Access Cardiosystems, Inc. et al v. Fincke

1 The Official Committee of Unsecured Creditors (the “Committee”) was granted leave to
intervene in the present case, but that intervention was predicated on its desire to protect the
interests of unsecured creditors in the event of a settlement. 	As no settlement has yet been
proposed, the Committee has remained largely inactive in this adversary proceeding and has raised
no independent substantive issue .
1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
CENTRAL DIVISION
___________________________________
)
In re: 	) 	Chapter 11
) 	Case No. 05-40809-HJB
ACCESS CARDIOSYSTEMS, INC., 	)
)
Debtor 	)
___________________________________)
)
ACCESS CARDIOSYSTEMS, INC., 	) 	Adversary Proceeding
NORTH AMERICAN 	) 	No. 05-4076-HJB
ENTERPRISES, INC., JOHN 	)
MORIARTY AND ASSOCIATES, 	)
JOHN J. MORIARTY, RICHARD F. 	)
CONNOLLY, JR., AND JOSEPH R. 	)
ZIMMELL, 	)
)
Plaintiffs, 	)
)
OFFICIAL COMMITTEE OF 	)
UNSECURED CREDITORS OF 	)
ACCESS CARDIOSYSTEMS, INC., 	)
)
Plaintiffs-Intervenors, 1 )
)
v. 	)
)
RANDALL FINCKE, 	)
)
Defendant 	)
___________________________________)
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 1 of 164

2 For the sake of economy, the parties agreed to try the issues relating to liability first, and
then, only if necessary, issues relating to the calculation of damages.
3 See 11 U.S.C. §§ 101 et seq. (2008).
2
MEMORANDUM OF DECISION
Before the Court, after trial on the question of liability only, 2 is the “Third Amended
Complaint” (the “Complaint”) filed by Access Cardiosystems, Inc. (“Access”), four of its
individual investors (the “Investors”), and the corporate entities through which several of
those investments were made (together, the “Plaintiffs”) against Randall Fincke, former
Access shareholder, officer, and director. 	The Plaintiffs accuse Fincke of breach of
fiduciary 	duty, 	fraud, 	negligent 	misrepresentation, 	and 	securities 	fraud 	under
Massachusetts securities laws. Fincke responds with counterclaims against the Plaintiffs
for breach of fiduciary duty, breach of contract, promissory estoppel, and declaratory
judgment. The following constitute the Court’s findings of fact and conclusions of law on
liability under these claims, pursuant to Federal Rule of Bankruptcy Procedure 7052.
I. 	FACTS AND TRAVEL OF THE CASE
Access Cardiosystems, Inc. filed a voluntary petition seeking relief under Chapter
11 of the United States Bankruptcy Code (the “Bankruptcy Code” or the “Code”) 3 on
February 8, 2005. From 2000 to 2004, Access developed, marketed, and sold a portable
automated external defibrillator (the “Access AED” or “AED”). 	The present controversy
stems from a pre-petition suit filed in the Massachusetts Superior Court by Access and the
Investors against Fincke, one of Access’s founders, former stockholder, and former Access
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 2 of 164

4 Fincke initiated this adversary proceeding within Access’s main bankruptcy case by filing
a “Notice of Removal Pursuant to Federal Rule of Bankruptcy Procedure 9027,” effectively
transferring the Superior Court case to this Court. Plaintiffs did not object to the removal, and this
Court therefore has jurisdiction of the controversy under 28 U.S.C. § 1452. 	See also Fed. R.
Bankr. P. 9027.
5 A defibrillator is a “device designed to deliver a therapeutic electric shock to the heart in
order to stop chaotic fibrillation and restore the normal heart rhythm.” Gen. Stip. ¶ 7.
6 Fincke is also the named inventor on the patent embodying the technology at the heart of
the Access AED (“Access Intellectual Property” or “Intellectual Property”). Ruling on the parties’
motions for partial summary judgment, this Court previously ordered him to assign his rights in the
Intellectual Property to Access. 	See Access Cardiosystems, Inc. v. Fincke (In re Access
Cardiosystems, Inc.), 340 B.R. 127 (Bankr. D. Mass. 2006) (“Access I”).
7 The parties’ pleadings and witness testimony regarding the Zoll litigation were ambiguous
as to the exact nature of the claims raised against Fincke and Cadent. The characterization of the
suit as one for “misuse” of intellectual property was the only description provided.
3
director and officer. 4 The allegations underlying the Plaintiffs’ claims and Fincke’s
counterclaims require a step back, nine years from the time of this writing, to the year 2000,
beginning with the actions of Randall Fincke.
Fincke describes himself as driven by a mission to expand market access to
automated electronic defibrillation technology. 5 Trial Tr. day 1, 43. His work experience
certainly lends credence to this claim. By the year 2000, Fincke had worked with several
medical device companies on various AED products and was the named inventor on twelve
patents in the defibrillator field. 6 And, in the early part of that year, Fincke was focused on
the development of a new AED product. Simultaneous with his burgeoning idea, however,
Fincke was embroiled in litigation brought by his former employer, Zoll Medical ("Zoll"). Zoll
alleged that Fincke, in conjunction with Cadent Medical (a company founded by Fincke
after leaving Zoll; "Cadent"), had misused7 Zoll’s intellectual property and violated a
noncompetition agreement.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 3 of 164

8 The exact date of this investment is not noted on Defendant’s Exhibit 1, which contains
a summary of loans and equity investments in Access (the “Investment Summary”). This exhibit
was prepared by Jay Bounty, Access’s former chief financial officer, and the Court found at trial that
Fincke had adopted the document by offering it. According to the Investment Summary, Baletsa’s
initial investment was $49,000, but the parties agree that $50,000 is the correct figure.
9 Access was originally incorporated in Massachusetts as “Acelex.” 	Subsequently, a
separate “Acelex” corporation was incorporated in Delaware. In January 2001, the Delaware and
Massachusetts entities merged and the name of the merged entity was later changed. Because
these distinctions are not relevant to the issues presently before the Court, the Court will continue
to refer to both the earlier entities and the current corporate form by the name “Access.”
4
Although the litigation was a highly contentious affair, Fincke continued to work on
developing the new AED, individually and not through Cadent. 	In early 2000, Gregory
Baletsa agreed to assist Fincke in forming a business framework to develop the new
product and invested $50,000 of his own funds as the initial capital for the venture. 8 Other
individuals – including Kyle Bowers, an electrical engineer, and David Barash, a former
emergency room physician – were recruited to assist in developing the technology. They,
like Fincke and Baletsa, understood that compensation for much of their initial work would
come later, in the form of stock in the to-be-formed corporation that would produce, market,
and sell the final product.
In June 2000, the litigation between Zoll, Cadent, and Fincke finally came to an end.
The Plaintiffs allege that Fincke represented to one or more of them that the judgment was
a "vindication," as Zoll had not prevailed on a majority of the counts against him. Zoll did
prevail on other counts, however, and a $650,000 judgment was issued against Fincke
personally, later paid by Cadent. 	The litigation having ended, Cadent was sold to an
unrelated third party (Cardiac Sciences), and Fincke was free to pursue his new endeavor.
On July 5, 2000, Fincke and Baletsa incorporated their new business under the
name "Acelex," later changing the name to Access Cardiosystems, Inc. 9 Baletsa was
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 4 of 164

10 In January 2001, the Stockholders Agreement was amended to include Barash. Fincke
maintained his 85% majority stock ownership, with Baletsa and Barash holding the remaining
11.5% and 3.5%, respectively. Because the amended agreement incorporates the terms of the
original, terms that will be discussed later in more detail, the original and the amended agreements
will simply be referred to as the "Stockholders Agreement."
11 Following his resignation, Baletsa's shares of Access stock were reduced from 1,999,419
to 100,000 shares. He has not been repaid any portion of his initial $50,000 investment.
12 $25,000 of this amount represents a recharacterization of amounts purportedly owed to
Fincke on account of company expenses that had been charged to Fincke’s personal credit cards.
13 Elefante was a personal attorney for John Moriarty (one of the Investors) as well.
5
initially named as the company's president, with Fincke acting as the vice president and
treasurer. In conjunction with the incorporation of Access, Baletsa and Fincke executed
a stockholders agreement (the "Stockholders Agreement"), which contained various
restrictions on the transfer of stock and allowed Access to buy back stock in the event a
stockholder's employment was terminated. At that time, Baletsa and Fincke were the only
officers, directors, and stockholders in Access – Fincke held approximately 85% of the
outstanding shares. 10 Baletsa eventually left his position as president of Access in April
2001. 11 Fincke remained Access’s sole director, president, and treasurer until early 2003.
Access’s initial funding in early 2000 was not sufficient to sustain the company.
Between January and June 2001, Fincke advanced an additional $325,000 of his own
money to fund Access’s operations. 12 According to Michael Elefante, Access’s corporate
counsel, 13 he and Jack Carucci, Access’s original accountant, discussed whether these
funds should be considered debt or equity in the new company. Ultimately, it was decided
that $2,000 of Fincke's investments would be characterized as an investment in the
company's stock and the remaining amount characterized as loans to Access. Trial Tr. day
8, 37. 	Beginning in August 2001, and continuing through September 2003, Fincke
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 5 of 164

14 There is no record of this $50,000 on the Investment Summary or in Access’s books and
records, and Jay Bounty testified that he was unaware of any investments made by Moriarty other
than what was recorded there. Moriarty was also unable to locate a record of the check in his
personal files. At trial, however, Moriarty insisted that he had loaned funds to Access prior to his
larger investment in July 2001, and Fincke similarly recalled Moriarty loaning a “small amount”
between March and June 2001. 	The Court finds the testimony on this issue credible and that
Moriarty did provide approximately $50,000 to Access between March and June 2001.
6
withdrew sums of money from Access. These payments were reflected on Access’s books
and records as payments on his loan account. By the time of trial, a substantial portion of
Fincke’s loans to Access had been repaid; only $43,465 of Fincke’s $325,000 investment
remained outstanding.
Fincke did not keep his work at Access a secret. He discussed the new company
and the Access AED with various friends, some of whom expressed interest in making
investments in Access to ensure its success. 	Plaintiffs John J. Moriarty and Richard F.
Connolly, Jr. were particularly interested in Fincke’s plans for the company, and they
became the first outside investors to fund Access’s operations.
Moriarty’s and Fincke’s families had long been close friends, even sharing a ski
lodge together for some time. 	Moriarty characterized his conversations with Fincke
regarding Access as “discussion[s] . . . in [the] driveway” – informal discussions about the
progress of the company. Trial Tr. day 6, 85. Moriarty had been aware of the Zoll litigation
and knew it had concluded; when told that Fincke had won 14 out of 17 counts, he
“mistakenly took that as a victory.” 	Trial Tr. day 6, 84. 	Moriarty testified that before he
advanced any funds to Access, he first asked whether there were any “problems like the
last time” (presumably referring to the Cadent litigation). Trial Tr. day 6, 84-85. Having
received assurances that there were not, Moriarty wrote a personal check to Access for
approximately $50,000 sometime between March and June 2001. 14
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 6 of 164

15 The Court here and elsewhere uses the term “investment” quite liberally and without
characterizing the advance as debt or equity except where otherwise indicated. According to a
summary of outstanding promissory notes (the “Note Summary”), the March 2001 loan from
Moriarty is documented by a convertible promissory note in the amount of $1,000,000. Other pre-
2003 advances by the Investors were similarly made under promissory notes convertible to stock
at the lender’s option. But the record indicates that not all advances were made in that fashion.
Pl.’s Ex. 110.
16 Moriarty made this and subsequent investments through John Moriarty and Associates
("JMA"). Unless a distinction is required, Moriarty will be referred to as the "investor" regarding both
his and JMA’s loans.
17 However, Access did not receive approval for sale of the Access AED in Europe until
spring 2002. Thus, either Fincke erroneously told Moriarty that Access had received approval prior
to actually having received it, or Moriarty was mistaken as to what information was given during that
time frame. Because none of the parties raised an issue of misrepresentation on this particular
matter, and because there was no basis in Fincke’s testimony, other witness testimony or the
exhibits to support a contrary finding, the Court concludes that Moriarty was likely mistaken in
remembering being told that the device was approved for sale in Europe in summer 2001.
18 The Note Summary characterizes this loan as documented by a convertible promissory
note.
7
On July 13, 2001, Moriarty made a second investment 15 of $1,000,000 in Access. 16
According to Moriarty, he relied on several representations by Fincke in making this second
investment, namely: the approval for sale of the Access AED in Europe, 17 orders from and
good distribution network in Europe, and Fincke’s purported plan to use a contract
manufacturer to build the product. Trial Tr. day 8, 88-89. And Moriarty made an additional
$500,000 investment in Access in December 2001.18
Fincke also discussed Access and its progress with Connolly during 2001. Connolly
was aware of Moriarty’s investments in Access, Trial Tr. day 9, 8, and expressed an
interest in helping the company by providing an additional investment. Fincke responded
positively. According to Connolly, Fincke also told him that he did not need a lot of money,
just enough to “get him over the . . . existing hump . . . .” Trial Tr. day 9, 8. Further, Fincke
allegedly said the Access AED was mature, stable, and very well received in Europe and
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 7 of 164

19 The Note Summary characterizes this loan as documented by a convertible promissory
note.
20 According to their website, ISO (International Organization for Standardization) is a non-
governmental organization – “a federation of the national standards bodies of 157 countries” – that
“identifies what International Standards are required by business, government and society,
develops them in partnership with the sectors that will put them to use, adopts them by transparent
procedures based on national input and delivers them to be implemented worldwide.” ISO in Brief
(2006), http://www.iso.org/iso/isoinbrief_2006-en.pdf. Fincke explained that certification under ISO
9000 standards was necessary to obtain approval of the Access AED for sale in Europe. The
certification required Access to develop a system of qualifying, documented procedures that were
audited on an ongoing once- or twice-yearly basis.
21 The Note Summary characterizes both Moriarty’s and Connolly’s loans as documented
by convertible promissory notes.
8
told Connolly that he had developed a sales force to cover the European market. Connolly
testified that Fincke also explained that product manufacturing would be outsourced to a
company in Concord, Massachusetts. 	Trial Tr. day 9, 16. 	Like Moriarty, Connolly was
aware of the Zoll litigation, but not privy to the details. Trial Tr. day 9, 8-9. Following his
discussions with Fincke, Connolly invested $500,000 in Access in November 2001.19
By the turn of the year, the Access AED had advanced considerably. A provisional
Patent Application in the United States had been filed to cover the Access AED technology;
Access had completed its ISO 9000 certification 20 and was awaiting approval to market and
sell its products in Europe; and the European market was responding positively to the
Access AED even before formal approval. 	In February 2002, Access began signing
distribution agreements (the “Distribution Agreements”) with various European distributors
(the 	“European 	Distributors”) 	and 	continued 	working 	to 	verify 	and 	validate 	the
manufacturing process for the AED. 	Trial Tr. day 5, 96. 	In April 2002, Moriarty and
Connolly each invested an additional $300,000 in Access, 21 and the Access AED received
European approval for marketing and sales shortly thereafter.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 8 of 164

22 Moriarty loaned an additional $250,000 and Connolly loaned an additional $75,000 to
Access in May 2003. The Note Summary characterizes the promissory notes documenting the
loans as non-convertible.
23 This loan is memorialized by a convertible promissory note in the amount of $2 million
payable to Eastern Casualty Insurance (“Eastern Casualty”). Radley's investments were made
through Eastern Casualty and North American Enterprises, Inc. (“North American Enterprises”),
companies owned and controlled by Radley.
9
As sales in Europe began to get underway, Access was in need of additional capital
to purchase raw materials needed to build the AEDs. Both Moriarty and Connolly provided
additional funds in spring 2002. 22 And, by the early summer of that year, Access was eager
to solicit further investments to help fund production needed to fill the European orders.
Connolly began speaking with his close friend, James Radley, about Access during spring
2002. In June, Moriarty provided Access with a further investment of $300,000, and Fincke
met with Radley to discuss the possibility of an even larger investment.
According to Radley, Fincke represented at their first meeting that the Access AED
was a unique product and in great demand; that a good distribution system was in place
in Europe with shipping having already started or about to start; and that FDA approval was
soon forthcoming. 	Radley also alleges that Fincke told him the product was stable and
essentially “ready to go.” The need for additional funding, Fincke explained, was due in
part to delays in obtaining final FDA approval. Radley testified that Fincke told him also
that the additional funding was needed just to “get over the hump” and that 	$2 million
would be sufficient to get the company to the point of self-sustainability. Trial Tr. day 9, 70.
Following this meeting, Radley invested $2 million in Access. 23 Despite Fincke’s reported
optimism regarding Access’s financial future, Radley conceded that, at the time he made
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 9 of 164

10
the investment, he was aware that Access was having problems with working capital and
that the company was not financially stable. Trial Tr. day 9, 160-161.
In July 2002, before Access obtained FDA approval to market and sell the Access
AED in the United States, Fincke received a letter from John Vodopia, an attorney
representing Philips Electronics (“Philips”) (the “First Philips Letter”). Def.’s Ex. 24. In the
letter, dated July 30, 2002, Vodopia referenced nine patents owned by Philips and claimed
that “based on [Philips’s] investigations,” it believed the soon-to-be-released Access AED
infringed on at least one of the nine patents. The letter did not detail which of the listed
patents were believed to be infringed, nor did it describe which features of the Access AED
Philips was referencing in support of its alleged infringement claims. 	Access’s patent
counsel, Mark Pandiscio, testified that he did not think Philips had actually seen a physical
Access AED device at the time its attorney sent the First Philips Letter. Trial Tr. day 6, 17-
18. The letter concluded by stating that Philips was prepared to grant licenses to Access
“on reasonable terms and conditions.”
According to Fincke, upon receiving the letter, he immediately forwarded it to
Elefante, who then forwarded the letter to Pandiscio. 	Trial Tr. day 1, 91. 	But Elefante
testified that he was not aware of this letter. 	Trial Tr. day 8, 38. 	Regardless of how it
arrived at Pandiscio’s office, Pandiscio did eventually receive the letter and obtained copies
of the listed patents to get a sense of their volume. 	He then spoke with Fincke and
(according to Fincke) Elefante as well, and they decided that Pandiscio would follow up with
Philips. In an effort to avoid a lengthy review of the more than 200 claims included in the
patents, it was agreed that Pandiscio would ask Philips to clarify the specific nature of its
infringement claims. Pandiscio could not recall if Elefante participated in the discussions
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 10 of 164

24 John Rice was responsible for mechanical aspects of the AED design and also worked
on regulatory and quality matters for Access.
11
that took place upon receipt of the letter, but did recall Fincke’s involvement in the decision.
Trial. Tr. day 6, 14-16. 	On September 9, 2002, Pandiscio responded to Vodopia,
acknowledging receipt of the First Philips Letter, requesting a clarification of the specific
patents and claims alleged to be infringed, and asking for proposed licensing terms. The
letter reflects that it was copied to both Fincke and Elefante. Def.’s Ex. 25.
Fincke testified that, in addition to deciding how best to respond to Philips’s initial
letter, he began reviewing the referenced patents himself. After that review, Fincke says,
he concluded that there were no serious infringement issues, with the possible exception
of a decal used on the Access AED electrodes. 	According to Fincke, he and Pandiscio
discussed the results of Fincke’s review and his decision to remove the potentially
problematic decal – an issue then tasked to John Rice 24 at Access. Trial. Tr. day 7, 77.
No further response was received from Philips until the following year.
Pandiscio testified that Fincke never asked him for a formal opinion as to whether
the Access AED infringed any of Philips’s listed patents or any other patents. He did recall
that Rice contacted him regarding Access’s concern with the decal and that Fincke told him
they were considering changing the labeling to avoid any infringement issues. According
to Pandiscio, Rice asked his opinion on whether that change would solve the problem.
(Pandiscio’s response to Rice’s inquiry was not elicited at trial.) 	Trial Tr. day 6, 18.
Elefante says that he was not involved in this process and gave no instruction to Fincke or
others at Access regarding the re-design of the AED to avoid infringement. Trial Tr. day
8, 35.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 11 of 164

12
Access received FDA approval for market and sale of the Access AED in the United
States in August 2002. 	Pl.’s Ex. 64. 	On August 30, Pandiscio filed a Non-Provisional
Patent Application for the Access AED (the “‘645 Application”) and an International Patent
Application (the “PCT Application”) covering the Access AED technology. Sales in Europe
formally began shortly thereafter.
Almost immediately, working capital constraints at Access began taking their toll.
Access was having difficulty from the start buying enough parts to fill the European orders
and was struggling to pay its past-due accounts with vendors. It was evident that Access
would need a substantial cash infusion to pay for the necessary raw materials. 	Fincke,
together with Elefante and Access’s management team, began to prepare an investor letter
and business plan to be used in soliciting additional investments. Trial Tr. day 7, 7.
The business plan, dated October 2002 (the “Business Plan”), detailed various
aspects of Access’s business, past performance, and predicted performance. 	Pl.’s Ex.
107. While Fincke did not prepare all portions of the Business Plan, he contributed to the
content and approved the Business Plan prior to its dissemination. The Business Plan was
divided into several sections and included information relative to pricing, domestic and
international sales, marketing, distribution, competition, regulatory status, manufacturing,
and capital needs. In addition, both the Business Plan and the Investor Letter contained
a section entitled “Risk Factors,” prepared by Elefante and approved by Fincke, which
contained twelve enumerated paragraphs. Each document also contained a section titled
“Litigation.” Both the Risk Factors and Litigation sections disclosed a patent-infringement
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 12 of 164

25 The nature and outcome of this litigation were not discussed in the parties’ pleadings,
nor were any details divulged in the admitted exhibits or witness testimony.
26 As part of his initial responsibilities as a financial consultant to Access, Jay Bounty
created a financial forecast model (the “Financial Forecast Model”) to track actual and projected
company performance and working capital needs. 	He was assisted in this task by Michael
Grosberg. The Financial Forecast Model consisted of a complex computer spreadsheet that relied
on inputting various real data and assumptions to forecast the financial status and cash needs of
the company.
13
lawsuit brought by Cardiac Sciences, 25 but did not disclose the receipt of the First Philips
Letter.
Section twelve (titled “Financial Projections”) referenced financial spreadsheets
attached to the Business Plan, consisting of a Projected Monthly Cash Flow and a
Projected Monthly Balance Sheet, which included various assumptions and projections
related to Access’s performance and finances from September 2002 to December 2003. 26
The Financial Projections section also included a list of factors that could negatively affect
Access’s ability to achieve the projections and assumptions upon which the spreadsheets
were based.
Each of the then extant investors – Connolly, Moriarty, and Radley – received a
copy of the Business Plan and the financial spreadsheets. 	Trial Tr. day 7, 7. 	Joseph
Zimmell also received copies of these materials in association with his interest in possibly
making an investment in Access. Zimmell was introduced to Access through David Barash
in summer 2002, and he met with Fincke in fall 2002 to learn about the company and to do
“due diligence.” Trial Tr. day 9, 40. Zimmell testified that he and Fincke discussed general
information regarding Access, including financial and “people” information, with an eye
toward evaluating Access’s prospects of becoming successful. He testified that he was told
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 13 of 164

27 Whether there was an “offering memorandum” separate from the Business Plan is
unclear. No document titled “offering memorandum” was admitted into evidence, and no detailed
testimony as to its contents (if, indeed, it was a separate document) was offered.
28 When questioned on this investment, Zimmell initially recalled investing $1.5 million. Trial
Tr. day 9, 44. The Investment Summary shows instead that the investment was $2 million, and,
when presented with this evidence, Zimmell did not appear to be surprised. Trial Tr. day 9, 45.
29 Although the parties stipulated that the Investors did not have equity interests in Access
prior to April 2003, Zimmell’s investments in October 2002 were made through purchases of
Access stock. This loan does not appear on the Note Summary, indicating that it was an equity
investment, and Zimmell testified as such. Trial Tr. day 9, 43-44; Def.’s Ex. 18.
14
Access was doing business in Europe and would soon be selling in the United States. Trial
Tr. day 9, 41-42.
Zimmell did not review Access’s books and records (a task he viewed as “absurd”),
but did state that he was not denied the opportunity to review those records and was
provided with all of the documents and information he requested. Trial Tr. day 9, 61. He
testified to receiving an “offering memorandum” 27 and other presentation material at his
meeting with Fincke and said he was told that the memorandum was undergoing revision.
Trial Tr. day 9, 43. Zimmell testified that he saw the Business Plan and the Investor Letter
prior to making his investment and that everything in those documents was material to his
decision to invest. He reviewed the financial projections as well as the assumptions that
underlay the projections, and was afforded sufficient information from Access to review
those assumptions. 	Trial Tr. day 9, 55. 	Following his meeting with Fincke, Zimmell
invested $2 million in three tranches. 28 On October 30, 2002, Zimmell made a $1,000,000
investment, 	followed 	by 	two 	additional 	$500,000 	investments 	in 	November 	and
December. 29
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 14 of 164

30 Arthur Dolby represented a European Distributor appropriately named “Dolby.” 	The
Court will refer simply to “Dolby” when discussing the communications between Access and Arthur
Dolby, as representative for his company.
31 Nielson insisted that the refund or firm shipment date be given within one week. Two brief
emails followed. The first said, simply, “3 days to go,” and the second, “Dear Mr. Randall, I must
say Im [sic] impressed by the[ ] silence from your side.” Presumably, Nielson had not received
either the requested units or the return of his deposited funds as of that date. Pl.’s Obj.-to Ex. 4.
15
In addition to Zimmell’s investments in late 2002, Access also obtained a $500,000
working capital line of credit from Middlesex Bank, partly guaranteed by the United States
Small Business Administration and personally guaranteed by Fincke. The line of credit was
secured by a first priority lien on all of Access’s assets. Def.’s Ex. 18; Pl.’s Ex. 12.
But notwithstanding these new cash infusions, things were still not going well. By
the end of 2002, the European Distributors, some of whom had pre-paid for units, began
to express frustration with Access. Some complained of late shipments, others that the
units contained various problems and defects. Kyle Bowers testified to speaking with one
European 	distributor, 	Arthur 	Dolby, 30 during 	October 	or 	November 	2002. 	Dolby
complained, inter alia, of batteries not working properly in the Access AEDs and Access’s
failure to provide satisfactory responses to previous complaints. Bowers said he reported
the conversation to Fincke, but did not remember Fincke’s reaction. Trial Tr. day 7, 131-
132. 	By December, Kivex, another European distributor, was growing impatient with
Access’s alleged failure to ship units with Danish voice and text as requested. In an email
sent to Fincke and other Access management personnel in late December, Jasper Nielsen
at Kivex gave Access an ultimatum – either commit to a firm shipment date in 2002 or
refund amounts Kivex had prepaid in February. 31 Pl.’s Obj.-to Ex. 4.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 15 of 164

32 As Access employee Alyce Nelson stated in a January 5, 2003 email to Bob Ide,
Access’s main sales contact in Europe, Access was “in a cycle of missed revenue since the first
order was taken, and getting beat up as a corporation from manufacturing through sales.” Access
also needed to deal with “the lost revenue days in January due to the break in supply of board
assemblies caused by a 30+ day delay of payments to vendors . . . .” Pl.’s Ex. 119.
33 Grosberg testified to this, but did not say who had issued the letter of credit. Trial Tr. day
5, 149.
34 According to Fincke, he could not recall exactly when Access was behind on the rent,
and thought it could have been May or June 2003. Trial Tr. day 4, 97. Elefante testified that he
16
Many of the problems with the European Distributors stemmed from Access’s
inability to obtain enough raw materials to build the AEDs. Despite the investments made
at the end of 2002, Access still found itself struggling to pay down past-due accounts with
key vendors during the first part of 2003. 	Bowers testified that Access was particularly
dysfunctional from January through June 2003 owing to a large amount of debt, difficulty
in obtaining parts, and design changes necessitated by changes in parts. Trial Tr. day 7,
137, 149. 	According to Bowers, Access was in “crisis mode” from the time shipments
commenced. 32 Trial. Tr. day 7, 149. Grosberg likewise testified that Access was virtually
insolvent in January 2003, unable to pay vendors and procure necessary parts and
supplies, Trial Tr. day 5, 145, and Elefante testified that this “technical[ ] insolven[cy]”
continued into summer 2003. Trial Tr. day 8, 49. Overdue accounts left unpaid eventually
led to vendors refusing to provide additional parts or extend additional credit to Access.
For example, in early 2003, Access was forced to change its control board
manufacturer from MSL to NuVisions on account of its failure to pay MSL. MSL not only
refused to manufacture any additional boards until Access’s past-due account was paid,
but eventually drafted upon a letter of credit guaranteed by Moriarty. 33 Trial Tr. day 5, 149.
Access also began to fall into arrears on its rent.34
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 16 of 164

recalled dealing with an eviction action by the landlord in summer 2003. Trial Tr. day 8, 49. But
the Court finds particularly credible Moriarty’s testimony to the effect that his $250,000 investment
in late March was precipitated, at least in part, by his discovery that the rent was in arrears.
Moriarty had a business relationship with Access’s landlord and building owner, and was
embarrassed when the landlord advised him of the rent arrears. Trial Tr. day 6, 100-101. Although
the testimony and documents are far from clear on this point, it could be that, notwithstanding
Moriarty’s cash infusion, the rent remained in arrears for additional months subsequent to Investor
cash infusions in March and April.
17
In a March 27, 2003 email, Fincke asked Moriarty to speak with Bound Tree, a
domestic distributor, regarding Access’s financial position. 	Def.’s Ex. 39. 	In that email,
Fincke noted that Access would need $500,000 to purchase materials necessary to
manufacture April units. 	He also referenced a forthcoming $250,000 investment from
Moriarty in late March that would be used to begin the purchase of parts. Problems with
vendors were highlighted by Fincke's statement that Access was “working every avenue
possible with second source vendors to find additional methods to get the April material
purchased and product produced with as much deferred cash expenses as possible.”
Access was also facing complaints from European Distributors regarding unshipped
accessories and AEDs with specific languages they had requested. Nielson sent another
email in early February 2003 to Fincke and others at Access with complaints on behalf of
Kivex. Pl.’s Obj.-to Ex. 5. Noting that Access was taking a “very long time to deliv[er] just
a standard order, which is not very promising for the future,” he requested an explanation
and “promise[d]” to no longer pre-pay for orders.
Kivex was not the only distributor to voice complaints. 	According to Michael
Grosberg, Access’s controller, other European Distributors were also upset that they were
not receiving full shipment of their orders and that Access failed to provide them with the
proper clinical units and accessories. Trial Tr. day 5, 140. On February 14, 2003, Barry
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 17 of 164

35 Bound Tree was a domestic distributor, and Mortara presumably was one of the
European Distributors, given the reference in the email to “Italy.” No clarification was made as to
whether Criticare was a domestic or foreign entity.
36 In his email, Klegerman specifically reported that the distributors had stated:
“it’s just not worth all this frustration to partner with Access, and in addition, your [sic]
going to raise my transfer price forget it - We’ll go back to Philips or CSI!”
“ . . . your timing with this price increase is terrible.”
“If we had the confidence and track record that it was easy to do business with
Access, this price increase would not be that big of a deal! However, today, we do
not want to go forward with the price increase even if we have:
1). A > than 30% margin.
2). A list price well below the competition. ($1695).
3). And, you have a nice product when we can actually receive one!”
Just to note, these distributor discussions are all on a collaborative level, built on
trust, mutual respect, and friendship. At the end of the day, they want to see me
win, and themselves win with Access!”
Pl.’s Ex. 103.
18
Klegerman, a sales manager and key member of Access’s management team, sent an
email to Fincke, Bounty, and others at Access detailing certain distributor frustrations.
According to that email, three distributors – Boundtree, Criticare, and Mortara (Italy) 35 – had
relayed “specific issues regarding unpredictable AED shipments, unconfirmed AED orders
in our system, unavailable or backordered accessories without a firm ship date, paying
upon delivery, and being an administrative nightmare to work with.” In addition, Klegerman
also stated that, in light of the problems they were experiencing, a recently-proposed price
increase was not well received by the three distributors – each said they would stop doing
business with Access entirely if the price were increased. 36 Pl.’s Ex. 103.
Grosberg further testified that, as of March 2003, business relationships with “key”
European Distributors were “very stressed,” primarily because of delivery problems and the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 18 of 164

19
lack of Access AEDs containing requested features. According to Grosberg, distributors
were beginning to hold back payments for goods that were actually shipped, as well as
ordering below their quotas and threatening to stop orders altogether or cancel their
contracts. Trial Tr. day 5, 141.
At trial, Fincke acknowledged that he was aware of the European Distributors’
complaints, and he agreed that problems with Access AEDs had been reported, including
units going on and off and batteries going flat. 	But Fincke contended that Access was
investigating the problems and working to develop the requested features. He knew that
European Distributors had difficulties getting responses to phone calls and emails and that
they viewed Access as a difficult company with which to conduct business. And Fincke
conceded that certain distributors were threatening to stop ordering or filling their contract
quotas unless the various issues were promptly addressed. Trial Tr. day 1, 115-117.
To add to Access’s woes, the Philips situation resurfaced early in 2003. 	On
February 28, Philips responded to Pandiscio’s September 2002 letter via email, requesting
a meeting to discuss Philips’s intellectual property claims against Access (the “Second
Philips Letter”). Def.’s Ex. 35. On March 4, 2003, Pandiscio forwarded that email to both
Fincke and Elefante. Pl.’s Ex. 108; Def.’s Ex. 35. On the same date, Pandiscio sent an
email to Vodopia, copied to both Fincke and Elefante, thanking him for the response and
assuring him that his email had been forwarded to Access. Pl.’s Ex. 25; Def.’s Ex. 108.
On March 26, 2003, Pandiscio emailed Fincke and Elefante again, noting that they needed
to decide how to respond to Philip’s proposal for a meeting. Def.’s Ex. 59.
After receiving a follow-up phone call from Vodopia, Pandiscio sent another email
to Fincke and Elefante on April 2. Pl.’s Ex. 5. He reported that Vodopia had informed him
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 19 of 164

37 The Company Overview is not dated, and none of the testimony clarified when, exactly,
the document was prepared or distributed. Portions of the document, however, indicate that it was
drafted in early March 2003 – actual figures for sales, production, and shipments date through
February 2003, while production and shipments in March are labeled “planned.”
38 Little testimony was directly elicited regarding the authorship of the Company Overview.
However, Fincke introduced circumstantial evidence of Bounty’s authorship by submitting a draft
of the document that came from Bounty’s files. Def.’s Ex. 6. Although he did not directly admit to
his authorship, Bounty did testify, on being presented with the draft document, that he would
compile these kinds of text documents to summarize various aspects of the company’s business.
Trial Tr. day 3, 71. Furthermore, his deposition testimony, read at trial, confirmed that the draft
document was “one type of document [Bounty] would compile to summarize the cash flow model
that the company produced.” Trial Tr. day 3, 72.
20
that after reviewing the Access manual and examining the Access AED, Philips believed
there 	were 	some 	infringement 	problems. 	Vodopia 	wanted 	meet 	with 	Access
representatives to discuss Philips’s claims. Again, neither Fincke nor Elefante responded,
and no meeting was scheduled.
Despite the many setbacks, Access continued to work toward improving its situation.
During March 2003, Access made two critical new hires. Jay Bounty, consultant to Access
since summer 2002, came to work full time as Access’s chief financial officer. 	William
Nawn was also hired in March 2003 to oversee manufacturing at Access. Both individuals
had extensive experience in their respective areas of expertise. 	But Access’s cash
problems overshadowed those hopeful gains, and Elefante and Fincke began negotiations
with the Investors to secure additional financing for the company.
In connection with those negotiations, during the early part of March 2003, the
Investors received a document titled “Access CardioSystems Company Overview” (the
“Company Overview”), 37 which had been prepared, at least in part, by Bounty.38 Def.’s Ex.
33. 	Fincke also contributed content to the Company Overview, and he reviewed and
approved the final document. Gen. Stip. ¶¶ 57-59. The Company Overview summarized
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 20 of 164

21
various aspects of company operations, including Access’s financial position as of March
2003. 	It outlined several “Key Accomplishments,” “Issues,” and “Current Initiatives to
Address Issues.” Included among the “accomplishments” were: (1) the hiring of Jay Bounty
as CFO on a full-time basis; (2) the hiring of William Nawn as vice president of
manufacturing; (3) a 1,500 unit per month order rate; and (4) “product manufacturing
stability.”
The identified “Issues” included, among others: (1) Access’s outstanding debt of $1
million aged at over 90 days; (2) a poor credit rating that resulted in lost sales; and (3) a
concern that the lack of available parts could reduce shippable units, requiring additional
investments totaling $500,000 in April. Among the initiatives listed to address the issues,
the Company Overview highlighted: (1) outside manufacturing of all boards and (2) a new
pricing plan, including a price increase effective March 1 that was expected to raise the
average selling price of the Access AEDs.
The Company Overview also contained more detail related to important company
matters, including discussions regarding a revised budget and forecast, the order backlog,
manufacturing, sales management, the price increase, and accounts payable and
receivable. 	Attached to the Company Overview was a spreadsheet detailing Access’s
projected monthly cash requirements. Many parts of this document form the basis of the
Complaint, discussed in more detail below.
On March 13, 2003, Fincke sent an email to the Investors listing several financing
options to be discussed in an upcoming conference call. 	Pl.’s Ex. 13. 	In the email he
stated:
There are four financing options to consider:
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 21 of 164

39 Also attached to the email was a summary of Access’s stock position, stock options, and
outstanding loans.
22
1. Raise $2 million ($1 million in March; $500K in April; $500K in May) and
use positive operating cash flows to service outstanding debt (paying down
the SBA loan in June and the outstanding investor loans beginning in July).
This is the model we discussed this morning.
2. Raise $1 million in March and cut operating costs immediately by 25%.
Scale back orders, production and shipments to 1,500 in March and April and
2,000 in May and June. 	Use positive operating cash flows to service
outstanding debt (both investor and SBA) beginning in July.
3. Raise $3.5 million in March and use $2.3 million of this amount to service
SBA and investor loans in Q2 (beginning in April).
4. Seek 3rd party equity investment from corporate partnerships.
Attached to the email were two financial spreadsheet models correlating to options 1 and
3 (the $2 million and $3.5 million investments, respectively). 39
Following the conference call, Zimmell communicated a proposal from the Investors
to Fincke and Access, offering an additional $2 million investment, contingent upon several
changes to company governance and the conversion of outstanding debt to equity in
Access. 	Trial Tr. day 9, 49. 	On March 25, 2003, Radley sent an email to Fincke (and
copied to Elefante) summarizing that proposal. Pl.’s Exs. 67, 100, 109. He wrote:
. . . .
Basically, the proposal that was presented to you by Joe Zimmell and
discussed by us today represents that we are prepared to provide up to
$2,000,000 if, and as soon as, you accept the following terms of agreement.
1. We would provide immediately, as an investment in cash, $1,000,000 at
a price of $.75 per share, and an additional $1,000,000 ($500,000 in April
and $500,000 in May) on the same terms.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 22 of 164

23
2. We believe that the current debt level is very detrimental to the financial
structure of the company and that meeting the obligations of the debt
instruments will be putting a significant cash strain on the company at a time
when cash is desperately needed for other operational priorities. Therefore,
we would be willing to convert the company’s debt obligations due to us to
stock at an adjusted conversion price of $.75 per share, on a non-dilutive
basis.
The conversion of this debt to equity would not only rid the company of its
current debt, but could be very important in positioning the company for any
one of several options down the road.
3. The company would establish a formal corporate governance structure,
including but not limited to:
A Board of Directors including members of the investment group that
would meet on a regular basis.
A Corporate Charter and set of By-Laws.
Regular Financial Reports provided to the directors and investors at
intervals to be agreed upon.
Regular operational reports and reviews.
We are all very interested in and committed to the success of this company,
and understand that there are many hurdles and challenges yet to be
conquered. We believe that putting the company in a solid financial condition
at this time is critical in order to allow you and others within the company to
focus on the those [sic] other challenges that will move the company forward
on a time table that among other things minimizes the possibility that we
might not be able to take advantage of the current “window of opportunity”
that exists in the market place.
We also believe that what we have proposed is fair and equitable to all
parties concerned, and that its implementation would resolve a number of
current problems and uncertainties.
. . . .
On March 27, Elefante sent an email to Fincke which analyzed the impact of the
March 25th proposal on Fincke’s percentage ownership and discussed the effect of
different company valuations. Pl.’s Ex. 13. He concluded the email by stating:
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 23 of 164

24
In reviewing the situation it seems to me that it imperitive [sic] to reach a deal
with the investors, get the additional investment and go forward. There is lots
of momentum, but it will be lost without enough funds to operate comfortably.
In fact, the success you are having on sales makes the problem even worse
in the short term. 	To ramp up to meet the demand, you need even more
cash.
After discussing the Investors’ proposal with Fincke, Elefante responded to them by
email on March 28. Pl.’s Exs. 14, 15; Def.’s Ex. 40. He wrote:
Gentlemen, on behalf of Access and Randall I would like to thank you for
your March 25th proposal. After our discussion this morning, Access has the
following reply:
Your governance proposals are acceptable. Access will move promptly to
increase the Board from its current single member to a larger group,
including [Radley and Moriarty].
Your proposal to invest $2.0 million by purchasing common stock at $.75 per
share is acceptable. In light of the fact that it is nearly April, we propose that
the first $1.5 million investment be made immediately with the balance of
$500,000 in May.
We agreed that the outstanding debt to JMA will remaining [sic] outstanding
as debt. 	The first payment of interest and principal on the debt will be
postponed to July 15, 2003.
The debt outstanding to [Radley, Connolly and Zimmell] will be amended to
be convertible into common stock at the price of $.75 per share at the option
of either the Company or the holder at any time after July 1, 2003. We hope
to be able to repay the debt as planned, but want to leave the option to
convert. The first payment of interest and principal on the debt will be due
July 15, 2003.
Please let Randall know whether this is acceptable to you. 	If it is, we will
move quickly to put together the necessary corporate action to carry it out.
. . .
Shortly thereafter, on March 31, 2003, Elefante sent the Investors a form of letter
agreement incorporating what he understood to be the agreed-upon terms for the financing.
He noted, however, that Fincke had not yet had a chance to review the letter agreement
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 24 of 164

40 Bounty testified at trial that he was not involved in negotiations surrounding the ensuing
April 2003 Transaction, was not asked for assistance in the negotiations by Fincke, and did not
know the specifics thereof. Trial Tr. day 2, 44. His suggestion as reported by Elefante, however,
indicates that he was cognizant of some details of the negotiations. But the record does not reflect
that he participated in the negotiations beyond the referenced revision.
25
and specifically reserved Fincke’s right to comment. 	Pl.’s Ex. 16. 	More than simply
“willing” to convert the outstanding debt to equity, as Radley indicated in the March 25
proposal, the Investors appear to have seen the conversion as a necessary element of the
transaction. 	Fincke, however, was 	reluctant to relinquish his majority equity interest in
Access, and Jay Bounty suggested revised terms for conversion that were more favorable
to the company. 40 Pl.’s Ex. 17.
Later that same day, Elefante again emailed the Investors and Fincke, setting forth
Bounty’s suggested revision:
As you know from our discussion on Friday, Access would prefer to pay off the
notes rather than to convert them to equity. If operations go as per budget, the
Company expects to be able to generate the cash to pay the notes and operate
successfully. Instead of having the notes convertible into stock at the option of
either party, the Company proposes that it have the sole option to convert after
July 1st at $.75 per share. The note holder would acquire the option to convert
if the Company defaulted on its obligation to pay the note as amended. If the
Company is able to make its obligations to the note holders, the notes would be
paid as provided. Please let me know if you agree with this modification.
Pl.’s Ex. 17. Ultimately, this counterproposal was not accepted.
Discussions continued during the next week, as the parties worked toward a
common understanding regarding the financing terms. See Pl.’s Exs. 19, 20; Def.’s Ex. 43.
Misunderstandings and the inability to reach a conclusion on final terms began to create
tension between the parties. For example, in an email from Elefante to Fincke, sent a few
days later on April 11, 2003, Elefante reported:
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 25 of 164

26
Randall, I spoke with a very unhappy John Moriarty this afternoon. 	His
message is: make a deal with your investors or face a very hostile group with
a lot of leverage.
John is willing to consider changes in the terms to deal with your concerns.
For example, the company might have the right to redeem some of the stock
in the future at a price which got the investors a reward, but capped their
return. Another idea would be to be to give the company the right to reprice
the deal if a binding offer from a third party was received within some specified
period at a higher valuation. . . . That would protect the company against the
risk that the deal undervalues the company. It would also strengthen the deal
for the new investor. It would also provide an objective valuation. . . .
Another option might be to raise less from the investor group and get their
agreement to a stock offering to a third party. . . .
I am concerned that the company and the investors agreed to a deal two
weeks ago at $.75. We later discovered that there was a misunderstanding
about what was intended. 	However, I think the company should let the
investors know that it is willing to go forward with the deal that was agreed to
and which was set forth in the documents I sent out on March 31st. Even if the
offer is rejected, I think it is important to make it.
I am very concerned that if the company walks away from the investors, it will
face litigation from them and be in no position to raise money from other
sources. The rights the investors have as note holders (including the right to
approve increases in the number of authorized shares) puts them in a position
to frustrate your efforts to bring in other investors. . . .
Def.’s Ex. 46. 	According to Moriarty, he was truly “unhappy,” as reported by Elefante,
because he was continuing to hear about problems at the company after he had made an
additional capital investment. Trial Tr. day 6, 111. Then, on April 14, 2003, Radley sent
an email to Fincke purporting to withdraw his participation in the offer; he wrote:
On March 25, 2003 I sent you an e-mail outlining a plan for refinancing the
existing debt of Access CardioSystems and the infusion of additional capital,
all with the intention of improving the financial condition of the company and
providing cash with which to move the company ahead on a more sound
basis than has been possible until now.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 26 of 164

41 See Pl.’s Exs. 18, 22, 23, 24, 69, 70, 71, 72, 74, 93, 102, 118; Def.’s Exs. 44, 70.
42 At least one other company also provided Access with a term sheet, see Def.’s Ex. 54,
although no final agreement was reached.
27
It has been four weeks since that presentation with numerous conversations,
including a meeting at your office on March 28th and there has been no
affirmative response on your part to accept or reject that offer.
It is not reasonable to expect that an offer to make such a sizeable financial
commitment should remain valid for an extended period of time. Therefore
I am giving you this formal “notice of withdrawal” of my offer to participate in
that proposed plan.
Apparently you have some other plan in mind, and I wish you the best of luck
in putting it in place. . . .
In the meantime, I expect that you will honor the commitment you have with
respect to the $2,000,000 note originally due to Eastern Casualty Insurance
Company which has been assigned to North Enterprises, Inc. At the moment
you are in arrears in the amount of $40,0000 in interest payments through
March, and the first payment of principal plus interest is due in a few days.
Please let me know what your intentions are with regard to meeting this
obligation.
Def.’s Ex. 48; Pl.’s Ex. 27. Radley testified that he wrote the letter because the Investors
were becoming frustrated with Fincke’s delay in accepting their proposal. Trial Tr. day 9,
78-79.
Contemporaneous with the negotiations between Access and the Investors, Bounty
and Fincke were also exploring potential investment opportunities with outside investment
firms. 	Several prospects expressed interest. 41 By mid-April, discussions with one firm,
Summit Partners (“Summit”), progressed to the point where Summit provided Access with
a term sheet relative to a potential investment in the company (the “Summit Term Sheet”).42
Pl.’s Ex. 69. Upon learning that Access had received the Summit Term Sheet, Elefante
sent a letter to the Investors on April 18. Pl.’s Ex. 71. In the letter, he stated:
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 27 of 164

28
As you know, Access has had discussions with some potential venture
capital investors about putting additional capital in the company. 	Randall
received from Summit Partners this afternoon the enclosed Term Sheet
concerning a potential investment of $5,000,000 by Summit in the company.
The enclosed Term Sheet involves an investment of $5,000,000 at a post
money valuation of $28,000,000. Summit has orally informed Randall that it
is willing to make an investment of $8,000,000 on the same terms, with the
extra $3,000,000 available to pay down the company’s obligations to existing
note holders.
The receipt of the Summit offer is good news, but certainly complicates
everything. 	Randall wanted to be sure you knew what was going on and
would very much like your thoughts about how best to respond. 	He is
meeting with representatives of two other venture capital firms tomorrow and
may receive an additional offer.
The Summit offer certainly has the potential for providing the company with
the capital necessary to accelerate its progress. It also could enable Access
to repay its obligations to the initial investor group. . . .
But despite initial interest from outside investors and the receipt of the Summit Term
Sheet, no agreement with them was reached. The parties have asserted and intimated
differing reasons for why additional progress was not made toward outside funding. Fincke
alleges that the Investors essentially sabotaged the process and locked out any additional
investors; the Investors assert that Fincke’s mismanagement of Access would have made
a successful due diligence process unlikely. The more likely reason, at least where the
Summit investment is concerned, was that offered at trial by Elefante. 	He opined that
Access was in such financial jeopardy that it simply would not have been able to stay in
operation long enough to fulfill the term sheet’s conditions and close the deal. Trial Tr. day
8, 54.
The additional financing from the Investors finally closed on April 25, 2003 (the “April
2003 Transaction”). Pl.’s Ex. 110. Until this time, the Investors had been primarily debt
investors, with no ownership or control of the company, except in accordance with the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 28 of 164

43 Although Fincke was given the option of appointing an additional Board member, he
never did so, leaving the Board with only four members. Connolly was the only Investor not named
to the Board. He testified, however, that he believes he was receiving the same information as the
Board members, although he was not at every Board meeting. Trial Tr. day 9, 34.
29
equity conversion options and Zimmell’s equity investment. 	Through the April 2003
Transaction, certain of the Investors’ original notes were converted to stock and the
Investors purchased additional stock at $.628 per share as follows:
Radley: $2,000,000 investment plus accrued interest converted to stock;
$500,000 in new shares purchased
Moriarty: $250,000 in new shares purchased
Connolly: $875,000 previous investment plus interest converted to stock;
additional $500,000 in new shares purchased
Zimmell: $500,000 in new shares purchased
The total new investment under the April 2003 Transaction was $1,750,000 (exclusive of
the advance $250,000 invested by Moriarty in late March).
The April 2003 Transaction also brought changes to Access’s corporate structure.
A formal Board of Directors (the “Board”) was established, and the number of directors was
increased to five, with Fincke, Moriarty, Zimmell, and Radley formally voted as members
of the Board. 43 The first Board of Directors meeting was held on April 25, 2003 (the “April
Board Meeting”). At the first and subsequent Board meetings, held approximately once a
month, the Board members were given presentations and various documents describing
company finances and operations.
In addition to the presentation and other materials, Access management personnel
also attended the Board meetings, with the exception of the meeting held in November
2003. Management would speak to the Board on their various areas of responsibility at
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 29 of 164

44 Bounty testified to compiling the KPIs on a weekly to bi-weekly basis from the time the
Board was formed through fall 2003. Trial Tr. day 2, 77-78.
45 Initial mention of the advisability of an employment agreement between Access and
Fincke may actually have taken place prior to the closing of the April 2003 Transaction. In an email
from Elefante to Moriarty dated May 19, 2003, he referenced his “suggest[ion] a few weeks ago
that it would be desirable to have an employment agreement with Randall. . . .” The reference to
“a few weeks ago,” however, is far from specific and may or may not have included any time prior
to the closing on April 25. Pl.’s Ex. 21.
30
Access and would answer questions raised by Board members. Trial Tr. day 2, 120; day
5, 26-28, 58. 	Among the documents given to the investors were “Key Performance
Indicators,” or “KPIs” 44 – financial spreadsheets containing various data on company
performance. The KPIs were accompanied by narrative descriptions of various aspects of
company operations and finances. The narratives contained general company information
and summaries of the financial data contained in the KPIs. 	Both the KPIs and the
associated narratives included actual company results and projections.
The April 2003 Transaction left Fincke as a minority shareholder in Access.
Afterward, Moriarty and Elefante discussed the need for Fincke to have employment
protection in light of his now-minority position. Moriarty felt that such protection was fair in
light of the changed circumstances. 45 Trial. Tr. day 6, 113, 118. At the Board meeting held
in May 2003 (the “May Board Meeting”), Moriarty raised the need for Fincke to have a
protective employment agreement. The other Board members agreed, and decided that
Elefante would work with Radley to draft and negotiate the agreement. Trial Tr. day 6, 118-
119. No deadline for concluding negotiations or executing an employment agreement was
discussed, and an employment agreement was never executed. In fact, neither a draft nor
a proposed employment agreement was even sent to Fincke, despite Elefante having
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 30 of 164

46 On June 6, 2003 and November 14, 2003, Elefante sent letters to Radley enclosing
drafts of employment agreements, but, according to Elefante, Radley did not respond. Nor did he
forward either draft agreement to Fincke. Trial Tr. day 8, 64-65; Pl.’s Exs. 76, 80.
31
forwarded at least two proposed drafts to Radley for his review.46 Radley says the
agreement “just sort of fell by the wayside,” Trial Tr. day 9, 161, and Fincke testified that
he took no steps personally to expedite the process or advance negotiations after the May
Board Meeting, Trial Tr. day 7, 108.
Immediately following the influx of cash from the April 2003 Transaction, Access
experienced a brief period of seeming improvement. 	The ability to purchase more raw
materials contributed to Access’s success in manufacturing 100 units in one particular day
in May, the highest manufacturing rate ever achieved at the company. And, at the May
Board Meeting, it was reported to the Board that the cash model showed the possibility of
paying down old payables in full without the need for an additional cash infusion. Pl.’s Exs.
61, 77.
June, however, produced mixed results. Access saw its highest revenue, but
struggled to bring in new orders at the rate expected. Part of the shortfall was attributable
to resistance to the price increase, and Bounty reported that Access made revisions to the
list prices and distributor transfer prices based on negative distributor feedback. Def.’s Ex.
30.
Long-term problems at Access continued to fester. 	Capital constraint quickly re-
reared its head and the downward spiral of financial difficulties continued. Fincke testified
that the Board had directed him to use the money received from the April 2003 Transaction
to purchase raw materials in lieu of immediately paying down overdue accounts payable.
The manufacture of more Access AEDs was then expected to generate accounts
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 31 of 164

32
receivable whose proceeds would be used to pay down outstanding debts to vendors and
other creditors over time. 	Trial Tr. day 1, 122. 	Eventually, the focus on procuring raw
materials tied up the company’s capital in both inventory and accounts receivable. Fincke
testified that he foresaw this problem, expressed his concern to the Investors and the
Board, and was told that the Investors were committed to financing the company’s
receivables in order to free up additional cash. Trial Tr. day 1, 122-123; day 7, 24-25.
According to Grosberg, a number of contingent liabilities, of which he was previously
unaware, also began to threaten Access’s finances. Trial Tr. day 5, 134. In addition to the
looming threat from Philips (to whom a response to its request for a meeting still had not
been made), the company was facing ongoing and threatened lawsuits brought by ex-
employees claiming promised stock options, temporary agency providers and consultants
demanding overdue payment, and an eviction action brought by the landlord. According
to Elefante, Access was once again technically insolvent. Trial Tr. day 8, 49.
Furthermore, the outstanding accounts payable continued to wreak havoc on
Access’s 	ability 	to 	obtain 	parts. 	One 	manufacturer, 	the 	sole-source 	component
manufacturer of a part necessary to build the AED control boards, decided to cease
shipping parts until the invoices for prior shipments – totaling roughly $150,000 – were paid
in full. 	According to Grosberg, Fincke instructed a redesign of the AED rather than
payment of the overdue amount, and also instructed Access employees to find the needed
part in the interim through a broker market instead of through the original equipment
manufacturer. Grosberg testified that the Access employees were unable to find the part
through third party vendors. 	And, in discussions with other Access managers, they
concluded that qualification of a comparable part would take too long. 	Eventually, he
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 32 of 164

33
testified, the managers decided to pay the original manufacturer, enraging Fincke when he
was informed of the payment after the fact. Trial Tr. day 5, 137-138.
As Access continued to use the recently invested working capital to build AED units,
it saw its accounts receivables grow. In the materials sent to the Board prior to the Board
meeting scheduled for June 27, 2003 (the “June Board Meeting”), Access was projecting
$2.5 million “invested” in accounts receivable and inventory. According to Bounty’s email
sent with those documents, the company was looking to the June Board Meeting “to
discuss with the investor group ways to access some of this cash to help manage the
working capital requirements of the business and insure a steady flow of material through
the manufacturing group.” Def.’s Ex. 30.
At the June Board Meeting, the financial discussion focused on the cash model
projections through September 2003, assuming shipment and average selling price goals
were reached. According to the presentation materials, and based on those assumptions,
Access was predicting sufficient cash flow for July and August, although, as Bounty’s email
indicated, the company was beginning to point to a need for a working capital line of credit.
In addition to the Board’s directive to put the April 2003 Transaction funds toward
building product, the Board also directed Fincke to refrain from making any additional
changes to the product and to “freeze” the product design. Trial Tr. day 9, 81. Product
changes were thereafter necessitated, however, by safety concerns, lack of available parts,
customer complaints, and requests for specific features. And, in fact, a series of product
changes implemented during the summer 2003 were particularly disruptive.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 33 of 164

47 As an accommodation to the reader of this opinion and in order to avoid embarrassment
to the Court, it will not attempt to explain what that meant. However, the algorithm presumably
related to the computing functions of the AED software. 	See Merriam-Webster Collegiate
Dictionary 28 (10th ed. 1996) (an algorithm is “a procedure for solving a mathematical problem .
. . in a finite number of steps that frequently involves repetition of an operation; a step-by-step
procedure for solving a problem or accomplishing some end esp. by a computer”).
48 In an email from Bounty to the Investors dated August 20, 2003, the low July shipments
were not attributed solely to product changes affecting manufacturing, but also to lower-than-
projected orders and low cash receipts (presumably affecting the ability to obtain raw materials
necessary for production and shipment). Pl.’s Ex. 34.
34
During that summer, Access bid on a project out of El Paso, Texas (the “El Paso
Project”) which required a change in the AED’s algorithm. 47 Fincke's testimony suggested
that the change was not unduly disruptive to the manufacturing process, Trial Tr. day 1,
129-130, but both Nawn and Bowers testified that the change required extensive testing,
Trial Tr. day 5, 71; day 7, 141. 	In fact, according to the Plaintiffs, the product changes
necessitated by the El Paso Project led to a six to eight week shutdown on the
manufacturing floor.
The El Paso Project, however, was not the only factor prompting product changes
during the summer of 2003. Both Bowers and Nawn testified that during the same time
period, they were incorporating product features the European Distributors were insisting
upon prior to taking any additional shipments. 	Trial Tr. day 5, 29; day 7, 142. 	And,
according to Bowers, they were also working on a solution to some AEDs’ occasional
inability to detect a low battery – a very serious issue for a product not in regular use, and
an issue the European Distributors had been raising for some time. Trial Tr. day 7, 130.
Although shipments did not stop entirely during July, they dropped off considerably –
documents produced at trial show that slightly more than 400 units shipped that month,
1,100 less than planned. 48 Pl.’s Ex. 34.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 34 of 164

35
Meanwhile, back at Philips, its representatives tired of awaiting a response from
Fincke relative to their request for a meeting to discuss the patent infringement allegations.
In late June of 2003, Philips filed a complaint for patent infringement against Access (the
“Philips Complaint”). 	Pl.’s Ex. 111. 	That spurred the hoped-for meeting, which Fincke
attended in New York with Pandiscio and Elefante. At the meeting, Fincke requested that
Philips withdraw the lawsuit while they continued their discussions, and he expressed a
willingness to consider possible licensing terms. According to Pandiscio, Philips refused
to withdraw the suit, at least partly because it had been filed to “get [Access’s] attention.”
Trial Tr. day 6, 21.
On June 25, 2003, the Board was notified of the Philips Complaint by an email from
Bounty. Def.’s Ex. 30. By letter dated July 16, 2003, Elefante also advised the Board of
the Philips Complaint and related the events that had transpired following its filing. Def.’s
Ex. 65. 	In the letter, Elefante informed the Board that he, Fincke, and Pandiscio had
attended a meeting with Philips and stated that, although a license was one possible
resolution, the license fee proposed by Philips was excessive. He also stated that Access
believed a number of the infringement claims were meritless, either because the Access
AED did not infringe or because the patents were invalid. Elefante noted the large expense
such litigation could entail and explained that they were looking for counsel to assist with
the litigation. He concluded by requesting a meeting with the Board within the week.
As Elefante noted in his letter to the Board, it was obvious that Access needed to
hire litigation counsel. 	It was agreed that Elefante would meet with Attorney John
Montgomery at the law firm of Ropes & Gray to discuss possible representation. Pl.’s Ex.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 35 of 164

36
32. And, by the end of July, Ropes & Gray was retained to handle the Philips litigation on
Access’s behalf. Def.’s Ex. 65.
Fincke testified that Elefante was thereafter the “point person” for the Board at
meetings with Ropes & Gray, that Fincke did not dictate the litigation strategy, that strategy
discussions with Ropes & Gray were conducted with assistance from Elefante, and that he
himself received information on the litigation from Elefante, as did the Board. Trial Tr. day
1, 96-97. Fincke acknowledged that he participated in meetings with Ropes & Gray, but
said that Elefante was the lead in those interactions – “In general, Mike Elefante hired
them, worked with them, and did the communication to the board as well as to myself.” Trial
Tr. day 1, 185. Fincke further testified that no long-term strategy was developed during the
summer of 2003. He did recall a specific strategy meeting at Ropes & Gray, but said the
only concrete decisions made regarded some preliminary product modifications Ropes &
Gray suggested to avoid some of the alleged infringement claims. Trial. Tr. day 1, 101.
Elefante’s memory was different. 	He testified that it was Fincke who gave
instructions related to the course of the litigation and determined its strategy; and,
according to Elefante, Fincke adopted an “aggressive posture” regarding the litigation. Trial
Tr. day 8, 48. 	Elefante acknowledged, however, that following the filing of the Philips
Complaint, he communicated with the Board relative to litigation matters on a regular basis,
updating the members on the Philips issues as well as other legal issues during 2003. Trial
Tr. Day 8, 49.
By August 2003, events at Access were going from bad to worse. The European
Distributors were not entirely satisfied with Access, Philips had formally filed suit, the poor
July performance left Access once again desperate for cash, and members of Access’s
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 36 of 164

49 Although it is clear that Gallagher was involved with Access, the testimony and exhibits
did not clarify Gallagher’s role at the company.
37
management team began speaking with Board members directly out of concern for the way
events were unfolding at the company. According to Elefante, Grosberg came to him in
late summer 2003, questioning whether the entirety of available information was provided
to Board members. Elefante advised him to speak directly to the Board. Trial Tr. day 9,
56. Grosberg testified that when he acted on that advice, Fincke subsequently approached
him in his office and asked him not to speak again directly to Board members, claiming that
Grosberg did not have all of the available information and might say something misleading.
Grosberg testified that he received a telephone call from Fincke that evening on his home
telephone repeating that request. Trial Tr. day 5, 128-129.
Around the same time, David Barash and Gleason Gallagher 49 contacted Connolly
to express their concerns over Access management issues. 	Trial Tr. day 9, 11-12.
Connolly related that conversation to Radley, Trial Tr. day 9, 29, who met with Barash and
Gallagher in September to further discuss matters. 	Trial Tr. day 9, 86. 	According to
Radley, at that meeting, 	Barash and Gallagher told him that Fincke was withholding
information from the Board. 	After that, Radley began talking directly with others on the
management team. 	He testified to speaking 	with Nawn during the fall regarding the
feasibility of achieving the projected shipments and said he was told by Nawn that the
projections could not be met. 	Trial Tr. day 9, 86-87. 	He related a conversation with
Grosberg where he was told that supplier difficulties, overdue payables, and product
changes requiring FDA documentation were slowing down production. Trial Tr. day 9, 89.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 37 of 164

38
In an email from Bounty to the Board members sent in late August of 2003, it was
made clear that additional funding was imperative to maintain operations. Pl.’s Ex. 34; Pl.’s
Obj.-to Ex. 21. In his email, Bounty requested further loans from the Investors, stating that
$750,000 was needed to meet the “immediate short-term cash requirement.” 	Then, in
September, sales plunged to 241 new orders and accounts payable remained at $1.3
million aged over 90 days; without additional working capital, Access was simply unable to
pay vendors and acquire sufficient parts.
Meanwhile, Summit had continued to express some degree of interest in making an
investment in Access. In late September, Summit made a presentation to the Board, but
the Board ultimately decided not to accept its proposal. Moriarty testified that the Board
made that decision because Access was not meeting projections, was having problems
selling units, and continued to have problems with distributors and suppliers. 	After
discussing the situation with Radley, the Investors decided that it might be more prudent
to wait a year and propose something based on how Access was performing at that time.
According to Moriarty, after the meeting with Summit, he believed that Access could not
have survived a due diligence review. Trial Tr. day 6, 116.
Radley also noted in his testimony that he was personally concerned that Summit
was or would be given false information by Fincke. Radley then met with Bounty and they
drafted a counterproposal that included a projected valuation of Access based on Access
achieving certain sales volumes. Trial Tr. day 9, 132. According to Radley, this was an
internal document and no formal proposal was taken to Summit. 	Instead, he talked to
Michael Balmuth, Access’s contact at Summit, regarding a framework for his suggested
proposal. 	Although, according to Radley, Balmuth thought the idea was reasonable,
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 38 of 164

50 For instance, in the fall of 2003, there was apparently a 400-unit shipment of Access
AEDs to a German distributor who later refused to pay for the units. Based on prior experience and
communications with the distributor, Grosberg and Rice testified that they advised Fincke not to
ship because they expected the units would not be paid for. Trial Tr. day 5, 108, 142. Fincke,
allegedly relying on different input from his newly-hired European manager Stephen Dodd, made
the decision to ship the units anyway. 	Trial Tr. day 3, 164. 	Full payment for these units has
apparently never been received. Trial Tr. day 9, 111.
39
Summit “[took] a pass.” Trial Tr. day 9, 135. Ultimately, in September and October, the
Investors provided more funds to finance Access’s operations.
But even this additional capital did not solve all of Access’s troubles. The company
continued to deal with the European Distributors’ complaints and their deteriorating
business relationships. 50 Some of the European Distributors – Kivex, Dolby, and Schiller
– expressed their dissatisfaction with Access during the fall of 2003 by way of nearly
identical emails, each dated September 5, 2003, detailing many of these concerns. Pl.’s
Ex. 35, Pl.’s Obj.-to Exs. 12, 13, 20. In those emails, they each stated:
I have recently returned from a meeting of the . . . European
Distributors . . . held to discuss the long outstanding and very problematic
issues we have all experienced with Access CardioSystems and its products
over the last 12 months. . . . [Kivex/Dolby/Schiller] requests that you and your
Board of Directors give immediate attention to these issues and provide a
written agreement to start all necessary corrective actions to clear up these
discrepancies as well as to set up measures to prevent any reoccurrences
and we give you 10 working days to respond.
This is a prerequisite to us accepting further shipments, placing further
orders and for us to continue promoting and selling Access CardioSystem’s
[products.] . . . [T]he correction of the listed failures and non-conformances
are imperative and remains our greatest concern. This has been brought to
your attention and that of your colleagues on more than one occasion . . . .
[Kivex /Dolby/Shiller] want you to agree to a fair pricing policy and in return
we will accept an increase of no more than a 5% price on the 1st January
2004 and will then consider an increase in line with the published US inflation
figures on the 1st of January in subsequent years and not before.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 39 of 164

51 Despite their threats to the contrary, the European Distributors continued to place orders and
eventually acquiesced to negotiations regarding the price increase. The European Distributors were
apparently never completely satisfied, but their relationship with Access did not entirely fall apart.
Although scant evidence on the matter was presented at trial, it appears that they continued to place
orders through 2004.
40
We wish to end this period of uncertainty that has existed in relation
to pricing and most routine business matters. 	Your staff must improve its
customer awareness and learn the rules of business administration and
provide the common courtesy of a prompt reply to any communication.
We would like to continue working with Access CardioSystems, in
good faith, to our common benefit. [H]owever should a positive reply not be
forthcoming within the 10 working days requested we will have no alternative
but to seek a solution through the legal process.
We ask that you copy these concerns to your fellow shareholders and
have sent a copy to your legal council requesting the same and asking for
acknowledgment of receipt from your Board and their Shareholders. . . .
Attached to each email was an appendix outlining the problems the distributors wanted
addressed, from a list of technical faults to specific business changes they were seeking
(including changes in communication, pricing, documentation, and time commitments for
the shipment of certain accessories). 51
Matters were finally brought to a head at the Board meeting held on November 28,
2003 (the “November Board Meeting”). 	Based on the other Board members’ growing
concern with Fincke’s management, exacerbated by missed projections and the continual
capital shortages, the Board formally voted to remove Fincke as president and CEO. They
offered him instead the position of chief technology officer and non-executive chairman of
the board, with no reduction in his pay or benefits. While Fincke acknowledged that there
was some disagreement during the meeting as to Access’s performance, he testified that
he was surprised by the Board’s action. Trial. Tr. day 7, 88-89.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 40 of 164

52 Radley testified that the delay in his transition to interim president was due, in part, to his
desire to give Fincke time to disclose the changed circumstances himself. Thereafter, Radley felt
that it was taking too long, and he provided Fincke with a memo he suggested Fincke use to
announce his change in status. Trial Tr. day 9, 164-65. The memo stated, in part:
I am writing to let you know about the recent meeting I had with the company Board
of Directors/ Investor group, and the result of that meeting which I consider to be
very positive and exciting for the company and all it’s [sic] people.
. . . .
First, the investor group has agreed to provide the additional funding necessary to
pay down all overdue payables and secure parts for future build kits. . . .
Second, it has been obvious to me for some time that we have passed the stage
where we can operate the company effectively with only one senior manager. . . .
[W]e have decided to make a change in the senior management structure.
Effective immediately, I will assume the positions of Chairman of the Board of
Directors and Chief Technical Officer focusing on all aspects relating to product
development and design. . . . [W]e have engaged [a] firm . . . to search for a Chief
Operating Officer to assume responsibility for the operational aspects of the
business. Jim Radley has agreed to assist in this CEO position on an interim basis,
freeing me to concentrate on the technical issues currently facing the company.
Pl.’s Obj.-to Ex. 17.
41
Immediately following the November Board Meeting, Moriarty sent a fax to Elefante
reporting what had transpired. In that fax, Moriarty also advised Elefante that the Investors
had agreed to loan more funds to Access on terms similar to those in the original
promissory notes. Pl.’s Ex. 81. Elefante then drafted the minutes of the November Board
Meeting to reflect the Board’s decision.
Pursuant to the Board vote, Radley was officially interim President and expected to
take over day-to-day operations. But the Plaintiffs concede that Fincke continued to act as
president and CEO until the end of December. In fact, a very limited number of employees
even knew that Fincke was formally no longer president and CEO of Access. 	Instead,
Fincke continued to run the company in the same manner as he had previously.52
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 41 of 164

42
Moriarty testified that he spoke with Fincke in December 2003 and that Fincke told
Moriarty he wanted to move on and did not want to serve as Access’s chief technical
officer. 	Trial Tr. day 6, 99. 	Elefante also testified to speaking with Fincke a number of
times following the November Board Meeting. 	According to Elefante, Fincke at first
indicated that he might be willing to move on upon some basis that was fair, but later
indicated that he wanted to enter into some form of negotiation with the company. Trial Tr.
day 8, 58.
In early December, a problem with the Access AED was discovered by internal
testing procedures and shipment of the product ceased while Access employees searched
for the cause. 	Bowers testified that the relevant problems were soon identified and
corrected and shipments resumed. Trial Tr. day 8, 30. Then, on December 18, another
problem with the Access AED was identified and a recall involving 143 units was issued;
again, the company focused on determining the root cause. Soon after, while the problem
remained unsolved, Fincke left for vacation from Christmas through the New Year. During
that period, Bowers testified, Access personnel again believed they had resolved the
problem and were able to resume shipments. Def.’s Ex. 86.
On January 5, 2004, John McElhinney, Fincke’s personal attorney, sent a proposed
employment agreement to the Board on behalf of Fincke. 	Pl.’s Ex. 47. 	The proposed
agreement provided that Fincke would resign as an employee retroactive to January 1,
2004. McElhinney also forwarded a draft of a new stockholders agreement. The proposed
agreements contemplated that Fincke would continue to be employed by Access as a
consultant (at an increased rate of pay that would increase further throughout 2004); that
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 42 of 164

43
Access would reimburse him for up to $50,000 in tuition and expenses should Fincke
decide to enroll in an MBA or similar type of program; and that Fincke would have a say in
certain specified “Major Decisions” at Access. The proposed agreements were met with
initial silence from the Board.
Also on January 5, the Board had arranged an off-site meeting for Access
management scheduled through January 7. Radley testified that Fincke was invited to the
meeting, but declined to attend. According to Radley, on January 7, while the meeting was
ongoing, one of the management employees received a phone call from another Access
employee who reported that Fincke was taking files and equipment from the company’s
offices. After being informed of the substance of the telephone call, Radley said, he called
Access employee Maureen Demoura and instructed her to deactivate Fincke’s key card,
which she did. Trial Tr. day 9, 101-103. Fincke argues that this de-activation constituted
a “lock-out.” Trial Tr. day 7, 92. Radley disagrees, claiming that key-card access was only
required to gain entry to the rear door of the building and that Fincke could still enter
Access premises through the front door. Trial Tr. day 9, 166-168.
Meanwhile, upon his return from vacation, Fincke learned that AED units had
resumed shipment following the December 18 recall. On January 6, 2004 (one day prior
to the alleged “lock-out”), Fincke sent an email to Bounty, McElhinney, and Elefante
expressing concern with the resumption of shipments and urging a review of the problem
by Access management. Pl.’s Ex. 87. He sent a subsequent email to Radley on January
8, urging the immediate recall of the 100 units that had shipped while he was away. Pl.’s
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 43 of 164

53 Apparently, after Access received Fincke’s proposed employment and revised
stockholder agreements, Elefante recalled the existence of the original Stockholders Agreement
and so informed the Board for the first time. Trial Tr. day 8, 59. Radley testified that he had no
knowledge of the existence of the Stockholders Agreement until he received this notification from
Elefante. Trial Tr. day 9, 161-162.
44
Ex. 51. Radley wrote back on the same day, stating that Access had reviewed the situation
and that everything was under control. Pl.’s Ex. 87.
On January 9, 2004, Elefante responded to McElhinney’s January 5 proposed
employment agreement. Pl.’s Ex. 88. In the letter to McElhinney, Elefante claimed that the
Board, as well as Connolly, had met and reached several conclusions. He first asserted
that Fincke had declined the chief technology officer position and had left the company.
In addition, Elefante stated that the Board had done an “assessment of the business and
intend[ed] to conduct an independent audit of the company,” and, “after meeting with the
management team and assessing the situation, they d[id] not believe that there [was] a
constructive role for Randall as an employee.” He also wrote that if no agreement could
be reached, the Board would “take formal action to terminate Randall’s employment.”
Further, Elefante referenced Fincke’s proposed stockholder agreement, noting that
the “parties already have a Stockholders’ Agreement dated July 7, 2000.” 53 Elefante stated
that the agreement provided for termination of a “Primary Stockholder” with or without
cause and that the shareholder’s stock was then required to be offered to Access at “Book
Value Price.” Elefante wrote that Access would refrain from exercising the option to force
such a repurchase, if “an acceptable agreement [were] reached.”
Finally, Elefante noted that “[t]he Board group and investors agree that in light of
Randall’s changed role, it may be unfair to expose him personally to the obligations of
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 44 of 164

45
Access’s lease and the Middlesex Bank loan. If there is an agreement on separation on
acceptable terms . . . the Board will undertake diligent efforts to obtain his release from
such obligations and will hold him harmless from any cost or loss arising from those
guarantees.” The letter concluded with a request for a response by January 16, 2004.
On January 12, 2004, Fincke again wrote to Radley with a list of possible underlying
causes of the December failed tests of the AED and again urged a recall of the units
shipped subsequent to the December 18 recall. Pl.’s Ex. 52. He also noted that it might
be necessary to contact the FDA. On the same day, Radley responded, informing Fincke
that he would review the letter and give it to the manufacturing team. 	The next day,
January 13, Fincke sent an email to Radley, Bounty, and a representative of the FDA;
attached to the email was a letter expressing his concern regarding the shipment of
potentially faulty AED units and also disclosing his recent employment termination. 	On
January 15, Radley sent a letter to the FDA regarding the concerns raised in Fincke’s
January 13 letter, essentially asserting that Fincke was simply a disgruntled employee. On
January 26, 2004, Fincke sent emails to Moriarty, Radley, and the FDA to which he
attached a document purporting to represent results from product testing he was
independently conducting.
Also on January 26, 2004, Radley sent a letter to Fincke regarding the “Purchase
of Access CardioSystems, Inc. Stock.” In that letter, he expressed Access’s intention to
repurchase Fincke’s stock pursuant to the Stockholder’s Agreement; he stated:
Access CardioSystems, Inc. believes that your employment with the
Company ended on or before January 7, 2004 as a result of your rejection
of the position offered to you by the Board of Directors. To the extent you
contend, or it is determined, that your employment ended on or before
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 45 of 164

54 According to the letter, Fincke had stated on his application for unemployment benefits
that his employment at Access ended some time after December 27, 2003.
46
December 27, 2003, this letter is being sent pursuant to Section 4.01 of the
Stockholders Agreement. 	Because you did not make an offer pursuant to
Section 4.01(a) of the Stockholders Agreement, Access CardioSystems, Inc.,
pursuant to Section 4.01(b) of the Stockholders Agreement hereby notifies
you of its intention to purchase all the Access CardioSystems, Inc. Stock
owned by you.
To the extent you contend that you were employed after December
27, 2003, Access CardioSystems, Inc. reserves its right to re-notify you of its
intention to purchase all the Access CardioSystems, Inc. Stock owned by you
in accordance with the Stockholders Agreement within thirty (30) days of
receiving an offer from you (or after the offer is deemed to have been made
under subsection (a)) to sell your shares of Stock pursuant to Section 4.01.
The purchase price of the stock being purchased from you shall be the
Book Value Price (“Price”) determined in accordance with Article 5 of the
Agreement. The Price shall be the price per share based upon the net book
value of the Company (the “Book Value”) as of the last day of the fiscal
quarter ended on or most recently before your termination of employment.
The Book Value was negative $4,428,000.00 on September 30, 2003. This
yields a negative Price. The Price that the Stockholders will pay is therefore
$1.00.
Pursuant to Section 4.03 of the Stockholders Agreement, the Closing
of the purchase and sale of your Access CardioSystems, Inc. Stock shall be
completed at 5:00 p.m. on February 5, 2004 . . . .
Pl.’s Ex. 91. On February 26, 2004, Radley sent a second, and substantially
similar letter to Fincke, represented as a “re-notification” of Access’s intent
to repurchase Fincke’s stock in Access for $1.00.54 Pl.’s Ex. 92.
Almost four months later, on June 14, 2004, Fincke, though his attorney, sent a letter
to Access assert ownership of and control over Access’s Intellectual Property. Def.’s Ex.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 46 of 164

55 Access’s Plan of Reorganization was confirmed by this Court on May 25, 2007.
47
105. The Plaintiffs responded by filing the first complaint in this action on July 6, 2004 in
the Massachusetts state court.
Access continued to ship product for a large part of 2004. 	In October 2004,
however, Access was forced to recall a majority of its units and the company ceased
operations. 	On February 8, 2005, Access filed a petition for relief in this Court under
Chapter 11 of the Bankruptcy Code, and continued to operate thereafter as a Debtor-in-
Possession – although the company was (and is) no longer manufacturing or selling
AEDs. 55
The present controversy was thereafter removed to this Court. 	Since then, this
Court has determined on the parties’ motions for partial summary judgment that Access is
and was the true owner of the intellectual property underlying the Access AED, and ordered
Fincke to assign his interest therein to Access. See Access I, 340 B.R. 127. A trial was
conducted to determine the question of liability on the various other claims and
counterclaims made by the parties. Thirteen witnesses testified over nine days of trial and
234 exhibits were ultimately admitted into the record. Following trial, the parties were given
the opportunity to submit proposed findings of fact and conclusions of law, which both
parties have done.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 47 of 164

56 Count I, brought by Access, sought a declaratory judgment with regard to the ownership
of Access’s Intellectual Property. 	Count III, brought by Access, sought the imposition of a
constructive trust over the Intellectual Property in favor of Access. Those counts were previously
ruled on. See Access I, 340 B.R. 127. Count VII, brought by the Investors, sought damages for
Fincke’s alleged securities fraud under federal law, § 10(b) of the Securities Exchange Act of 1934
and 17 C.F.R. § 240.10b-5. In their post-trial brief, the Plaintiffs indicated that they were no longer
asserting this claim.
57 In addition to the fiduciary breach allegations to be discussed below, the Investors
previously argued that Fincke breached his fiduciary duty toward Access by asserting an exclusive
ownership interest in Access’s Intellectual Property. That particular issue has, as noted above,
previously been ruled on and will not be further discussed here. See Access I, 340 B.R. 127.
58 Due to a typographical error in the Answer, there is no Counterclaim V.
59 Fincke’s counterclaim for declaratory judgment sought, in part, a declaratory judgment
that he is the sole owner of the Access Intellectual Property, an issue, as noted above, that was
earlier decided. See Access I, 340 B.R. 127.
48
II. 	POSITIONS OF THE PARTIES
The Complaint sets forth eight claims against Fincke; five of the original counts await
a ruling. 56 Those counts are: Count II, brought by Access and the Investors: breach of
fiduciary duty; 57 Count IV, brought by Access and the Investors: fraud; Count V, brought by
Access and the Investors: negligent misrepresentation; Count VI, brought by the Investors:
securities fraud under Mass. Gen. Laws ch. 110A, § 410(a)(2); and Count VIII: Objection
to Allowance of Fincke’s Alleged Claims. In his answer to the Complaint (the “Answer”),
Fincke generally denied the Plaintiff’s claims and put forth several counterclaims:
Counterclaim I, against Access: breach of contract; Counterclaim II, against the Investors:
breach of contract; Counterclaim III, against Access and the Investors: promissory
estoppel; Counterclaim IV, against the Investors: breach of fiduciary duty; Counterclaim
VI,58 against Access: wrongful discharge; and Counterclaim VII, against Access: declaratory
judgment. 59
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 48 of 164

49
A. 	Counts IV, V, and VI – Fraud, Negligent Misrepresentation, and Section
410(a)(2)
The Investors’ claims for common-law fraud, negligent misrepresentation and
securities fraud under Mass. Gen. Laws ch. 110A, § 410(a)(2) (“§ 410(a)(2)”) are
predicated on Fincke’s alleged misrepresentations and material omissions made in
connection with their investments. 	According to the Investors, Fincke misrepresented
various facts that were material to their decisions to invest in Access. 	In addition to
Fincke’s purported oral representations, the Investors claim that the Company Overview,
distributed prior to the April 2003 Transaction, contained several affirmative misstatements
that Fincke knew or, in the exercise of reasonable care, should have known were false and
misleading. 	These representations involved statements regarding product stability,
profitability, order rates, and average sales price. 	In addition, the Investors claim that
Fincke intentionally omitted material information involving problems with key distributors
and customers; problems and delays involving manufacturing and product shipments; the
extent of working capital needed; and the existence of the Philips lawsuit.
The Plaintiffs also assert that Fincke’s continuing misrepresentations and failures
to disclose were either intentional or negligent misrepresentations upon which the Board
relied in making decisions regarding Access and which prevented the Investors from
effectively evaluating stated projections and adequately judging the company’s financial
status. And, more generally, the Plaintiffs conclude that all of the projections presented to
the Investors and the Board were misleading, either because they failed to account for
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 49 of 164

50
extant, and undisclosed, negative circumstances or because they were simply devoid of
reason.
Fincke raises several defenses to the Plaintiff’s various misrepresentation and
material omission allegations. First, he claims that all material information was disclosed
to the Investors and the Board through either oral communications, written communications
– such as the KPIs, narratives, and Board meeting presentations – or both. And, where
certain information was not initially disclosed – such as that relating to the Philips litigation
and the problems with the European Distributors – disclosure was made when the matters
became material.
To the extent that projections were not met, Fincke claims that the projections
themselves do not give rise to a cause of action under any of the legal theories asserted
by the Plaintiffs, because they were not “facts,” nor were they guarantees of future events.
Additionally, Fincke says that the projections and other statements regarding Access’s
status were reasonably based, as they were the product of consideration and deliberation
between various members of the Access’s management team. 	As such, according to
Fincke, none of the statements or projections may form the basis for liability for fraud,
negligent misrepresentation, or securities fraud under § 410(a)(2).
B. 	Count II - Breach of Fiduciary Duty
The Plaintiffs’ breach of fiduciary duty claims against Fincke generally fall into three
categories. 	First, the Plaintiffs aver that Fincke breached his fiduciary duty to Access
through his alleged misrepresentations and failures to disclose to the Board Access’s need
for additional working capital, inability to meet projections, manufacturing problems, and
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 50 of 164

51
long-term difficulties with the European Distributors. The Plaintiffs contend that Fincke’s
behavior was self-serving in that he sought to protect his position and status at the
company by deliberately hiding negative information from the Board. 	According to the
Investors, had they known the nature and extent of the company’s underlying problems,
they would have taken corrective action, preventing Access’s ultimate demise.
In response, Fincke says that he and the management team disclosed all material
information to the Board, evidenced by the various materials sent to the Investors and
presented at Board meetings, including the KPIs, narratives, and presentation materials
produced during trial. 	As for his failure to disclose either the Philips litigation or the
problems with the European Distributors, Fincke argues that when, and to the extent that,
such matters became material, the Board was informed.
Second, the Plaintiffs argue that Fincke breached his fiduciary duties by withdrawing
funds and repaying a large portion of his personal loans to Access without the knowledge
or prior approval of the Board, at a time when Access was in desperate need of cash.
Fincke argues that the withdrawals from Access’s account were in good faith, were
documented and were, he believed, solely for legitimate company expenses – i.e., salary
payments and reimbursements for company expenses incurred on his personal credit
cards. Thus, he argues, the payments were not in breach of his fiduciary duties to either
Access or the Investors.
Finally, according to the Investors, Fincke delayed acceptance of the Investors’
proposed financing terms in the spring of 2003 to the detriment of the company. To the
extent that the delay in receiving the additional capital contributed to Access’s inability to
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 51 of 164

52
manufacture AEDs that in turn would produce additional working capital, the Investors say
that Fincke is to blame. According to the Investors, Fincke’s delay was fueled by his desire
to remain Access’s majority shareholder and his futile attempts to obtain outside
investments that would allow him to do so. 	Through this self-interested behavior, they
argue, he placed his personal gain above the interests of Access in breach of his fiduciary
duty of loyalty.
Fincke says that the delay in accepting the Investors’ financing proposals during the
spring of 2003 was not motivated by self-interest, although he has conceded his desire to
maintain his majority stock position. 	Rather, Fincke says that he, along with other
management team members, were discussing and considering other financing offers during
that time, which financing may have ultimately been better for the company.
Furthermore, and more generally in rebuttal to their fiduciary duty claims, Fincke
argues that the Plaintiffs’ allegations related to his management of the company are
undercut by the fact that they allowed Fincke to retain control over Access for more than
a month after they voted to remove him as president. 	Fincke asserts that, as of the
November Board Meeting, the Investors had full knowledge of the information and
circumstances that, they claim, demonstrate multiple instances of Fincke’s fiduciary
violations - yet they allowed Fincke to retain control. Therefore, according to Fincke, the
Investors’ actions belie the severity of the allegations being asserted in this litigation.
C. 	Count VIII – Objection to Allowance of Fincke’s Claims
To the extent that Fincke is successful on any of his Counterclaims, the Plaintiffs
argue that he cannot recover any amounts awarded, as he failed to file a proof of claim in
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 52 of 164

53
Access’s main bankruptcy case. Furthermore, the Plaintiffs say that his failure to seek a
declaration that his Counterclaims constitute an informal proof of claim in the main case
precludes any recovery. Fincke responds by arguing that the Answer, containing Fincke’s
Counterclaims, constitutes an informal proof of claim. And since the Answer was filed prior
to the deadline for the filing of claims in the main case, any judgment awarded should be
appropriately treated as a claim under Access’s Confirmed Plan.
D. 	Counterclaims
1. 	Counterclaims I, II ,III, IV and VII – Breach of Contract, Promissory
Estoppel, Breach of Fiduciary Duty, and Wrongful Discharge
On the basis of several legal theories, Fincke argues that the Investors and Access
are liable for damages as a result of their failure to provide him with a binding employment
agreement. He insinuates that, in exchange for agreeing to relinquish majority control over
Access by consummating the April 2003 Transaction, he was promised an employment
agreement that would provide “protection” for him in his minority position. If the Court were
not to find adequate consideration in exchange for the promised employment agreement,
Fincke alternatively argues, under a promissory estoppel theory, that he acted to his
detriment in reliance on the Board’s assurance that an employment agreement would be
negotiated, thus leading to liability for failure to execute an agreement. Fincke also argues
that the Investors and the Board breached their fiduciary duties owed to him by retaliating
against him for raising his product safety concerns. This retaliation, according to Fincke,
was evidenced both by their failure to continue amicable negotiations regarding the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 53 of 164

54
employment agreement and negative statements about Fincke’s management made to the
press that Fincke says were untrue and damaged Access’s reputation.
In addition, Fincke argues that the oral promise to execute an employment
agreement altered his employment relationship, such that he no longer remained at Access
as an “at-will” employee and could only be terminated for just cause. According to Fincke,
he was “locked out” of the company without just cause in retaliation for his expressed
concern and reports to the FDA regarding product safety issues. This conduct by Access
and its Board, according to Fincke, constituted wrongful termination under Massachusetts
law.
The Plaintiffs dispute the existence of a meaningful or legally binding employment
contract between the parties. While they acknowledge that the Board discussed drafting
and negotiating an agreement, they note that no agreement was actually reached and that,
prior to leaving Access, Fincke did not assert his right to such an agreement during the
months following the April 2003 Transaction. 	Furthermore, according to the Plaintiffs,
Fincke’s decision to formally leave Access was his own and, at any rate, the Board did
have just cause for Fincke’s termination. 	The Plaintiffs summarily deny that Fincke’s
alleged product safety concerns were a reason for his dismissal. In fact, according to the
Plaintiffs, Fincke contrived the safety concerns for his own retaliatory motives.
2. 	Counterclaim VII – Declaratory Judgment
Fincke seeks a ruling that the Stockholders Agreement is unenforceable. He argues
that Access’s attempt to purchase his stock for $1.00 was a retaliatory act designed to
punish him for reporting safety concerns to the FDA. As evidence of this motive, Fincke
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 54 of 164

55
notes that the Plaintiffs first asserted Access’s stock repurchase rights under the
agreement following his voicing of those safety concerns and his presentation of a
proposed employment agreement and revised stockholder agreement to the Board.
Because, according to Fincke, the decision to exercise rights under the Stockholders
Agreement was in retaliation for his reported product safety concerns and additionally
motivated by a desire to avoid severance negotiations, this Court should use its equitable
powers to declare the agreement unenforceable.
The Plaintiffs argue that Access’s exercise of its rights under the Stockholder
Agreement was lawful and legitimate and was not an effort to avoid further negotiations.
Instead, the Plaintiffs say Fincke’s proposed employment agreement, accompanied by the
revised stockholder agreement, contained patently outrageous and unacceptable terms and
conditions and was not a reasonable offer. Furthermore, the Plaintiffs argue that equity
does not lie in Fincke’s favor on this point, as the Stockholder Agreement was originally
drafted during the start-up phase of the company, during a time when Fincke held control
over Access. 	Thus, according to the Plaintiffs, there is no inequity in enforcing the
agreement and holding Fincke to his own terms.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 55 of 164

60 Also referred to in Massachusetts common law as “intentional misrepresentation,”
“fraudulent misrepresentation” or “deceit.” See Twin Fires Inv. LLC v. Morgan Stanley Dean Witter
& Co., No. 00-00751-F, 2002 WL 31875204, at *25, 15 Mass. L. Rep. 542 (Mass. Super. Dec. 16,
2002), aff’d, 837 N.E.2d 1121, 445 Mass. 411 (2005).
61 Fraud and negligent misrepresentation are often conflated in the case law, as described
by the court in Pearce v. Duchesneau Group, Inc.:
The First Circuit has noted that Massachusetts case law is unclear on what
“knowledge of falsity” means and indeed whether “knowledge of falsity” is a required
56
III. 	DISCUSSION
A. 	Fraud, Negligent Misrepresentation, and Section 410(a)(2)
1. 	Overview
a. 	Fraud 60
To recover for fraud under Massachusetts law, a plaintiff must prove, by a
preponderance of the evidence, Compagnie de Reassurance D’ile De France v. New
England Reinsurance Corp., 57 F.3d 56, 72 (1st Cir. 1995), that: (1) the defendant made
a statement; (2) “the statement was knowingly false;” (3) the defendant “made the false
statement with the intent to deceive;” (4) “the statement was material to the plaintiffs’
decision;” (5) “the plaintiffs reasonably relied on the statement;” and (6) “the plaintiffs were
injured as a result of their reliance.” Kenda Corp. v. Pot O’Gold Pool League, 329 F.3d
216, 225 (1st Cir. 2003) (quoting Turner v. Johnson & Johnson, 809 F.2d 90, 95 (1st Cir.
1986)); see also Damon v. Sun Co., Inc., 87 F.3d 1467, 1471-72 (1st Cir. 1996) (quoting
Barrett Assocs., Inc., v. Aronson, 190 N.E.2d 867, 868, 346 Mass. 150 (1963)).
b. 	Negligent Misrepresentation
Unlike a claim for fraud, liability for negligent misrepresentation may arise where the
defendant makes a false statement, but has no knowledge of its falsity. 61 Marram v.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 56 of 164

element of fraud under Massachusetts law. See, e.g. Cummings v. HPG, Intern.,
Inc., 244 F.3d 16, 22-23 (1st Cir. 2001) (noting “lack of clarity in Massachusetts
law”); Cambridge Plating Co., Inc. v. Napco, Inc., 85 F.3d 752, 768 n.16 (1st Cir.
1996) (discussing “knowledge of falsity” requirement). 	For example, some
Massachusetts cases require a plaintiff simply to show “a false statement of a
material fact made to induce the plaintiff to act, together with reliance on the false
statement by the plaintiff to the plaintiff’s detriment.” Zimmerman v. Kent, 31 Mass.
App. Ct. 72, 77, 575 N.E.2d 70, 74 (Mass. App. 1991) (and cases cited). Cf. also
Linton v. 	N.Y. Life Ins. & Annuity Corp., 392 F. 	Supp. 	2d 39, 2005 U.S. Dist.
LEXIS 3044, 2005 WL 478000, *2 (D. Mass. 2005).
392 F. Supp. 2d 63, 72 n.5 (D. Mass. 2005).
The Massachusetts Supreme Judicial Court has explained, however, that fraud requires
proof of scienter – an intent to deceive – while negligent misrepresentation does not. 	Marram v.
Kobrick Offshore Fund, LLC, 809 N.E.2d 1017, 1031 n.25, 442 Mass. 43 (2004) (quoting Kitner v.
CTW Transp., Inc., 762 N.E.2d 867, 874 (Mass. App. 2002) (“negligent misrepresentation differs
from an action for fraud because liability for misrepresentation does not require a showing that the
defendant even knew that the statements made were false or that the defendant actually intended
to deceive the plaintiff’”); Russell v. Cooley Dickinson Hosp., Inc., 772 N.E.2d 1054, 1066 , 437
Mass. 443 (2002).
57
Kobrick Offshore Fund, LLC, , 809 N.E.2d 1017, 1031 n.25, 442 Mass. 43 (2004). 	To
prevail on a claim for negligent misrepresentation, the plaintiff must prove that the
defendant: (1) “in the course of his business, . . . supplie[d] false information for the
guidance of others in their business transactions;” and (2) failed to “exercise reasonable
care or competence in obtaining or communicating the information.” Marram, 809 N.E.2d
at 1031 n.25. The plaintiff must also demonstrate: (1) justifiable reliance on the information
and (2) a pecuniary loss incurred as a result of that reliance. Marram, 809 N.E.2d at 1031
n.25; see also Damon, 87 F.3d at 1479; Briggs v. Carol Cars, 553 N.E. 2d 930, 993, 407
Mass. 391 (1990); 	Danca v. Taunton Sav. Bank, 429 N.E.2d 1129, 1133, 385 Mass. 1
(1982); Snyder v. Sperry & Hutchinson Co., 333 N.E.2d 421, 368 Mass. 433 (1975); Twin
Fires, 2002 WL 31875204, at *25.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 57 of 164

58
c. 	Section 410(a)(2)
“[F]ormally known as the Uniform Securities Act and commonly known as the
Massachusetts Blue Sky Law,” Twin Fires, 2002 WL 31875204, at *31, Mass. Gen. Laws
ch. 110, § 410(a)(2) (2008) provides, in pertinent part:
Any person who . . . offers or sells a security by means of any untrue
statement of a material fact or any omission to state a material fact necessary
in order to make the statements made, in light of the circumstances under
which they are made, not misleading, the buyer not knowing the untruth or
omission, and who does not sustain the burden of proof that he did not know,
and in the exercise of reasonable care could not have known, of the untruth
or omission, is liable to the person buying the security from him . . . .
Section 410(a)(2) creates “civil liability for sales [of securities] by means of fraud or
misrepresentation.” 	Marram, 809 N.E.2d at 1025 (quoting L. Loss, Commentary on the
Uniform Securities Act, draftsmen’s commentary to § 410(a), at 147 (1976)). “While not
imposing strict liability on the seller for untrue statements or omissions, it holds the seller
to the heavy burden of proof ‘that he did not know, and in the exercise of reasonable care
could not have known, of the untruth or omission,’” Marram, 809 N.E.2d at 1026; Mass.
Gen. Laws ch. 110A, § 410(a)(2). Section 410(a)(2) creates a “strong incentive for sellers
of securities to disclose fully all material facts about the security” and “‘provide[s] a
heightened deterrent against sellers who make misrepresentations by rendering tainted
transactions voidable at the option of the defrauded purchaser,’ regardless of the actual
cause of the investor’s loss.” Marram, 809 N.E.2d at 1026 (citing Casella v. Webb, 883
F.2d 805, 809 (9th Cir. 1989) (interpreting § 12(2) of the Securities Act of 1933)).
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 58 of 164

62 Section 410(a)(2) provides for the recovery of “the consideration paid for the security,
together with interest at six per cent per year from the date of payment, costs, and reasonable
attorneys' fees, less the amount of any income received on the security, upon the tender of the
security, or for damages if he no longer owns the security. Damages are the amount that would be
recoverable upon a tender less the value of the security when the buyer disposed of it and interest
at six per cent per year from the date of disposition.” Mass. Gen. Laws ch. 110A, § 410(a)(2).
63 In contrast to the federal securities laws, Massachusetts securities laws, and § 410(a)(2)
in particular, apply to public and private sales of securities; the federal securities laws apply only
to public sales of securities. See Feldman v. Aspen Techs., Inc., No. SUCV2006-3021BLS2, 2007
WL 1089220, at *5, 22 Mass. L. Rep. 341 (Mass. Super. March 3, 2007).
59
A plaintiff may recover under § 410(a)(2) 62 when: (1) the defendant offers or sells a
security; 63 (2) in Massachusetts; (3) by (a) making any untrue statement of a material fact;
or (b) omitting to state a material fact necessary to make the statement not misleading; (4)
the plaintiff did not know of the untruth or omission; and (5) the defendant (a) knew, or (b)
in the exercise of reasonable care, would have known, of the untruth or omission. Marram,
809 N.E.2d at 1026. Once the plaintiff has demonstrated that the defendant has made an
untrue statement of material fact or omitted a material fact necessary to make a statement
not misleading, the burden shifts to the defendant to demonstrate either that the plaintiff
knew of the falsity or omission or that the defendant did not know and could not, in the
exercise of reasonable care, have known of the falsity or omission. See Adams, 838 F.
Supp. at 688 (“The ‘seller’ bears ‘the burden of persuasion in establishing his lack of
negligence.’ As such, ‘[t]he seller is exculpated if he proves that he did not know, or, in the
exercise of reasonable care, could not have known of the untruth or omission.’”) (discussing
§ 410(a)(2) and § 12(2) of the Securities Act of 1933, 15 U.S.C. § 771(2)) (quoting Davis
v. Avco Fin. Servs., Inc., 739 F.2d 1057, 1068 (6th Cir. 1984); Ernst & Ernst v. Hochfelder,
425 U.S. 185, 209 n.27 (1976)).
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 59 of 164

64 Cases decided under the federal securities laws also inform the interpretation of claims
based on § 410(a)(2). 	The Massachusetts legislature has directed that the Massachusetts
securities laws be interpreted and administered in coordination with the existing federal securities
laws, Marram, 809 N.E.2d at 1025, and the SJC has noted that:
General Laws c. 110A, § 410(a)(2), “is almost identical with § 12(2) of the Securities
Act of 1933, 15 U.S.C. § 771(2).” . . . Accordingly, we look to Federal decisions
under § 12(2), as well as to the plain language of the statute and decisions of our
appellate courts, for our interpretation of [§ 410(a)(2)].
Id. (citations omitted). See also Adams, 838 F. Supp. at 684 n.9 (“The Massachusetts securities
laws (‘the Blue Sky Laws’) are substantially similar to the federal securities laws and therefore
decisions construing the federal statutory language are applicable to the state statute as well.”)
(citing Quincy Co-Op. Bank v. A.G. Edwards & Sons, Inc., 655 F. Supp. 78, 87 (D. Mass. 1986);
Valley Stream Teachers Fed. Credit Union v. Comm’r of Banks, 384 N.E. 2d 200, 376 Mass. 845
(1978)); Feldman, 2007 WL 1089220, at *5; Twin Fires, 2002 WL 31875204, at *31 (citing Cabot
Corp. v. Baddour, 477 N.E. 2d 399, 400-01, 394 Mass. 720 (1985), superseded by statute, Mass.
Gen. Laws ch. 93A, §§ 2, 9 (West 2006); Birch v. Choinski (In re Choinski), 214 B.R. 515, 523 (1st
Cir. B.A.P. 1997), aff’d 187 F.3d 621 (1st Cir. 1997)).
And similar elements of common-law claims for fraud and negligent misrepresentation are
interpreted in accord with both federal and state securities laws. See, e.g., Adams, 838 F. Supp.
at 694 (the standard for common-law negligent misrepresentation is substantially the same as the
standard under § 12(2)).
60
2. 	Elements
That these three causes of action have common elements is clear – an unsurprising
fact given that § 410(a)(2) is founded upon traditional common-law notions of actionable
misrepresentations. For each of the fraud, negligent misrepresentation, and § 410(a)(2)
claims, the plaintiff must at least prove: (1) that the defendant made a misstatement or
omission of fact; (2) that the misstatement or omission was material; and (3) that the
defendant either knew, or through the exercise of reasonable care, could have known, that
the statement was either false or misleading on account of an omission.64
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 60 of 164

65 “[S]imply referring to a series of public statements and then alleging, in a general and
conclusory manner, that those disclosures were false or misleading is insufficient.” In re Cambrex
Sec. Litig., No. 03-CV-4896 (WJM), 2005 WL 2840336, at *4 (D.N.J. Oct. 27, 2005) (quoting In re
Party City Sec. Litig., 147 F. Supp. 2d 282, 300 (D.N.J. 2001)); see also Suna v. Bailey, 107 F.3d
64, 68 (1st Cir. 1997); Serabian v. Amoskeag Bank Shares Inc., 24 F.3d 357, 361, 363 (1st Cir.
1994); In re Cytyc Corp. Sec. Litig., No. Civ.A. 02-12399-NMG, 2005 WL 3801468, at *25 (D. Mass.
March 2, 2005); Guerra v. Teradyne, Inc., No. Civ.A. 01-11789-NG, 2004 WL 1467065, at *9, 13
(D. Mass. Jan. 16, 2004); Van Ormer v. Aspen Tech. Inc., 145 F. Supp. 2d 101, 105 (D. Mass.
2000); In re Boston Tech. Inc. Sec. Litig., 8 F. Supp. 2d at 54, 59, 61-62 (D. Mass. 1998); In re
Stratus Computer, Inc. Sec. Litig., No. Civ.A. 89-2075-Z, 1992 WL 73555, at * 5 (D. Mass. March
27, 1992).
66 See, e.g. Damon, 87 F.3d at 1472 (quoting VMark Software, Inc. v. EMC Corp., 642
N.E.2d 587, 593 n.9 (Mass. App. Ct. 1994)); Serabian, 24 F.3d at 366; Armstrong v. Rohm &
Haas Co., Inc.,, 349 F. Supp. 2d 71, 81 n.14 (D. Mass. 2004); Marram, 809 N.E.2d at 1030 n.24;
Briggs, 553 N.E.2d at 993; Yerid v. Mason, 170 N.E.2d 718, 719, 402 Mass 650 (1980) ; Twin
Fires, 2002 WL 31875204, at *26.
61
a. 	Falsity
I. 	Affirmative Misrepresentations
It is axiomatic that a defendant will not be liable for an affirmative false statement if
the statement is, in actuality, not false. Thus, if the plaintiff fails to demonstrate the falsity
of the statement, assuming that it is not misleading on the account of an omission (see
below), no fraud, negligent misrepresentation, or § 410(a)(2) claim will lie.65 For an
affirmative statement to be actionable, it generally must be one of fact – something
“susceptible of knowledge,” Zimmerman v. 	Kent, 575 N.E.2d 70, 75 (Mass. 	App. 	Ct.
1991) – generally not a statement of opinion, judgment, belief, expectation, or prediction.66
Under certain circumstances, however, statements of opinion, belief, prediction, or
future intention may be actionable. 	For example, such a statement may be actionable
where “the speaker ‘knew that the prediction [opinion, judgment, expectation, or future
intention] was false when it was made.” Pearce v. Duchesneau Group, 392 F. Supp. 2d
63, 74 (D. Mass. 2005) (quoting Lawson v. Affirmative Equities, Co., L.P., 341 F. Supp.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 61 of 164

67 Similarly, promises are generally not considered false statements merely because the
promise is ultimately not kept, but a statement that is promissory in nature may be actionable if
there is no intent to perform the promise at the time the statement is made. 	Armstrong, 349
F.Supp.2d at 81 n.14;Barrett, 190 N.E.2d at 868.
68 See also, Colby v. Hologic, Inc., 817 F. Supp. 204, 210, 212 (D. Mass. 1993) (for a
claim based on forecasts, plaintiff needed to show that the forecasts “were not reasonably based
or were not made in good faith”) (citing Kirby v. Cullinet Software, Inc., 721 F. Supp. 1444, 1450
(D. Mass. 1989)); Fourth U.S. Akar, Inc. v. Cohen, 1990 WL 138945, at *13 (D. Mass. August
27, 1990) (plaintiffs alleged a claim under § 10(b) of federal securities laws by asserting that
defendant’s projections had no reasonable basis at the time they were presented to plaintiffs);
Massaro v. Vernitron Corp., 559 F. Supp. 1068, 1074 (D. Mass. 1983) (plaintiffs raised genuine
issue of material fact sufficient to defeat summary judgment motion when they presented evidence
that company had knowledge of facts contradictory to representations made); Briggs, 553 N.E. 2d
at 933 (where defects in vehicle were readily ascertainable, “defendant’s representation that the
vehicle was in good condition reasonably implied that it was safe and operable . . . .”) (citing
Restatement (Second) of Torts § 539 (1977)); Twin Fires, 2002 WL 31875204, at *27 (where
defendant told plaintiff he could get 75,000 in an IPO when all indications were that he would not
be allocated any shares, the statement was actionable) (quoting Cellucci v. 	Sun Oil Co., 320
N.E.2d 919, 924 (Mass. App. Ct. 1974), aff’d, 331 N.E.2d 813 (Mass. 1974) (where company
predicted it would sign a contract, company was liable for misrepresentation because the action
was within the exclusive control of the company)).
62
2d 51, 65 (D. 	Mass. 2004) (citing Starr v. 	Fordham 187, 648 N.E.2d 1261, 1267, 420
Mass. 178 (1995)); see also Kenda, 329 F.3d at 226. 67 And forecasts may be actionable
if “they are not reasonably based on, or are inconsistent with, the facts at the time the
forecast is made.” 	Glassman v. Computervision Corp., 90 F.3d 617, 627 (1st Cir. 1996).68
Such 	unsupported 	or 	contradicted 	statements 	are 	“affirmative 	misrepresentations,”
because they are false misrepresentations of what the speaker knows to be true (or knows
he doesn’t know to be true). Standing alone, however, optimistic predictions are not false
misrepresentations simply because they do not come to fruition. Suna v. Bailey, 107 F.3d
64, 69 (1st Cir. 1997) (plaintiffs needed to “show that statements made were more than
tempered predictions about the future that later proved incorrect”); Serabian v. Amoskeag
Bank Shares, Inc., 24 F.3d 357, 363 & n.7 (1st Cir. 1994); In re Boston Tech. Inc. Sec.
Litig., 8 F. Supp. 2d 43, 54 (D. Mass. 1998).
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 62 of 164

69 The “duty to disclose” requirement is found in both common-law fraud and negligent
representation and securities fraud claims. First Marblehead Corp. v. House, 473 F.3d 1, 10 (1st
Cir. 2006) (negligent misrepresentation claim based on failure to disclose first requires a showing
that there was a duty to disclose); Milton, 961 F.2d at 968 & n.4 (1st Cir. 1992) (“Duty to disclose”
requirement is same under Massachusetts common law and federal securities law); Robertson v.
Gaston Snow & Ely Bartlett, 536 N.E.2d 344, 349, 404 Mass. 515 (1972) (in order to recover under
negligent or fraudulent misrepresentation theory based on omission, there must be a duty to
disclose); Kannavos, 247 N.E.2d at 711 (citing Swinton v. Whitinsville Sav. Bank, 42 N.E.2d 808,
808-09, 311 Mass. 677 (1942)).
The existence of a duty to disclose also depends on the materiality of the undisclosed
information. In re Credit Suisse-AOL Sec. Litig., 465 F. Supp. 2d 34, 57 (D. Mass. 2006) (“When
a person speaks, but chooses to omit information, the liability for that omission will be judged by
its materiality. . . .”) (quoting In re Worldcom Inc. Sec. Litig., 294 F. Supp. 2d 392, 428 (S.D.N.Y.
2003)); Boston Tech., 8 F. 	Supp. 	2d at 53 (“a duty to disclose arises only where both the
statement made is material, and the omitted fact is material to the statement in that it alters the
meaning of the statement”).
63
ii. 	Omissions
Failure to disclose material information may also give rise to liability under common-
law and securities fraud theories. There are two circumstances where omissions may be
actionable. The first is where the defendant fails to disclose material information when the
defendant has a legal duty to do so. 	The Massachusetts Supreme Judicial Court (the
“SJC”) has long adhered to the “rule of nonliability for bare nondisclosure,” Kannavos v.
Annino, 247 N.E.2d 708, 711, 356 Mass. 42 (1969); a defendant is not liable for simple
failure to disclose material information. Instead, liability for a material omission arises only
where the defendant was under a duty to disclose the information. Milton v. Van Dorn Co.,
961 F.2d 965, 968 & n.4 (1st Cir. 1992) (citing Royal Bus Group, Inc. v. Realist, Inc., 961
F.2d 1056, 1064 (1st Cir. 1991); Nei v. Burley, 446 N.E.2d 674, 676, 388 Mass 307 (Mass.
1983)). 69 Statutes or regulation under the state and federal securities laws impose specific
duties to disclose certain types of information, see, e.g., Cooperman v. Individual, Inc.,171
F.3d 43, 50 (1st Cir. 1999) (quoting Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1204 (1st
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 63 of 164

70 See, e.g., 	Computervision, 90 F.3d at 635 & n.27 (“A duty to disclose technical or
developmental problems with a product may arise where a company makes strongly optimistic or
concrete statements about that product that are in stark contrast to its internal reports,” but no duty
arose where prospectus was not so optimistic as to be misleading and contained statements
64
Cir. 1996)); Guerra v. Teradyne, Inc., No. Civ.A. 01-11789-NG, 2004 WL 1467065, at *6
n.4 (D. Mass. Jan. 16, 2004) (citing Roeder v. Alpha Indus., Inc., 814 F.2d 22, 26-27 (1st
Cir. 1987)); Boston Tech., 8 F. Supp. 2d at 53 n.8, and a pre-existing fiduciary relationship
may also give rise to a specific disclosure duty.
The second type of culpable omission is one that renders an otherwise accurate
statement misleading. Accurate statements of past events, standing alone, are rarely held
to be misleading, and a duty to disclose does not arise merely because circumstances have
changed or might change in the future. See, e.g., Suna v. Bailey, 107 F.3d at 68 (accurate
statements about past performance, even if present circumstances are less rosy, do not
give rise to liability); 	Serabian, 24 F.3d at 361; In re Cytyc, 2005 WL3801468, at *25;
Guerra, 2004 WL1467065, at *13-14; Boston Tech., 8 F. 	Supp. 	2d at 54, 59, 61-62.
Instead, a duty to disclose information related to an earlier statement generally arises only
where the original statement was misleading at the time it was made. Colby, 817 F. Supp.
at 213 (discussing Backman v. Polaroid Corp., 910 F.2d 10, 16-17 (1st Cir. 1990)); Guerra,
2004 WL1467065, at *6, 10.
Thus, a defendant may remain silent and choose not to disclose material information
absent an independent duty to do so. But both common-law fraud and misrepresentation,
as well as the securities laws, compel full and accurate disclosure if the defendant
volunteers information. 	When a defendant chooses to speak, all material information
necessary to make the statement not misleading must also be divulged. 70 If the statement
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 64 of 164

regarding the uncertainties associated with the release of a new product.); 	Damon, 87 F.3d at
1478 (“[A] party who discloses partial information that may be misleading has a duty to reveal all
the material facts he [or she] knows to avoid deceiving the other party.”) (quoting V.S.H. Realty,
Inc. v. 	Texaco, Inc., 757 F.2d 411, 415 (1st Cir. 	1985)); Shaw, 82 F.3d at 1212 (If speaker
voluntarily characterizes something that it did not have to disclose, then the speaker has an
obligation to ensure that the representation is not misleading.); Lucia v. Prospect St. High Income
Portfolio, Inc., 36 F.3d 170, 175 (1st Cir. 1994); Milton, 961 F.2d at 968 n.4 (“A duty to disclose may
arise, for example, where the defendant volunteers disclosure and the law implies the corollary duty
to refrain from incomplete, inaccurate, or misleading disclosures.”) (citing Backman, 910 F.2d at
12); Hoffman v. Estabrook & Co., 587 F.2d 509, 515 (1st Cir. 1978) (statement that product had
certain capability was misleading where defendant failed to disclose that the product would require
a part manufactured by a competitor); Credit Suisse, 465 F. Supp. 2d at 57 (“Those who choose
to speak . . . must speak honestly – not in half-truths, in bad faith, or without a reasonable basis
for their statements.”) (quoting Worldcom, 294 F. Supp. 2d at 427-28); Guerra, 2004 WL1467065
at *11-12 (where company did not broach subject, there was no obligation to disclose, as previous
statements on subject were not misleading); Adams, 838 F. Supp. at 694 (if the speaker broaches
a particular subject, then the speaker has a duty to disclose relevant material information required
to make statement not misleading); Kannavos, 247 N.E.2d at 711-12 (If defendant “does speak
with reference to a given point of information, voluntarily or at the other’s request, he is bound to
speak honestly and to divulge all the material facts bearing upon the point that lie within his
knowledge. Fragmentary information may be as misleading . . . as active misrepresentation, and
half-truths may be as actionable as whole lies.”) (citing Harper & James, Torts § 7.14) (collecting
Massachusetts cases)).
71 See, e.g., Suna v. Bailey, 107 F.3d at 70 (no liability for statement that new production
facility would be more cost-efficient, which turned out to be incorrect, because plaintiffs failed to
demonstrate that company had knowledge of contradictory facts at the time the statement was
made); Serabian, 24 F.3d at 64-65 (descriptive statements of company that are made in the face
of internal awareness that the characterization may not be correct may give rise to liability for
failure to disclose contradicting facts).
65
is one of opinion, prediction, or forecast, the failure to disclose known facts that contradict
the bases for the statement may be actionable. 71 However, where a statement relates to
this so-called “soft information” (opinion, prediction, forecast, and the like), the alleged
material omission itself must relate to “hard” information. Shaw, 82 F.3d at 1210 n.21(“It
bears reemphasizing that the plaintiffs' claim is sustainable only to the extent it relates to
the nondisclosure of "hard" material information, as opposed to "soft" information in the
nature of projections.”) (citing In re Verifone Sec. Litig., 784 F. Supp. 1471, 1482 (N.D. Cal.
1992), aff'd, 11 F.3d 865 (9th Cir. 1993)).
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 65 of 164

72 See Shaw, 82 F.3d at 1206 (citing Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 477-80
(1977); Craftmatic Sec. Litig. v. Kraftsow (In re Craftmatic Sec. Litig.), 890 F.2d 628, 638-39 (3d
Cir. 1989)); Van Ormer, 145 F.Supp.2d at 105, 106 (Plaintiffs’ allegations that defendants had no
basis for their earnings projections since they lacked a global cost reporting system was merely
a claim for mismanagement, especially since the plaintiffs “fail[ed] to set forth any specific facts
explaining why [the] earnings projections were unacceptable or why the method that [was] utilized
was inadequate.” And vague allegations that defendants released a product too early in order to
create the false appearance of an increasing revenue stream were “nothing more than complaints
of poor management, not securities fraud.”) (citing Suna v. Bailey, 107 F.3d at 68; Fitzer, 119 F.
Supp. 2d at 33-34; In re Number Nine Visual Tech. Corp. Sec. Litig., 51 F. Supp. 2d 1, 22 n.18 (D.
Mass. 1999); Boston Tech., 8 F. Supp. 2d at 62-63); Colby, 817 F. Supp. at 212 (“only fraud, not
poor management or even gross mismanagement is actionable under the securities laws”) (quoting
Boyle v. Merrimack Bancorp, Inc., 756 F. 	Supp. 	55, 58 (D. 	Mass. 	1991)); Massaro, 559 F.
66
This obligation to ensure that a statement is not misleading does not require
disclosure of every relevant, or even material, piece of information. Disclosure must, of
course, be “complete and accurate,” Lucia v. Prospect Street High Income Portfolio, Inc.,
36 F.3d 170, 175 (1st Cir. 1994); Backman, 910 F.2d 10 at 16, but that “does not mean
that by revealing one fact about a product, one must reveal all others that, too, would be
interesting, market-wise, but means only such others, if any, that are needed so that what
was revealed would not be ‘so incomplete as to mislead.’” 	Backman, 910 F.2d at 16
(quoting SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 862 (2d Cir. 1968)); see also,
Romani v. 	Shearson Lehman Hutton, 929 F.2d 875, 879 (1st Cir. 1991) (plaintiffs’
allegations that defendants failed to disclose a recessionary period in the industry were
insufficient predicate for liability because the defendant had disclosed the high risks
associated with the investment in a meaningful way).
Given the basic principles governing liability for both affirmative misrepresentations
and culpable omissions, case law has consistently held that allegations of mismanagement,
without 	more, 	are 	insufficient 	to 	state 	a 	claim 	for 	common-law 	fraud, 	negligent
misrepresentation, or securities fraud. 72 That is, a plaintiff does not state a claim for fraud
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 66 of 164

Supp. at 1079.
73 See, e.g., Fitzer, 119 F. Supp.2d at 22 (“business difficulties . . . are, of course, not
themselves actionable . . . . [the plaintiff] must show that the defendants knowingly made fraudulent
misrepresentations in order to mislead the securities market”); Wells v. Monarch Capital Corp.,
1991 WL354938, at *7 (D. Mass. Aug. 23, 1991) (plaintiff plead more than mismanagement by
alleging not only that unlawful dividends and risky, unsecured loans were made, but also alleging
that defendant made false statements that no such transactions were being entered into).
74 As with other alleged omissions, the undisclosed information must also be material.
Fitzer, 119 F. Supp.2d at 22 (plaintiff must show that “[business] difficulties were material to
investors”).
75 See Suna v. Bailey, 107 F.3d at 68; Serabian, 24 F.3d at 361 (“[P]laintiffs must plead
more than that defendants acted irresponsibly and unwisely, but that they were aware that
‘mismanagement had occurred and made a material public statement about the state of corporate
affairs inconsistent with the existence of the mismanagement.’”) (quoting Hayes v. Gross, 982 F.2d
104, 106 (3d Cir. 	1992)); 	Shapiro v. UJB Fin. Corp., 964 F.2d at 282 (3d Cir. 1992) (“By
addressing the quality of a particular management practice, a defendant declares the subject of
its representation to be material to the reasonable shareholder, and thus is bound to speak
truthfully.”).
67
or misrepresentation by simply asserting that the defendant failed to disclose poor
management practices; “poor management is a risk that every investor takes.” Fitzer v.
Security Dynamics Techs., Inc., 119 F. Supp. 2d 12, 33-34 (D. Mass. 2000). Instead, the
plaintiff must prove either that the defendant made a false statement regarding certain
management or business practices, 73 or made a misleading statement by discussing
management while failing to disclose inconsistent material 74 information regarding that
management. 75
b. 	Materiality
Whether the allegation is one of affirmative misrepresentation or culpable omission,
liability for fraud, negligent misrepresentation, or securities fraud will only arise when the
statement or omission relates to material information.
The mere fact that an investor might find information interesting or desirable
is not sufficient to satisfy the materiality requirement. Rather, information is
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 67 of 164

76 See also, TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)); Computervision,
90 F.3d at 632 (“information is material when there is a reasonable likelihood that a reasonable
investor would consider it important”).
77 Because the materiality standard under § 10(b) of the federal securities laws is the same
as that under § 12(2), Shaw, 82 F.3d at 1217, cases interpreting materiality under § 10(b) may be
instructive.
68
“material” only if its disclosure would alter the “total mix” of facts available to
the investor and “if there is a substantial likelihood that a reasonable
shareholder would consider it important” to the investment decision.
Milton, 961 F.2d at 969 (emphasis added) (quoting Basic, Inc. v. Levinson, 485 U.S. 224,
231-32 (1988)). 76 This standard for materiality obtains under both the common-law and
Massachusetts securities laws. Id. (materiality analysis is same under both Massachusetts
common law and Federal securities law); Adams v. Hyannis Harborview, Inc., 838 F. Supp.
676, 687 (1st Cir. 1996) (“this standard of materiality applies generally throughout the
federal and Massachusetts securities laws”); Eagle Fund, Ltd. v. Sarkans, 823 N.E.2d 783,
788 (Mass. App. Ct. 2005). 77 The inquiry is an objective one, looking to whether a
reasonable person would have found the information material. Milton, 961 F.2d at 1030.
Assessing the materiality of predictions or forecasts can be complex, requiring a
close analysis of the nature of the statements and the circumstances under which they
were made. 	While projections and financial targets may be “material to any sensible
evaluation of [a] company’s performance,” In re Cytyc, No. Civ. A. 02-12399-NMG, 2005
WL38014, at *23 (D. Mass. March 2, 2005) (quoting Orton v. Parametric Tech. Corp., 344
F. Supp. 2d 290, 302 (D. Mass. 2004)), generalized forecasts are usually not actionable,
because, among other reasons, they are “inherently difficult and unreliable . . . and are not
likely to be ‘material’ to investors.” 	Colby v. Hologic, Inc., 817 F. 	Supp. 	204, 211 (D.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 68 of 164

78 See also, Suna v. Bailey, 107 F.3d at 72 (“‘[S]oft,’ ‘puffing’ statements . . . generally lack
materiality because the market price of a share is not inflated by vague statements predicting
growth.”) (quoting Raab v. Gen. Physics Corp., 4 F.3d 286, 289 (4th Cir. 1993)); Gross v. Summa
Four, Inc., 93 F.3d 987, 995 (1st Cir. 1996); Computervision, 90 F.3d at 635-636; Shaw, 82 F.3d
at 1217-18 & n. 32 (collecting cases); Fitzer, 119 F. Supp. 2d at 23; Guerra, 2004 WL 1467065
(collecting cases); In re No. Nine Visual Tech. Corp. Sec. Litig., 51 F. Supp. 2d 1, 20 (D. Mass.
1999) (In cases of alleged corporate puffery, the court “considers whether the statement is so
69
Mass. 1993); see also Carney v. Cambridge Tech. Partners, Inc., 135 F. Supp. 2d 235, 245
(D. Mass. 2001) (“[C]ourts in the First Circuit generally have declined to impose liability for
so-called ‘forward looking statements’ . . . because these courts regard such statements
as unlikely, as a matter of law, to be material to a reasonable investor.”). 	Similarly,
statements or omissions related to future events may or may not be material, depending
on the context. 	The First Circuit has emphasized the fact-based inquiry required to
determine materiality in such circumstances:
If an alleged omission involves speculative judgments about future events,
. . . materiality “will depend at any given time upon a balancing of both the
indicated probability that the event will occur and the anticipated magnitude
of the event in light of the totality of the company activity.”
Milton, 961 F.2d at 969-70 (quoting Basic, 485 U.S. at 238); see also Rand v. Cullinet
Software, Inc., 847 F. Supp. 200, 205 (D. Mass. 1994).
Closely related to general forecasts and predictions are those statements that
amount to no more than “corporate puffery” – “optimistic, vague projections of future
success.” 	Priest v. Zayre Corp., Civ. A. No. 86-2411-Z, 1987WL10741, at *2 (D. Mass.
May 1, 1987). Mere puffery is not actionable, since the statements are “so vague [and] so
lacking in specificity . . . that no reasonable investor could find them important to the total
mix of information available.” Brumbaugh v. Wave Sys. Corp., 416 F. Supp. 2d 239, 250,
256-57 (D. Mass. 2006) (citing, quoting Shaw, 82 F.3d at 1213, 1217). 78 “The more
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 69 of 164

vague, so general, or so loosely optimistic that a reasonable investor would find it unimportant to
the total mix of information.” (internal citations ommitted)); Boston Tech., 8 F. Supp. 2d at 60, 63,
71 (While statement by company “may indeed have ‘emphasized positive themes and suppressed
negative information,’ it is too vague in meaning and . . . too general for a reasonable investor to
take into account when making an investment decision.”) (quoting Shaw, 82 F.3d at 1217); Rand,
847 F. Supp. at 208 (general, optimistic statements are not material) (quoting Virginia Bankshares,
Inc. v. Sandberg, 501 U.S. 1083(1991)); Colby, 817 F. Supp. at 211; Stratus Computer, 1991 U.S.
Dist. LEXIS 21587 at *19 (quoting Morgan v. Fin. Planning Advisors, 701 F. Supp. 923, 927 (D.
Mass. 1988); Pepsi Cola Metro. Bottling Co. v. Pleasure Island, Inc., 345 F.2d 617, 622 (1st Cir.
1965)); Priest v. Zayre, 1987 WL10741, at *2 (“Optimistic, vague projections of future success
which prove to be ill founded are not, without more, sufficiently material to incur Rule 10B-5
liability.”); Bachini v. A.G. Edwards, 2008 WL2359727, at *8 (Mass. Super. 2008) (citing Marram,
809 N.E.2d at 1030 n.24) (optimistic statements regarding the state of the stock market were not
actionable; “puffery or sales talk regarding the likelihood of . . . [the] portfolio’s success cannot by
itself form the basis for a claim under GL c. 110, § 410.”).
79 “Similarly, more cautious or subdued statements are less likely to be actionable than more
strongly optimistic or concrete statements that contrast sharply with internal reality.” Id. at 74-75;
see also id. at 32, 86-88 (although the statement that “[the defendant] could capture 100% of the
marke”t is corporate puffery, the statement that “[it] had 57% of the market” is not puffery;
quantification of revenue projections provided sufficient specificity to make it not puffery);
Brumbaugh, 416 F. Supp. 2d at 256-257, 258 (company statement that a “partnership with IBM will
significantly help us in our objective to deliver open and interoperable solutions to business
customers” “encompasse[d] a representation of present fact” and was actionable under § 10(b) of
the federal securities laws, while statements that the company could “clearly see the growing
momentum for trusted computing in the marketplace” and expected “substantial growth” were mere
puffery, as they were “vague [and] lacking in specificity’”) (citing, quoting Shaw, 82 F.3d at 1213,
1217); Boston Tech, 8 F. Supp. 2d at 74 (“As long as an issuer declines . . . to supplement these
kinds of remarks with specifics, they are mere puffery.”); Priest v. Zayre, 1987 WL10741, at *2
(“When . . . 	projections are accompanied by either specific qualifications of projected results
implying certainty (e.g., earnings shall increase at least 30% next year) or statements of fact which
prove to be erroneous, then such statements can be the basis of Rule 10b-5 liability.”) (emphasis
added).
70
specific, definite or concrete the outward statement is, however, the greater the likelihood
the statement is material and not mere puffery.” Cytyc, 2005 WL3801468, at *13 (citing
Gross v. Summa Four, Inc. 93 F.3d 987, 995 (1st Cir. 1996); Computervision, 90 F.3d at
635-36. 79
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 70 of 164

80 See also Suna v. Bailey, 107 F.3d at 70; Computervision, 90 F.3d at 626 & n.11, 635
(Where forecasted earnings in a prospectus were read in context, they were “anything but a
guarantee;”the prospectus explicitly and specifically noted factors that could affect the price,“ and
“these cautionary statements in the Prospectus are, in and of themselves, reason to find this claim
not actionable.”) (citing Shaw, 82 F.3d at 1213; In re Donald J. Trump Casino Sec. Litig., 7 F.3d
357, 371 (3d Cir. 1993)); Raab, 4 F.3d at 290; Romani, 929 F.2d at 879 (“Documents such as this,
which ‘clearly “bespeak caution,”’ are not the stuff of which securities fraud claims are made.”)
(citing Luce v. 	Edelstein, 802 F.2d 49, 56 (2d Cir. 	1986)); Guerra, 2004 WL 1467065, at *18
(forward-looking statements fell under “bespeaks caution” doctrine where statements were “clearly
tempered by the language that a positive future is always a ‘big if’ and that the company ‘certainly
[is] not in a position to put any numbers around’ any projections.”); Fitzer, 119 F. Supp. 2d at 31;
Fisher v. SpecTran Corp., 2001 WL3464431, at *4 n.5 (D. Mass. 2001) (projections were concrete
and specific and not puffery, but were still not actionable as they were adequately couched in
language that “bespeaks caution,” including the disclosure of assumptions driving the predictions
and the possibility that those assumptions may not obtain); Boston Tech., 8 F. Supp. 2d at 53, 60-
61 (while specific predictions were more than sales talk, sufficient cautionary language made the
statements not actionable under securities law).
71
Even where more specific statements of “soft” information constitute more than mere
puffery, sufficient cautionary language may render a statement immaterial – a principle
often referred to as the “bespeaks caution” doctrine.
[The bespeaks caution doctrine] embodies the principle that when statements
of “soft” information, such as forecasts, estimates, opinions, or projections
are accompanied by cautionary disclosures that adequately warn of the
possibility that actual results or events may turn out differently, the ‘soft’
statements may not be materially misleading under the securities laws. In
short, if a statement is couched in or accompanied by prominent cautionary
language that clearly disclaims or discounts the drawing of a particular
inference, any claim that the statement was materially misleading because
it gave rise to that very inference may fail . . . .
Shaw, 82 F.3d at 1213.80
Cautionary language alone cannot give carte blanche to misstate or materially
misrepresent 	hard 	facts, 	and 	the 	bespeaks 	caution 	doctrine 	is 	limited 	to 	alleged
misrepresentations dealing with “soft” information. Romani, 929 F.2d at 879; see also Blatt
v. Muse Techs., Inc., 2002 U.S. Dist. LEXIS 18466, Fed. Sec. L. Rep. (CCH) P92004 (D.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 71 of 164

81 A plaintiff need not prove reliance on the material misrepresentation or omission to
recover for securities fraud under § 410(a)(2). Marram, 809 N.E.2d at 1027; Eagle Fund, Ltd. v.
Sarkans, 63 Mass. App. Ct. 79, 83-84, 823 N.E.2d 783, 787 (Mass. App. Ct. 2005).
82 Although “reasonable” and “justifiable” reliance have been distinguished in other contexts,
see, e.g., Field v. Mans, 516 U.S. 59, 74-75 (1995) (§ 523(a)(2)(A) of the Bankruptcy Code
“requires justifiable, but not reasonable, reliance”), neither the SJC nor the First Circuit have held
that such a distinction obtains under Massachusetts common law. Rather, both the SJC and the
First Circuit have generally used the terms interchangeably when discussing the reliance element
of common-law fraud and negligent misrepresentation. See, e.g., The First Marblehead Corp. v.
House, 473 F.3d 1, 10-11 (1st Cir. 2006) (discussing element of “reasonable” reliance in negligent
misrepresentation claim); Rodi v. Southern New England School of Law, 532 F.3d 11, 15, 17 (1st
Cir. 2008) (plaintiff’s reliance in fraudulent misrepresentation claim described as both unreasonable
and unjustified); Kenda, 329 F.3d at 225, 227 (common-law fraud requires proof of reasonable
reliance; 	later 	referring 	to 	justifiable 	reliance); 	Cummings, 	244 	F.3d 	at 	20 	(negligent
misrepresentation claim requires proof of justifiable reliance); Massachusetts School of Law at
Andover v. American Bar Ass’n, 142 F.3d 26, 41 (1st Cir. 1998) (negligent misrepresentation claim
requires proof of justifiable reliance); Gossels v. Fleet National Bank, 902 N.E.2d 370, 377, 453
Mass. 366 (2009) (negligent misrepresentation claim requires proof of justifiable reliance); Masingill
v. EMC Corp., 870 N.E.2d 81, 88, 449 Mass. 532 (2007) (fraudulent misrepresentation claim
requires proof of reasonable reliance) (citing Restatement (Second) of Torts § 537(b) (1977)); Twin
Fires Inv., LLC v. Morgan Stanley Dean Witter & Co., 837 N.E.2d 1121, 1134, 445 Mass. 411
(2005) (fraudulent misrepresentation claim requires proof of reasonable reliance); Marram, 809
N.E.2d 	at 	1031 	(stating 	that 	“justifiable 	reliance 	is 	integral 	to 	a 	claim 	for 	negligent
misrepresentation,” and citing cases discussing reasonable reliance).
72
Mass. 2002). 	Furthermore, the cautionary language must be “sufficiently related to the
subject matter” of the statement; boilerplate warnings will not suffice. 	Cytyc, 2005
WL3801468 (quoting In re Focus Enhancements, Inc. Sec. Litig., 309 F. Supp. 2d 134, 162
(D. Mass. 2001)).
c. 	Reliance
To recover for common-law fraud or negligent misrepresentation, 81 a plaintiff must
also demonstrate reasonable or justifiable reliance on the material misrepresentation or
omission. 82 Whether a plaintiff’s reliance is reasonable or justified, especially in the
securities context, is influenced by several factors, including:
(1) The sophistication and expertise of the plaintiff in financial and securities
matters; 	(2) 	the 	existence 	of 	long 	standing 	business 	or 	personal
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 72 of 164

73
relationships; (3) access to the relevant information; (4) the existence of a
fiduciary relationship; (5) concealment of the fraud; (6) the opportunity to
detect the fraud; (7) whether the plaintiff initiated the stock transaction or
sought to expedite the transaction; and (8) the generality or specificity of the
misrepresentations.
Kennedy, 814 F.2d at 804 (quoting Zobrist v. Coal-X, Inc., 708 F.2d 1511 (10th Cir. 1983)
(§ 10(b) claim)). Courts also consider whether allegedly misleading oral statements are
clearly contradicted by written materials. Id.; see also Marram, 809 N.E.2d at 1031.
But the plaintiff has no independent duty to investigate the truth of every statement.
A plaintiff is generally entitled to rely on a statement presented as fact, unless the
statement is so “preposterous or palpably false” that no reliance on it would be reasonable
or justified. Snyder, 333 N.E.2d at 429; Kenda, 329 F.3d at 227; Damon, 87 F.3d at 1480
(quoting Roadmaster Indus., Inc. v. Columbia Mfg. Co., 893 F. Supp. 1162, 1176 (D. Mass.
1995)); Kannavos, 247 N.E.2d at 712-13.
Just as predictions or forecasts may be immaterial, a plaintiff’s reliance on such
“soft” statements may be unreasonable or unjustified as well. As the First Circuit explained,
[P]redictions . . . are actionable only if the forecast might affect a “reasonable
investor” in contemplating the value of a corporation’s stock. . . . While
[predictive] statements may convey the company’s desire for profitable
performance in the future, [where] they do not convey any promises about
future performance and do not project specific numbers that the company will
certainly attain[, n]o reasonable investor would have read the[ ] statements,
especially [when] they are accompanied by cautionary language, as promises
or guarantees of future performance.
Suna v. Bailey, 107 F.3d at 70 (emphasis added) (quoting Colby, 817 F. Supp. at 21); see
also id. at 72 (a reasonable purchaser of securities would not reasonably rely upon or be
mislead by “optimistic predictions of future potential.”); 	Computervision, 90 F.3d at 626
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 73 of 164

83 A plaintiff is not required to prove the defendant’s knowledge of falsity or intent to deceive
to establish either negligent misrepresentation, Snyder v. 	The Sperry & Hutchinson Co., 333
N.E.2d 421, 428, 368 Mass. 433 (1975); Chatham Furnace Co. v. Moffatt,18 N.E. 168, 169, 147
Mass. 403, (1888), or securities fraud under § 410(a)(2), Feldman, 22 Mass. L. Rep. 341 (citing
Marram, 809 N.E.2d at 1027).
74
(“Forecasts are not guarantees of, or insurance policies for, a firm’s future performance,
nor are they understood as such by reasonable investors.”).
Most importantly, where a plaintiff basis a claim for fraud on a written statement, the
plaintiff cannot successfully demonstrate any reliance without first establishing that the
plaintiff actually read the allegedly false or misleading statement. 	See, e.g., Wells v.
Monarch Capital Corp., 1991 WL354938, at *12 (D. Mass. Aug. 23, 1991) (where plaintiff
did not state that he read any of the documents that were allegedly false, plaintiff failed to
establish reliance and fraud claim was dismissed).
d. 	Knowledge of Falsity and Intent to Deceive
Finally, in order to recover for fraud under Massachusetts common law, the plaintiff
must establish the defendant’s knowledge of the statement’s falsity and the defendant’s
intent to deceive, often referred to as the scienter requirement under analogous provisions
of the federal securities law. 83 See Massaro, 559 F. Supp. at 1079 (knowledge requirement
for fraud claims under Massachusetts common law treated as parallel to the scienter
requirement found in federal securities laws). Scienter may be proved by showing that “the
defendants consciously intended to defraud,” Aldridge v. A.T. Cross Corp., 284 F.3d 72,
82 (1st Cir. 2002) (emphasis added), by showing that the defendant “knew the statements
were false when [the defendant] made them . . . ,” Massaro, 559 F. Supp. at 1077 (citing
SEC v. MacDonald, 699 F.2d 47 (1st Cir. 1983)), or by demonstrating that the defendant,
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 74 of 164

75
in making the statement, “acted with a high degree of recklessness” as to the truth of the
matter. Id. Similarly, where liability is predicated on an omission of material information,
a defendant may be liable for reckless failure to disclose; as the First Circuit explained, this
standard requires the plaintiff to prove that the defendant made:
a highly unreasonable omission, involving not merely simple, or even
inexcusable, negligence, but an extreme departure from the standards of
ordinary care, and which presents a danger of misleading buyers or sellers
that is either known to the defendant or is so obvious the actor must have
been aware of it.
Greebel v. FTP Software, Inc., 194 F.3d 185, 198 (1st Cir. 1999) (quoting Sundstrand Corp.
v. Sun Chem. Corp., 553 F.2d 1033, 1045 (7th Cir. 1977)) (additional citations omitted).
But there can be no “fraud by hindsight.” Mississippi Pub. Employees’ Ret. Sys. v.
Boston Scientific Corp., 523 F.3d 75, 90 (1st Cir. 2008); Suna v. Bailey, 107 F.3d at 71;
Serabian, 24 F.3d at 367; Greenstone v. Cambex Corp., 975 F.2d 22, 25-26 (1st Cir.
1992); DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990); Guerra, 2004 WL
1467065, at *25 (quoting In re Galileo Corp. S’holders Litig., 127 F. Supp. 2d 251, 261 (D.
Mass. 2001)). That is, the plaintiff may not rely on:
allegations that assert no more than that because something eventually went
wrong, defendants must have known about the problem earlier. “[A] plaintiff
may not simply contrast a defendant’s past optimism with less favorable
actual results, and then contend[ ] that the difference must be attributable to
fraud.’” Shaw, 82 F.3d at 1223 (quoting DiLeo v. Ernst & Young, 901 F.2d
624, 627 (7th Cir. 1990)).
Boston Scientific, 523 F.3d at 90; see also Romani, 929 F.2d at 880 (fraud claim could not
be based on plaintiff’s “speculat[ion] that defendants committed fraud based solely on the
partnership’s failure to be as profitable as the offering materials indicated was possible”).
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 75 of 164

84 See also Guerra, 2004 WL1467065, at *7 (citing Carney, 135 F. Supp. 2d at 243; Boston
Tech, 8 F. Supp. 2d at 55; In re Peritus Software Servs., Inc., 52 F. Supp. 2d 211, 219 n.1 (D.
Mass. 1999)); Boston Tech., 8 F. Supp. 2d at 56 (“[I]t is not the law that a [federal securities fraud]
complaint is to be judged on the basis of the general flavor derived from an issuer’s collective
statements over a long period of time.”).
76
3. 	Analysis
The Plaintiffs allege that Fincke made various affirmative misrepresentations,
materially misleading statements, and complete omissions of material information that give
rise to liability for fraud, negligent misrepresentation, and securities fraud under § 410(a)(2).
“In this circuit, securities fraud cases are ‘decided by a statement-by-statement analysis in
which the inquiry made is restricted to the immediate context of each statement.’” Blatt v.
Muse Tech., Inc., Nos. Civ.A. 01-11010-DPW, Civ.A. 01-12173, 2002 WL31107537, at *6
(D. Mass. Aug. 27, 2002) (quoting Carney, 135 F. Supp. 2d at 243).84
a. 	General Allegations
The Investors raise several general allegations of fraud and misrepresentation in
both the Complaint and the Plaintiffs’ post-trial brief. The Court characterizes these claims
as “general” in nature, because the Investors neglected, at times, to specify which
transactions or investments 	were affected by the alleged misrepresentations, which
specific documents contained the alleged misrepresentations, or how specific statements
were false or misleading. 	They preferred instead to rely on more general, and at times
grandiose, claims of wrongdoing. The general allegations of fraud or misrepresentation
involve representations or omissions related to projections, problems with vendors caused
by overdue payables, the Philips litigation, and the Cadent litigation.
I. 	Projections
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 76 of 164

85 In addition to the allegations in parts A and B, the Investors also stated that the
projections were false because “[t]here was an inadequate basis, at any time, for the representation
by Fincke that the Access technology was proprietary to Access and did not infringe any
competitor’s patents.” The Court considers this a matter largely separate from the claims involving
the projections, and will discuss this particular allegation in a separate portion of the memorandum.
77
In the Plaintiffs’ post-trial brief, the Investors assert:
Fincke’s representations to the Investors . . ., which they relied upon, were
knowingly false, because of the following:
A. 	There was inadequate basis, at any time, for the sales or income
projections Fincke provided.
B. 	There was inadequate basis, at any time, for the manufacturing
projections Fincke provided.85
Apart from their obvious hyperbole, these types of allegations do little to assist the
Court in evaluating the Investors’ claims. 	Nonetheless, because the Investors have
provided a modicum of supporting examples related to these particular claims, the Court
will analyze each to the extent possible given the lack of specificity.
A. 	SALES AND INCOME PROJECTIONS
Even if the Investors had identified with the requisite specificity which sales and
income projections and which investment transactions the allegation refers to, the Court
finds that they have nonetheless failed to demonstrate that sales or income projections
generally lacked an inadequate basis. 	Instead, the Court finds that the weight of the
evidence supports Fincke’s contention that, while perhaps overly optimistic, the sales and
income figures were not false representations of Fincke’s actual beliefs regarding what
Access could achieve, see In re PDI Sec., No. Civ.A. 02-211(GEB), 2006 WL3350461, at
*4 (D. N.J. Nov. 16, 2006) (plaintiff must show a lack of sincere belief) (collecting cases),
nor were they unreasonable in light of the information known to Fincke and the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 77 of 164

86 Bounty testified that he received information on sales from Klegerman and Dufford, on
manufacturing from Nawn, and on marketing from Heer, although he sometimes obtained
information from others at the company as well. Trial Tr. day 2, 81-82.
87 At one point in his testimony, Grosberg intimated that some of the actual numbers in the
financial models were incorrect. He testified that after certain (unspecified) data were entered, he
“later realized that certain orders were debooked as a result of things that happened in the
company.” 	Trial Tr, day 5, 166. But there was no credible testimony to the effect that any false
data was intentionally entered by Fincke or anyone else, and Grosberg also testified that any
changes in actual numbers were corrected as soon as the change became apparent.
Radley also testified that Fincke provided the Board with “actual figures that were 100
78
circumstances in which they were generated. In re Cambrex Corp. Sec. Litig, No. 03-CV-
4896(WJM), 	2005 WL2840336, at *13 (D.N.J. Oct. 27, 2005) (“a plaintiff must not only
allege the statements are false, but must also allege why there is no reasonable basis for
the forecasts.”)
Sales and income projections were contained in various documents presented to the
Investors, primarily spreadsheets accompanied by narrative descriptions of information
contained in the spreadsheets. Two types of financial spreadsheets were maintained at
Access. 	Early in his employment as a contractor at Access, Jay Bounty created the
Financial Forecast Model, which he continued to maintain as the company’s CFO. Trial Tr.
day 2, 15-17. The Financial Forecast Model contained various data entries that were linked
such that the inputted data – both actual results and estimates – would affect projected
financial outcomes. 	Trial Tr. day 2, 23. 	The Financial Forecast Model was stored on
Bounty’s computer, and data could only be entered by Bounty, Grosberg, or Fincke.
Bounty testified that the Financial Forecast Model was updated regularly with actual data
as it became available. Actual results were ascertained from Access’s books and records
or from management personnel who oversaw different aspects of the company. 86 Trial Tr.
day 2, 20. There was no coherent evidence that any of the actual numbers were false,87
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 78 of 164

percent untrue.” 	Trial Tr. day 9, 121-123. 	He could not point to any document containing the
allegedly untrue figures, and then stated that the false actuals were given by Fincke orally. The
Court declines to give any weight to this accusation. 	No independent testimony or evidence
supports the claim that Fincke provided the Investors or the Board with false reports of actual
company results. And, at any rate, Radley was unable to provide any specific example of Fincke
having provided false reports of actual results in connection with any of the investments.
79
and there was no indication that figures in the spreadsheet were changed without Bounty’s
knowledge prior to the distribution of information from the model to the Investors or the
Board. Trial Tr. day 2, 32-33.
Grosberg assisted Bounty with the creation of the Financial Forecast Model and also
maintained his own financial forecasting model to track Access’s weekly cash flow (the
“Cash Flow Model”). 	Trial Tr. day 2, 59. 	The purpose of the Cash Flow Model was to
assist managers in running the company and to generate a weekly cash requirement
report. Similar to the Financial Forecast Model, the Cash Flow Model relied upon a series
of linked variables, including certain assumptions, and would be updated and maintained
with actual results on a regular basis. 	Trial Tr. day 2, 54. 	Bounty testified that he and
Grosberg regularly reviewed and discussed both financial models; they discussed financial
matters and cash flow at least weekly, working to ensure adequate cash was available to
support the business and make payroll. Trial Tr. day 2, 59-60.
The Financial Forecast Model was used not only for internal assessments of
Access’s actual and projected performance, but also provided the basis for information
provided to the Investors. Bounty would use the Financial Forecast Model to create KPIs
(spreadsheets containing Access’s “key performance indicators”) and related narratives
summarizing critical financial, sales, and manufacturing results and projections that would
be provided to the Investors and, later, the Board. According to Bounty, “the role of the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 79 of 164

80
KPIs was to advise the Board and the management of the company with how well the
company performed for that particular period of time against the projection for that period
of time.” Trial Tr. day 2, 53.
In addition to gathering actual data related to company performance, Bounty and
Grosberg worked with Fincke and Access managers to obtain the company projections that
underlay the assumptions and determined outcomes in the Financial Forecast Model. Trial
Tr. day 2, 23. Bounty testified that actual and projected sales figures were received from
Fincke and members of the Access sales team; manufacturing information was obtained
from Fincke and others responsible for manufacturing, such as Nawn and Rice and
projected shipments were based on estimates from manufacturing personnel, although
Fincke was also intimately involved in providing shipping estimates. Trial Tr. day 2, 81-82.
In addition, Grosberg noted that the projected average selling price that went into the Cash
Flow Model was updated almost daily as information was received from Fincke and other
members of the sales team. Trial Tr. day 5, 124-125.
The projections, once made, were not static; they were revised at the impetus of
Bounty, Grosberg, Fincke, or other Access personnel when circumstances changed or
clarification of the assumptions was required. 	Fincke reviewed all assumptions and
projections prior to release of the financial information (through KPIs and the related
narratives) to the Investors or the Board. 	Trial Tr. day 2, 30-31. 	Bounty recalled that
Fincke would at times review the financial models, make notations, and request that
changes be made to some of the underlying numbers. Trial Tr. day 2, 23. 	Grosberg
testified likewise. In fact, according to Grosberg, although he could not remember details
of a specific instance, Fincke would instruct him to change projected numbers in the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 80 of 164

81
models, resulting, Grosberg said, in cash inputs larger than he originally anticipated. Trial
Tr. day 5, 125-27.
Grosberg could not recall a specific time when changes were made to projections
or assumptions at Fincke’s behest, but testified that there were times when “we believed,
for instance, that we may not be able to for a period of four weeks, for instance, ship any
product. I would present that to Mr. Fincke and Mr. Fincke would say, ‘No, you’ll put 500
in, 500 in, 500 in, 500 in an Excel model.’” Trial Tr. day 5, 126. Not only was Grosberg
unable to point to the document where this change was allegedly made, but he also did not
clarify who the “we” were that believed shipments would be halted for four weeks. In light
of this lack of specificity, the Court is unable to credit this portion of Grosberg’s testimony
as referring to a specific event.
Grosberg further testified that Fincke was not only intimately involved with the
preparation of the cash projections, but would also edit the projections, particularly with
respect to revenue. 	Grosberg said Fincke’s revisions would always show a cash
requirement less than what Grosberg believed was necessary to run the company. 	He
claimed that he would be instructed by Fincke to “back into” predetermined cash
requirements, necessitating changes to the Cash Flow Model required to reach the target
number. 	Again, he could not recount a specific instance, document, or transaction
associated with this general recollection.
Fincke described the process by which he would create the projections provided to
Bounty and Grosberg as a collaborative process between himself and other Access
management personnel. According to Fincke, projected sales numbers were prepared with
input from various sales personnel, including Klegerman, Heer, and Ide. The Court found
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 81 of 164

88 Although little evidence on the matter was admitted, at least one document supports
Fincke’s characterization of the process used to generate sales estimates as a collaborative effort.
For example, one email from Fincke to several Access managers, including sales personnel,
discussed a sales meeting to be held on April 14, 2003. Included with the exhibit were several
pages of detailed information on various “sales channels” and projected sales figures for different
markets. The email requested sales management employees to prepare presentations and written
materials for discussion of the April sales goals. Pl.’s Ex. 68; Def.’s Ex. 47. At trial, the Court noted
that the email had been sent in the early morning on the date the meeting was to be held. Upon
inquiry as to whether it was customary for Fincke to send such an extensive request to employees
on short notice, Fincke explained that this meeting, and the employees’ participation therein, had
been anticipated for some time, as sales meetings were held on a regular basis. Trial Tr. day 4,
120.
82
Fincke’s testimony on this subject credible and consistent with both Bounty’s and
Grosberg’s testimony that projected figures were obtained from both Fincke and the sales
team. 88 The Investors have not directed the Court’s attention to discrepancies between the
sales projections contained in the financial models and information gathered from the sales
team to assess sales prospects.
Based on the testimony and documents in evidence, the Court concludes that the
Investors have not demonstrated that Fincke falsely provided projected sales figures that
he believed were unobtainable; nor have they shown that the sales projections lacked a
reasonable basis. See PDI Sec., 2006 WL3350461, at *4; Cambrex, 2005 WL2840336, at
*13. 	Rather, the assumptions regarding sales that were incorporated into the financial
models and presented to the Board through KPIs and financial spreadsheets were based
on information from various Access employees with relevant knowledge. While Fincke may
have contributed to the formulation of the sales numbers, there is no evidence that he
disregarded contrary evidence that would have identified the projected sales figures as
unreasonable at the time they were entered into financial models or presented to the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 82 of 164

83
Investors. 	See Computervision, 90 F.3d at 629 (plaintiffs have duty to plead factual
allegations sufficient to allow inference that defendants did not consider data).
Likewise, the Investors have failed to carry their burden regarding allegations that
the financial information and projections were unreasonable or false representations of
Fincke’s then present belief. See PDI, 2006 WL3350461, at *4. The testimony with regard
to the financial models showed that other highly qualified individuals were involved in all
aspects of the financial forecasting – from formulating the assumptions, to gathering and
entering actual and projected data, through maintaining and updating the Financial
Forecast and Cash Flow Models. In fact, the testimony with regard to the integrity in the
development and maintenance of Access’s financial forecasting models outweighed any
credence the Court could give to generalized, non-specific claims that Fincke revised
projections, assumptions, or other factors in the model to achieve predetermined
misleading or unreasonable results for presentation to the Investors or to the Board.
B. 	MANUFACTURING PROJECTIONS
The Investors also assert that there was an inadequate basis for the manufacturing
projections presented to the Investors and the Board. With the exception of the Company
Overview, discussed below, the Investors did not identify which documents they allege
were false or misleading on account of manufacturing projections. Instead, they assert that
manufacturing was consistently projected to produce and ship 2000 units per month (or 100
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 83 of 164

89 The 100 unit per day or 2000 unit per month manufacturing rate is actually drawn
primarily from estimates of unit shipments. Because manufacturing, production, and shipment of
units are interrelated (in that Access generally projected to ship most, if not all, units produced in
a particular time frame), and often referred to interchangeably in witness testimony and admitted
evidence, the Court will consider them in tandem as well.
90 For instance, in the projections attached to the March 13, 2003 email from Fincke to the
Investors in connection with the initial discussions leading to the April 2003 Transaction, shipments
were projected to reach at least 100 units per day in April, with increased production and shipments
monthly thereafter. Pl.’s Ex. 13.
91 For example, in the Weekly Cash Flow Projections spreadsheet included in the April
Board Meeting presentation materials, shipments were projected at 250 for the first week of April
(a rate of 50 units per day), and thereafter through July of 2003, shipment projections fluctuated
between 300 and 450 per week, with a fairly consistent projection of 375 units per week (or 75 units
84
units per day). 89 The Investors claim that this projection was misleading or false and that
“all projections provided by Fincke to the Plaintiffs based on this capacity were knowingly
false statements of material fact . . . .”
But the Plaintiffs’ allegation that all manufacturing forecasts were premised on
consistent production of 100 units per day is significantly overstated. The Business Plan,
dated October 18, 2002, disclosed that manufacturing was, at that time, producing units at
a rate of 125 to 200 units per week, with a goal of reaching 250 per week in November, 300
per week in December and 425 per week thereafter – none of these projections equate to
production of 100 units per day. 	Pl.’s Ex. 107. 	During early March 2003, when Fincke
began 	discussions 	with 	the 	Investors 	regarding 	additional 	funding, 	Fincke 	clearly
anticipated in the projections and assumptions underlying the financial models that Access
could achieve a higher level of production, reaching 100 units per day or more.90
But subsequent manufacturing projections were revised, at times downward and at
other times upward, as the company gained more experience and additional information
became available. 91 This is consistent with the testimony of several witnesses to the effect
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 84 of 164

per day). Def.’s Exs. 51, 52, 68.
At the May Board Meeting, however, shipment projections were revised upward. As the
presentation materials note, Access achieved the production of 100 units in one day during the last
week of May, apparently as a result of the influx of materials necessary to complete a large number
of units. This achievement drove an optimistic objective to thereafter produce 600 units per week
(120 units per day) through July of 2003. Pl.’s Exs. 61, 77.
The May projections were not achieved, although shipment rates during June of 2003 rose
somewhat. The Weekly Cash Flow Projections spreadsheet attached to the June Board Meeting
presentation materials shows actual shipments between 300 and 500 units per week, with projected
shipments ranging from 375 to 500 (a majority of the projections being 375) per week through the
remainder of July and August, and then increasing to 600 units per week in September. Def.’s Ex.
68.
These later projections, unlike those contained in the Business Plan or Company Overview,
are not so clearly tied to any particular investment transaction. However, the fact that projections
were changed over time tends to support Fincke’s argument that manufacturing projections were
not static, monolithic figures devoid of connection to business realities. Instead, Fincke, and others,
considered changing circumstances and revised the projections in response.
85
that manufacturing and shipping estimates included in the financial models and given to the
Investors and the Board were not static, but were based on information received from
several sources, including Fincke and other manufacturing employees. As Rice testified,
although Fincke generally wanted Access to produce 100 units per day, “clearly we could
only produce so many, so he accepted what we produced.” 	There simply was not a
constant projection of 100 unit per day shipments, as the Investors have alleged. 	See
Computervision, 90 F.3d at 634-635 (finding no liability for securities fraud where
defendant’s document did not say what plaintiffs asserted it did).
Nonetheless, given that many of the projections did contemplate Access’s ability to
ultimately achieve that level of production, the Court will examine the Investors’ claims in
this regard more closely. 	The Investors first attempt to support their fraud and
misrepresentation claims regarding manufacturing projections by arguing that Fincke failed
to present evidence that supported the reasonableness of the manufacturing goals. It is
the 	Investors’ 	burden, 	however, 	to 	demonstrate 	that 	Fincke’s 	projections 	were
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 85 of 164

92 Because the Access AED was being marketed in many foreign countries, one particularly
difficult challenge, at least early on, was deciding to which language a particular device should be
86
unreasonable or lacked an adequate basis in the information available to Fincke at the time
the projections were provided. See PDI, 2006 WL3350461, at *4.
Next, in support of their contention that the 100 unit per day goal was unreasonable
or inadequately supported, the Investors allege that Fincke was advised by “numerous
management employees” that Access could not achieve production of 100 units per day.
Nawn, Rice, and Bowers each testified that 	they believed the 100 unit per day
manufacturing goal could not be maintained given the resources available during the time
their opinions were expressed. 	Trial Tr. day 5, 20-22, 102-103; day 7, 139-140.
Understanding the testimony in context, however, is essential to determining whether
Fincke’s projected manufacturing figures were so unreasonable as to give rise to claims
for fraud or misrepresentation.
Manufacturing the Access AED was a somewhat complicated affair, involving a
combination of both in-house assembly and partial manufacturing of control boards by
contract manufacturers. Generally, Access would buy raw parts for the units from suppliers,
which they would “kit up” (i.e., gather together certain components); the kits were then sent
to contract manufacturers to build the boards to a specified level; the partially completed
boards would be returned to Access and tested; Access employees would complete the
final assembly; the units were put through more test operations; and, assuming passage
of final testing, the AED would be shipped or placed in inventory.
Several factors complicated the manufacturing process. 	For example, the AEDs
could be configured in a variety of ways depending on customer specifications. 92 Most
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 86 of 164

configured. The choice of language had to be made early in the manufacturing process, which
required an accurate estimate of the number of units that would be needed in a particular language;
otherwise, the company would be stuck with unsaleable units in the wrong languages or the units
would have to be deconstructed and the language changed. According to Nawn, this language re-
configuration amounted to 20-25% of the manufacturing disruptions. Trial Tr. day 5, 45. Flexibility
was later injected into the process through the use of a dual-language chip; most of the units would
have English as one available language, which made them more marketable for sale and lessened
disruptions caused by language configurations.
87
significant, however, were manufacturing problems caused by lack of raw materials and by
product changes prompted by safety concerns or customer demand. Capital constraints
often led to shortages of raw materials required for assembly of the “kits” sent to the control
board manufacturers. Absent a control board, an Access AED could obviously not be built.
In addition, changes to the product would result in manufacturing delays or slow-downs as
the changes were being introduced or previously completed units were reconfigured to
incorporate the changes.
Given the level of disruptions associated with these complications, Nawn believed
that Access would not be able to manufacture 100 units per day. Trial Tr. day 5, 20-21.
He discussed his opinion with Fincke on several occasions, expressing the difficulty of
producing 100 units per day due to the lack of parts, product changes, and sales
configurations. 	Nawn testified that, when he communicated this opinion, Fincke would
reiterate that 100 units per day remained the goal. Trial Tr. day 5, 22-23. Bowers and Rice
similarly testified to telling Fincke more than once that the 100 units per day level could not
be achieved without more people and investment into production. Trial Tr. day 5, 102-103;
day 7, 139-140. 	While it was clear from the testimony that manufacturing at Access
suffered from a variety of difficulties, this testimony does not inform on the question of
whether Fincke’s projections as to future production levels were unreasonable. None of
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 87 of 164

93 The Investors did elicit the testimony of one witness and produced one document related
to the issue of whether Access’s manufacturing capacity was sufficient to produce 100 units per
day. 	The testimony came from Bowers, who claimed to have done an informal analysis of
manufacturing flow by watching employees engaged in the manufacturing process, timing them at
manufacturing stations, and looking at the flow of manufacturing through different stations. Bowers
testified that he told Fincke the conclusions he reached, which were presumably less than
favorable, but claimed that Fincke “wouldn’t listen.” 	But Bowers did not say when this event
occurred, nor could the Court assess the adequacy of his informal review of the manufacturing
process. This vague and otherwise unsubstantiated testimony falls short of demonstrating that
Fincke presented manufacturing projections despite evidence that the projections could not be
reached because manufacturing capacity was insufficient. 	Furthermore, Bowers went on to
describe that Fincke did make changes to manufacturing flow (which Bowers believed was still
inadequate) and worked toward improving manufacturing processes. Trial Tr. 135-136.
The Investors also introduced copies of slides from a presentation given by Analytics
Operations Engineering, Inc. (“Analytics”) regarding an “operations audit.” 	Pl.’s Ex. 122. 	The
presentation slides (“Analytics Presentation”) are dated July 8, 2003, although the information in
the presentation shows that the audit was actually performed early in June. 	The “Problem
Statement” in the Analytics Presentation is stated as the “Need to . . . Produce consistently at 100
per day; Ramp seamlessly from 100 to 200 in 50-unit increments; [and] Utilize resources efficiently.”
The presentation expressly noted, however, that the described analysis was preliminary and the
numbers included therein needed to be validated through better data collection.
Radley referred to the Analytics analysis as one piece information known to Fincke that cast
doubt on Fincke’s ability to obtain his stated projections. According to Radley, this study showed
that producing 100 units per day was “absurd.” Trial Tr. day 9, 123. The Court was not provided
with a copy of the Analytics report apart from the copies of presentation slides, and the Court does
not interpret the Analytics Presentation as reaching the conclusion given by Radley.
The presentation identified factors influencing the production rate and analyzed capacity.
It also gave specific suggestions on how manufacturing could be improved. 	The Analytics
Presentation identified a number of changes that would be required in order to produce 150 units
per day (such as outsourcing additional manufacturing processes and adding an additional
manufacturing station). 	The capacity to produce 100 units per day is not identified as then
unobtainable, although the presentation addresses changes to the process Analytics identified as
needed in order to reach that level. The Analytics Presentation also detailed the types of changes
that would improve production, including making logistical changes to increase capacity, balancing
the assembly line, improving inventory organization, building up resources, and improving
forecasting.
The Analytics Presentation also discussed Access’s manufacturing fall-out rate – i.e., the
percentage of units rejected at some point during production. According to the presentation, the
fall-out rate during early June was above 30%. Fincke was concerned with this level of fall-out and
discussed the issue with Nawn and Rice. Trial Tr. day 5, 26. Nawn and Rice then took a more
current look at production and determined that, by July 15, 2003, the underlying causes of the fall-
out rate had been addressed and the rate had been lowered to 14%-16%. Trial Tr. day 5, 40; Pl.’s
Obj.-to Ex. 9. Although Nawn testified that this rate was still not “acceptable,” Trial Tr. day 5, 41,
neither the testimony nor the documents demonstrated that either level of fall-out precluded Access
88
the testimony sufficiently demonstrated the inadequacy or unreasonableness of the 100
unit per day projection if sufficient resources were available.93
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 88 of 164

from achieving its stated projection estimates. For this reason, and because the Analytics
Presentation did not state that the estimated level of production could not be achieved, the Court
does not find the report persuasive in supporting the claims the Investors have raised.
And, finally, the Analytics study was conducted subsequent to the late 2002 and April 2003
investments. 	The Investors have failed to connect the Analytics Presentation to projections
provided in connection with their other investments.
89
Fincke continually anticipated, in connection with additional investments, that those
adequate resources would be made available, allowing the company to increase production
levels and ship more units. He clearly overestimated the degree to which additional funding
and revenues would improve the availability of raw materials and did not foresee the
degree to which product changes necessitated by safety or customer concerns would slow
production in the future, but these failures of foresight are not the stuff of which fraud and
misrepresentation claims are made.
While management concerns regarding manufacturing communicated to Fincke
raise questions about the sincerity of his optimism, the underlying causes of management’s
concerns – primarily raw material shortages and product changes – were disclosed to the
Investors and Board. See In re Trump Hotels S’holder Derivative Litig., Nos. 96 Civ. 7820
DAB, 96 Civ. 8527 DAB, 2000 WL1371317, *14 (S.D.N.Y. Sept. 21, 2000) (disclosure of
underlying problems or risks precludes claim that more disclosure was required). 	The
Court concludes that the Investors have failed to establish, by a preponderance of the
evidence, that the projections of future manufacturing levels were unreasonable, false or
misleading.
C. 	EUROPEAN DISTRIBUTORS
The Investors claim that the problems with the European Distributors caused them
not to meet their contractual minimums, “which were a basis for sales and revenue
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 89 of 164

94 Although copies of Access’s distribution agreements with Dolby and Kivex were
produced, Pl.’s Ex. 8; Pl.’s Obj.-to Ex. 6, Fincke testified that the minimum orders detailed in the
agreements were not used as the sole basis for sales projections. 	Trial Tr. day 3, 53. 	This
testimony was consistent with testimony by Bounty and Grosberg that new order projections were
based on estimates provided by Fincke and other sales personnel. Trial Tr. day 2, 141; day 5, 124-
125.
90
projections provided to the Investors and Board members.” They further state that “the poor
relationship with the European Distributors made all of the projections provided by Fincke
substantially and materially misleading.” Bounty, Grosberg and Fincke, however, testified
that sales projections were based on information obtained from various sales employees,
including Fincke. Trial Tr. day 1, 86; day 2, 141; day 5, 124-125. It does not appear that
the minimums contained in the distribution contracts were the sole basis on which projected
sales were based – in fact, the Investors did not show how the contractual minimums
related to the projected sales orders. 	In short, 	there is no evidence that any expected
downturn in European orders were ignored in providing expected order rates and the
Investors have not even directed the Court’s attention to any evidence showing how order
rates were actually affected by the alleged failure of European Distributors to place
orders. 94 The fraud, negligent misrepresentation, and securities fraud claims based on
these assertions thus fail. See, e.g., PDI, 2006 WL3350461, at *3.
D. 	PROJECTIONS OR GOALS?
In their post-trial Brief, the Plaintiffs say that “none of the documents provided to the
Plaintiffs on which they relied indicated that the projections, assumptions, and statements
were merely goals.” The Investors insist that the projections generally, and the 100 unit per
day projection particularly, were really just “goals,” which Fincke did not expect to achieve.
Relying on testimony given by Nawn and Rice, the Investors draw a distinction between
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 90 of 164

95 Nawn testified that he interpreted the 2,000 unit per month figure to be a “goal,” but it
was not a “projection” given from Nawn to Fincke of what “manufacturing operations would or could
do . . . at some specific time.” Trial Tr. day 5, 50.
96 The Court does not interpret the Investors’ argument to be a semantic one, despite the
pains they took to elicit testimony on subtle differences in the witnesses’ understanding of the
meanings of “forecast,” “projection,” and “goal.” Nor would the Court agree with such an argument,
to the extent it was made. The documents provided to the Investors tend generally to conflate these
terms, sometimes using them interchangeably and other times distinguishing their use.
For example, the Business Plan, authored in October of 2003, discussed manufacturing
“goals” for subsequent months. 	In the discussion of risk factors, however, the Business Plan
referred to Access’s “projections” and “forecasts.” 	The Company Overview disclosed that it
contained “new projections for orders, inventory builds, unit shipments, average selling price, and
planned staff increases” and, in discussing the 2,000 unit per month production figure, the
Company Overview described it as “the basis for our previous production and shipment forecasts.”
Immediately following, the document explains the reasons for the failure to achieve that production
level, describing the actual results as “47% of our goal.” In the discussion of the price increase, the
Company Overview also characterized increased prices as goals and described the “forecasted”
average selling price. Def.’s Ex. 33.
The April Board Meeting presentation materials also used the term “forecast” to describe
sales projections, but then distinguished the forecasts from the confirmed and expected orders for
the remainder of the month (which were less than those previously forecast). The Finance section
referred to “projections” in connection with the weekly cash flow model, and the Inventory section
referred to the company’s “goal” with reference to the backlog. Def.’s Ex. 68.
The KPIs and associated narrative for May further differentiated between “actual,” “plan,”
and “goal” figures, with the “planned” numbers consistently at or below the stated goals. Def.’s Ex.
55. Fincke explained that the “goals” described in that document related to projections from Access
sales personnel and reflected the business they were attempting to secure. While Fincke had a
role in establishing those goals, he also explained that the “goal” numbers in that document
represented potential business and were not used to formulate the projections. The “plan” figures,
however, were the expected numbers, what Access thought it could actually accomplish. Trial Tr.
91
goals and forecasts or predictions. Nawn and Rice both testified that a “goal” represents
a level of achievement in production or sales the company would like to reach, while
predictions or forecasts required more supporting data. Trial Tr., day 5, 49-50, 117. For
example, according to Nawn, the 100 unit per day or 2,000 units per month production level
was a consistent “goal,” but was not a basis for projected shipment estimates he gave to
Fincke. 95 Trial Tr. day 5, 20-22. Grosberg, Bowers, and Rice also testified that they could
not recall Fincke ever informing the Board that the 2000 unit per month projection was a
“goal.” 96 Trial Tr. day 5, 105, 151-152; day 7, 139-140.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 91 of 164

day 1, 144.
92
The Investors claim that they were never informed that the projections were simply
goals, and therefore the projections were false or misleading because they were presented
as projections that Access expected to actually achieve. The Court does not find, however,
that general company goals were used in lieu of reasonably formulated projections where
the goals and the projections did not coincide. 	As previously explained, the projections
included in the financial models were provided through more extensive and collaborative
analysis. And where those projections coincided with purported “goals,” the Court finds that
those figures were used because Fincke actually believed Access could achieve those
goals at that time. See PDI, 2006 WL3350461, at *4. The Court finds that Fincke did not
represent company “goals” as legitimate projections without an adequate basis for doing
so. Instead, he attempted to provide reasonably-based projections of Access’s expected
performance.
ii. 	Problems with Vendors and Suppliers
In the Complaint, the Investors allege that they, and later the Board, were not
apprised of problems arising from Access’s failure to timely pay suppliers and vendors –
such as the necessity to obtain parts from alternate suppliers that were more costly, had
unreliable lead times, or lacked appropriate upfront qualification by the technical team,
resulting in unnecessary delay and modification to the product. But the Investors have not
pointed to any specific statements that were false or misleading related to problems arising
from Access’s overdue accounts payable. 	Furthermore, the Court finds that those
difficulties were adequately disclosed to the Investors. Computervision, 90 F.3d at 626.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 92 of 164

93
At no time during Fincke's tenure at Access did the company have sufficient working
capital to fund its operations. The lack of cash handicapped every aspect of the company,
especially its ability to obtain raw materials required to produce enough AEDs to satisfy
orders and generate more cash. 	And, as Access began accruing overdue accounts
payable to suppliers, the ability to obtain additional parts to continue manufacturing became
ever more restricted. These problems were well known to Access employees, Fincke, the
Investors, and the Board. 	Regardless of whether Fincke, the Investors, or the Board
maintained an optimistic outlook on the future, the looming cash constraints were obvious
to all. As Moriarty explained:
[T]here was a constant need for additional working capital. . . . It seemed like
an endless requirement for discussion about working capital, but it was
always interspersed with the good news first. . . . We didn't focus on the bad
news that came later, and we focused on whether or not we were going to
put in some more money.
Trial Tr. day 6, 131.
At various times during trial, the Investors professed ignorance of the severity of
Access’s problems meeting its accounts payable. Moriarty testified that, as of April 2003,
he was unaware of the extent of problems with the vendors and was not aware that
vendors were refusing to ship parts due to Access's non-payment or that suppliers were
changed to acquire new parts. Trial Tr. day 6, 106-109. The Court finds, however, that
Moriarty was made aware of the severity of the problem by at least the end of March 2003
– MSL had drafted on its letter of credit guaranteed by him, he had discovered that Access
was behind in its rent, and in the March 27, 2003 email from Fincke, he was made aware
of the fact that second source vendors were being solicited to obtain additional parts. Trial
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 93 of 164

94
Tr. day 4, 64-65, 97-98; day 5, 149. Moreover, his deposition testimony contradicted his
assertions at trial. 	At his deposition, Moriarty testified that, at the time he invested
additional funds in March 2003, he knew that “[Fincke] was having horrible times with
suppliers . . . to the point where they wouldn't ship him anything [and] he would have to
clean up these credit issues to move forward.” Trial Tr. day 6, 108-109.
The other Investors were also made aware of the extent of Access’s debt to its
suppliers and other vendors. Shortly after Access began shipping product domestically and
internationally, relationships with its vendors and suppliers quickly became strained as the
overdue accounts grew. This situation was disclosed in the Business Plan distributed in
October of 2002, which stated:
Access at September 30, 2002 had accounts payable of $1,770,383,
including substantial amounts owed to the suppliers of components for its
products. The suppliers may suspend shipments to Access or insist upon
COD payment terms. The suspension of shipments could prevent Access
from manufacturing units. The imposition of COD payments terms could
strain the cash resources of Access.
Pl’s. Ex. 107.
And, in addition to the disclosure in the email to Moriarty noted above, the Company
Overview distributed in March 2003 contained numerous references to the depth of
Access's problems with vendors caused by its failure to pay on its severely past-due
accounts. The Company Overview stated that, at the end of February 2003, Access had
accounts payable of $1.85 million aged at over 100 days, that Access was “unable to
procure raw materials . . . due to significant past due balances and credit issues with
certain key parts vendors . . .,” which “led to many of the production difficulties” at Access.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 94 of 164

95
In short, the Investors were well aware that Access’s precarious financial situation
had resulted in problems with various vendors. 	Fincke made no affirmatively false
representations in this regard, nor did he omit this material information in statements made
to the Investors in connection with their Investments. For these reasons, the Court finds
that the Investors have failed to establish liability for fraud, misrepresentation or securities
fraud on this basis.
iii. 	Investment Required
The Investors generally allege that Fincke misrepresented or made false statements
regarding the amount of money Access needed to become cash flow positive. 	In
connection with the initial investments made by Moriarty and Connolly in 2001, the
Investors say that Fincke represented to them that the amounts loaned would be adequate
to support Access until it could generate sufficient cash to fund its operations. 	The
Investors claim that this was an affirmative misrepresentation because, in an email to
several Access management employees on May 31, 2002, Fincke characterized Moriarty’s
investment as “bridge funding” that would “be minimal for our short-term needs while we
continue to hold further rapid buildup of product quantities.” 	He also noted that he was
speaking with other investors, who, he anticipated, would be capable of providing more
long-term funding. Pl.’s Ex. 2.
At this time, however, each of Moriarty and Connolly was aware that the other was
investing in Access. 	And, in the spring of 2002, Connolly had begun discussions with
Radley regarding a potential investment in Access, evidencing his understanding that
Access was looking for additional investments. Given the close pre-existing relationships
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 95 of 164

96
between Fincke, Moriarty, and Connolly, coincident with Radley’s interest in a possible
investment at the time Fincke sent the referenced email, the Court concludes that Moriarty
and Connolly were not misled into believing that Access would require no additional
investments to sustain operations. While Fincke may have maintained an optimistic view
that the funds would see Access through to self-sustainability, the ultimate failure of the
company to reach positive cash flow as a result of the initial investments does not, without
more, give rise to liability for any statements Fincke may have made to the effect that he
believed that the funds would be sufficient. See Computervision, 90 F.3d at 626; Polin v.
Conductron Corp., 552 F.2d 797, 805 (8th Cir. 1977) (Even though “defendants’ roseate
economic anticipations were doomed, . . . economic prognostication, though faulty, does
not, without more, amount to fraud.”).
In the fall of 2002, Fincke is alleged to have again falsely represented that the
additional investments made at that time would be sufficient and that no additional
investment would be needed. The Investors have failed to demonstrate, however, that any
such representation was known to be false when made. 	First, such a representation,
necessarily invoking a belief as to how events would unfold in the future, is not one of fact,
but of prediction . The mere fact that the anticipated outcome did not come to fruition is
insufficient to establish its falsity when made. See, e.g., Computervision, 90 F.3d at 626;
Polin, 552 F.2d at 804. Furthermore, there is no indication that Fincke did not believe the
funds would be sufficient, nor have the Investors demonstrated that Fincke lacked a
reasonable basis for any such statement. 	See PDI, 2006 WL3350461, at *4; Cambrex,
2005 WL2840336, at *13.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 96 of 164

97
And nothing in the Business Plan distributed to the Investors in the fall of 2002
conclusively stated or ensured that the investments at that time would certainly be
sufficient. The Business Plan clearly described Access as “an early stage company in a
precarious financial position,” and described in much detail the risks attending an
investment in the company. Among the risks associated with investing in the company, the
Business Plan stated:
1. Access is an early stage company with no prior experience and limited
resources. 	There can be no assurance that Access will be able to
successfully execute its business plan.
2. Access has operated to date on investor capital and borrowed funds.
Through September 30, 2002 it experienced an operating loss of $6,029,680.
The investment by investors sought by this offering is required to enable
Access to operate until cash generated by operations is sufficient to cover its
operating costs. 	There can be no assurance that Access will reach cash
break-even with the funds provided by this offering. If it does not, Access will
exhaust its cash. Access has no sources of additional funds and in such
event might have to cease operations.
3. Access at September 30, 2002 had accounts payable of $1,770,383,
including substantial amounts owed to the suppliers of components for its
products. The suppliers may suspend shipments to Access or insist upon
COD payment terms. The suspension of shipments could prevent Access
from manufacturing units. 	The imposition of COD payments terms could
strain the cash resources of Access.
. . . .
5. Access is indebted to certain investors in the aggregate amount of
$4,600,000. Access is in arrears in its obligations to such investors, entitling
them to demand payment in full of their notes. 	Access does not have the
ability to make such payments and would have to cease operations or seek
bankruptcy protection in such event.
Pl.’s Ex. 107.
The Business Plan clearly disclosed that “ if Access is unable to generate cash flow
within the period forecast, . . . Access will be required to seek additional investors or cease
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 97 of 164

97 The Investors have made a similar argument relative to the investments made in April
2003. Because those allegations involve the Company Overview, which is discussed below, the
Court reserves the discussion for that section of the memorandum.
98
operations.” Thus, to the extent the Investors believed their investments in the fall of 2002
would be sufficient to support the company until it achieved independent viability, that belief
was clearly contradicted by the Business Plan upon which they claimed to have relied in
making their investments. 97 See Computervision, 90 F.3d at 626 (warnings and risks
disclosed could, standing alone, preclude securities fraud claim); Polin, 552 F.2d at 805
(disclosure of contingencies and risks regarding projections undermined securities fraud
claim).
The Court rules that the Investors have not demonstrated that Fincke made an
affirmative, material misrepresentation regarding the amount of money needed to make
Access cash-flow positive. Thus, they have failed to establish liability for fraud, negligent
misrepresentation, or securities fraud on that basis.
iv. 	Philips Litigation and Intellectual Property
According to the Investors, Fincke’s failure to disclose the receipt of the First and
Second Philips Letters prior to the Investors’ loan and equity investments made in 2001and
2002 and in conjunction with the April 2003 Transaction constitutes fraud, negligent
misrepresentation, and securities fraud under § 410(a)(2). 	The Investors argue that
knowledge of these communications would have impacted their willingness to lend money
to Access and would also have been material to their review of the assumptions underlying
the financial projections.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 98 of 164

99
Because the Philips matter was not discussed at all in the documents provided to
the Investors, the Court must determine whether Fincke had a duty to disclose the receipt
of the First and Second Philips Letters.
The Business Plan distributed to the Investors in the fall of 2002 made affirmative
statements regarding intellectual property litigation; it stated:“Access is a defendant in a
patent infringement claim brought by Cardiac Sciences, Inc. . . . The cost of litigation may
have a material adverse impact on Access, even if Access prevails . . . ,” and, further, that
“Access has been advised by its patent counsel that its product does not infringe any
patents known to him. . . . “ Pl.’s Ex. 107. 	Although the last sentence is followed
immediately by a warning that the “opinion” of patent counsel is not assured to be correct
in all respects, these two sections give the misleading impression that the Cardiac Sciences
litigation was the only known threat to Access’s Intellectual Property.
But, although the omission of Access’s receipt of the First Philips Letter rendered
the statement misleading, the Court finds that the threat of actual litigation was too
attenuated at that time to render the omission material. As Pandiscio testified, as of the fall
of 2002, Philips had not seen an actual Access AED, Trial Tr. day 6, 14-15, and Philips did
not respond to Pandiscio’s request for more specificity regarding the nature of its alleged
infringement claims. In fact, Philips did not raise the issue again for several months. The
Court therefore concludes that the omission was not material in light of the indefinite and
ambiguous nature of the infringement asserted during the fall of 2002.
The Investors also argue that Fincke’s failure to disclose the receipt of the First and
Second Philips Letters in the Company Overview and in conjunction with the April 2003
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 99 of 164

100
Transaction constitutes a culpable omission. They argue that the information was material
as the Philips litigation raised potential risks and costs of litigation that were not included
in any projections provided to the Investors.
Unlike the Business Plan, the Company Overview did not broach the subject of
intellectual property litigation. Therefore, Fincke did not have a duty to disclose the Philips
correspondence. Furthermore, to the extent the Investors argue that the projected budget
failed to account for possible litigation costs, the Court finds that the information possessed
by Fincke as of March 2003 was not sufficiently concrete to establish that the projected
figures were unreasonable on account of any failure to include anticipated litigation costs
related to the Philips matter. 	As with the first letter, the Second Philips Letter lacked
specificity and merely requested a meeting with Access representatives. In fact, despite
Elefante’s testimony that he would have disclosed the Philips litigation had he known of the
First and Second Philips Letters, the Court notes that he did receive copies of the
correspondence and apparently did not actually find the matter particularly pressing at the
time the Company Overview was drafted. Because the Philips matter had not yet reached
a level of materiality necessary for disclosure, Fincke did not act unreasonably, recklessly,
or fraudulently in failing to disclose the Philips correspondence.
The Investors further argue that Fincke affirmatively misled the Investors after the
lawsuit was filed by misrepresenting the gravity of the Philips litigation and the ability of
Access to defend or design around the alleged infringements. This claim fails for several
reasons. 	First, the Investors fail to specify which transaction was connected with the
allegedly misleading information, as a result of which they suffered damages. Instead, the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 100 of 164

98 These characterizations of Fincke’s opinion regarding the Philips matter are supported
by a July 11, 2003 memo from Elefante to Fincke and Pandiscio summarizing a meeting that was
held to discuss options relative to the Philips matter. In the memo, Elefante noted that part of the
plan was to gather information to provide to Philips demonstrating that the proposed royalty
payments were too high. The memo also noted that they would explore challenging the Philips
patents. Pl.’s Ex. 32. A subsequent letter from Elefante to the Board members, Connolly, and
Fincke, dated September 12, 2003, summarized the initial strategy discussed at a meeting with
Ropes & Gray. According to that letter, Access was pursuing a “multi-pronged” approach, including
challenges to some of Philips’s patents and a re-design or elimination of certain Access AED
features. 	According to the letter, Access would “put up a fight,” an approach intended to put
Access in a strong negotiating position. Def.’s Ex. 75.
101
arguments raised by the Investors sound in breach of duties owed to them or the company,
and not in fraud or misrepresentation in connection with a specific transaction.
Second, the Investors did not show that any statements Fincke allegedly made
regarding the Philips matter were actually false or misleading. Moriarty testified that Fincke
told him the lawsuit was “nothing” and that Access “had stuff on Philips,” indicating that
Access’s litigation position was strong. According to Moriarty, Fincke expressed Access’s
“need to fight them [Philips].” Trial Tr. day 6, 92, 94. Connolly testified that, after learning
that Philips had filed a complaint, Fincke told him that Access could “handle virtually
anything,” and would be able to re-engineer the Access AED to eliminate any legitimate
infringement issues. Trial Tr. day 9, 31. Radley testified that Fincke told him such lawsuits
were “normal,” he thought the claims were inconsequential, and Access could design
around any infringement issues. Trial Tr. day 9, 98.
Elefante testified that Fincke took an “aggressive posture” toward the Philips matter.
Trial Tr. day 8, 47. He said Fincke did not believe the Access AED infringed some of the
Philips intellectual property claims, thought that some of the Philips patents were invalid,
and insisted that the proposed licensing revenues were too high. 98 Trial Tr. day 8, 45-46.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 101 of 164

102
He also, testified, however, that Fincke seemed willing to get expert advice regarding the
appropriate level of royalties that might resolve the issue. Trial Tr. day 8, 46.
Even assuming that all of this testimony were true – i.e., that Fincke led the strategy
with Philips, that Fincke wanted to aggressively defend against the infringement claims, at
least in part, and that Fincke resisted Philips’s proposed licensing terms – the Investors
have failed to prove that Fincke’s stated position was a false representation of his present
intention or that it was unreasonable based on information at his disposal. To the extent
that the Investors claim his strategy was ultimately unsuccessful (which they have not
shown, as no testimony as to the outcome of the litigation was provided), that argument is
nothing more than an allegation of mismanagement, which does not, standing alone, give
rise to liability for fraud or misrepresentation.
In one respect, however, Fincke did make a material and false statement regarding
Access’s Intellectual Property. The Business Plan plainly stated that: “Access has been
advised by its patent counsel that its product does not infringe any patents known to him.
. . .” Although this statement is followed by the warning that this “opinion” may turn out to
be incorrect, that warning cannot cure the obvious falsity of this clear representation of fact.
Neither Pandiscio nor any other attorney had given a formal opinion related to the Access
Intellectual Property. Fincke testified at trial that he discussed the claims referenced in the
First Philips Letter with Pandiscio and related his personal conclusion that the Access AED
did not infringe any of Philips’s patents. Trial Tr. day 3, 90-91. But this is a far cry from
receiving “advice” from counsel on the matter. 	And his review, unlike the statement
included the Business Plan, was limited to Philips’s patents, and not the universe of
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 102 of 164

103
potential infringement problems in the AED field. 	As a sophisticated inventor with
knowledge of the patenting process and experience with handling intellectual property
claims, Fincke knew, or at the very least, should have known, that no such opinion had
been formally given.
The Court finds that the statement was also material. Investments in companies
developing new medical devices are necessarily fraught with the risk that competitors will
assert patent infringement claims. By affirmatively representing that a professional in the
patent field has reviewed and preliminarily passed muster on the patent soundness of the
intellectual property, the risk of those claims is, in the eye of a reasonable investor, greatly
reduced. Such a statement would “alter the mix of total information available,” and is highly
material to an investor in the medical device field.
The 	Court 	therefore 	concludes 	that 	Fincke 	is 	liable 	for 	fraud, 	negligent
misrepresentation, and securities fraud under § 410(a)(2) for making a false statement of
material fact (that the Access AED’s patent was reviewed by patent counsel and that
Access had been advised by that counsel that it infringed on no other patent known to that
counsel). The question of damages, if any, remains, however, to be decided during the
damages phase of trial.
v. 	Cadent Litigation
The Investors assert that Fincke’s failure to disclose the outcome of the Cadent
litigation – namely, the judgment against him personally – is actionable, as the information
would have been material to their decisions to invest in Access. The Plaintiffs further imply
that Fincke’s alleged representation of the judgment as a “vindication,” – owing to the fact
that he prevailed on a majority of the counts against him – was misleading for failure to
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 103 of 164

99 One other matter must be briefly discussed relative to the Investors’ fraud and
misrepresentation claims. 	In the fall of 2003, according to the investors, Fincke shipped
approximately 400 units to a German distributor after being warned by Grosberg and Rice that the
customer would not pay for the units. 	Fincke recalled being told by some at Access that the
distributor would not pay for the units, but says that others had different input. Trial Tr. day 3, 64.
According to Grosberg, Fincke directed the shipment to “goose the accounts receivables,” Trial Tr.
day 5, 143 – i.e., to create a large account receivable that he hoped the Investors would then
finance. The Investors rely on this testimony for the conclusion that Fincke shipped the units “in
order to fraudulently obtain additional debt financing against the accounts receivables.” First, the
Court notes that the Investors did not show that any investments were actually made, or even
solicited, in connection with the shipment. And, as Fincke points out in his post-trial brief, there
104
disclose the outcome of the remaining claims. 	Regardless of whether Fincke ever
represented that the verdict was a vindication, the Court finds that the bare non-disclosure
of the personal judgment against him does not constitute a material omission under
Massachusetts common law or § 410(a)(2).
The Plaintiffs have pointed to no case law that would suggest that Fincke had a duty
to disclose the outcome of the Cadent litigation. Any representation to Moriarty that the
verdict was a vindication could be, in a subjective sense, literally true. Furthermore, at the
time the alleged statement was made, Fincke was not seeking an investment from Moriarty
and any discussion regarding the lawsuit was one between friends. The Court finds that
the statement was not a misleading statement that gave rise to a duty to correct.
Similarly, the failure to disclose this information to the other Investors, who were not
aware of the Cadent litigation at the time their investments were made, does not give rise
to liability. The Investors have pointed to no legal basis that would give rise to a duty to
disclose the outcome. Silence, absent a duty to disclose, is not actionable. Even assuming
its materiality, Fincke was not obliged to disclose the Cadent litigation and its outcome, and
his failure to do so does not amount to fraud, negligent misrepresentation, or securities
fraud. 99
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 104 of 164

were other customers awaiting shipment of units during that time as well; the creation of an account
receivable in order to obtain financing would just as easily (and more logically) have been achieved
by shipping the units to a customer more likely to pay. Even without fully understanding why the
shipment was made to that particular customer, the Court easily concludes that it was not done in
order to fraudulently obtain accounts receivable financing.
105
b. 	The Company Overview
A large portion of the Complaint centered around allegedly false and misleading
statements made in the Company Overview distributed to Investors in March of 2003,
although little testimony related to the document was elicited at trial. 	Nonetheless, the
Court has reviewed the allegations originally made by the Investors, and finds them
unsupported.
The Investors say that they relied on information contained in the Company
Overview in making their offer for additional investments that eventually culminated in the
April 2003 Transaction. 	According to the Investors, they “soon discovered . . . that [the
Company Overview] was riddled with false and materially misleading (a) statements
concerning the company’s achievements, and (b) projections based on the company’s
purported achievements.” For each alleged false or misleading statement, the Investors
may not rely on bare allegations that statements were false, but must specify which
statements they claim are false or misleading, how the statement was false or misleading
and that the statement (or omission) was material. 	See PDI, 2006 WL3350461, at *3
(“When the plaintiff challenges a forward-looking statement made by the defendant,
plaintiff’s mere usage of catchwords or bold assertions that defendant’s statement was
false or misleading because the defendant knew it to be false or misleading cannot lend
support to plaintiffs claim.”); Loan v. FDIC, 717 F. Supp. 964, 967(D. Mass. 1989) (“Merely
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 105 of 164

100 The following statements are those in the Company Overview alleged by the Plaintiffs
to be false or misleading, but for which they failed to provide sufficient evidentiary support or
testimony that the particular statements were false or misleading:
(1) 	“Purchase to ship cycle . . . currently 8 weeks.” The Investors alleged that
this statement was false because the purchase to ship cycle typically ran 10-12
weeks. 	However, they failed to provide sufficient testimony or documentary
evidence related to the shipping cycle.
(2) 	“Improved systems and processes (Order entry; Inventory planning).”
According to the Investors, this statement was false because as of March 2003,
“Access had inadequate manual inventory planning processes. Fincke refused to
invest in the necessary software and management tools necessary to achieve the
reported level of system process improvement.” 	The Investors provided no
testimony or documentary evidence regarding the falsity of this statement.
(3) 	“Key accessory products released and shipped.” 	The Investors say this
statement was false because, at the time it was made, some accessory products
were not available or ready for shipment. The unavailability of some accessories,
however, does not demonstrate the falsity of the statement, as the Investors failed
to substantiate a claim that no key accessories were released or shipped as of that
time. The statement does not claim that all key accessories were available, so the
lack of certain accessories does not render the statement false.
(4) 	“Necessary materials for first 500 units in house.” The Investors assert that,
upon joining the company as VP of Operations in March 2003, Nawn discovered
that “key components for the planned shipments had not yet been obtained.” No
testimony on this particular matter was introduced and the Investors have not
directed the Court’s attention to any document to substantiate the alleged
inaccuracy of this claim.
106
claiming that a statement is untrue does not make it so. 	A plaintiff has an obligation to
explain what is untrue about each of the challenged statements . . . .”).
With regard to several of the allegedly false statements contained in the Company
Overview, the Plaintiffs failed to explain how the statements were misleading or false. As
such, they do not give rise to liability for fraud, negligent misrepresentation, or securities
fraud under § 410(a)(2). 100 For other allegedly false or misleading statements, however,
the Investors provided some evidentiary support, which the Court considers at more length.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 106 of 164

107
The Investors allege that two statements in the Company Overview regarding
manufacturing give rise to liability because Fincke failed to disclose other material
information necessary to make the statements not misleading. First, the Investors claim
that the assertion in the Company Overview that the “main circuit board manufacturing
moved . . . from MSL to NuVisions . . . to improve both delivery schedules and circuit board
assembly quality” was misleading, because the document failed to also disclose that the
“switch was precipitated by Access’s failure to pay on the overdue account with MSL.”
Similarly, the Investors allege that the statement “manufacturing issues with the main
control board are improving as we add additional qualified multiple suppliers” was
misleading, because it did not further disclose that suppliers were being added to exploit
new credit lines and that these new suppliers were, at times, “less qualified, second and
third tier suppliers, and some were added before they were qualified by the company.”
For each of these statements, the Investors have failed to demonstrate how the
statements made were affirmatively false. They have not argued that the changes in board
manufacturer and suppliers did not improve delivery schedules and manufacturing
problems. Loan, 717 F. Supp. at 967; Quirk v. Glick, No. 2007-4173, 2008 WL2677233,
at *4, 24 Mass. L. Rep. 221 (Mass. Super. June 30, 2008).
The statements were also not misleading on account of the failure to disclose that
the changes were also precipitated by credit problems with the manufacturers and vendors
involved. Taken as a whole, the Company Overview does not attempt to obscure the fact
that Access’s manufacturing was suffering as a result of credit problems and overdue
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 107 of 164

101 For example, elsewhere in the six-page document, it is stated:
“We were unable to procure raw materials on a predictable basis (due to significant
past due balances and credit issues with certain key parts vendors), which
contributed to shortages on the production floor and delayed production.”
“. . . we continue to experience delays in the acquisition of the raw materials and
components . . . due to credit issues with key vendors. . . .”
“Accounts payable at the end of February was $1.85 million and is currently aged
at over 100 days. . . . this has made it extremely difficult to purchase raw materials
and services . . . .”
102 Although the point is rendered moot by the Court’s conclusion that the statement was
not false or misleading, it should also be noted that the statement regarding the switch from MSL
to NuVisions, even if misleading, would be immaterial, as the the first sentence of the statement
says the move took place in mid-January. While the information regarding the failure to pay MSL
may have been interesting, it would not necessarily have had relevance two months later, and the
Court concludes that it would not have significantly altered the total mix of information available to
the Investors.
103 This statement appears as a bullet point in the the Key Accomplishments section of the
Company Overview.
108
accounts. In fact, those difficulties were readily disclosed in other portions of the Company
Overview. 101
Thus, the Court concludes that the statements are not materially misleading. Absent
some other independent duty to disclose the allegedly omitted information in connection
with that particular part of the Company Overview, which duty has not been identified by
the Investors, the omissions do not give rise to liability under the Investors’ claims for fraud,
negligent misrepresentation, or securities fraud under § 410(a)(2). 102 See Computervision,
90 F.3d at 626; Polin, 552 F.2d at 805.
The Investors also claim that the Company Overview contains a false statement
purporting that Access had “Achieved product manufacturing stability” (the “Manufacturing
Stability Statement”).103 The Investors say that this statement is false, because Fincke’s
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 108 of 164

109
continual revision of the Access AED prevented the manufacturing process from ever
reaching stability. They rely on several exhibits and the testimony given by Nawn, Rice,
and Grosberg in support of this claim.
A determination that the Manufacturing Stability Statement was false necessarily
requires an understanding of what was meant by “product manufacturing stability,” a
definition that proved elusive at trial. Several different witnesses testified as to their opinion
on its meaning, but no expert testimony on the subject was presented, nor did the parties
provide any evidence of an industry-wide usage of the term. 	Rice testified that
manufacturing stability is the ability to produce a significant number of medical devices or
products using the same documentation and test procedures that do not change over time.
Trial Tr. day 5, 97. Bowers testified that manufacturing stability is the ability to reliably build
product on a consistent basis. 	Trial Tr. day 7, 136. 	Nawn, who was hired as VP of
Manufacturing shortly before the Company Overview was distributed in March of 2003, did
not provide testimony as to his understanding of the phrase.
Fincke testified that the meaning of “manufacturing stability” depends on a particular
company’s state of production and its progression – what qualifies as “stable” for one
company may not so qualify for another. 	According to Fincke, for a young company
working toward an initial product release, stability may be achieved when the company
demonstrates that units can build product using a reproducible process that yields
reproducible results, Trial Tr. day 1, 115; a “mature” manufacturing process would indicate
a more evolved process and structure that could yield more predictable results, Trial Tr.
day 4, 19-20. And, according to Fincke, manufacturing stability does not indicate a “frozen”
design, as changes in product features would be an expected part of the process.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 109 of 164

104 The Access AED clearly underwent many design changes, either in response to
customer demand, safety issues, or the need to design toward more readily available parts. Nawn
extensively testified to the effect that product changes had on the manufacturing process – usually
resulting in delays or cessation of manufacturing to accommodate the incorporation of changes.
And Nawn, Rice, and Bowers testified that the product continually underwent changes; changes,
they say, that exceeded the norm, in their experience. The evidentiary record also establishes that
Access handled a certain number of returned devices, documented problems with the AEDs on a
“Project Bug List,” Pl.’s Obj.-to Ex. 22, and experienced a variable “fall-out rate” – the number of
devices that failed testing at some point during the manufacturing process.
110
Nawn, Rice, and Bowers each testified that the product itself had not reached a
desired level of stability. 104 Trial Tr. day 5, 24, 97; day 7, 136. 	The Court found this
testimony credible, but it did not inform on the question of whether the manufacturing
process was stable. 	Product changes, as explained by Nawn and Bowers, caused
disruptions in the manufacturing process as the company worked to incorporate and
accommodate those changes, but the Court is disinclined to equate product instability with
manufacturing instability. Similarly, delays in manufacturing caused by the unavailability
of parts (a significant problem which was disclosed throughout the Company Overview)
does not mean the actual manufacturing process was unstable.
In sum, the Court concludes that the Manufacturing Stability Statement does not
refer to stability of the product design, nor does it indicate that the manufacturing process
was unaffected by material shortages (which it clearly was). Instead, the stability of the
manufacturing process was an independent concept which, in the testimony and
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 110 of 164

105 In fact, the Court finds compelling the fact that Access was, as agreed upon by all
parties, certified to manufacture the Access AED at all relevant times. Rice testified that during the
early part of 2002 (prior to international and domestic approvals), Access focused on developing
and validating the process by which units would be manufactured, and received and maintained
its ISO 9000 and FDA certifications. Trial Tr. day 5, 110-111. These certifications indicate that
Access had achieved some level of stability in its manufacturing process.
111
documentary evidence, was not clearly negated. 105 Therefore, the Court concludes that the
Manufacturing Stability Statement was not affirmatively false.
The Investors have also not shown that the statement was misleading owing to the
omission of any material information. 	Stability does not imply perfection; a reasonable
person would understand that the manufacture of a new complex medical device may be
attendant with various problems. 	And the Company Overview described delays in
manufacturing caused by lack of raw materials, even noting that the board manufacturer
switch had resulted in more limited supplies of circuit boards. 	Thus, to the extent the
statement regarding manufacturing stability was interpreted by the Investors as implying
that there were no interruptions in manufacturing, the Company Overview clearly disclosed
that there were delays and manufacturing constraints – the very deleterious conditions
which concerned Nawn and others. Because adequate disclosure was given to prevent
the statement from being misleading (and because it was not affirmatively false) the
Manufacturing Stability Statement does not give rise to liability for fraud, negligent
misrepresentation, or securities fraud under § 410(a)(2). See Computervision, 90 F.3d at
626.
The Investors also contend that the statement in the Company Overview that
“manufacturing capacity has demonstrated the ability to produce in excess of 100 units per
day (2000 units per month)” (the “Manufacturing Capacity Statement”) was false and
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 111 of 164

106 And the degree to which Nawn was attuned to Access’s capacity to manufacture higher
numbers of AED units given adequate resources was not clear, as he admitted that, during his
112
misleading. 	According to the Investors, it was “generally known within Access, and by
Fincke, that there was no ability to sustain this rate on a regular basis in March 2003 or for
a considerable period of time thereafter.” They claim that various management personnel
had indicated their disbelief that the asserted manufacturing level could be maintained, and,
as additional support, the Investors point to the fact that “Access was only able to produce
100 units in one day in its existence.”
First, the Court finds that the Investors failed to demonstrate that the Manufacturing
Capacity Statement was false when made. 	The statement does not represent that 100
units per day were actually being manufactured; only that the manufacturing system had
the capacity to reach that level of production. 	But the Investors say that Fincke’s belief
(and assertion in the Company Overview) regarding manufacturing capacity was patently
false or unreasonable, because other management personnel were telling Fincke that a
100 unit per day level of production could not be achieved or sustained. Nawn did testify
that he told Fincke repeatedly that he did not think the company could achieve a 100 unit
per day manufacturing rate. Trial Tr. day 5, 22-23. Nawn, however, was hired immediately
preceding the release of the Company Overview, and took six to eight weeks to understand
the current status of manufacturing operations at Access. Trial Tr. day 5, 11. He did not
testify that he made any comments to Fincke regarding manufacturing capacity prior to the
distribution of the Company Overview, and given that he was very recently hired at the time
of its release, the Court finds that any relevant opinion given by Nawn on the matter would
have post-dated distribution of the document. 106
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 112 of 164

employment at Access, his attention was focused on determining the shipping rate based on
backlog and not on projecting maximum manufacturing capacity. Trial Tr. day 5, 51.
113
In addition, Nawn, Rice, and Bowers did not testify that manufacturing capacity was
specifically identified as inadequate. Instead, they each testified that disruptions caused
by product changes and the lack of raw materials were the main impediments to achieving
a higher manufacturing rate. Trial Tr. day 5, 11-12; 114-115. But the reasonableness of
Fincke’s belief that Access’s manufacturing capacity was higher than had yet been
achieved as of March 2003 is supported by the fact that Access was able, when adequately
supplied with raw materials, to manufacture 100 units in a day. 	The Court agrees with
Fincke that the capacity to build product and the number of units actually produced were
separate issues, and the Court concludes that the Investors failed to demonstrate that the
Manufacturing Capacity Statement was false or unreasonable.
The Court also finds that the Manufacturing Capacity Statement was not misleading
on account of any material omission. 	It was obvious from the data disclosed in the
Company 	Overview 	that 	Access 	had 	not 	actually 	achieved 	a 	100 	unit 	per 	day
manufacturing rate in March of 2003. No further disclosure on that point was thus required.
See Trump Hotels, 2000 WL1371317, at *14. Similarly, although the Company Overview
does not specifically refer to Bowers, Nawn, Rice or other Access personnel as the sources
of various management concerns, it did disclose the very problems, such as lack of
sufficient capital to buy raw materials, which were identified by those employees as
underlying their opinion that Access could not achieve the full extent of its manufacturing
capacity. 	Given that the Company Overview disclosed the problems hindering the
production of more units, the Manufacturing Capacity Statement was not misleading. See
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 113 of 164

114
Computervision, 90 F.3d at 626; Polin, 552 F.2d at 805. 	In sum, the Manufacturing
Capacity Statement does not give rise to liability under Massachusetts law for fraud,
negligent misrepresentation, or securities fraud under § 410(a)(2).
In addition to statements regarding manufacturing, the Investors have alleged that
the order rate listed under the Key Accomplishments section of the Company Overview was
false or misleading. One bullet point under that section says “Order rate at 1,500/month
($1.8 million or $22 million annual rate)” (the “Order Rate Statement”). The Investors claim
that this was “false in several regards.” They first point out that Access had never achieved
a 1,500 unit per month new order rate, and that the order rates for January, February and
March of 2003 were 1,159, 1,251, and 736, respectively. According to the Investors, “these
were some of the highest monthly sales figures Access had ever experienced. Therefore,
Fincke’s statement regarding this ‘accomplishment’ was patently false and intentionally
misleading.”
Quite frankly, the Court is mystified by the Order Rate Statement. It is clear, as the
Investors allege, that Access had not achieved a 1,500 unit per month order rate in the two
full months preceding the distribution of the Company Overview (January and February),
and had also not received 1,500 new orders until that point in March (which was not yet
complete). Thus, the Investors appear at first blush to be correct in their assertion that the
statement was simply false. The Order Rate Statement, however, refers not to total orders
achieved in any one month, but to a rate that was achieved. 	Without knowing when,
exactly, the Company Overview was drafted, the Court is unable to discern whether or not
the rate of orders for the beginning of March substantiated a claim that an order rate of
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 114 of 164

107 The Plaintiffs also assert that the “$1.8 million or $22 million annual rate” representation
was misleading because, when the actual number of sales is multiplied by either $1,200 per unit
or by the actual average sales price, the monthly and annual rates are much lower. In their post-
trial brief, the Plaintiffs assert that “there is no basis in the evidence that the sales or revenue
projections had any basis in fact.” The $1,200 figure originally came from the Investors’ allegation
in the Complaint that the Company Overview had misrepresented the average sales price as
$1,200 per unit. The Court has reviewed the document innumerable times and is unable to discern
a $1,200 unit average selling price represented anywhere except by way of calculating $1.8 million
divided by 1,500. The remainder of the document greatly details the average sales price that had
been reached and explained expected increases in average selling price in light of projected sales
of more expensive product bundles and a planned price increase. 	Given the greater level of
115
1,500 for the month would be reached. The fact that this level of orders was not ultimately
reached is not dispositive, as the Plaintiffs cannot impute falsity by hindsight alone.
Computervision, 90 F.3d at 626; Polin, 552 F.2d at 804. Without more, the Investors have
not demonstrated by a preponderance of the evidence that the claimed order rate was false
at the time the statement was made.
But more importantly, the Court cannot find that the Order Rate Statement was
material given other information disclosed in the Company Overview. The remainder of the
document presents accurate order totals for December, January, and February, and notes
that the projected amount of orders for March was 1,500. 	In addition, the Company
Overview stated that “significant management effort is directed towards organizing and
managing the activities of the direct sales force. This activity has not yet produced the
steady and predictable flow of orders that are needed to grow the business.” (emphasis
added). Armed with more specific information, which demonstrated that Access had not
yet reached 1,500 orders in one month, as well as the company’s statement that the rate
of orders was not steady or predictable, a reasonable investor would not have found the
bullet point Order Rate Statement, ambiguous as it was, a substantial factor in any decision
to invest in Access.107
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 115 of 164

specificity and detail provided in other portions of the document, the Court cannot find that this
statement, which appears, more than anything, to have been an error, would have been material
to a decision to invest.
108 For example, the Investors compare the projected orders in the Company Overview to
the actual orders obtained for March through June of 2003 and conclude that the projections were
false or misleading.
116
In addition to the specific statements referenced above, the Investors allege
generally in the Complaint that the Company Overview contained “false and misleading
projections.” In support, the Investors compare ultimate outcomes with projected figures
and ask the Court to find that the statements and projections were false or unreasonable
because the actual results were ultimately less than anticipated. 108 But, again, the law does
not permit fraud or negligence to be proved by hindsight alone. See Computervision, 90
F.3d at 626; Polin, 552 F.2d at 804.
The Investors 	attempt to further bolster their argument, however, by alleging
generally that “others at Access had advised [Fincke] that the projections were not accurate
or obtainable.” The testimony in this regard was ambiguous at best. Little of the testimony
was directed toward the projections contained in the Company Overview specifically, and
the Court is unable to discern any specific examples of employees making such statements
with regard to the projections presented in that document. 	Perhaps Fincke was overly
optimistic in his projections, assuming that an additional investment would be sufficient to
overcome the capital constraints Access was facing and would allow the company to
achieve milestones that proved ultimately beyond reach. But this, alone, does not render
the projections false, misleading, or unreasonable. See Polin, 552 F.2d at 805.
The Investors further allege that Fincke misrepresented the amount of investment
needed in the spring of 2003 to enable Access to become cash flow positive. 	Fincke’s
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 116 of 164

109 It was also unclear from the documents and testimony whether Fincke was primarily
responsible for the determining that $2 million would be an adequate investment. Following the
conference call regarding investment options held in March 2003, it was Zimmell who presented
a proposal to Access, a proposal which contained the $2 million figure. Trial Tr. day 9, 49-50.
Even assuming that amount of $2 million came from Access’s side of the table, it is far from clear
that Fincke had the primary responsibility for determining the amount to request. According to
Bounty, the $2 million was “what we believed that the cash forecast, the cash requirements were
of the company,” although he did not specify of whom the “we” consisted. Trial Tr. day 2, 49. In
addition, although Grosberg stated that during 2002 he was unable to make any reliable financial
forecasts due to the state of the books and records, he then testified:
Q: 	When, if ever, were you able to make reasonable reliable financial
projections from the books and records of Access?
A: 	Probably by March of 2003 I began to have a good hold on reconciliation of
accounts, make sure that the balance sheet was reconciled properly, and
started to understand some business dynamics, that I had a fairly good
handle at that point on what we would be able to project.
Q: 	Did you have any role at all in preparing any of the materials that were
submitted to the investors prior to the April 2003 conversion of debt to
equity?
A: 	Yes.
Q: 	What was your role?
A: 	I worked with Mr. Bounty and Mr. Fincke in creating a financial model that
was 	used 	for 	projections 	and 	what 	would 	be 	necessary 	for 	cash
requirements of the company.
117
failure to make an accurate prediction of the amount of required investment, however, does
not itself give rise to a claim for fraud or misrepresentation. See Computervision, 90 F.3d
at 626; Polin, 552 F.2d at 805. Moreover, the Investors ground their claim of falsity in their
assertions regarding the falsity or unreasonableness of the projections upon which the
anticipated cash need was based. 	Having found that the projections, while ultimately
inaccurate, were not, as the Investors argue, false and misleading, the Court concludes
that the Investors have not shown that any representation regarding the adequacy of the
requested $2 million investment was unreasonable, false, or misleading.109
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 117 of 164

Trial Tr. day 5, 123. 	And he testified later to working with Fincke to determine the amount of
investment needed:
Q: 	In connection with the vendors, did Mr. Fincke ask you, prior to the April
infusion of money from the investors, did Mr. Fincke ask you how much
money would be needed?
A: 	Yes.
Q: 	All right, and what did you tell Mr. Fincke?
A: 	I can’t remember exactly at any given time how much money -- like I would
prepare a model that would try to bring current liabilities in line, and I would
sit with him and go through the model in detail so he understood the
situation.
Trial Tr. day 5, 133-134.
118
The Investors also say that Fincke omitted material information from the Company
Overview. They first argue that Fincke is liable for fraud, negligent misrepresentation, and
securities fraud for failing to disclose the European Distributors’ reported problems with the
Access AED and with Access’s failure to meet their needs. The Investors assert that the
European Distributors were complaining about the proposed price increase, Access’s
failure to comply with product specifications, incomplete shipments, untimely shipments,
and the non-responsiveness of Access to their concerns and complaints. The Investors
also state that the European Distributors were threatening to discontinue doing business
with Access and threatening to stop placing orders or fulfill contractual quotas unless the
issues were addressed. In fact, according to the Investors, the European Distributors “did
not meet the minimum orders contained in their agreements which were a basis for sales
and revenue projections.” The Investors say that this information was material, as it would
have affected the Investors’ assessment of the Company Overview and “the company’s
purported record of achievement.” Furthermore, they claim that “the poor relationship with
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 118 of 164

119
the European Distributors made all of the projections provided by Fincke substantially and
materially misleading.”
In support of their claim that Fincke was aware of these problems prior to the
distribution 	of 	the 	Company 	Overview, 	they 	rely 	on 	witness 	testimony 	and 	(1)
correspondence from Nielsen at Kivex in December 2002, wherein Nielsen complains of
non-receipt of Danish language units and asks for a firm shipment date or return of his pre-
paid deposit, Pl.’s Obj.-to Ex. 4; (2) correspondence from Nielsen in February 2003,
expressing frustration with long delivery times for an additional order, Pl.’s Obj.-to Ex. 5;
(3) correspondence in September 2003 from Dolby and Christian Ecker of Shiller
Handelsges m.b.H. Austria, Pl.’s Obj.-to Exs. 11, 12, 13, 20, complaining of problems with
AED units, Access’s failure to appropriately respond to concerns and product complaints,
and stating that an appropriate and satisfactory response from Access within ten days was
a prerequisite to acquiescence to further price increases, acceptance of subsequent
deliveries, and placement of future orders; (4) correspondence from Dolby during October
through December of 2003, regarding various product and business complaints and also
discussing price increase negotiations; and (5) the February 2003 correspondence from
Barry Klegerman at Access, reporting three distributors’ dissatisfaction with the price
increase and threats to stop doing business if the price increase were implemented.
At trial, Fincke denied none of these problems. He acknowledged Access's
shortcomings and admitted that products were slow to ship and did not contain certain
features the Europeans were requesting. He was also aware that, in response to the
proposed price increases in early 2003, certain distributors were threatening to cancel their
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 119 of 164

120
contracts or to stop ordering at the contractual minimums. According to Fincke, however,
these problems were but part of the “business relationship,” “dialogue,” and “dynamics”
between Access and the European Distributors, and Access continually negotiated with
them to work toward resolution. Trial Tr. day 1, 115-117; day 3, 46-47.
Although this omission presents a closer call, the Court cannot conclude that the
Investors have carried their burden of proof on this issue. 	First, many of the strongly-
worded European Distributor complaints post-dated the release of the Company Overview.
Although the communications state that those particular European Distributors felt their
complaints were long-standing, the extent of their dissatisfaction as of March 2003 is far
from clear. Given that problems with Access obviously compounded over the summer of
2003, eventually culminating in the September 2003 correspondence, the Court is unable
to discern their level of expressed dissatisfaction with Access during March 2003.
Therefore, the Investors have failed to demonstrate that Fincke possessed material
information – i.e., information that would have affected particular portions of the Company
Overview – as of the distribution of the Company Overview in March of 2003. 	See
Computervision, 90 F.3d at 629.
With specific regard to the February 2003 letter from Klegerman and his report that
one European Distributor (Mortara) had threatened to stop doing business with Access if
the price increase were implemented, the Court again concludes that the Investors have
failed to demonstrate the materiality of this complaint in the context of the European
Distributor relationships as a whole. 	There was no testimony or documentary evidence
demonstrating the portion of business supplied by that distributor, nor did the Investors
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 120 of 164

110 Specifically, the Company Overview Stated:
Based on the terms of our distribution agreements, the price increases will be
effective in 90 days for the US distributors (June) and immediately for the
international distributors (the international distributor contracts require a 60 day
121
show that the possibility of that distributor failing to place further orders was not factored
into the projections presented in conjunction with the Company Overview. 	And the
Investors have not presented evidence that other European Distributors were threatening
to discontinue business with Access prior to the release of the Company Overview.
Therefore, the Court concludes that the Investors have not shown that failure to disclose
the isolated complaint and threats by one European Distributor was material as of March
2003.
Furthermore, the Investors have not specified which statements in the Company
Overview – beyond “projections,” generally – were rendered misleading by the failure to
disclose the information received in February 2003 from Klegerman. Under the section of
the Company Overview discussing the average selling price, it was noted that a list price
increase was effective as of March 1 and that Access had created more expensive “product
bundles” which were expected to drive an increased average selling price. The list price,
however, did not correlate to the price paid by distributors. Instead, the implementation of
the price increase for both domestic and European distributors was discussed separately,
making clear that the increase had not yet taken effect. Although the Company Overview
states that the increased price for European Distributors would be effective “immediately,”
it is evident that the increase was not yet in effect and was further dependent upon the
European Distributors’ waiver of their right to sixty days’ notification in exchange for a one
year 	contract 	extension. 110 Although 	Fincke 	may 	have 	been 	overly-
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 121 of 164

notification period but we plan on offering a one year contract extension to these
distributors in exchange for a waiver of the notice period).
122
optimistic with regard to the European Distributors’ willingness to agree, the fact that such
an agreement would first be required and had not yet been reached was clearly disclosed.
As such, the Court finds that the discussion of the price increase in the Company Overview
was not rendered materially misleading by the failure to disclose the information received
by Fincke from Klegerman in February 2003.
Having found that none of the Investors’ claims related to the Company Overview
are actionable, on account of their failure to establish the statements and projections were
false, misleading, or material, the Court’s analysis of the document is essentially concluded.
An additional ground for rejecting the Investors’ fraud and negligent misrepresentation
claims merits discussion, however.
Despite the heavy reliance on the Company Overview as the source of many of the
Investors’ claims in the Complaint, the Court notes that the evidence was ambiguous
regarding the degree to which each of the Investors relied on the Company Overview in
connection with the April 2003 Transaction. Moriarty was the only investor who expressed
unequivocal familiarity with the Company Overview. 	Trial Tr. day 6, 103. 	But when
Connolly was presented with a copy of the Company Overview, he could not recall reading
the document. Trial Tr. day 9, 37. Zimmell also testified that he did not recall seeing the
Company Overview and did not know if it had been attached to the Complaint. Trial Tr. day
9, 62. And Radley provided no testimony as to his reliance on the Company Overview,
although he did state that he relied on an “earlier memo” (which was not identified) and the
Business Plan distributed in October of 2002 in making his decision to invest additional
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 122 of 164

111 As the SJC explained:
In the case of a close corporation, which resembles a partnership, duties of loyalty
extend to shareholders, who owe one another substantially the same duty of utmost
good faith and loyalty in the operation of the enterprise that partners owe to one
another, a duty that is even stricter than that required of directors and shareholders
in corporations generally. . . . “[N]ot honesty alone, but the punctilio of an honor the
most sensitive, is then the standard of behavior” that describes this more rigorous
duty.”
Demoulas v. Demoulas Super Mkts., Inc., 677 N.E.2d 159, 179, 424 Mass. 501 (1997) (citing
Donahue v. Rodd Electrotype Co. of New England, Inc., 328 N.E.2d 505, 367 Mass 578 (1975)
(quoting Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928)).
123
funds in April of 2003. Trial Tr. day 9, 105-106. Thus, to the extent that any portion of the
Company Overview was materially false or misleading, Radley, Zimmell, and Connolly are
precluded from recovery under fraud or negligent misrepresentation, as they did not
establish any reliance, reasonable or not, on that document.
B. 	Breach of Fiduciary Duty
Count II of the Complaint alleges that Fincke breached fiduciary duties owed to both
Access and to the Investors under Massachusetts law, and Fincke has not objected to the
application of Massachusetts law to the fiduciary duty claims in this case. But, because the
Massachusetts 	Supreme 	Judicial 	Court 	(the 	“SJC”) 	has 	held 	that, 	absent 	unique
circumstances, the laws of the state of incorporation generally control internal corporate
governance, Harrison v. NetCentric Corp., 744 N.E.2d 622, 628-29, 433 Mass. 465 (2001),
the Court pauses briefly to consider whether a thorny choice of law issue has arisen.
Massachusetts and Delaware law impose substantially the same fiduciary duties on
corporate officers and directors. 	But one substantial difference does exist – under
Massachusetts law, shareholders in a close corporation owe heightened fiduciary duties
to one another, 111 while Delaware law does not impose such heightened duties on
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 123 of 164

124
shareholders of close corporations. Harrison, 744 N.E.2d at 629 (citing Riblet Prods. Corp.
v. Nagy, 683 A.2d 37, 39 (Del. 1996); Nixon v. Blackwell, 626 A.2d 1366, 1380-81(Del.
1992)). 	The Plaintiffs refer to this heightened duty in their discussion of applicable
standards by which Fincke’s behavior should be measured, asserting that Access was a
close corporation. While it is debatable whether Access would, ultimately, be deemed a
close corporation, the Court ultimately concludes that the determination is immaterial.
Because the duties referenced by the Plaintiffs and allegedly breached by Fincke were
owed to Access, and not to the individual Investors, and because Massachusetts and
Delaware law are substantially in accord regarding what those duties are, the Court adopts
the parties’ assumption that Massachusetts law applies to the fiduciary duty claims.
The heightened duties owed under Massachusetts law among shareholders of a
close corporation are “derived from the strict standard of behavior applied to partnerships,”
O’Brien v. Pearson, 868 N.E.2d 118, 125, 449 Mass. 377 (2007). By requiring good faith
and loyalty between shareholders in closely held corporations, the law attempts to prevent
shareholders, especially those in the majority, from “frustrating the [other] stockholder[s’]
purposes in entering on the corporate venture” or denying their “reasonable expectations
of benefit.” 	Id. (quoting Wilkes v. Springside Nursing Home, Inc., 328 N.E.2d 657, 370
Mass. 842 (1976); Brodie v. Jordan, 857 N.E.2d 1076, 1079, 447 Mass. 866 (2006)). But
where the “alleged wrong sought to be redressed is to the corporation and not to some
portion of the stockholders,” “application of the stringent ‘close corporation’ fiduciary duties
‘is not necessarily appropriate . . . .’” 	Dynan v. Fritz, 508 N.E.2d 1371, 1378 n.17, 400
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 124 of 164

125
Mass. 230 (1987) (emphasis added) (citing Durfee v. Durfee & Canning, Inc., 80 N.E.2d
522, 527, 323 Mass. 187 (1948)).
For example, in Bessette v. Bessette, the SJC held that recovery of excessive cash
distributions and salary paid to a majority stockholder inured to the corporation and not the
other shareholders. 	434 N.E.2d 206, 208, 385 Mass. 806 (1982) (quoting Stratis v.
Andreson, 150 N.E. 832, 254 Mass. 536 (1926)). The Court reasoned that recovery for
breach of fiduciary duties owed to individual stockholders of close corporations, such as
in Donahue v. Rodd Electrotype Co. of New England, Inc., is reserved for situations where
“it would be difficult for the plaintiff . . . to establish breach of a fiduciary duty owed to the
corporation. . . .” Bessette, 434 N.E.2d, 207-08; Donahue, 328 N.E. 2d 505, 367 Mass. 578
(1975). 	Because the plaintiffs did not “allege that the defendant’s conduct was an
attempted ‘freeze-out’ of the minority stockholders, . . . the vulnerability of minority
stockholders, which [the SJC] found controlling in Donahue [was] missing.” Bessette, 434
N.E.2d at 208 n.5 (citations omitted).
The First Circuit Court of Appeals reached a similar conclusion in Prof’l Brushes, Inc.
v. Gottsegen (In re Mi-Lor Corp.), stating that:
When a corporation sues its fiduciaries or a stockholder brings a derivative
suit against corporate fiduciaries to enforce the corporation’s rights, any
recovery for the fiduciary breach belongs to the corporation. . . . Sums
recovered by a corporation are paid first to creditors, before any distributions
are made to shareholders. . . . In some circumstances, the Donahue doctrine
permits stockholders of close corporations to sue for direct injuries and
recover personal relief for breaches of fiduciary duties owed directly to them.
Such a suit for personal relief is appropriate where it would be difficult to
establish a breach of duty owed to the corporation, as in the case of a freeze-
out of minority shareholders.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 125 of 164

112 See also Samia v. Central Oil Co. of Worcester:
The usual practice in Massachusetts has been to afford relief in a case of this
character to the corporation, on the ground that the stockholders have only
derivative rights against one who has wronged their corporation. . . . The rule that
all recovery in cases like the present must accrue to the corporation is not inflexible
. . . In some other jurisdictions, direct relief to shareholders, rather than through the
wronged corporation, has been given where that would more justly apportion the
burden of the recovery among the wrongdoers. . . . On the unusual facts here
established, equity should thus flexibly frame relief to do substantial justice and to
avoid . . . unjust enrichment . . . .
158 N.E.2d 469, 482-483, 339 Mass. 101 (1959) (emphasis added).
126
348 F.3d 294, 301 & n.9 (1st Cir. 2003) (citations omitted).112
Here, as in Bessette and Mi-Lor, the allegedly wrongful actions implicate fiduciary
duties Fincke owed to Access under general corporate law principles. Were this Court to
rule that Fincke breached his fiduciary duties of care or loyalty by failing to apprise the
Board of material information necessary to manage the company, by delaying acceptance
of the Investors’ proposed financing in the spring of 2003, or by engaging in self-interested
transactions, the recovery would belong Access. Because these violations invoke general
principles of corporate law related to the fiduciary duties owed by Fincke to the corporation,
and not to the individual Investors, the Court concludes that it is immaterial whether Access
was a close corporation and the analysis is the same under either Massachusetts or
Delaware law.
As its controlling shareholder, officer and director, Fincke owed fiduciary duties of
care and loyalty to Access. The fiduciary duties attendant to one in Fincke’s position have
been well-stated by the SJC:
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 126 of 164

113 The plaintiff bears the burden of proof on claims for breach of fiduciary duties, see
Spiegal, 8 N.E.2d at 905; Crowell & Thurlow S.S. Co. v. Crowell, 182 N.E. 569, 572, 280 Mass. 343
(1932), which burden shifts only where there is a showing that the matter involves an officer’s or
director’s self-dealing or usurpation of a corporate opportunity, see, e.g.,Samia, 158 N.E.2d at 485;
Dynan, 508 N.E.2d at 1377-78 (in self-interested transaction, defendant had burden of proof on
good faith and fairness to corporation); 	Henderson v. Axiam, Inc., No. 962572D, 1999
WL33587312, at *50 (Mass. Super. June 22, 1999), aff’d, No. 01-P-1059, 797 N.E.2d 502, 59
Mass. App. Ct. 1107, 2003 WL22359347 (Mass. App. Ct. Oct. 16, 2003).
114 See also Boston Children’s Heart Foundation, Inc. v. Nadal-Ginard, 73 F.3d 429, 433
(1st Cir. 1996) (“if officers or directors act in good faith, albeit imprudently, they are not subject to
personal liability absent clear and gross negligence in their conduct”); Massaro, 559 F. Supp. at
127
The directors of a corporation stand in a fiduciary relationship to the
corporation. They owe to the corporation both a duty of care and . . . a
paramount duty of loyalty. They are bound to act with absolute fidelity and
must place their duties to the corporation above every other financial or
business obligation. . . .
Demoulas v. Demoulas Super Markets, Inc., 677 N.E.2d 159, 179, 424 Mass. 501(1997)
(citations omitted); see also Prod. Mach. Co. v. Howe, 99 N.E.2d 32, 35-36, 327 Mass. 372
(Mass. 1951); Durfee, 80 N.E.2d at 527; Spiegel v. Beacon Participations, Inc., 8 N.E.2d
895, 904, 297 Mass. 398 (1937). A corporation may recover damages on account of an
officer or director’s breach of fiduciary duties, and a debtor-in-possession may bring an
adversary proceeding to prosecute any such violation. 113 Mi-Lor, 348 F.3d at 300; Baker
v. Allen, 197 N.E. 521, 524, 292 Mass 169 (1935).
In the context of bankruptcy, it is often the case that a failed corporation (and its
shareholders) cast about for someone to blame for the company’s demise. And it may be
that one or more individuals are liable for wrongdoing. But corporate officers and directors
are not liable “for mere errors of judgment or want of prudence. . . . [T]hey cannot ordinarily
be held to personal responsibility for loss unless there is ‘clear and gross negligence’ in
their conduct.’” Spiegel, 8 N.E.2d at 904, 915.114
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 127 of 164

1080-81 (under Massachusetts and Delaware law, a breach of fiduciary claim cannot rest on
allegations of mismanagement alone); Baker v. Allen, 197 N.E. at 523; Manning v. Campbell, 162
N.E. 770, 771, 264 Mass. 386 (1928); Blake v. Smith, No. 0300003B, 22 Mass. L. Rptr. 173, 2006
WL4114305, *7 (Mass. Super. 2006) (“gross negligence, . . . without more, falls short of constituting
a breach of the fiduciary duty to act in good faith”).
128
1. 	Duty of Care
Officers and directors of a corporation owe the company a fiduciary duty of care;
they must “exercise the degree of care which a prudent person ordinarily would use,”
Robinson v. Watts Detective Agency, Inc., 685 F.2d 729, 737 (1st Cir. 1982) (internal
citations omitted), and “act, also, with reasonable intelligence . . . ,” Spiegel, 8 N.E.2d 895,
904, 297 Mass. 398 (1937). 	Here, the Plaintiffs say that Fincke failed to exercise the
requisite degree of care when he failed to disclose vital information to Access’s Board. As
with many of the fraud and misrepresentation claims, the Investors have failed to provide
the Court with much specificity regarding these particular claims. 	Instead, in both the
Complaint and their post-trial brief they make the same broad, conclusory statement that
“Fincke failed ‘to act with the strictest good faith in caring for and managing Access’s
property, and to exercise reasonable intelligence in conducting the affairs of [Access].’
Instead Fincke acted all times to advance and protect his personal interest.” Despite the
lack of clarity, the Court reads the claim as an attack on the sufficiency of Fincke’s
disclosures to the Board, to which the Court now turns.
The Plaintiffs say that Fincke’s behavior is akin to that of the defendant in Boles v.
Filipowsky (In re Enivid, Inc.), 345 B.R. 426 (Bankr. D. Mass. 2006). 	In that case, the
trustee of a Chapter 11 debtor’s liquidation trust brought an adversary proceeding against,
among others, the corporate debtor’s founder and CEO (the “defendant”), claiming that he
breached his fiduciary duties to the corporate debtor while acting as a corporate officer and
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 128 of 164

129
director. 	Id. at 434. 	Prior to the debtor’s bankruptcy case filing, the defendant had
embarked on a strategy of acquisitions that created the appearance of increased revenue
without actual profitability. Id. at 435. As the debtor’s situation became increasingly dire,
several of the company’s managers attempted to dissuade the defendant from the
acquisition strategy. Id. at 436.
Despite the managers’ stated beliefs and persistent warnings that the acquisition
strategy was doomed, and even after negative financial reports to that effect became
available, the defendant insisted on presenting over-inflated and unrealistic projections to
the board of directors and failed to disclose management concerns. Id. at 437. Lacking
this relevant information, the board continued to approve acquisitions, resulting in the
company’s eventual financial collapse. Id. at 437-38. The trustee’s complaint alleged that
the defendant violated his fiduciary duties toward the company by disseminating false or
inflated financial information to the board; by concealing material information about the true
condition of the company and the impact of the acquisition strategy; and by failing to
consider advice provided by other company officers. 	Id. at 444. According to the trustee,
the defendant had breached not only his duty of care, but also his duty of loyalty toward the
debtor, as his actions were motivated by his own self-interest and not the best interests of
the company.
In ruling on the defendant’s motion to dismiss, the court held that the facts as
alleged – i.e., that the defendant maintained the acquisition strategy despite all evidence
that it was failing – stated a claim for breach of the fiduciary duty of care. Id. at 451. The
court held that the business judgment rule did not protect the defendant’s decisions as an
officer of the company, because the process by which those decisions were made was
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 129 of 164

115 As the Mi-Lor Court explained:
A director or officer may be “interested” under Massachusetts law if she is a party
to the transaction; has a business, financial or familial relationship with a party to the
transaction; has a material pecuniary interest in the transaction; or is subject to a
controlling influence by a party to the transaction who has a material pecuniary
interest.
348 F.3d at 306.
130
“irrational and reflective of a knowing and deliberate indifference to the potential risk of
harm to the company,” and his decisions “were either ‘not in good faith’ or involved
‘intentional misconduct.’” Id.
Moreover, the court rejected the defendant’s contention that the trustee had failed
to allege facts sufficient to demonstrate the defendant’s self-interest. Id. at 445. 115 Instead,
the court held that self-interest was sufficiently pled, because the defendant’s
employment, stock position and perquisites, which constituted material
benefits to him, coupled with his unwavering personal adherence to the
acquisition strategy in the face of mounting operational and financial
problems and warnings, especially from the company’s chief operating
officer, permit a reasonable inference of the self-interest of entrenchment .
. . inconsistent with the interests of the Company and its creditors.
Id. In so holding, the court found that defendant’s actions were principally motivated by his
desire to maintain his position and benefits as CEO.
The Plaintiffs claim that Fincke’s actions are on par with those of the Enivid
defendant. 	They maintain that Fincke withheld material information from the Board
because he, like the defendant in Enivid, was motivated by a desire to protect and maintain
his position at Access. They say that Fincke not only breached the duty of care, but also
the duty of loyalty, because his own self-interest underlay his failure to disclose facts
related to, inter alia, Access’s woeful financial condition, its inability to manufacture AED
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 130 of 164

131
units at projected rates, its poor relationship with the European Distributors, and the
severity of the Philips litigation. 	These actions, according to the Plaintiffs, breached
Fincke’s fiduciary duties of loyalty and care, preventing the Board from properly managing
Access and timely providing the company with additional working capital.
Fincke argues otherwise, claiming that adequate disclosure of material company
matters was provided to the Board through the KPIs and associated narratives, the Board
meeting presentation materials, and the presence and availability of key management
personnel at Board meetings. 	Fincke says that, at trial, at least one Investor (Zimmell)
admitted that he was provided with sufficient information to gauge Access’s performance.
In essence, Fincke argues that the Investors’ claims are little more than corporate
governance by hindsight, amounting to no more than allegations that he mismanaged the
company. According to Fincke, the fact that the Investors allowed him to remain in control
of Access despite having voted him out of his position as president and CEO demonstrates
that the problems now alleged to be fiduciary breaches (the very problems that prompted
his removal) were not that serious after all.
Despite their vociferous assertions to the contrary, the Court does not find that the
Plaintiffs have provided adequate evidence that Fincke was motivated by self-interest in
his management decisions. Unlike the defendant in Enivid, Fincke did disclose difficulties
and problems at Access, including, as discussed earlier, the substance of articulated
management concerns. 	In addition, there is no evidence that Access managers
consistently voiced the type of vehement and strongly-worded disagreements that were
present in the Enivid case. 	And Fincke, unlike the Enivid defendant, did not conceal
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 131 of 164

116 According to Moriarty, the Investors and Board members generally discussed events
at the company among themselves, which discussions were more frequent after the Board was
established. According to Connolly, after the April 2003 Transaction, Radley “took the lead” on
behalf of the other investors. Trial Tr. day 9, 36.
132
missed projections – financial and performance data were provided to the Board on a
regular basis, and the associated narratives repeatedly disclosed and quantified the missed
production, sales, and shipping projections. While Fincke obviously maintained a personal
interest in Access’s success, the Court finds that Fincke’s decisions as an officer and
director were not primarily motivated by self-interest.
Having found that the Plaintiffs failed to establish that Fincke purposefully withheld
information from the Board in breach of his duty of loyalty to Access, the Court must still
determine whether the Plaintiffs are correct in their assertion that Fincke’s failure to
disclose information to the Board violated his duty of care. 	The question is whether, in
providing information to the Board, Fincke acted with “reasonable intelligence” and
prudence expected of a reasonable person in his position. See Boston Children’s Heart
Foundation, Inc. v. Nadal-Ginard, 73 F.3d 429, 433 (1st Cir. 1996).
a. 	Information Provided to the Board
While Fincke and the individual Investors and Board members sometimes discussed
company matters on an informal basis, 116 information was primarily provided to the Board
members at monthly Board meetings. 	Prior to the scheduled meetings, Bounty would
provide financial spreadsheets (the KPIs) and related narratives to the Board members, to
be discussed in greater detail during the presentations given at the meetings.
Fincke would lead these presentations, and various managers would present
information related to their particular areas of responsibility. Copies of computer-generated
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 132 of 164

133
slides used to guide these Board meeting presentations were admitted into evidence, each
consisting of general outlines, summaries, and bullet point lists reflecting the general topics
discussed. 	Nawn testified that he presented materials at some Board meetings regarding
order shipments and the impact of product changes on production. Trial Tr. day 5, 35-36.
Bounty testified that he presented financial information to the Board through review of the
KPIs and the assumptions driving the projected financial outcomes. Trial Tr. day 2, 30-31.
Bounty noted that the points outlined in the presentation materials were discussed in
greater detail with the Board. With the exception of the meeting held in November, Access
management personnel were present at all Board meetings.
Radley and Zimmell corroborated this testimony; both acknowledged that the Board
meetings involved discussions regarding important company matters and updates related
to key achievements, marketing, sales, finance, and product development. Trial Tr. day
9, 51, 82-83. 	Although Zimmell expressed some degree of dissatisfaction with the
completeness of the materials provided to the Board, he also stated that they were working
to improve the reporting and flow of information and that the types of materials received
were in line with that expected of a young start-up company. Trial Tr. day 9, 51.
I. 	Financial, Manufacturing, and Production Matters
The Plaintiffs maintain that FIncke failed to provide adequate information to the
Board regarding the Access’s financial situation, as well as its manufacturing and
production problems. 	As discussed in connection with the fraud and misrepresentation
claims, the Court finds that the Investors were well aware that Access’s financial status
was unstable, and the Court also finds that the Board was kept adequately informed of
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 133 of 164

134
Access’s financial situation after the April 2003 Transaction. In addition, problems related
to manufacturing, shipment, and sales were disclosed in the materials provided to the
Board and through discussions at the Board meetings.
The presentation materials from the April Board Meeting, held the day the April 2003
Transaction closed, refer to Access’s objectives to achieve consistent 100 unit per day
shipments and build a “buffer stock” of materials. 	Def.’s Exs. 51, 52. 	Receiving
components on schedule was identified as one of the company’s challenges. In May, the
Board received a KPI (the “May KPI”) that disclosed that both orders and average selling
price were lower than planned and provided details regarding the source of variance from
the projected figures. Def.’s Ex. 55. The May KPI also disclosed the number of units that
had shipped – 19 units more than needed to break even – noting that a number of units
had not shipped owing to a delay in receipt of raw materials. The May KPI also quantified
the amount of working capital invested in inventory. And the finance section stated that
lower-than-planned cash receipts were offset by “aggressive management of inventory
purchases and control of operating expenditures, which resulted in a higher cash balance
at the end of May [than planned].”
On June 25, 2003, Bounty provided the Board with the KPI and related narrative for
the first three weeks of June (the “June KPI”). 	Def.’s Ex. 30. 	The June KPI noted that
sales were much lower than planned (299 new orders versus a plan of 1,125), attributing
a portion of the shortfall to delays in international and domestic distributor orders following
the price increase. Because the distributors were resisting the proposed price increase,
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 134 of 164

135
Bounty reported that revisions to list prices and distributor transfer prices were made based
on distributor feedback.
The June KPI also disclosed that Access was projecting $2.5 million “invested” in
accounts receivable and inventory, and wanted “to discuss with the investor group ways
to access some of this cash to help manage the working capital requirements of the
business and insure [sic] a steady flow of material through the manufacturing group” at the
June Board Meeting. At trial, Bounty reiterated that the June KPI pointed to the significant
amount of money tied up in accounts receivable, which the company was hoping to access
through additional investor financing of those receivables.
At the June Board Meeting, held two days later, the financial discussion focused on
the cash model projections through September of 2003, which looked positive, assuming
shipments could be grown to 2,400 per month and the average selling price raised to
$1,300. The presentation materials for the June Board Meeting, Def.’s Ex. 68, compared
the actual June operating results against previous projections. Despite the low number of
actual orders placed compared those previously projected, Access had achieved higher
production and shipment levels – up to 500 units shipped the week of the June Board
Meeting – and the backlog of units had dropped considerably. June was also reported as
the highest revenue month in company history (estimated at $1.8 million), and Access was
predicting sufficient cash flow for July and August. But, even given these more positive
results, the presentation materials explicitly refer to a need for a working capital line of
credit.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 135 of 164

136
July, however, saw a precipitous decline in new orders and shipments. During this
time, Access secured the El Paso project. The Plaintiffs fault Fincke for taking on a project
that required product changes, despite Fincke’s initial expectation that the change would
be relatively minor. 	As previously indicated, the Plaintiffs say that the El Paso changes
resulted in serious production problems and negative financial consequences, and they
further allege that these problems were not disclosed to the Board. 	According to the
Plaintiffs, the El Paso Project led to a six to eight week shut- down on the manufacturing
floor which was not communicated to the Board. 	And according to Radley, Nawn, and
Grosberg, when the problems caused by the El Paso project were finally revealed, Fincke
confronted Nawn in Grosberg’s office, requesting Nawn to draft a false email to the Board
stating that the shut-down was only two weeks. Trial Tr. day 5, 29-20; day 9, 150. Fincke
denied that the El Paso project disrupted manufacturing for six to eight weeks, although he
admitted that manufacturing slowed during that time. 	He denied trying to “hide” the
manufacturing problems from the Board and also denied asking Nawn to falsely represent
the length of production shut-down to the Board. Trial Tr. day 3, 68-70.
Radley further testified that he was told in the early fall of 2003 that production had
stopped for four to six weeks beginning in July due to the changes required by the El Paso
project, and that this was confirmed by Nawn, Grosberg, Rice, and other members of the
management team. Trial Tr. day 9, 88-89, 148. According to Radley, he discussed the
situation with Fincke, who denied it, insisting that production had been stopped for only a
week or two as a result of both the El Paso changes and changes required to appease the
European Distributors. Trial Tr. day 9, 89.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 136 of 164

117 On cross examination, Radley testified as follows:
Q: 	Now, sir, you would agree with me, wouldn’t you, sir, that there’s a difference
between a production delay in July of close to six weeks and a purported
associated request by Mr. Fincke to untruthfully state the delay was two
weeks on the one hand, and a production slowdown in the Thanksgiving time
frame of a couple of weeks and a purported associated request by Mr. Fincke
to untruthfully state the delay was two days on the other hand, correct?
A. 	They were two different and distinct incidents.
Q. 	So there were two incidences. You forgot in your interrogatory answer to
mention the six-week incident?
A. 	I just testified that there were a number over the period of time we were
there. I said I didn’t know how many slowdowns there were. I think I just
testified that there were a number of them.
Q. 	But the big one was the six-week, right?
A. 	The big one was the summer one, yes.
Q. 	And why wasn’t that inside here, Mr. Radley?
A. 	I should have put it in. If we didn’t put it in, I apologize for not putting it in.
137
But Radley’s answers in his interrogatories gave a different version of events. In the
interrogatories, he stated:
My understanding is that around Thanksgiving 2003, Fincke ordered two
employees not to talk with the Board . . . specifically told them not to tell the
Board 	that 	he 	was 	continuing 	to 	revise 	the 	product 	against 	explicit
instructions. This conversation resulted from a conversation Fincke had just
been having with another Investor who was concerned about unnecessary
tweaking of the product. Fincke had told us that the revision had only slowed
down production by a few days when in fact, when it was on the order of a
couple of weeks, which as usual had exacerbated revenue and payment
issues. Fincke specifically asked Bill Nawn . . . to write a memorandum that
stated the delay was only two days.
Trial Tr. day 9, 151. 	The discrepancies between these two versions of events call into
question the accuracy of the witnesses’ memories at trial. Although Radley attempted to
clarify the contradicting statements, the Court found the testimony not credible. 117
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 137 of 164

Trial Tr. day 9, 152.
118 It appears that the El Paso order eventually shipped out in late July and early August.
Pl.’s Ex. 123, 124, 125.
138
The Court finds that the truth, as is often the case, probably lies somewhere in
between. As previously noted, shipments were well below projections for the month of July
– the documents show that slightly more than 400 units shipped that month – but
shipments did not actually cease. In fact, Nawn conceded at trial that Access was able to
fill some orders that month and acknowledged that production, although reduced, did
continue through July. Moreover, both Bowers and Nawn testified that, during the same
time period, they were incorporating changes that the European Distributors were
demanding. And, according to Bowers, they were also working on a solution for the low
battery detection problem. 	Trial Tr. day 7, 130. 	Ultimately, the Court was unable to
determine the extent to which the El Paso changes impacted production. 118
At any rate, the Board was made aware, by at least late August, of the abysmal
number of shipments for July. 	On August 20, 2003, Bounty sent an email to the Board
requesting a conference call by week’s end to discuss Access’s “immediate working capital
needs.” Pl.’s Ex. 34, Pl.’s Obj.-to Ex. 21. The memo attached to that email contained a
chart demonstrating an increase in average order bookings, described the management
of working capital as “aggressive,” stated that aggregate accounts payable were reduced
by $400,000, and explained that raw materials were “procured on a just in time basis
matched with working capital availability.”
The memo rang a distinctly positive tone regarding the El Paso situation. It stated
that Access was “again winning a high percentage of rural grants after a two-month period
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 138 of 164

139
where our success was limited. Most recently in El Paso, we successfully reconfigured our
product (within a very short time cycle) to overcome what was a lock out product
specification. We have also made numerous software upgrades in response to customer
feedback . . .” As for the low number of shipments during July, the memo attributed this to
a “combination of factors including . . . requested delivery dates of orders received in late
July [800 units] . . . delays in new software release [150 units] . . . [and] the timing of the
[April] funding, . . . resulting in lower than expected cash receipts in June.”
Because none of the testimony regarding the El Paso situation yielded a coherent
picture of events, the Plaintiffs have not carried their burden to demonstrate that Fincke’s
characterization of events was false or that Fincke attempted to hide the production
troubles from the Board. Instead, the Court finds that the poor July performance, as well
as the underlying causes, were reported to the Board.
More important was the financial situation at Access as described in the August 20
memo. The memo noted that accounts receivable had increased from $750,000 at the end
of April to $1.3 million in August, with an expected additional increase to $2 million by the
end of September. It further stated:
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 139 of 164

119 There was some debate at trial about whether a Board meeting was held in July and
whether certain relevant information was provided to the Board during that time. Moriarty testified
that he didn’t think there was a Board meeting in either July or August, but he said the Board could
have met at Connolly’s house in late August. Trial Tr. day 6, 93. Fincke insisted that there was a
Board meeting in July, held at Connolly’s house, and testified that he was the sole presenter at that
meeting. Trial Tr. day 7, 61. Regardless of whether there was a formal meeting of the Board
during July, the Court finds that events at Access were almost certainly communicated to individual
Board members between June and August. 	This finding is premised on the July 16, 2003 email
from Elefante to the Board requesting a Board meeting in late July to discuss the Philips litigation,
in conjunction with the reference in Bounty’s August 20 email to discussions held during a July
Board meeting.
140
At 	the 	July 	Board 	of 	Directors 	meeting119 we 	discussed 	the
requirement for additional working capital. At that time the expected need
was $500,000 to cover working capital requirements and Philips litigation
costs . . . actual July revenue was $1 million below the revenue estimate.
To 	meet 	the 	immediate 	short-term 	cash 	requirement, 	we 	are
requesting a loan from the investor group of $750,000. This loan will be used
to meet the August month end payroll . . ., fund the initial costs related to the
Philips litigation . . . and accelerate the procurement of inventory to ensure
product is available to meet September shipments. Our current projections
show that an additional $250,000 will be needed in mid September and an
additional $250,000 in mid October to meet working capital requirements . .
. .
In response to this email, Fincke, Bounty and some (if not all) members of the Board
participated in a conference call regarding Access’s need for additional funding. 	And on
August 25, 2003, a formal Board meeting was held. 	The presentation materials for the
August Board Meeting, Pl.’s Obj.-to Ex. 21, provided a financial overview, stating that the
company had $2.3 million invested in “working capital” – $1.6 million in backlog, $1.5 million
in accounts receivable, and $800,000 in inventory. The materials also referenced a $1.0
million working capital line of credit. Other basic company information, including average
sales price, sales order growth, priorities, personnel information, unit shipments, and cost
of goods were outlined in the materials.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 140 of 164

141
The KPIs for September (the “September KPIs”) and associated narrative, Def.’s Ex.
69, disclosed a severe shortfall of orders in September versus the plan (241 orders
received against a plan of 1,500). It also noted that production yields had dropped owing
to problems with a contract manufacturer, problems that had since been identified and
corrected. The narrative noted that the Access had a $1.1 million shortfall against planned
accounts receivable. The narrative further explained that working capital was needed to
pay down vendors (accounts payable had reached $2.2 million) in order to ensure the flow
of raw materials.
Consistent with the August Board Meeting materials, the narrative attached to the
September KPIs referenced a $1 million investment from the Investors that had been
expected in late August, but was not received until late September or early October,
resulting in a shipment shortfall for September. Due to Access’s desperate financial
condition, the company was looking into additional financing alternatives, such as factoring
accounts and obtaining additional SBA loans, to acquire more raw materials. The narrative
made clear that additional working capital was needed promptly; waiting to collect on
outstanding accounts receivable to buy raw materials could delay shipments until
December.
The Plaintiffs complain that relevant financial, manufacturing, sales, and other data
related to company performance were “buried” in the KPIs and reports provided to the
Board. But the evidence establishes otherwise. The data contained in the spreadsheets
were extensive because such was the universe of information needed to explain, analyze,
and predict company performance. Rather than hiding bits of relevant information under
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 141 of 164

142
volumes of irrelevant noise, the KPIs were targeted at disclosing sufficient information to
make analysis of company performance possible. Furthermore, the narratives and Board
meeting presentation materials attempted to make the most relevant date more accessible.
In short, the KPIs, narratives, presentation materials, and other communications with the
Board members were not designed to obscure, but to disclose. 	The Court discerns no
breach of Fincke’s fiduciary duty of care to Access in his provision of company performance
information to the Board.
ii. 	European Distributors
The Plaintiffs also contend that Fincke breached his fiduciary duty of care by hiding
Access’s problems with the European Distributors from the Board. 	The difficulty with
evaluating this claim is heightened by the Plaintiffs’ lack of specificity regarding what Fincke
is alleged to have known, and failed to disclose, at particular times. As described earlier,
the email from Klegerman in February 2003 identified one European Distributor who
threatened to stop placing orders if the prices were increased as proposed. 	Several
witnesses testified generally that problems with the European Distributors worsened
throughout 2003. 	But, as the Court has noted, the European Distributors continued to
place orders throughout that same time period (with the exception of September 2003) and
remained a large portion of Access’s customer base.
Following the announcement of the proposed price increases, the European
Distributors voiced resistance. 	This resistance was disclosed to the Board at the May
Board Meeting, where it was noted that Fincke and Bob Ide would be visiting five “key”
European Distributors. Pl.’s Obj.-to Ex. 21. And, although the presentation materials state
that the company had “improved distributor relationships,” the materials also noted that a
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 142 of 164

143
“Key Objective” was to “make Access an easy company to do business with. Be proactive,
ensure customer satisfaction and retention.” 	The narrative attached to the May KPIs
likewise informed the Board that the purpose of the visit to the European Distributors was
to “understand how price increases can be implemented and to review the distributor sales
programs.” It further stressed the importance of price to the European Distributors, stated
that Access “need[ed] to provide improved support to our distributors,” and indicated that
an executive recruiter was hired to search for an International Business Manager.
At the June Board Meeting, Fincke reported on the European trip. According to the
presentation materials, Access had decided to introduce a more “moderate” price increase
as a result of distributor feedback. Def.’s Ex. 68. In the August 20 email from Bounty, the
relationships with both domestic and international distributors were described as “strong,”
noting the steady increase of average monthly new orders. Pl.’s Ex. 34; Pl.’s Obj.-to Ex.
21.
In early September, however, several European Distributors, including Kivex, Dolby,
and Schiller, sent emails expressing their dissatisfaction with Access and providing a list
of issues they would like addressed before receiving further shipments. On September 15,
Fincke responded, outlining the steps the company would take to improve the situation and
address their concerns. Pl.’s Obj.-to Ex. 14. 	Shortly thereafter, in early October 2003,
Fincke and other Access managers attended a meeting with the European Distributors to
address their problems. 	The October meeting must have calmed the waters between
them, as orders from the European Distributors resumed, and little evidence was
introduced demonstrating a seriously strained relationship after that date.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 143 of 164

144
The Investors testified that they were unaware of problems between Access and the
European Distributors until fall 2003. Fincke maintained that they were apprised of events
as they happened. What is clear is that things came to a head in September, when the
European Distributors stopped placing orders pending resolution of the outstanding issues,
a fact which was noted in the September KPIs and narrative. Def.’s Ex. 69. Given that the
Board had delegated general management of Access’s affairs to Fincke, the Court credits
Fincke’s testimony that he did not view the situation with the European Distributors as on
the brink of collapse throughout the summer of 2003. 	Rather, the issues over product
features and pricing were being managed by Fincke and others at Access to the best of
their ability. 	It was not until September that the European Distributors actually stopped
placing orders. And, at that time, the Board was informed of the situation, a plan of action
was put in place (the early October meeting), and the problems apparently substantially
resolved. Because the Plaintiffs have failed to demonstrate that Fincke withheld material
information relative to the European Distributors, the Court finds that the Plaintiffs have
failed to demonstrated a breach of Fincke’s fiduciary duties.
b. 	Philips Litigation
The Plaintiffs contend that Fincke failed to timely disclose the threatened Philips
litigation, and, when it was eventually disclosed, he misrepresented the gravity of the
lawsuit in violation of his duty of care. 	As previously discussed, the Investors and the
Board were not made aware of the communications from Philips prior to the filing of the
Philips complaint. 	As earlier described, however, no one at Access, with the possible
exception of Pandiscio, appeared to take Philips seriously when presented with emails and
telephone calls requesting a meeting in fall 2002 and spring 2003. Elefante was copied on
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 144 of 164

145
the communications from Philips and Pandiscio, but he also did not disclose the information
to the Board prior to the filing of the Philips Complaint.
At most, the Court finds, Fincke may have been negligent in not raising the issue
with the Board, but the Court cannot conclude that his failure to do so amounts to the sort
of gross negligence or recklessness constituting a breach of his duty of care. 	Instead,
Fincke, as well as Elefante, made a judgment call regarding the likelihood that Philips
would follow through with litigation. 	As Pandiscio explained at trial, the letters sent by
Philips were not uncommon in the world of new medical technology. And Fincke simply did
not take it seriously at the time it was received. This was, perhaps, a poor decision, but not
a breach of his fiduciary duties.
When the Philips complaint was finally filed, the Board was immediately informed
– on June 25, 2003, Bounty sent an email to the Board noting that Access had just received
the Philips Complaint. 	Discussions between Pandiscio, Fincke, and Elefante promptly
ensued as they began to formulate a strategy for responding to the litigation. On July 11,
2003, Elefante sent a letter to Fincke and Pandiscio summarizing portions of their
discussions:
1. 	Identify counsel to represent Access in the Philips litigation. I agreed
that I would talk to John Montgomery of Ropes & Gray (which I have done.)
. . . Randall is going to talk to a contact of his at Pfizer for recommendations.
. . .
2. 	We will consider what information we can provide Philips that might
convince them that the royalty amount they are seeking is way out of line.
. . . [Pandiscio] also agreed to research the royalty rates applicable to this
industry. [Pandiscio] has identified an expert with knowledge . . . and will
consult with him about rates applicable to this industry.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 145 of 164

146
3. 	We also discussed challenging one or more of Philips’ patents through
the patent office. We viewed that as preferable to contesting the patents in
the litigation. . . . Randall and Mark will identify the most promising
opportunities.
Pl.’s Ex. 32.
Elefante also formally advised the Board of the Philips litigation by letter dated July
16, 2003. In the letter, he stated:
Access last week was served with a Complaint brought by Philips
Electronics . . . . The Complaint alleges that the [Access AED] infringes on
18 patents issued to Philips. . . . Access believes that its product does not
infringe on a number of the patents asserted. Moreover, Access believes that
a number of the key patents are invalid.
Randall, Access’ patent counsel, and I met with representatives of
Philips last week. . . . They claim that their interest is in realizing revenues
from the intellectual property owned by Philips, not putting Access out of
business as a competitor. . . . They offered to license the patents involved in
the litigation to Access for a royalty of 15% of Access’ gross revenues from
sales of the AED product. In our view, although a license will be welcome, the
royalty demanded by Philips is excessive. . . . The Philips representatives
claim that they would be willing to consider information which would suggest
that the royalty demand is excessive. We are currently trying to develop
information to provide to Philips in response to that offer.
Patent litigation is very expensive and tends to operate on a relatively
fast track. We are currently looking for counsel for Access to defend it in this
litigation. We have been advised by some of the lawyers we have interviewed
that Philips has a reputation for being particularly aggressive and difficult in
these matters. . . . In the meeting, Randall asked Philips to withdraw the
litigation while we discuss the possibility of a royalty arrangement. Philips
refused to do that and indicated that they would pursue their claim
aggressively.
The lawsuit is certainly not good news. At a minimum, it will be
expensive to hire counsel and put Access in a position to defend the case or
reach a licensing arrangement with Philips. The case also has potential for
costing Access damages for infringement and perhaps requiring Access to
change its product to eliminate features covered by the patent. Alternatively,
Access may have to pay Philips a royalty. . . . I think it is important to get
together to discuss how to respond to this litigation and to general protect the
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 146 of 164

147
company’s competitive position in the industry. Please let Randall know
whether you are available for a board meeting next week. . . .
In September 2003, Elefante again apprised the Board of developments related to
the Philips matter. Def.’s Ex. 75. In his letter, Elefante reported on a meeting held with
Ropes & Gray to discuss Access’s litigation strategy:
[T]here is a multi-pronged strategy for dealing with the litigation. . . .
. . . .
The goal overall is to put Access in a position to negotiate a settlement with
Philips at the earliest possible point. We believe that we will be in the best
position to do that if we:
1. 	Put up a fight with Philips on its infringement claim;
2. 	Reduce the claim by eliminating potentially infringing features;
3. 	Develop counterclaims; and,
4. 	Hit Philips in other vulnerable spots to make the point that
fighting with us will be expensive and painful.
According to the Investors, Fincke represented to them individually that Access
could “handle virtually anything;” that the type of claim asserted by Philips was normal in
the medical device business; that the Access AED did not infringe on some of the asserted
claims; that Access could design around possible infringements; and that some of Philips
patents could be challenged as invalid. 	The Plaintiffs insinuate that Fincke grossly
mismanaged the Philips matter by not pursuing a license and deciding to put up a fight –
a fight which Access could ill-afford to pursue.
There is no evidence, however, that Fincke’s position was unreasonable, self-
serving, or irrational. The communications from Elefante reflect a more collaborative tone
toward litigation strategy development, suggesting that Fincke was not flouting the advice
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 147 of 164

120 See also Mi-Lor, 348 F.3d at 306 & n.18; Haseotes v. Cumberland Farms, Inc. (In re
Cumberland Farms, Inc.), 284 F.3d 216, 227-28 (1st Cir. 2002); Boston Children’s, 73 F.3d at 433-
34; Starr, 648 N.E.2d at 1265 (“When a partner has engaged in self-dealing, that partner has the
burden to prove the fairness of his actions and to prove that his actions did not result in harm to
the partnership.”) (citing Meehan v. Shaughnessy, 535 N.E.2d 1255, 404 Mass. 419 (1989)); Farley
v. Romano (In re Romano), 353 B.R. 738,759-60 (Bankr. D. Mass. 2006); Puritan Medical Center,
Inc. v. Cashman, 596 N.E.2d 1004, 1008-09, 413 Mass. 167 (1992); Durfee, 80 N.E.2d at 528-529
(“officers and directors are not permitted to use their position of trust and confidence to further their
private interests”); Johnson v. Witkowski, 573 N.E.2d 513, 522 (Mass. App. Ct. 1991); Boylan v.
Boston Sand & Gravel, No. 022296BSL1, 2009 WL765404, at *3, 25 Mass. L. Rptr. 209 (Mass.
148
of others, even while remaining determined to defend against Philips’s claims. Even if
Fincke spearheaded the strategy to vigorously defend Access through an “aggressive”
posture, there was nothing inherently wrong in his decision to do so. The Board was kept
informed of Access’s stated position and litigation strategy, and the Plaintiffs have
presented no evidence that Fincke withheld any material information in that regard. 	In
short, the Court rules that the Plaintiffs have not demonstrated that Fincke’s actions relative
to the Philips litigation breached his fiduciary duty of care to Access.
2. 	Duty of Loyalty
As a director and officer of Access, Fincke also owed a fiduciary duty of loyalty to
the company. “The duty of loyalty prohibits fiduciaries from ‘promoting their own interests
in a matter injurious to the corporation. . . . [Personal] pecuniary interests are subordinate
to this paramount duty.’” Access I, 340 B.R. at 148 (citations omitted). Fiduciaries must
refrain from self-dealing – i.e., they may not engage in transactions with the corporation in
which they have a personal or pecuniary interest – unless: (1) the transaction is assented
to by a majority of disinterested shareholders or directors following full disclosure of
material facts or (2) is otherwise proved to be fair to the corporation. Demoulas, 677 N.E.2d
at 182. 120 The business judgment rule 121 does not apply where there is demonstrated self-
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 148 of 164

Super. Jan. 23, 2009); Henderson v. Axiam, 1999 WL33587312, at *49-50.
121 “The business judgment rule affords protection to the business decisions of directors
. . . because directors are presumed to act in the best interests of the corporation.” Harhen v.
Brown, 730 N.E.2d 859, 865, 431 Mass. 838 (2000).
149
dealing; once the transaction is identified as a self-interested one, the burden shifts to the
fiduciary to demonstrate full disclosure and ratification of the transaction or fairness to the
corporation. See Henderson v. Axiam, Inc., No. 962572D, 1999 WL33587312, at *49-50
(Mass. Super. June 22, 1999), aff’d, 797 N.E.2d 502 (Mass. App. Ct. 2003) (collecting
cases). Even the failure of others at the corporation to properly supervise and discover the
underlying facts of the transaction will not relieve the self-dealer from liability. Haseotes
v. Cumberland Farms (In re Cumberland Farms), 284 F.3d 216, 231 (1st Cir. 2002); Puritan
Med. Ctr. v. Cashman, 596 N.E.2d 1004, 1008-09, 413 Mass. 167 (1992); Durfee, 80
N.E.2d at 531.
Similarly, fiduciaries may not “tak[e], for personal benefit, an opportunity or
advantage that belongs to the corporation.” Demoulas, 677 N.E.2d at 180. As with self-
interested transactions, a corporate fiduciary who wants to engage in a transaction that
also represents an opportunity for the corporation “must first disclose material details of the
venture to the corporation, and then either receive the assent of disinterested directors or
shareholders, or otherwise prove that the decision is fair to the corporation.” Id. at 182.
Courts in Massachusetts have also implied greater duties for fiduciaries during
periods of corporate insolvency. See, e.g., Mi-Lor, 348 F.3d at 304, 305 (stating that
unanimous shareholder consent can ratify self-interested transactions in close corporations,
“subject to special rules for insolvency”); Cumberland Farms, 284 F.3d at 228-29; Martin
v. Kagan (In re Tufts Electronics, Inc.), 746 F.2d 915, 917 (1st Cir. 1984); Farley v. Romano
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 149 of 164

122 Similarly, the SJC has intimated that directors of insolvent corporations may not
preferentially repay obligations owed them by the company:
[D]irectors of a corporation which is insolvent or about to become so cannot obtain
for themselves a preference over other creditors in respect to the assets [of the
corporation] . . . . [D]irectors are to some extent trustees of the corporation property
for the creditors, [ ] they should not be allowed to use their superior and far more
intimate knowledge of the corporation’s affairs to the detriment of creditors.
Seder v. Gibbs, 131 N.E.2d 376, 380, 333 Mass. 445 (1956); see also Romano, 353 B.R. at 760
(Directors who took payment on their claims from sale of company violated fiduciary duty in light
of company’s insolvency) (quoting Seder, 131 N.E.2d at 380); Albert Richards Co., Inc. v. Mayfair,
Inc., 191 N.E. 430, 287 Mass. 280 (1934); Burke v. Marlboro Awning Co., 113 N.E.2d 222, 330
Mass. 294 (1953)).
150
(In re Romano), 353 B.R. 760, 765 (Bankr. D. Mass. 2006); see also Candlewood Shores
Estates, Inc. v. Klein (In re Candlewood Shores Estates, Inc.), 20 B.R. 377, 380-381
(Bankr. D. Conn. 1982) (citing, inter alia, Albert Richards Co. v. Mayfair, Inc., 191 N.E. 430,
287 Mass. 280 (1934)). In Cumberland Farms, the First Circuit affirmed the lower court’s
finding that funds available to repay the debtor-company’s loan to a separate corporation
represented a corporate opportunity usurped by a director of both corporations who used
the funds to pay down loans given by other corporations in which he had a personal
interest. 	The First Circuit found that the director breached his fiduciary duty toward the
debtor by failing to provide full disclosure prior to engaging in the transaction: 	“[T]he
decision as to how to use that money was not his to make . . . . [it was] an ‘opportunity’ that
rightfully belonged to [the company].’” 284 F.3d at 228-29. 122
a. 	Payments to Fincke for Loans to Access
When Access was initially formed, Fincke, like others, was compensated only by his
stock interest in Access. According to the Investment Summary, beginning in August of
2001 and continuing through September of 2003, Fincke received several payments on his
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 150 of 164

123 Bounty testified that the payments made to Fincke listed on the Investment Summary
could not have been salary, as the Investment Summary contains only information related to
investments and loan accounts. Fincke does not appear to dispute this point; instead, he testified
that he was using that account (the loan account) to pay himself because that is what his original
accountant had advised him to do.
151
loan account. In total, he was re-paid $281,534.62 of his original $325,000 investment,
leaving $43,465.38 of his initial loans to Access outstanding.
Fincke testified that Jack Carucci, Access’s original accountant, had set up the
system so that Fincke's salary would be paid in the form of repayments on his loan
account. Trial Tr. day 1, 55, 142. By the end of 2002, however, as Grosberg and Bounty
testified, and Fincke acknowledged, Access had contracted with a payroll service, through
which Fincke received his salary. 	Neither Bounty nor Grosberg (who was in charge of
handling payroll at the end of 2002) could recall Fincke not receiving salary during 2002.
Trial Tr. day 2, 52; day 5, 146-147. Fincke insisted that he believed he had missed some
salary payments during 2002 and that checks he wrote to cash or to himself in 2003 were
merely to compensate him for those missed payments.123 Trial Tr. day 1, 62, 157-159.
Fincke testified that he would have informed Bounty or Grosberg when he was
writing checks to himself, although he could not recall specifically asking them if there were
sufficient funds to cover the amounts withdrawn. Trial Tr. day 1, 159-160. Both Bounty
and Grosberg testified that Fincke did not inquire into sufficiency of funds before making
payments to himself. 	Trial Tr. day 2, 14. 	Although Grosberg was handling payroll
beginning in late 2002, he testified that Fincke would write checks to himself (or to cash)
without informing him, resulting, at times, in the inability to reconcile cash flow or to pay
other liabilities. By March 2003, when Grosberg and Bounty had check-writing authority,
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 151 of 164

124 On March 11, 2002, the Investment Summary shows that a check in the amount of
$108,000 was written to Fincke, and then deposited back into Access's account later that day. The
Investors have argued that this was an attempt by Fincke to withdraw, for his own benefit, this very
large sum of money. Fincke was at a loss to explain what had happened. Although he at one point
seemed to concede that it may have been an attempted payment to himself, he later testified that
it could not have been. He also tried to link the check with the set-up of a separate account for the
company. Trial Tr. day 3, 38-41. At any rate, this Court is unable to ascertain the intended purpose
of the $108,000 check. Although the Investors' theory is plausible, and Fincke's lack of explanation
troubling, the size of the check is also not commensurate with the other withdrawals made by
Fincke before and after, which were mostly in the range of $10,000 - $15,000 (although two
withdrawals were for substantially more at $54,000 and $43,928.62). 	At any rate, the money was
put back into the account on the same day. 	And to the extent that the Investors rely on the
evidence to indicate Fincke's intentions with regard to Access's funds, the Court finds, as will be
discussed below, that any findings in that regard are extraneous to the Court's decision.
152
Grosberg was at least aware of the payments being made to Fincke. 	He testified that
Fincke would request funds from him in lieu of writing the checks himself and that Fincke
would ask for such payments following an influx of cash from the Investors, since Fincke
then “knew there would be cash there.” 124
These repayments on Fincke’s loans, whether characterized as debt or equity,
violated his fiduciary duty of loyalty to Access. While directors and officers are entitled to
receive reasonable compensation for their services, see Bessette, 434 N.E.2d at 208,
Fincke failed to demonstrate that the payments represented either current or past-due
salary. 	Because he was receiving funds directly from the corporation, the transactions
constitute self-dealing, and Fincke bore the burden at trial to demonstrate that they were
fully disclosed and ratified or were inherently fair to Access.
Apart from Grosberg and Bounty, no one at Access appears to have been aware of
these repayments as they were made. 	Because other shareholders had a stake in the
company at all times the repayments were made, Fincke was obligated to fully disclose the
transactions and obtain consent of the disinterested shareholders before repaying himself
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 152 of 164

153
the sums of money. And Fincke was obligated to disclose the payments to the Board after
it was formed. This he did not do.
Furthermore, because Access was at all times in desperate need of cash, Fincke’s
preferential repayments on his own loan account represented just the sort of corporate
opportunity that was present in Cumberland Farms. Rather than putting the interests of the
company paramount in his mind – i.e., leaving the funds available to repay vendors or
purchase additional raw materials – Fincke acted in self-interest and unfairly toward the
corporation by siphoning off needed funds to satisfy his own debts. Having done so, the
Court rules that the payments were made in violation of his fiduciary duty of loyalty to
Access. See Boston Children’s, 73 F.3d at 441.
b. 	Reimbursement of Credit Card Expenses
In addition to the payments outlined above, Fincke also received payments from the
company as reimbursements for company expenses. Fincke testified that he and others
at the company would sometimes charge business expenses on his personal credit cards;
that the credit card statements were given to accounting personnel to be audited; and that
he would be reimbursed for the business expenses, but not his personal expenses. His
testimony in this regard was credible and was supported by Bounty's testimony. Bounty
recalled that during the time he was CFO, the accounts payment group processed various
travel and expense reimbursements for Fincke, and he did not recall any specific issues
or questions arising regarding those payments. Trial Tr. day 2, 111.
Plaintiff's Exhibit 1, which the Plaintiffs say represents a summary of credit card
charges 	and 	reimbursements 	made 	to 	Fincke 	(the 	“Summary 	of 	Credit 	Card
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 153 of 164

125 The Summary of Credit Card Reimbursements also indicates that $25,001.32 in credit
card expenses were “credited to loan account via a journal entry in the amount of $25,000 in June
2001,” which is consistent with the Investment Summary.
126 For instance, some of the entries note charges for airline tickets for Barash, Heer,
Fincke, and other of their family members, charges to retailers, charges related to a boat, charges
related to ski trips, a charge for a rental car, charges for plane tickets for Heer’s and Barash’s wives
(June 2002), a marine boating charge (August 2002), a charge for Travel and Leisure magazine
(March 2003), finance charges (March and April 2003), charges for retail stores, a car dealership,
boat dealership and jewelry store (April 2002), and charges in April and June 2002 which are
simply noted as “no support could be located.” 	A second version of this Summary omits the
finance charges and the charge for Travel and Leisure magazine from 2002.
154
Reimbursements”), was not prepared by Bounty, Trial Tr. day 2, 114, but by unidentified
Access employees following Fincke's departure from Access. The Summary of Credit Card
Reimbursements consists of what appear to be credit card statement dates and a
corresponding list of company payments,125 including company check numbers. In the right-
hand margin of the document, there are notations regarding specific expenses said to have
been taken from detailed credit card statements (the credit card statements themselves
were not produced). Some of the entries note that certain charges “[a]ppear to be valid
business expenses,” while others contain notes detailing certain personal expenses that
are alleged to have been contained on particular credit card statements and list the amount
of those personal expenses. 126
The Court finds that Fincke received legitimate repayment of company expenses
charged to his personal credit cards. See, e.g., 18B Am. Jur. 2d Corporations § 1644 (“An
officer or director of a corporation has a right to be reimbursed for money properly
advanced 	or 	expenses 	necessarily 	incurred 	on 	behalf 	of 	the 	corporation.”)
Reimbursements for personal expenses, however, constitute self-interested transactions
which, to the extent established during the damages phase of the trial, may be recoverable.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 154 of 164

155
c. 	Delay in Accepting Financing in April 2003
The Investors also argue that Fincke’s delay in accepting additional financing in
spring 2003 violated his fiduciary duty of loyalty to Access. According to the Investors, this
delay resulted from Fincke’s own self-interest in maintaining a majority stake in the
company and harmed Access by preventing the timely influx of funds required to maintain
the company’s operations.
While Fincke has conceded that he was hesitant to accept the Investors’ proposal
in early 2003 because he was wary of losing his majority shareholder position, the Court
does not find that the negotiations that transpired in March and April 2003 were driven
primarily by Fincke’s pursuit of personal gain.
The evidence demonstrates that Fincke and Elefante were both involved in the
negotiations surrounding the April 2003 Transaction. Instead of jumping headlong into the
deal, Fincke and Elefante took time to carefully consider the Investors’ proposal and spent
much time working through an apparent misunderstanding regarding the transaction. In
addition, Fincke was not the only one concerned with the proposed terms. Bounty, too,
was at least minimally involved in suggesting a revision to the Investors’ proposal. And
both Bounty and Fincke were actively pursuing alternative investment proposals.
Regardless of whether the month-long delay in receiving additional funds hurt
Access in the long run, this Court does not view the complex and considered actions of
Fincke during March and April 2003 as indicative of a self-serving attitude in connection
with securing additional funding for Access. 	Thus, the Court rules that Fincke did not
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 155 of 164

156
breach his fiduciary duties toward Access in his conduct surrounding the negotiation of the
April 2003 Transaction.
C. 	Counterclaims
1. 	Employment 	Claims: 	Breach 	of 	Contract, 	Promissory 	Estoppel,
Breach of Fiduciary Duty, and Wrongful Discharge
In contrast to the claims previously discussed, Fincke’s Counterclaims present
exceedingly more straightforward questions of Massachusetts law. Fincke’s first allegation,
found in his various claims for breach of fiduciary duty, breach of contract, promissory
estoppel, and wrongful discharge, is that Access and the Investors wrongfully deprived him
of benefits to which he would have been entitled under a negotiated employment
agreement.
Fincke claims that Access and the Investors breached not only their promise to
execute an employment agreement, but their fiduciary duties as well, and wrongfully
discharged him in retaliation for his reports to the FDA in early 2004. After considering the
testimony and submitted evidence, however, the Court does not find that the Board or
Access, acting through Radley as interim president, retaliated against Fincke for reporting
his safety concerns to the FDA.
Fincke first began to strenuously vocalize his concern with the AED s shipped during
his absence in late December when he returned from vacation in early January of 2004.
By that time, the Board vote to remove Fincke as president and CEO had been festering
for more than a month. As evidenced by Radley’s memo given to Fincke as a suggested
template for announcing his change in status at the company, the Board was growing
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 156 of 164

157
impatient of the wait-and-see approach Fincke seemed to be taking toward the situation.
At the time he was removed from office, Fincke had raised no safety concerns, and by the
time he did voice the concerns, he had not accepted the Board’s offer of the chief
technology officer position. This Court credits the testimony of the witnesses who felt that,
as of late December, Fincke had essentially rejected that offer and the Board was ready
to move ahead without him.
Once Fincke began to communicate with the FDA and report his concerns about the
shipped units, the Board and others at Access reacted negatively. 	Regardless of the
authenticity of Fincke’s belief that the shipped units posed a problem, the Board
understandably interpreted his actions as an attempt to damage the company. 	But this
does not mean that the ultimate decision to terminate the employment relationship and to
refuse further negotiations was a retaliation in the classic sense. 	Rather, the testimony
revealed that the Board’s actions were more a reaction to the sometimes passive-
aggressive and other times wholly unrealistic approach that Fincke took to the question of
his severance from the company.
With this in mind, the Court turns to the legal sufficiency of Fincke’s Counterclaims.
First, Fincke argues that Access and the Investors are liable for breach of contract, under
either standard contract or promissory estoppel theories, because they failed to execute
an employment agreement. 	Under Massachusetts law, “the formation of a contract
requires the manifestation of mutual assent by the parties to the agreement.” Trifiro v. N.
Y. Life Ins., Co., 845 F.2d 30, 31 (1st Cir. 1988). Such agreements may be enforced under
traditional contract law or may be enforceable under the doctrine of promissory estoppel:
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 157 of 164

158
An offspring of the intermarriage of tort and contract, this doctrine holds that
a promise given without consideration is binding when the promissor should
reasonably expect to induce action or forbearance if injustice can be avoided
only by the enforcement of the promise.
Id.; see also Cellucci, 320 N.E.2d at 923.
Under either traditional contract or promissory estoppel theories, “the party bringing
such an action must prove all the necessary elements of a contract . . . .” R. I. Hosp. Trust
Nat’l Bank v. Varadian, 647 N.E.2d 1174, 1179, 419 Mass. 841 (1995); see also Neuhoff
v. Marvin Lumber & Cedar Co., 370 F.3d 197(1st Cir. 2004). 	“It is not required that all
terms of [an] agreement be precisely specified,” Neuhoff, 370 F.3d at 201 (quoting
Situation Mgmt. Sys. v. Malouf, Inc., 724 N.E.2d 699, 703, 430 Mass. 875 (2000)), but
there must be some evidence of agreement on essential terms.
The agreement between the parties here never rose beyond the level of a tenuous
agreement that they would try to agree. 	No essential terms of an employment contract
were ever discussed, much less agreed upon. Absent any specificity as to basic terms, the
Court can not find that any enforceable agreement was reached or that there is a basis for
Fincke’s claim of promissory estoppel. See, e.g., Hall v. Horizon House Microwave, 506
N.E.2d 178, 184 (Mass. App. Ct. 1987) (employee seeking stock options promised during
compensation negotiations could not recover, “given the extended and persistently
inconclusive nature of his negotiations”).
But Fincke also says the failure to provide the employment agreement constituted
a breach of both Access’s and the Investors’ fiduciary duties toward him. His argument is
premised 	on 	the 	assertion 	that 	Access 	was 	a 	close 	corporation, 	which, 	under
Massachusetts law, gives rise to enhanced fiduciary duties on the part of the shareholders.
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 158 of 164

159
Demoulas, 677 N.E.2d at 179 (citing Donahue, 328 N.E.2d 505; quoting Meinhard v.
Salmon, 164 N.E. 545 (1928)).
Even if the Court were to find that Access was a close corporation, the Court still
could not find that the Investors breached their fiduciary duties in this case. 	Since
Demoulas, the SJC has clarified that the duties attendant upon shareholders in a closely-
held corporation should not be interpreted to “hamper legitimate corporate activity unduly.”
O’Brien, 868 N.E.2d at 125.
Where the alleged wrongdoer can demonstrate a legitimate business
purpose for his action, no liability will result unless the wronged shareholder
succeeds in showing that the proffered legitimate objective could have been
achieved through a less harmful, reasonably practicable, alternative mode of
action.
Id. at 125 (quoting Zimmerman v. Bogoff, 524 N.E.2d 849, 402 Mass. 650 (1988)); see also
Starr v. Fordham, 648 N.E.2d at 1266; Leader v. Hycor, Inc., 479 N.E.2d 173, 177, 395
Mass. 215 (1985).
In this case, the Court finds that the Board acted within legitimate bounds when it
voted to remove Fincke as president and CEO of Access and to offer him instead the
position of chief technology officer with no reduction in salary or benefits. Quite apart from
any alleged fraud or misrepresentation, the Board was justified in concluding that, because
of Access’s poor performance, Fincke was not an effective manager and president of the
company. And Fincke has not shown that the legitimate objective of finding someone new
to fill that role could have been achieved through a less harmful, reasonably practicable
alternative mode of action. 	In fact, offering Fincke a continued high-level position at
Access, with the same benefits and salary, was more than generous given Access’s poor
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 159 of 164

160
performance. Indeed, this Court cannot readily conjure a less harmful alternative to the
Board’s chosen action.
But it was Fincke, not the Board, that rejected this path. The Board was more than
patient throughout December as it waited to transition to new leadership at Access. In light
of Fincke’s failure to accept the offered chief technology officer position and his apparent
inaction and silence on the matter, the Court finds that the Investors and Access, acting
through the Board, violated no fiduciary duties toward Fincke in deciding to terminate
further employment and severance negotiations.
Finally, as previously discussed, the Court disagrees with Fincke regarding the
retaliatory motives he attributes to the Investors as the basis for their refusal to continue
negotiating either a severance or employment agreement.
2. 	Enforceability of the Stockholders Agreement
The Court’s analysis above applies with equal force to Fincke’s assertion that the
Stockholders Agreement should be declared unenforceable in equity because it was used
in a retaliatory manner to repurchase Fincke’s stock after his employment with Access was
terminated. The overwhelming consensus in Massachusetts case law compels the ruling
that Access and its Board were within their rights to exercise the option to repurchase
Fincke’s stock at book value. Fincke has raised no legally cognizable argument that would
suggest a contrary ruling.
Fincke cannot argue that the Investors or Access were constrained by fiduciary
obligations to refrain from exercising their rights pursuant to the Stockholders Agreement.
In Massachusetts, when the “contested action falls entirely within the scope of a contract
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 160 of 164

161
between the director and the shareholders, it is not subject to question under fiduciary duty
principles.” Chokel v. Genzyme Corp., 867 N.E.2d 325, 331, 449 Mass. 272 (2007). The
repurchase of Fincke’s stock upon termination of his employment falls squarely within the
scope of the Stockholders Agreement. 	Fincke has not attacked the validity or
enforceability of the Stockholders Agreement per se, nor has he argued that the Board and
Access failed to follow proper procedures for repurchase of stock under the agreement.
He has asserted only the general argument that “equity” should render the agreement
unenforceable.
But the Court has already found that the Board and Access were not driven by
retaliatory motives when they sought to enforce the Stockholders Agreement. 	They
exercised their rights in good faith, as required under Massachusetts law, and the
repurchase was therefore valid. See Donahue, 328 N.E.2d at 518; Brigham v. M & J Corp.,
227 N.E.2d 915, 918, 352 Mass. 674 (1967); Winchell v. Plywood Corp., 85 N.E.2d 313,
317, 324 Mass. 171 (1949); Thompson v. Daluise (In re Wet-Jet International, Inc.), 235
B.R. 142, 149-50 (Bankr. D. Mass. 1999) (“Where there is no indication of any failure in the
duty of good faith and fair dealing at the time that stockholder agreements are executed,
issues of the breach of fiduciary duty do not arise when one party simply seeks to exercise
its rights under those agreements”); Blank v. Chelmsford OB/GYN, 649 N.E.2d 1102, 1105,
420 Mass. 404 (1995); Vakil v. Anethesiology Associates of Taunton, Inc., 744 N.E.2d 651,
655 (Mass. App. 2001).
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 161 of 164

162
IV. 	CONCLUSION
The Investors here, sophisticated businesspersons one and all, invested their
monies in a startup venture, managed by Randall Fincke, to manufacture and distribute an
AED in a competitive industry. The investments were substantial and the evidence has
shown that the Investors actively followed Access’s progress from their first dollar invested
until the filing of this bankruptcy case and beyond. The evidence has also shown that the
Investors were informed, on a timely basis, of Access’s struggles. The Investors’ claim to
have been provided false or incomplete information, with the exception of the limited
statement set forth below, is without merit. Information given to the Investors, while always
capable of further expansion or refinement, was reasonably sufficient to provide the
Investors with the information needed to discern Access’s ongoing fortunes.
Among the definitions of the term “risk” set forth in the Oxford English Dictionary is
the following:
The chance or hazard of commercial loss . . . . Also . . . the chance that is
accepted 	in 	economic 	enterprise 	and 	considered 	the 	source 	of 	(an
entrepreneur's) profit.
And the term “risk capital” is defined as “money that is put up for speculative business
investment. Oxford English Dictionary, Oxford University Press (2d Ed. 1989).
Each Investor made his respective investments with his eyes wide open, and no
material information was withheld then or thereafter. Had the company succeeded, each
Investor would have been vindicated in his initial investment decision and his willingness
to take risks amply rewarded. But the essence of risk capital is that sometimes the best-
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 162 of 164

163
laid plans do not have a positive outcome. By their extensive and extraordinary effort here,
the Investors seek to reduce their losses by casting about for someone to blame. Their
effort would be more productive were they to peer into a looking glass. 	They are
responsible for their losses by having made their investments. 	No one else bears that
responsibility. With the limited exception set forth below, this Court finds that the Plaintiffs
have not sustained their burden to demonstrate by a preponderance of the evidence that
the actions of Fincke constituted actionable fraud, negligent misrepresentation, or violations
of § 410(a)(2). 	Nor, with the exception noted below, have the Plaintiffs sustained that
burden with respect to their allegations that Fincke violated any standard of care or loyalty
that he owed to them or to Access.
For his part, Fincke seeks to ameliorate his losses – of money, time, and energy –
by employing the assistance of his Counterclaims. But he too, and even more so than the
Investors, made his investments and management decisions in an atmosphere where the
risks were obvious and, to a large extent, totally within his control. He drafted the initial
Stockholders Agreement of which he now complains. 	And he failed to timely and fairly
pursue negotiations relative to an employment agreement which would have protected him
in a manner far better than his Counterclaims will here.
This Court, by partial judgment of even date, will grant judgment to Fincke on the
Plaintiffs’ claims in chief, with the exception of its findings and rulings that Finke is liable 1)
for fraud, negligent misrepresentation, and violation of §410(a)(2) on account of the false
statement in the Business Plan that Access was advised by its patent counsel that its
product did not infringe any patents known to him; and 2) for violating his duty of care and
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 163 of 164

127 Accordingly, Count VIII, the objection to allowance of Fincke’s claims, is moot.
164
loyalty to Access by causing the company to repay its loans from him at a time when
Access was desperately in need of cash and without disclosure to and the consent of
disinterested shareholders or the Board. And with respect to Fincke’s counterclaims, the
Court will award judgment to the Plaintiffs. 127
The Court’s Partial Judgment issued simultaneously hereto will set a further pre-trial
conference in order to set discovery deadlines and a trial date to liquidate the damages,
if any, arising from the Plaintiffs’ surviving claims.
Dated: April 17, 2009 	Henry J. Boroff
United States Bankruptcy Judge
Case 05-04076 Doc 248 Filed 04/17/09 Entered 04/17/09 16:11:50 Desc Main
Document Page 164 of 164