Superior Court of Massachusetts, Suffolk, Business Litigation Session
Timothy J. Sullivan
Kahn, Litwin, Renza & Co. Ltd No. 135211
MEMORANDUM AND ORDER ON PLAINTIFF'S MOTION IN
LIMINE TO PRECLUDE DEFENDANT FROM RECOVERING LOSSES OTHER
THAN LIQUIDATED DAMAGES
P. Leibensperger, Justice
case arises from plaintiff Timothy J. Sullivan's sale of
his public accounting firm, Sullivan, Shuman & Freedberg, LLC
(SSF), to Kahn, Litwin, Renza & Co., Ltd. (KLR) and his
subsequent employment with KLR. Sullivan asserts that after
his employment relationship ended with KLR, the firm
wrongfully withheld payments for SSF's goodwill due to
him under the parties' asset purchase agreement. KLR, in
turn, maintains that Sullivan breached his employment
agreement with KLR by assisting employees in their efforts to
leave KLR and start a competing firm. Contending that his
employment agreement contains a liquidated damages provision,
Sullivan now moves to preclude KLR from recovering actual
damages should it succeed on its breach of contract claim.
For the reasons that follow, Sullivan's motion is DENIED.
2008, KLR acquired SSF, a public accounting firm in which
Sullivan was a principal, pursuant to a Practice Contribution
and Asset Purchase Agreement (Purchase Agreement). At the
same time, Sullivan became an employee of KLR pursuant to an
terminated his relationship with KLR in February 2014. Under
the terms of the Purchase Agreement, this event triggered an
obligation on the part of KLR to pay Sullivan $1 million plus
interest for his goodwill in SSF (the Purchase Price) over a
period of ten years. KLR, however, refused to make the
payments and Sullivan filed this action for breach of
contract against KLR.
response to the lawsuit, KLR brought a counterclaim arguing
that it was excused from paying the Purchase Price because
Sullivan breached Section 5.4 of the Employment Agreement by
assisting certain employees who left KLR to found a competing
accounting firm that did business with former KLR clients.
Section 5.4 is a covenant not to solicit clients. In it,
Sullivan agreed that during his employment and for two years
thereafter, he would not " directly or indirectly (a)
solicit, call upon or attempt to do business with any client
of Company in the area of Company's business, (b) induce
or attempt to induce any client of Company to cease doing
business with Company, [or] (c) interfere with company's
relationship with any such client." In April 2016, both
parties moved for summary judgment on Sullivan's breach
of contract claim and KLR moved for summary judgment on its
counterclaim. In May 2016, this Court (Kaplan, J.) ruled on
the motions, granting Sullivan summary judgment on his breach
of contract claim and reserving for trial the issue of
whether Sullivan violated Section 5.4 [33 Mass.L.Rptr. 452].
seeks to prohibit KLR from recovering any actual losses for
his alleged breach of Section 5.4. He argues that the second
clause in Section 5.10 of the Employment Agreement is a
liquidated damages provision that prevents any recovery for
actual losses. Section 5.10, titled " Other Remedies,
" provides that:
If a court of competent jurisdiction determines that
Company[KLR] has breached its obligations under this
Agreement and failed to cure such breach as permitted by this
Agreement, the remedy granted by such court may include the
termination of the Employee's [Sullivan's]
obligations under Section 5.4 and 5.6 of this Agreement, and
in such event Employee may undertake any action prohibited by
such Sections pending resolution of any appeal. If a
court, in a final, non-appealable judgment, determines that
Employee has breached his obligations under Section 5.3
through Section 5.8, inclusive, of this Agreement, Company
shall be entitled to recovery of any payments made
to Employee during any period that the court determines such
breach existed, and such judgment may so provide . In
the event of any litigation between Company and Employee, the
prevailing party (i) shall be entitled to recover its costs
and expenses incurred in connection with such suit or
proceeding, including its reasonable attorneys fees, and (ii)
shall be entitled to sums paid into the registry of court.
(Emphasis added.) KLR opposes the motion arguing that the
second clause in Section 5.10 is not a liquidated damages
Interpretation of a contract is a question of law for the
court. Cady v. Marcella, 49 Mass.App.Ct. 334,
337-38, 729 N.E.2d 1125 (2000). Whether a contract is
ambiguous is likewise a question of law. Eigerman v.
Putnam Invest., 450 Mass. 281, 287, 877 N.E.2d 1258
(2007). When the language of a contract is free from
ambiguity, the Court must enforce it according to its terms.
Freelander v. G.& K Realty Corp., 357 Mass. 512,
516, 258 N.E.2d 786 (1979). Where the wording of the contract
is ambiguous, however, there is a question of fact which must
be resolved by the fact finder. Trafton v. Custeau,
338 Mass. 305, 307-08, 155 N.E.2d 159 (1959). Contract
language is ambiguous where the " terms are inconsistent
on their face or where the phraseology can support reasonable
differences of opinion as to the meaning of words employed
and the obligations undertaken." Suffolk Constr.
Co., Inc. v. Lanco Scaffolding Co., Inc., 47
Mass.App.Ct. 726, 729, 716 N.E.2d 130 (1999) (internal quotes
omitted). Here, an ambiguity exists as to whether the second
clause of Section 5.10 was intended to serve as a liquidated
damages provision or to merely provide an additional remedy
to KLR as an element of damages.
Liquidated damage clauses provide a method for compensating a
non-breaching party without the necessity of proving
causation or actual loss. See Morrison v.
Richardson, 194 Mass. 370, 375-77, 80 N.E. 468 (1907).
Such provisions are meant to serve as the exclusive remedy
for the non-breaching party where it is anticipated that
damages will be difficult to calculate should a breach occur.
See NPS, LLC v. Minihane, 451 Mass. 417, 420-23, 886
N.E.2d 670 (2008). It is not at all clear, however, that the
parties intended the recoupment provided for in Section
5.10's second clause to be KLR's exclusive remedy for
breaches of Sections 5.3-5.8.
the second clause of Section 5.10 is a liquidated damages
provision requires an understanding of the parties'
intent at the time of contracting. The clause neither
describes the payments as " liquidated damages" nor
explicitly labels them as KLR's sole or exclusive remedy.
Rather, the clause is in a section titled " Other
Remedies" and is couched between two other clauses
detailing supplementary entitlements for both parties in the
event of litigation. The first clause of Section 5.10 permits
Sullivan to seek relief from his obligations under Sections
5.4 and 5.6 if KLR is found to have breached the Agreement,
while the third clause entitles either party to attorneys
fees and costs should one of them prevail in litigation.
Given the second clause's position within Section 5.10
and the Section's title, it is reasonable to read the
second clause as simply signaling KLR's entitlement to an
additional remedy (equitable disgorgement) beyond the
standard damages theories for breach of contract. On the
other hand, the second clause provides a specific measure of
damages for a breach (violation of a non-solicitation
obligation) for which actual damages would be hard to
measure. Accordingly, the meaning of the clause is ambiguous.
Section 5.10's second clause is ambiguous, the Court
cannot grant Sullivan's motion. The issue of whether the
clause is a liquidated damages provision must be resolved
based on evidence presented by the parties regarding their
intent at the time of contracting. Should the clause be found
to be a liquidated damages provision, KLR may present
argument and evidence for why the clause ...