's breach of fiduciary duty claim resulting in the
equitable forfeiture of his salary.
                                                                   11


bad faith.11   Second, it argues that the judge erred in

determining that Balles's conduct did not constitute "cause"

under clauses (a) and (c) of the definition of that term in

section 1 of the stockholders' agreement.   Third, it maintains

that Balles committed a material breach of the stockholders'

agreement and therefore cannot recover under it.    We address

each argument in turn.

     a.   Appropriate standard of review.   Babcock argues that

the trial judge improperly reviewed on a de novo basis the

board's determinations of "cause."    The company relies in this

regard on the last sentence of the "[c]ause" definition in

section 1 of the stockholders' agreement, which provides that

"[f]or purposes of this [a]greement, a determination of

'[c]ause' may only be made by the [board]."    Babcock contends

that this language demonstrates the parties' intent that the

board's determinations under the "cause" provision receive

deference upon any judicial review.    We agree with the trial

judge that the language of the stockholders' agreement does not

support Babcock's suggested interpretation.




     11
       In order to facilitate appellate review, the trial judge
also applied the deferential standard of review to which Babcock
argues it is entitled to the board's determination, concluding
that the board's decision was "arbitrary and capricious."
                                                                     12


       We review a court's "interpretation of the meaning of a

term in a contract," a question of law, de novo.12    EventMonitor,

Inc. v. Leness, 473 Mass. 540, 549 (2016).   In so doing, we are

mindful that when the language of a contract is clear, it alone

determines the contract's meaning, but that a court may consider

extrinsic evidence if the language is ambiguous.     Id.   The

determination of ambiguity in a contract is also a question of

law.    Eigerman v. Putnam Invs., Inc., 450 Mass. 281, 287 (2007).

Contractual language is ambiguous when it "can support a

reasonable difference of opinion as to the meaning of the words

employed and the obligations undertaken" (citation omitted).

Bank v. Thermo Elemental Inc., 451 Mass. 638, 648 (2008).        When

contract language is unambiguous, it must be construed according

to its plain meaning.    General Convention of the New Jerusalem

in the U.S. of Am., Inc. v. MacKenzie, 449 Mass. 832, 835

(2007).

       To determine whether the language at issue is ambiguous, we

look both to the contested language and to the text of the

contract as a whole.    Assuming without deciding that parties to

a private agreement may contract for a specific standard of


       12
       The interpretation of a contract constitutes "a question
of law for the court" (citation omitted). See Freelander v. G.
& K. Realty Corp., 357 Mass. 512, 516. Accordingly, a court
generally will accord no deference to a party's interpretation
of a contract but, rather, will focus on the language of the
instrument to effectuate its terms. See id.
                                                                   13


judicial review in this situation,13 we conclude that the

language at issue is not ambiguous and that it does not provide

for a deferential standard of judicial review.

     On its face, the contract language that Babcock highlights

speaks to which persons in the company are to determine "cause"

for purposes of the stockholders' agreement.   Standing alone,

the sentence is silent as to an appropriate standard of judicial

review for disputes relating to that determination.   The

language does not, by itself, contain an ambiguity that could

support Babcock's suggested interpretation.    The language also

does not convey any ambiguity when read in conjunction with the

remainder of clause (c) of the definition of "[c]ause" or the

stockholders' agreement as a whole.   The only provision dealing

with a somewhat related matter is section 9(e)(iii), which

provides that "any controversy which may arise under [the

stockholders' agreement] is likely to involve complicated and

difficult issues, and therefore each . . . party . . .

unconditionally waives any right such party may have to a trial

     13
       Parties to a private agreement have been permitted to
contract for a more deferential standard of review in certain
instances, see, e.g., Acmat Corp. v. Daniel O'Connell's Sons,
Inc., 17 Mass App. Ct. 44, 49 (1983) (contract provision
granting architect power to decide all questions of
interpretation of contract valid unless decision arbitrary or
capricious), but not in others. See, e.g., Patton v. Babson
Statistical Org., 259 Mass. 424, 428 (1927) ("It would be a
travesty upon all ideas of judicial propriety or of judicial
work for a man to be an arbitrator to settle the amount of his
own liability" [citation omitted]).
                                                                  14


by jury in respect of any litigation directly or indirectly

arising [out] of or relating to [the stockholders' agreement]

. . . ."   If anything, this recognition of the innate complexity

of disputes arising under the contract and of the need for

resolution by judges rather than juries is consistent with the

application by judges of the usual de novo standard of review.14

     Concluding, as we do, that the contractual language on

which Babcock relies does not provide for judicial deference to

the board's determination of "cause," de novo review by the

trial judge thus was appropriate.15


     14
       The result is the same if we assume, as the parties
apparently do, that the language in question is ambiguous and
turn to extrinsic evidence to discern the term's meaning.
Because contracting parties' intent is an issue of fact, we
defer to the trial judge's findings and review only for clear
error. See Seaco Ins. Co. v. Barbosa, 435 Mass. 772, 779
(2002). The trial judge concluded that the drafters "intended
to protect the property rights of [management investors] through
the specific language they chose, as finally construed and
applied by a judge or judges." This determination is supported
by the uncontroverted testimony of Dale Miller, a corporate
lawyer who negotiated the stockholders' agreement. He testified
that if the board terminated a management investor "for cause"
without a "very clear" case, it "could have an adverse
unintended consequence of having other founder
shareholders . . . walk out the door," thus depriving the
company of its "primary asset[s]."
     15
       Babcock's reliance on Noonan v. Staples, Inc., 556 F.3d
20 (1st Cir. 2009), does not persuade us to the contrary.
Noonan addressed a stock-option agreement providing that
"[c]ause" would be "determined by [the company], which
determination shall be conclusive." Id. at 24. The United
States Court of Appeals for the First Circuit resolved that,
given such language, judicial review of the company's
determination would appropriately be limited to whether it "was
                                                                   15


    b.   Board's decision to terminate Balles for cause under

stockholders' agreement.     Babcock argues that the trial judge

erred in determining that Balles's conduct did not meet clauses

(a) and (c) of the definition of "[c]ause" in section 1 of the

stockholders' agreement.

    i.   Clause (a).     Babcock argues that Balles's conduct

constituted "fraud" and "gross insubordination" under clause (a)

for three reasons:     (i) his intentional submission of false

expense reports for the purpose of concealing his affair with

the female subordinate was fraudulent; (ii) his outspoken

support for the female subordinate constituted fraud because she

lacked fitness for employment; (iii) his over-all conduct during

his relationship with the female subordinate constituted gross

insubordination.     We discern no error in the judge's

determination that Balles's conduct did not constitute fraud or

gross insubordination.

    A.   Fraud.    The elements of fraud consist of "[1] a false

representation [2] of a matter of material fact [3] with

knowledge of its falsity [4] for the purpose of inducing



arbitrary, capricious, or made in bad faith." Id. at 33.
Babcock attempts to liken the language at issue to that in
Noonan and urges that it similarly represents the parties'
intent to provide the board with deferential review. The Noonan
contract, however, provided that the company's judgment "shall
be conclusive" (emphasis added). Id. at 24. The language here,
in contrast, merely provides that only the board is authorized
to find cause in the first instance.
                                                                   16


[action] thereon, and [5] that the plaintiff relied upon the

representation as true and acted upon it to his [or her]

damage."   Danca v. Taunton Sav. Bank, 385 Mass. 1, 8 (1982),

quoting Barrett Assocs. v. Aronson, 346 Mass. 150, 152 (1963).16

     I.    False reimbursement requests.   The trial judge found

that Balles's false reimbursement requests had not resulted in

damage to Babcock, and that Balles lacked fraudulent intent,

both necessary elements of fraud.   Because Babcock has failed to

show that the judge's findings, amply supported by the evidence,

were clearly erroneous, it cannot establish that Balles's

submission of false reimbursement requests gave rise to fraud

that would constitute cause under clause (a) of the definition

of "[c]ause" in the stockholders' agreement.

     II.   Advocacy for the female subordinate.    Babcock

similarly maintains, again without merit, that in view of the

female subordinate's inadequate qualifications and poor job

performance, it was fraudulent conduct on Balles's part to

advocate -- as her supervisor and without disclosing their

personal ties -- on her behalf professionally.     The judge,

however, determined that "[t]he jury, the court, or both, have

rejected the factual claim that Balles was engaged in any ruse

when he made decisions about [the female subordinate's]

     16
       Both parties accept that, as the trial judge determined,
the definition of "fraud" under the stockholders' agreement
mirrors the concept of fraud in our common law.
                                                                    17


employment, [and] her salary and benefits," and that "[a]ll of

those decisions had a sound business justification."    He found

in this regard that given "the actual work [the female

subordinate] did, in combination with her obvious verbal and

managerial skills, intelligence, maturity and motivation, . . .

[the female subordinate] fully earned her salary, benefits, and

tuition reimbursement during the period she was employed at

[Babcock]."

    To demonstrate that the female subordinate's qualifications

and performance were inadequate, the company points to a

statement from a coworker suggesting that she had received

preferential treatment and a statement from a manager that she

lacked an engineering degree.     These two statements, however, do

not suffice to establish that the trial judge's findings of fact

to the contrary, supported by other evidence, were clearly

erroneous.    See Weiler v. PortfolioScope, Inc., 469 Mass. 75, 81

(2014).   Given this, Balles's advocacy on the female

subordinate's behalf neither constituted a "false"

representation nor resulted in damages to Babcock, and

accordingly was not fraudulent.

    B.    Gross insubordination.   Babcock maintains that Balles's

conduct also constituted "gross insubordination" under clause

(a) because he violated various company policies during his

affair with the female subordinate.     The trial judge, however,
                                                                  18


interpreted the term "gross insubordination" to mean "more than

just breaking generally applicable rules."   He instead took it

to mean the defiance of authority "such as [the violation of] a

direct order . . . or disrespect directed to a supervisor

personally."   The judge found that Balles's conduct did not fall

within this definition, noting that "there is no credible

evidence of a direct order to Balles to do anything he failed to

do," and that he did not "act disrespectfully to his superiors

in person."

    We defer to the judge's factual findings, but review de

novo his interpretation of "gross insubordination" under the

stockholders' agreement.   Because the stockholders' agreement

does not define "gross insubordination," it is appropriate to

look to other sources to determine the meaning of the term.      See

Meehan v. Shaughnessy, 404 Mass. 419, 445 n.22 (1989)

(professional norms can supply meaningful definition of

contractual term); Zeo v. Loomis, 246 Mass. 366, 368 (1923)

("[Contract term] must be determined from all the circumstances

according to the reasonable inferences presumably entertained by

normal business [people]").

    Babcock relies chiefly on Oehme v. Whittemore-Wright Co.,

279 Mass. 558, 563 (1932), which defines "insubordination" as "a

wilful disregard of express or implied directions and refusal to

obey reasonable orders."   The company emphasizes the "implied
                                                                 19


directions" portion of the definition, presumably to suggest

that Balles's violations of company policy constituted gross

insubordination.   It is "gross insubordination," and not

"insubordination," that gives rise to "[c]ause" under clause

(a), however, and Oehme does not speak to the more egregious

misconduct required to establish gross insubordination.17   A

review of relevant case law indicates, as the judge concluded,

that gross insubordination is generally defined as wilful

disregard of a direct order.   See Hawkins v. Director of the

Div. of Employment Sec., 392 Mass. 305, 306-307 (1984)

(affirming review examiner's finding that twice refusing to

comply with reasonable and legitimate requests by supervisor

constituted "gross insubordination"); Stone v. Omaha, 229 Neb.

10, 13-14 (1988) (employee's refusal to follow orders

constituted gross insubordination).   Given the judge's

uncontested factual finding that Balles never disobeyed a direct

order, his conduct did not constitute gross insubordination.

     17
       Moreover, clause (c) provides that a management
investor's "willful and material breach of, or willful failure
or refusal to perform and discharge, his duties,
responsibilities or obligations to the [c]ompany" constitutes a
predicate for "cause." Construing "gross insubordination" under
clause (a) in the manner that Babcock advocates, i.e., as
coterminous with the conduct outlined in clause (c), would
render the latter section impermissibly superfluous. See Tupper
v. Hancock, 319 Mass. 105, 109 (1946) ("It is a canon of
construction that every word and phrase of an instrument is if
possible to be given meaning, and none is to be rejected as
surplusage if any other course is rationally possible" [citation
omitted]).
                                                                   20


       ii.   Clause (c).   Babcock also maintains that Balles's

conduct fell within clause (c), which defines "[c]ause" as

follows:

       "the . . . willful and material breach of, or willful
       failure or refusal to perform and discharge, his duties,
       responsibilities or obligations to the [c]ompany . . . that
       is not corrected within thirty (30) days following written
       notice thereof to the [m]anagement [i]nvestor by the
       [c]ompany, such notice to state with specificity the nature
       of the breach, failure or refusal; provided, that if such
       breach, failure or refusal cannot reasonably be corrected
       within thirty (30) days of written notice thereof, such
       thirty (30) day period shall be extended for so long as may
       be reasonably necessary to correct the same."

Babcock argues that Balles's relationship with the female

subordinate and his attempts to conceal it constituted a wilful

and material breach of his obligation of loyalty to the company.

Balles concedes that his conduct constituted a breach of loyalty

under clause (c), but argues that Babcock failed to provide him

with an opportunity to correct his breach, as required by clause

(c).    The company counters that, because Balles's breach could

not be corrected, it was excused from the requirement of

offering him an opportunity to correct the breach, as to do so

would have been futile.

       The trial judge concluded that Babcock had failed to

provide Balles with an opportunity to correct his breach in

violation of clause (c) and that Balles's conduct was

correctable.    On appeal, Babcock argues that three particular
                                                                  21


components of Balles's breach were uncorrectable:18   (1) the

effect of Balles's divided loyalty on his job performance during

his affair with the female subordinate; (2) the harmful effects

of Balles's example on company culture; and (3) the risk of a

sexual harassment lawsuit caused by Balles's conduct.

     We begin by noting that the futility exception upon which

Babcock relies is not expressly mentioned in the stockholders'

agreement.   Both parties nonetheless seem to accept the

contention that truly futile gestures under the agreement are

unnecessary, an assumption that accords with our common law.     To

excuse nonperformance in that respect, parties in breach of a

contract may establish that compliance with the contract would

have been futile.   See Shawmut-Canton LLC v. Great Spring Waters

of Am., Inc., 62 Mass. App. Ct. 330, 340 (2004).   The exception,

notably, is quite narrow, see Jefferson Ins. Co. of N.Y. v.

National Union Fire Ins. Co. of Pittsburgh, Pa., 42 Mass. App.

Ct. 94, 103 (1997) (rejecting interpretation of contract that

"would have the exclusion swallow the policy" [citation

omitted]), and the party in breach bears the burden of proving

that its performance under the contract would have been futile.

See, e.g., 7-Eleven, Inc. v. Khan, 977 F. Supp. 2d 214, 230-231

(2013) (party claiming that incurable breach relieved obligation

     18
       We accept for the sake of argument the company's apparent
assumption that, if any one aspect of Balles's breach is
uncorrectable, the breach itself is uncorrectable.
                                                                   22


to provide notice and opportunity to cure bore burden of proof).

Ordinarily, futility is shown where performance under the

contract would be impossible, see, e.g., L.K. Comstock & Co. v.

United Engineers & Constructors Inc., 880 F.2d 219, 231-232 (9th

Cir. 1989) (finding contractually guaranteed opportunity to cure

would have been futile where party could not have cured its

breaches in allotted time period), or where the other party had

first repudiated performance under the contract, see, e.g.,

Wolff & Munier, Inc. v. Whiting-Turner Contracting Co., 946 F.2d

1003, 1009 (1991) (burden on party claiming incurable breach),

neither of which took place here.

    We nonetheless turn to Babcock's contention that, because

Balles's breach cannot be corrected, its failure to provide him

with an opportunity to do so falls within the narrow futility

exception.   Babcock first contends that Balles's breach of

loyalty throughout his affair with the female subordinate could

not be corrected because the correction provision "contemplates

correction of the 'breach' itself -- not its future

consequences."   In the company's view, "'[c]orrection' presumes

that the wrong has been righted, as though no breach happened,"

and a "'correctable' offense would have been one where,

following a 'correction,' Babcock and Balles could have

continued their association as before."   We are unpersuaded by

this argument, both because it relies on an implausible
                                                                   23


interpretation of the contract and because Babcock has not shown

that Balles's breach was intrinsically incapable of correction.

    By asserting that correction requires actually undoing the

breach, rather than remedying its effects, Babcock would in

effect read the correction provision out of clause (c).    See

J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 795 (1986)

("A contract is to be construed to give reasonable effect to

each of its provisions").    As a practical matter, bells cannot

be unrung, nor the past undone.    Clause (c) contemplates that,

in the event of a management investor's "willful and material

breach of . . . duties, responsibilities or obligations to the

[c]ompany," the management investor will be given thirty days

following written notice to "correct" that "breach, failure or

refusal [to perform]."    No exception is made for breaches of

loyalty.    The correction envisioned, reasonably construed within

the context of that clause and the contract as a whole, can only

be to remedy the adverse effects from the breach or

nonperformance when performance will not itself be adequate or

possible.   See Downer & Co. v. STI Holding, Inc., 76 Mass. App.

Ct. 786, 792 (2010) (objective in interpreting contract "is to

construe the contract as a whole, in a reasonable and practical

way, consistent with its language, background, and purpose"

[citation omitted]).
                                                                  24


     Given the foregoing, Babcock has not met its burden of

showing that the adverse effects of the breach were

uncorrectable if Balles were given the opportunity to do so.

Indeed, Babcock prevailed on its counterclaim when the judge

deducted over $400,000 from the amount of Balles's salary

because of his breach of the duty of loyalty during his

relationship with the female subordinate, thereby in essence

compensating Babcock for the lost value of Balles's services in

that period.

     Babcock's contention that Balles's harm to company culture

was uncorrectable meets a similar fate.   While the trial judge

did not address this argument directly,19 Babcock does not

establish why any such harms would not be remedied by the

termination of Balles.   The company's abrupt termination of

Balles, a senior executive, surely made clear to other employees

that his impermissible conduct would not be tolerated.    The

company's lone argument why this would not suffice is its

insistence that only terminating Balles for cause could correct

the harms he visited upon company values.   This argument is at

best circular, for if only terminating a management investor for

cause adequately can correct his or her harm to company culture,



     19
       The record does not disclose whether the argument was
raised below. Any potential waiver issues are immaterial,
however, given our disposition of the issue.
                                                                  25


the correction provision itself would be for naught.    See

Jefferson Ins. Co. of N.Y., 42 Mass. App. Ct. at 103.

     Babcock's final argument -- that the risk of a sexual

harassment lawsuit brought by the female subordinate constituted

uncorrectable harm to the corporation -- also lacks merit.    The

trial judge summarily dismissed this argument, determining that

the stockholders' agreement pertains to "actual harm, not

potential harm that never materialized."   Even if the judge were

incorrect in this and we were to assume that Balles's conduct in

fact created a risk to the company that would not otherwise have

existed, Babcock has not shown that the harm was uncorrectable.

Risks are routinely adjusted and reallocated by various means

such as indemnification agreements providing for the costs of

defense, and such measures could presumably have been employed

here.20   We accordingly reject Babcock's view that the risk of a

sexual harassment claim brought by the female subordinate was

uncorrectable.21




     20
       As it stands, Babcock does not suggest that it engaged in
any preparation for litigation or incurred any defense costs.
     21
       Although the trial judge did not appear to rely on this
particular ground in rejecting Babcock's claim, "[a]n appellate
court is free to affirm a ruling on grounds different from those
relied on by the motion judge if the correct or preferred basis
for affirmance is supported by the record and the findings."
Commonwealth. v. Va Meng Joe, 425 Mass. 99, 102 (1997).
                                                                   26


     There was thus no error in the judge's determination that

Babcock's failure to provide Balles with an opportunity to

correct his breach prevents a finding of cause under clause (c).

     c.   Whether Balles committed a material breach of the

stockholders' agreement.   Babcock argues further that Balles

committed a material breach of the stockholders' agreement,

thereby precluding the recovery he seeks under it.   The company

maintains that Balles owed a fiduciary duty of loyalty to it as

an officer and shareholder of a closely held corporation,22 and

that, by committing a breach of this duty, he committed a

material breach of the stockholders' agreement.

     Even if Balles had committed a breach of a fiduciary duty

owed to Babcock arising out of the stockholders' agreement,

Babcock's argument nonetheless fails as a matter of law.     The

rights of stockholders arising under a contract, as here, are

governed solely by the contract.   See Chokel v. Genzyme Corp.,

449 Mass. 272, 278 (2007) ("When rights of stockholders arise

under a contract . . . the obligations of the parties are

determined by reference to contract law, and not by the

fiduciary principles that would otherwise govern"); Blank v.

Chelmsford Ob/Gyn, P.C., 420 Mass. 404, 408 (1995) ("questions

of good faith and loyalty with respect to rights on termination


     22
       Babcock appears to argue that this fiduciary duty of
loyalty arises directly out of the stockholders' agreement.
                                                                   27


or stock purchase do not arise when all the stockholders in

advance enter into agreements concerning termination of

employment"); Donahue v. Rodd Electrotype Co. of New England,

Inc., 367 Mass. 578, 598 n.24 (1975) (shareholders of close

corporation may contract for "stock purchase arrangements" that

would otherwise violate duties of loyalty and good faith to

other shareholders if "stockholders give advance consent . . .

through . . . a stockholders' agreement.").   Contrast Prozinski

v. Northeast Real Estate Servs., LLC, 59 Mass. App. Ct. 599,

608-610 (2003) (employee's breach of fiduciary duties to

employer could constitute material breach barring recovery under

employment agreement).

    Sections 1 and 5 of the stockholders' agreement clearly

address the rights of management investors as to their company

stock holdings in the event of their termination.   Section 5(e)

provides that a management investor may only be divested of his

or her stock if terminated for "cause."   Section 1, in turn,

sets forth a detailed, carefully crafted definition of "cause."

Clause (c) of that definition specifically speaks to a

management investor's rights in the event of termination for a

material breach, including a breach of the duty of loyalty.

Insofar as the stockholders' agreement speaks directly to the

rights of a management investor in the event of the material
                                                               28


breach alleged here, Balles is not precluded from seeking relief

pursuant to its terms.

                                   Judgment affirmed.
