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Manning v. Healthx, Inc.

United States District Court, D. Massachusetts

July 23, 2015



RICHARD G. STEARNS, District Judge.

Plaintiff Mark Manning brought this lawsuit on april 27, 2015, in Barnstable Superior Court. The Complaint accuses defendants Healthx, Inc., and Frontier Capital, LLC, of violating the terms of an employment offer. The Complaint alleges breach of contract (Count I), promissory estoppel (Count II), and breach of the implied covenant of good faith and fair dealing (Count III). Defendants removed the case to the federal district court on diversity grounds[1] and filed separate motions to dismiss. Healthx seeks dismissal of Count III, while Frontier seeks dismissal of all counts.


The facts viewed in the light most favorable to Manning as the nonmoving party are as follows. From 2005 until January 31, 2014, Manning was employed by Pegasystems, Inc., as its Vice President of Healthcare Sales. Compl. ¶ 6. In 2013, Manning earned over $500, 000 in compensation. Id. In August of 2013, defendants recruited Manning to become President and Chief Executive Officer (CEO) of Healthx.[2] Id. ¶ 7. On November 23, 2013, they sent Manning a proposed employment agreement, which included a "renewable two-year term of employment, salary and bonus compensation, equity interest, severance, and post-employment restrictive covenants." Id. ¶ 8. On November 27, 2013, Manning was presented with a revised employment agreement, which stipulated that he could be "terminate[d]... at any time... for or without Cause." Id. ¶ 9; see Frontier's Ex. 1.[3] The revised agreement further stipulated that if Manning were terminated without cause, he would be entitled to six months of severance pay, but if he were to be terminated for "cause" (as defined in the agreement) he would receive nothing. Compl. ¶¶ 9-11. On December 13, 2013, Richard Maclean, the Managing Partner of Frontier and Chairman of the Board of Healthx, sent Manning a final offer letter incorporating the terms of the revised employment agreement. Id. ¶ 12; Frontier's Mem. at 3. The letter also promised Manning "an annual salary of $375, 000, a target cash bonus for 2014 of $225, 000, stock options to purchase 10% of the company vesting over four years, and benefits." Compl. ¶ 12. The projected value of the 10% equity interest in the company four years out was approximately $7 million. Id. ¶ 28. That same day, Manning accepted the offer. Id. ¶ 13.

In January of 2014, Manning put up two of his Massachusetts properties for sale in anticipation of moving to Indianapolis (where Healthx is headquartered). Id. ¶ 14. He also resigned from Pegasystems, effective January 31, 2014. Id. ¶ 15. On January 18, 2014, Healthx announced that it had hired Manning as its President and CEO. Id. ¶ 16. A formal press release confirming Manning's hiring was issued on February 6, 2015. Id. ¶ 18. On February 3, 2014, Manning reported for work in Indianapolis. Id. ¶ 17. On February 10, 2014, Maclean informed Manning that he was being terminated. Id. ¶ 19. Maclean then emailed Manning a termination letter, which stated: "Given your contractual obligations to your former employer which were not disclosed to us prior to your hire, we had no choice but to end your employment." Id. ¶ 20. Manning contends that he then had no "enforceable contractual obligations to Pegasystems." Id. ¶ 21. Despite the absence of "cause" for termination as defined by the employment agreement, Manning did not receive his promised severance payment. Id. ¶¶ 23-24. Manning remained unemployed for several months before accepting a "lesser, non-CEO position." Id. ¶ 25.


To survive a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Two basic principles guide the court's analysis. "First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Iqbal, 556 U.S. at 678. "Second, only a complaint that states a plausible claim for relief survives a motion to dismiss." Id. at 679. A claim is facially plausible if its factual content "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678. "If the factual allegations in the complaint are too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture, the complaint is open to dismissal." S.E.C. v. Tambone, 597 F.3d 436, 442 (1st Cir. 2010).

Healthx: Breach of the Implied Covenant

Healthx seeks dismissal only of Manning's claim of breach of the implied covenant of good faith and fair dealing (but not dismissal of the breach of contract claim). "Every contract implies good faith and fair dealing between the parties to it.'" Warner Ins. Co. v. Comm'r of Ins., 406 Mass. 354, 362 n.9 (1990), quoting Kerrigan v. Boston, 361 Mass. 24, 33 (1972). Under the terms of the covenant, "neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 471-472 (1991). Want of good faith "carries an implication of a dishonest purpose, conscious doing of wrong, or breach of a duty through motive of self-interest or ill will." Hartford Acc. & Indem. Co. v. Millis Roofing & Sheet Metal, Inc., 11 Mass.App.Ct. 998, 999 (1981). In the at-will employment context, to establish a breach of the covenant, a plaintiff must demonstrate that the employer terminated him for the purpose of "depriving [him] of money that he fairly earned and legitimately expected.'" King v. Driscoll, 424 Mass. 1, 7 (1996), quoting Kravetz v. Merchants Distribs., Inc., 387 Mass. 457, 463 (1982); see also Fortune v. Nat'l Cash Register Co., 373 Mass. 96, 104-105 (1977).

Manning alleges that Healthx breached the implied covenant by "terminating [him] based upon representations made by Pegasystems without conducting appropriate due diligence to determine whether [he] was subject to any enforceable obligation that prevented him from working at Healthx, and by failing to provide [him] with an opportunity to respond to Pegasystem's allegations." Compl. ¶ 40. Manning alleges that he was unfairly denied the agreed severance payments and lost the opportunity to acquire an equity interest in Healthx because of defendant's bad faith. Id. ¶ 41. Healthx responds, in part, by arguing that the claim fails because Manning does not allege any "identifiable, reasonably anticipated future compensation, based on his past services." Gram v. Liberty Mut. Ins. Co., 384 Mass. 659, 659 (1981). Healthx also contends that Manning does not allege sufficient facts that would allow a reasonable fact finder to conclude that it acted in bad faith. See York v. Zurich Scudder Invs., Inc., 66 Mass.App.Ct. 610, 616 (2006) (internal citations and quotation marks omitted) (bad faith cannot be established without "evidence that an employer was motivated by improper reason, even though an employee's termination may be bad, unjust, and unkind..., contrary to [his] reasonable expectations, and the product of inadequate investigation."). I do not agree that, given the deferential view to which Manning's allegations is entitled, Healthx's good faith can be established as a matter of law.

The implied covenant of good faith and fair dealing is "broad enough to cover" the allegation that Healthx exercised bad faith in refusing to pay Manning the severance promised in the employment agreement without giving him an opportunity to answer the allegations made by his former employer.[4] See Stello v. Ark Eng'g & Tech. Servs., Inc., 2015 WL 4254080, at *1 (D. Mass. July 14, 2015); see also Williams v. B & K Med. Sys., Inc., 49 Mass.App.Ct. 563, 568 (2000) (holding that an employer's "refusal to allow the plaintiff time to respond to the accusations [that led to his termination], the insistence on limiting the severance payment, and the threat to ruin the plaintiff's career violated" the covenant of good faith and fair dealing).[5] Compare Christensen v. Kingston Sch. Comm., 360 F.Supp.2d 212, 214 (D. Mass. 2005) (dismissing plaintiff's breach of covenant claim where she had "not challenged [the defendant's] reasons for terminating the position and dismissing her.").

Claims Against Frontier

A. Breach of Contract

Frontier asserts that Manning's breach of contract claim fails because Manning "does not and cannot allege that Frontier was a party to and therefore bound by the" Healthx employment agreement. Frontier's Mem. at 4. "To state a claim for breach of contract under Massachusetts law, a plaintiff must allege, at a minimum, that there was a valid contract, that the defendant breached its duties under the contractual agreement, and that the breach caused the plaintiff damage." Guckenberger v. Boston Univ., 957 F.Supp. 306, 316 (D. Mass. 1997). The plaintiff has the burden of proving ...

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