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MacDonald v. Jenzabar, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

June 10, 2016

Alan MacDonald
v.
Jenzabar, Inc. No. 134356

          June 24, 2016, Filed

          MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF'S REQUESTS FOR SPECIFIC PERFORMANCE AND FOR ORDER ON PLAINTIFF'S OWNERSHIP OF JENZABAR EQUITY AND RIGHT TO EXERCISE INCENTIVE OPTIONS

          Janet L. Sanders, Justice

         The plaintiff Alan MacDonald brought this action against defendant Jenzabar, Inc. (Jenzabar) claiming, among other things, that Jenzabar improperly refused to honor two separate stock option exercises undertaken pursuant to his Incentive Stock Option Agreements (ISO Agreements). The first exercise was for 1, 000 shares of common stock; the second was for 1, 515, 000 shares of common stock. In December 2015, the breach of contract claim was submitted to a jury as to liability only.[1] The jury found for MacDonald in connection with the exercise for 1, 000 shares but found for Jenzabar in connection with the option exercise for 1, 515, 000 shares. This Court denied cross motions to set aside the jury verdict.

         Having prevailed as to the 1, 000 shares, MacDonald now seeks an order from this Court compelling Jenzabar to deliver to him those shares, foregoing his original request that he be awarded damages instead. Despite the last minute shift in plaintiff's position as to remedy, this Court concludes that MacDonald is entitled to such an order. Jenzabar is a closely held corporation with shares that are not publicly traded; because the value for 1, 000 Jenzabar shares is difficult (if not impossible) to calculate, see Merriam v. Demoulas Super Mkts., Inc., 464 Mass. 721, 731, 985 N.E.2d 388 (2013), the only real remedy for the wrong that the jury found is that Jenzabar be required to specifically perform its contractual promise to deliver to MacDonald the shares themselves. In opposition, Jenzabar asserts that this Court should not use its equity powers to assist the plaintiff because of his own bad faith and " unclean hands." But the jury rejected the defendant's claim that MacDonald acted in bad faith in exercising his options as to the 1, 000 shares. Moreover, many of the allegations upon which Jenzabar relies in support of this position are disputed and would in essence require another trial which this Court has no desire to undertake.

         The second request made by the plaintiff is much more substantial, and rests on far more tenuous grounds. Having lost before a jury as to his claim regarding the remaining 1, 515, 000 shares, MacDonald now asks this Court to determine that he still owns the options to those shares so that he can once again attempt to exercise his options and, if Jenzabar refuses to honor the exercise, obtain an order from this Court that he is entitled to relief In other words, he wants a " do-over." Jenzabar makes several compelling arguments as to why, pursuant to the terms of the ISO agreements creating the options and Jenzabar's 2000 Equity Ownership Plan, the options by their terms expired on June 30, 2014. This Court need not reach these arguments, however, because I conclude that MacDonald has waived any claim that he still owns these options even after the stated expiration date.

         Form the inception of this lawsuit, the parties have operated on the assumption the stock options expired by their terms in 2014. MacDonald stated as much in his original Complaint in this case. See ¶ 2, ¶ 25, and ¶ 59 of Complaint: MacDonald notified Jenzabar in November 2011 (as to the 1, 000 shares) and in November 2012 (as to the 1, 515, 000 shares) that he wished to exercise those options. The dispute focused exclusively on whether, as of those dates, MacDonald owned the options and, if he did, whether Jenzabar's refusal to honor his request to exercise those options was wrongful so as to entitle MacDonald to relief.[2] Plaintiff's current argument that this present litigation tolled the time period in which MacDonald could exercise his options was not even mentioned as an issue in this litigation until the jury trial was well underway and then only in passing by plaintiff's counsel, since it was not relevant to any question the jury was being asked to determine. It is only after MacDonald suffered defeat at trial that he presses this alternative theory.

         It is also emblematic of the way plaintiff has conducted this litigation. As defense counsel has quite rightly complained, the target is constantly shifting. Indeed, it important to keep in mind the genesis of this dispute. It began when Jenzabar refused to yield to MacDonald's demand for cash in return for his stock options--a demand that Jenzabar had no legal obligation to meet. Unable to liquidate his holdings, MacDonald gave notice that he was exercising his options as to 1, 000 shares. When Jenzabar refused to honor that, he instituted suit, sent Jenzabar a notice as to the remaining 1, 515, 000 shares, and then demanded what he had not been able to obtain from Jenzabar pre-litigation--namely, money. This hain of events explains (at least in this Court's view), why the jury concluded that MacDonald had acted in bad faith: armed with a breach of contract claim as to the smaller number of shares, he was using the litigation itself to exact what he was not otherwise entitled to receive. Now, having failed to prevail on most of his claim against Jenzabar, MacDonald wants to turn back the clock and start all over again. This he cannot do.

         CONCLUSION AND ORDER

         For the forgoing reasons, plaintiff's Request for an Order on his Ownership of Jenzabar Equity and Right to Exercise Incentive Stock Options is DENIED . Plaintiff's Request for Specific Performance is ALLOWED but only as to 1, 000 shares of Jenzabar common stock. It is further ORDERED that the parties submit a proposed judgment, in line with this decision and with prior rulings of this Court, on or before July 14, 2016. In the event of disagreement as to the proposed form of judgment or if either party believes that entry of judgment would be premature, the parties are to appear for status conference on July 14, 2016 at 2:00 p.m.

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Notes:

[1]The Court bifurcated the trial, leaving for another day the question of the remedy to be awarded to plaintiff in the event that he prevailed on liability. That was in large part because this Court had serious doubts as to the admissibility of testimony  from plaintiff's damages expert, that testimony being the subject of a Daubert-Lanigan challenge by the defendant.

[2]Jenzabar maintained that a Release contained in a Severance Agreement executed by MacDonald in 2009 extinguished his right to those options. The significance of that release and its impact on the stock options is the ...


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