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Dahua Technology USA, Inc. v. Zhang

United States District Court, D. Massachusetts

January 9, 2020




         Plaintiff Dahua Technology USA, Inc. (“Dahua”) sued its former employee, defendant Feng (Frank) Zhang, seeking reformation of his severance agreement and a declaration of unenforceability. Both parties contend that no genuine issue of material fact exists and have filed cross-motions for summary judgment. Docket ## 37, 47.

         I. Background [1]

         Dahua, a video surveillance equipment manufacturer, is based in Irvine, California but has an office in Massachusetts. It is the U.S. subsidiary of a Chinese company, Zhejiang Dahua Technology Co., Ltd. (“Zhejiang”).

         a. Initial employment arrangement

         On January 1, 2016, Zhang became Dahua's Chief Strategy Officer, Vice President, and President of North American and Enterprise Sales and began working out of Dahua's Boston-area office. As set out in his November 9, 2015 Offer of Employment (“2015 employment agreement”), Zhang earned an annual salary of $510, 000 and a one-time grant of 100, 000 shares of Zhejiang's common stock. The 2015 employment agreement guaranteed Zhang payment of his full base salary through a three-year term of employment, unless he was terminated for illegal or other misconduct. It did not contain any release of claims, confidentiality, or non-competition clause.

         b. 2017 employment negotiations and severance agreement

         In August 2017, Dahua informed Zhang that his role at the company would change. The chairman and CEO of the company, Liquan Fu, flew to Massachusetts on August 27 to deliver the news to Zhang. The next day, August 28, Fu and Zhang negotiated the terms of his transition. They agreed that Zhang would relinquish his Chief Strategy Officer role but would stay on as a consultant for two years at an annual salary of $240, 000. The parties further agree that Fu promised to “take care of” the remainder of the compensation owed to Zhang under the 2015 employment agreement (approximately $680, 000) and cash out Zhang's stock. Though they dispute whether Zhang expected any additional severance, they agree that Zhang never asked for multiple millions of dollars.

         As the negotiations progressed, Fu kept Dahua's in-house counsel, Haiyan Yue, fully informed. Yue in turn consulted with outside counsel Cathryn Le Regulski to prepare documents memorializing Zhang's transition. At some point on August 28, Yue and Fu presented Zhang with draft separation and consulting agreements. The separation agreement offered to pay Zhang $680, 000 total, which aligned with the amount due under the 2015 employment agreement, and the consulting agreement categorized him as an at-will employee. Zhang rejected these drafts.

         Later that day, Fu and Yue presented Zhang with a new severance (rather than separation) agreement that provided payment of $680, 000 per month for sixteen months, which could be accelerated upon his request. The agreement also contained a general release of claims, a non-competition clause, and a confidentiality provision. Fu and Yue also provided a new offer letter governing the consulting arrangement. The severance agreement stated that it “shall be construed solely in accordance with the laws of the Commonwealth of Virginia, ” whereas the offer letter contained a Massachusetts choice of law provision. Zhang and Fu signed both documents, the severance agreement (“2017 severance agreement”) and the offer letter.

         c. Performance of 2017 severance agreement

         Dahua promptly initiated performance of both agreements, paying Zhang $62, 500 per month ($42, 500 per the severance agreement, calculated by dividing $680, 000 over sixteen months, plus $20, 000 per the offer letter, calculated by dividing $240, 000 over twelve months) from September through December 2017. Although the plain language of the 2017 severance agreement dictated payment of $680, 000 per month, Zhang accepted this much lower amount without comment or complaint.

         On January 10, 2018, Dahua informed Zhang it wished to terminate his employment and offered him $910, 000 in severance in exchange for signing a separation agreement. On January 11, Zhang asked Dahua to accelerate payment of the amount outstanding under the 2017 severance agreement. Zhang subsequently retained an attorney to review the separation agreement. On January 29, Zhang's attorney rejected the separation agreement and asserted that Dahua owed Zhang “over $11, 000, 000” under the 2017 severance agreement. Docket # 49-18.

         Dahua's counsel responded on February 5, asserting the company had made a scrivener's error in the 2017 severance agreement: instead of making a “monthly severance payment of $680, 000 for 16 months” following his separation, Dahua had intended to pay Zhang $42, 500 per month for sixteen months, for a total of $680, 000. Docket # 49-19 (emphasis added). Zhang maintains that there ...

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