Eventmonitor, Inc. v. Leness

473 Mass. 540

44 N.E.3d 848

EVENTMONITOR, INC.

v.Anthony LENESS.¹

SJC–11920.

Supreme Judicial Court of Massachusetts, Suffolk.

Submitted Nov. 3, 2015.

Decided Feb. 4, 2016.

Ronald W. Dunbar, Jr. (Andrew E. Goloboy with him), Boston, for the plaintiff.

Shana I. Kaplan (James E. O'Connell, Jr., Boston, with her) for the defendant.

David J. Fried, for Massachusetts Employment Lawyers Association, amicus curiae, submitted a brief.

Present: GANTS, C.J., SPINA, CORDY, BOTSFORD, DUFFLY, & LENK, JJ.

Opinion

DUFFLY, J.

The plaintiff, EventMonitor, Inc. (EventMonitor), is a Delaware corporation, established in 2000, with headquarters in Boston. It develops and markets software for the financial industry. The defendant, Anthony Leness, was one of the early employees of the company. Leness was hired as EventMonitor's vice-president for business affairs in June, 2001, upon his graduation from Harvard Business School. He served in that position for approximately six years, until he was terminated on December 5, 2007, two months after he had proposed a plan to restructure EventMonitor into two related entities, a proposal that Sheldon Chang, EventMonitor's president and executive director, believed would undermine the future of the company. The termination was characterized as “without cause.”

Under the terms of Leness's employment contract, EventMonitor therefore was required to pay him one year's salary and benefits, plus the value of any accrued but unused vacation time. Section 6(b) of the employment agreement provided that, upon termination, Leness was to return “all items containing or embodying Proprietary Information (including all copies).” Before his departure, Leness returned, among other things, a company laptop computer containing proprietary information that he had used in the course of his work at EventMonitor.

Soon after Leness's termination, through a forensic examination of the laptop computer, EventMonitor discovered that Leness had copied all of the data on the computer, including EventMonitor's customer information and proprietary business plans, to a data backup and storage service accessed over the Internet. Leness had not informed EventMonitor about this backup before his termination was effective. To the contrary, Leness had paid the subscription for the data storage service with a personal credit card, and also had installed a “cleaning” program in an effort (ultimately unsuccessful) to delete from the laptop information related to the account subscription. EventMonitor deemed Leness's actions to have been a defalcation of company assets. “Defalcation” was one of the only reasons in the employment contract that would have allowed EventMonitor to terminate

Leness “for cause.” And, where a termination was for cause, the contract did not require EventMonitor to make any severance payments.

Retroactively characterizing the termination as having been for cause, in mid-February, 2008, approximately five weeks after Leness's departure, EventMonitor stopped paying Leness any severance payments, declined to pay him his accrued vacation, and filed a complaint in the Superior Court asserting, among other claims, breach of contract. Leness asserted twelve counterclaims, among them breach of contract; breach of the implied covenant of good faith and fair dealing; violations of the Massachusetts Wage Act, G.L. c. 149, § 148 (wage act); and indemnification under the terms of the employment contract.² Leness argued that EventMonitor had no valid basis for treating his termination as one “for cause,” and had committed a breach of the contract by refusing to pay his severance payments, as well as violated the wage act by refusing to pay him the value of his accrued and unused vacation.

After a jury-waived trial, a Superior Court judge found that Leness had not engaged in defalcation of EventMonitor's assets, and had not committed a material breach of the employment contract, and thus that his termination could not have been for cause. Judgment entered for Leness on EventMonitor's claims for breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty. The judge also entered judgment for Leness on his counterclaims for breach of contract, breach of the covenant of good faith and fair dealing, and violations of the wage act, but entered judgment for EventMonitor on Leness's claim for indemnification. EventMonitor appealed, and Leness cross-appealed. We transferred the matter to this court on our own motion.

EventMonitor contends that the judge erred in finding that Leness did not commit a material breach of the employment contract and did not engage in a defalcation of company assets. In support of its assertion that Leness's employment properly was terminated for cause, EventMonitor asks that we adopt the “after-acquired

evidence doctrine” used in some other jurisdictions, which allows an employer to recharacterize the nature of an employee's termination on the basis of information learned after the termination has taken place.

In the rare opportunities that this court and the Appeals Court have had to consider the issue of after-acquired evidence in the context of a termination from employment, neither of the courts has adopted, or declined to adopt, this doctrine. See Flesner v. Technical Communications Corp., 410 Mass. 805, 815–817, 575 N.E.2d 1107 (1991) ; Prozinski v. Northeast Real Estate Servs., 59 Mass.App.Ct. 599, 610–612, 797 N.E.2d 415 (2003). We need not reach the question here, because we agree with the trial judge that Leness did not commit a material breach of the employment contract, and did not engage in defalcation of company assets. Therefore, Leness committed no act giving rise to a termination for cause, and the after-acquired evidence doctrine would have had no impact on the result we reach. We affirm the judge's conclusion that Leness is entitled to severance payments under the terms of the contract, and remand the matter for entry of an amended judgment correcting certain arithmetic errors in the calculation of accrued vacation payments.³

1. Facts. “We recite the essential facts found by the judge, which we accept ‘unless they are clearly erroneous,’ ... and which the parties do not challenge, supplemented by other undisputed information from the record.” Boyle v. Zurich American Ins. Co., 472 Mass. 649, 651, 36 N.E.3d 1229 (2015), quoting Weiler v. PortfolioScope, Inc., 469 Mass. 75, 81, 12 N.E.3d 354 (2014).

In June, 2001, EventMonitor hired Leness as vice-president for business affairs. Leness and EventMonitor entered into a written employment agreement detailing how EventMonitor could terminate Leness with or without cause. Termination without cause required thirty days' written notice; it also entitled Leness to severance payments consisting of twelve months of salary and benefits, unless he began full-time employment during that period, and his accrued but unused vacation time. Section 5 of the contract specified a very limited number of reasons that EventMonitor could terminate Leness's employment for cause, including if Leness “engaged in wilful fraud or defalcation, either of which involved funds or other assets of [EventMonitor].”

Section 6(b) of the employment agreement, the non-disclosure provision, required Leness to “hold in confidence and not knowingly disclose or, except within the scope of his employment, knowingly use any Proprietary Information.” “Proprietary Information” was defined as:

“[A]ll [i]nventions and all other business, technical and financial information (including without limitation, the identity of and information relating to customers, investors, vendors, business partners or employees of [EventMonitor] ) ... that relate to [EventMonitor] or the business or demonstrably anticipated business of [EventMonitor] or that are received by or for [EventMonitor] in confidence.”

The section provided further that, upon termination of his employment, Leness was required “promptly [to] return to [EventMonitor] all items containing or embodying Proprietary Information (including all copies).”

Leness worked at EventMonitor for approximately six years. In the early years, the company grew substantially in terms of revenue and number of employees. In the fall of 2007, however, tensions developed between Leness and Chang over the direction of the company. Those tensions escalated significantly after October 17, 2007, when Leness submitted a business proposal that would have left Chang to focus on research and development, using the existing software as a base product, and would have created a spin-off company for sales and support, with Leness in charge of that new entity. The new entity would have taken the majority of EventMonitor's revenue, which was derived largely from service and licensing agreements with three large clients; in exchange, the new entity would have lent EventMonitor startup funds to develop several new products that were then being considered.

Chang initially agreed to Leness's suggestion that a new business plan be considered. After seeing the proposal, however, Chang believed that the plan was developed to further Leness's self-interest, and the proposal demonstrated that he was not loyal to the company. Consequently, in December, 2007, EventMonitor notified Leness of his termination. On December 5, 2007, Chang informed Leness verbally that his employment was terminated “without cause,” and sent him a copy of a written termination letter, via electronic mail, stating that EventMonitor was giving

thirty days' notice. As required by the employment contract, prior to the effective date of his termination, Leness provided EventMonitor with information about client accounts and agreements, as well as a written explanation of the locations on the company computers where he had stored proprietary information.

After Leness's departure, Chang hired a forensic expert to examine Leness's work-issued laptop computer. The examination...