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MacDonald v. Jenzabar, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

May 31, 2016

Alan MacDonald
Jenzabar, Inc. No. 134245

          June 1, 2016, Filed


          Janet L. Sanders, Justice

         This is a breach of contract case brought by plaintiff Alan MacDonald against his former employer, defendant Jenzabar, Inc. (Jenzabar) seeking damages and other relief for Jenzabar's refusal to give him certain shares in the company. That stock falls into two categories. The first consists of 250 shares of Jenzabar Series B Junior Preferred Stock (the Preferred Shares), which MacDonald claims that he is entitled to receive pursuant to his 2004 Employment Agreement. The second category consists of 1, 516, 000 shares of Jenzabar Common Stock which MacDonald claims he should have received as a result of exercising options granted to him under two Incentive Stock Option Agreements (ISOs) executed at the same time as the Employment Agreement. Jenzabar has maintained since the inception of this lawsuit that the plaintiff's right to both categories of shares was extinguished by a General Release contained in a Severance Agreement that MacDonald entered into in 2009 when he left Jenzabar's employment.

         In April 2015, Jenzabar moved for summary judgment on various grounds, among them its assertion regarding the effect of the Release. Although this Court did allow that motion in part (dismissing two statutory claims, for example), as to the argument concerning the Release, it concluded that the relevant provisions in the Severance Agreement were ambiguous. Jenzabar moved to reconsider, focusing on the narrower issue of the Preferred Shares; the Court denied the motion. As trial approached, the defendant decided to waive any argument that the ambiguities in the Release should be resolved in its favor by the factfinder. That left only the question of whether MacDonald had validly exercised his stock options so as to be entitled to receive 1, 516, 000 in Common Stock and, if he had, what damages or other relief he was entitled to be awarded.[1]

         Before trial began, this Court bifurcated the trial, so that liability would be determined first. It also stated that it would revisit the effect of the Release as to the Preferred Shares once trial concerning the Common Stock options was concluded. On December 11, 2015, a jury, answering special questions, found that MacDonald had validly exercised his options as to a small block of shares (1, 000) but had acted in bad faith as to the remainder. Both parties filed various post-trial motions, among them the instant motion by Jenzabar asking that this Court revisit its earlier decision regarding the Preferred Shares. For the reasons that follow, this Motion is ALLOWED .

         As Jenzabar pointed out in its original summary judgment motion, the General Release that MacDonald executed when he left Jenzabar's employment is quite broad and is part of a Severance Agreement which by its terms " terminates and supersedes all other oral and written agreements or arrangements." See Section 2 and Section 7 of Severance Agreement. Jenzabar argued that this broad Release meant that MacDonald gave up both his right to receive the Preferred Shares and his right to the Common Stock options. The ambiguity arose (in this Court's view) because of Section 6 of the Severance Agreement, which extended the term of MacDonald's confidentiality/non-competition agreement " in light of (i) your senior role and position with the Company previously as its Chief Financial Officer and as a M& A Research Developer and (i) [sic] the Company's grant to you of a considerable number of options to purchase common stock ." (Italics added). That provision seems to contemplate that MacDonald continued to have a right to exercise options to purchase common stock and that this was in fact the consideration for his promise not to compete with Jenzabar for five years. Significantly, however, Section 6 did not (as the defendant pointed out in its motion to reconsider) say anything about the Series B Preferred Shares. This Court now agrees with Jenzabar that the Severance Agreement, when construed as a whole, unambiguously extinguished MacDonald's right to receive the Preferred Shares.

         Plaintiff makes two arguments in opposition to this conclusion. The first is that the General Release cannot extinguish a vested property right and thus cannot be read to cover the Preferred Shares. But MacDonald's right to those shares is a contractual one, based on the 2004 Employment Agreement. The Severance Agreement expressly superseded that earlier agreement, and terminated MacDonald's claim for any compensation or benefit thereunder. Second, MacDonald argues in the alternative that the Release reflects a mutual mistake requiring reformation. This position is not supported by the facts or the law, however.

          Reformation based on mutual mistake would be warranted only if there was " full clear and decisive proof" that the parties reached agreement on a point that they intended to include in the written contract but then mistakenly omitted from the document. Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 756, 610 N.E.2d 912 (1993); see also Caron v. Horace Mann Ins. Co., 466 Mass. 218, 223, 993 N.E.2d 708 (2013). Such evidence--that the parties intended to preserve MacDonald's contractual claim to receive the Preferred Shares under the Employment Agreement but then mistakenly failed to include that in the Severance Agreement--is wholly absent here. In that regard, it is should be noted that " the mere fact that a release as worded extends to matters that the parties did not specifically have in mind at the time of execution does not operate to exclude those matters from the scope of the release." Eck v. Godbout, 444 Mass. 724, 732, 831 N.E.2d 296 (2005). That is, there is a distinction " between a contract that does not accurately reflect (hence misrepresents) the agreement of the parties and a contract that accurately reflects the parties' intent but is premised on some mistake of fact" as to its meaning. One Beacon Am. Ins. Co. v. Travelers Indem. Co. of Ill., 465 F.3d 38, 42 (1st Cir. 2006). " Reformation is not available to correct mistaken factual assumptions about the parties' bargain, but may be used to correct misrepresentations of the parties' contractual intent." Id. The instant case falls into the former category.

         SO ORDERED.



[1]Although it waived its right to have a jury resolve any ambiguities in the Release, Jenzabar expressly reserved its right to argue on appeal that the terms of the Severance Agreement unambiguously extinguished plaintiff's rights to ...

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