Massachusetts Law Notes

The Massachusetts Court of Appeals recently reversed a jury finding of tortious interference with advantageous customer relations on the grounds that it was not supported by the evidence. A distributor (Brewster) of wallpaper products brought a breach of contract suit against its supplier (Blue Mountain) after the supplier failed to deliver its products in a timely manner. Although the distributor was awarded substantial damages on the breach of contract claim, the Appeals court reversed on the tortuous interference claim due to lack of evidence.

Here is an excerpt from the court’s decision (full text can be found here): (Continue reading…)

I often get asked by people, how much does it cost to incorporate? Here is a quick overview of the various filing fees that you can expect to pay to get your business up and running: (Continue reading…)

The Massachusetts Supreme Judicial Court recently considered a case involving the attempt by one party to recover amounts paid under a contract that was later determined to be illegal. The facts of the case involved a one page contract that the National Association of Government Employees, Inc. (NAGE) entered into with a consultant to win a government award of a contract to develop real estate. The contract called for the payment of $250,000 if and when the development was “approved and built.” After NAGE won the contract it paid consultant $200,000 with the balance apparently due when the project was completed. The project was not, however, completed and litigation ensued. Under Massachusetts statute, contracts that are contingent upon a government decision are unenforceable. The issue before the court was whether NAGE was entitled to recover the $200,000 it paid to the consultant. The lower appeals court said yes, but the SJC reversed.
Here is the court’s summary of the law in this area (full text can be found here): (Continue reading…)

The Sunday New York Times business section has a good roundup of the various issues that arise in signing non-compete agreements.  In Massachusetts it is common, particularly among high tech companies, to require all employees to sign some form of non-competition agreement (along with other standard employee agreements involving confidentiality and assignment of inventions made while at work). Here is the full text of the NYT article: (Continue reading…)

The AP reported on a case in Massachusetts in which the Panera Bread Company attempted to enforce a provision in its shopping mall lease that bans rival sandwich shops to stop a mexcican fast food chain from moving into the same mall. Here is the short AP write up on the case:

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Minority investors in a closely held business often find that they have little control over the direction of the company, with most corporate action often requiring only a majority vote at the shareholder or board level. That is why venture capital investors typically create a separate class of preferred stock that gives them a greater degree of control over corporate decisions including board representation and approval rights for significant corporate actions including the hiring of senior management.

Companies are often, however, reluctant to agree to board seats or issue preferred stock unless the investor is making a substantial capital investment. In those situations where board representation is not an option, minority investors might consider putting in place contractual obligations to participate in the affairs of the company and get regular updates on how the company is performing. This type of agreement is referred to as a Management Rights Agreement and, although it is an imperfect alaternative to other forms of control, it gives the investor the opportunity for investors to stay informed about the what is going on at the company. A Management Rights Agreement is between the company and the individual investor and can provide the investor with the right to:

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A three-person arbitration panel ruled against Massachusetts Mutual Life Insurance finding that the company’s former CEO, Robert O’Connell , did not breach his fiduciary duty as was alleged by the board of directors and could be entitled to benefits totaling $50 million. The decision came to light when MassMutual filed an appeal of the arbitration decision in Massachusetts court. Here is the NYT write-up on the case:

Case of fired chief signals that axes can be swung unwisely
By Julie Creswell The New York Times

Published: October 22, 2006
NEW YORK Amid allegations of extramarital affairs with female employees, illegal activity in trading accounts, and the misuse of company aircraft, Robert O’Connell was unceremoniously fired for cause as chief executive of Massachusetts Mutual Life Insurance by its directors in June 2005.

Now a three-person arbitration panel has found that O’Connell did not breach his fiduciary duties to MassMutual and that he is owed benefits that could reach $50 million, his lawyers say.

The seats filled by corporate directors have never been hotter. Directors have come under fire for not being vigilant enough when it comes to accounting practices or sky-high pay packages for executives. In the wake of the Hewlett-Packard upheaval, directors are in the spotlight over how they conduct investigations.

The MassMutual episode, though, could illustrate how boards, in an effort to appear tough on corporate malfeasance, might need to pay more attention to the process of dismissal.

The arbitration panel said that O’Connell had in fact had affairs with two female employees, made millions in profit in a deferred compensation account by trading using closing prices from the day before, and perhaps even stepped over the line in use of the company aircraft.

But none of these acts constituted “willful gross misconduct” on his part or resulted in “material harm” to the company, the arbitration panel ruled.

MassMutual executives declared the panel’s findings “incomprehensible” and inconsistent with good corporate governance. On Friday, the company filed suit in a Massachusetts court to appeal the panel’s finding, which was made last month but not disclosed until Friday.

O’Connell’s lawyers declared victory.

“We think it is a total rebuke of MassMutual’s position in this matter and a total victory and vindication for Robert O’Connell,” said Michael Keating, a lawyer for O’Connell.

“The panel rejected every basis that had been asserted as grounds for a for- cause termination.”

The way the board investigated O’Connell’s sexual behavior drew particular criticism from the arbitration panel. The board investigated after O’Connell’s wife at the time, Claire O’Connell, said she suspected he was having an affair with an executive vice president of the company. The inquiry concluded that there was not enough evidence, and the board issued a letter in April 2004 agreeing not to reopen the matter unless there was new evidence of an affair and then only with the full approval of the board.

Starting in December 2004, the chief executives of two MassMutual subsidiaries and others began contacting members of MassMutual’s board threatening to resign if O’Connell remained as chief executive. The board members encouraged them to hold off on doing so.

James Birle, a director, contacted a lawyer, Dennis Block, in February 2005. He began conducting interviews of employees, although his firm, Cadwalader Wickersham & Taft, was not formally retained by the governance committee until later that year.

“Block’s investigation was unauthorized by the full board of directors and based on stale evidence,” the arbitration panel said in its findings. Furthermore, the investigation breached the terms of the April 2004 agreement and “presented to the board of directors the selective, biased statements of O’Connell’s chief detractors and unfairly prejudiced the process to remove O’Connell,” the panel concluded.

Reached in his office, Block declined to comment.

A federal district court in Massachusetts upheld a jury verdict against Computer Associates finding that its compensation policy, which denied payment of sales commission to terminated employees on deals where payment was not received within 30 days of that employee’s termination, violated the covenant of good faith and fair dealing under Massachusetts law. (Continue reading…)

In a case reported by Massachusetts Lawyers Weekly, a Massachusetts trial court held that, despite warnings in an employee manual that Internet activity would be monitored, an employee’s email communication to his lawyer via a Yahoo personal email account was “made in confidence” and, therefore, subject to attorney-client privilege. Key to the decision was the failure of the employee handbook to state that email “content” would be monitored. (Continue reading…)

Massachusetts Lawyers Weekly reports on a case involving an employee who was diagnosed with a bipolar disorder. The employee had worked for Liberty Mutual Insurance Company in a sales role for 37 years (including 11 years after being diagnosed with the disorder) and was terminated for failure to generate sufficient business leads. During his employment, the employee asked for accommodations for his disability including that he be assigned specific accounts and adequate support staff. (Continue reading…)