Dipietro v. Sipex Corp.

• Decision Date: 14 May 2007
• Docket Number: No. 06-P-758.,06-P-758.
• Citation: 69 Mass. App. Ct. 29,865 N.E.2d 1190
• Parties: Frank R. DiPIETRO v. SIPEX CORPORATION.
• Court: Appeals Court of Massachusetts

865 N.E.2d 1190

69 Mass. App. Ct. 29

Frank R. DiPIETRO v.SIPEX CORPORATION.

No. 06-P-758.

Appeals Court of Massachusetts, Middlesex.

Argued December 12, 2006.

Decided May 14, 2007.

Michael L. Rosen, Boston (Sheila O'Leary with him) for the plaintiff.

Bret A. Cohen, Boston (Jessica C. Sergi with him) for the defendant.

Present: LENK, ARMSTRONG, & MILLS, JJ.

MILLS, J.

Frank R. DiPietro filed a complaint in Superior Court against his former employer, Sipex Corporation(Sipex), claiming that it had breached a written employment agreement because he was terminated "without cause" as defined therein or, alternatively, that he had resigned for "good reason" as defined, because Sipex had materially breached the agreement and materially reduced his title or reporting responsibilities.He sought damages and other benefits, including forgiveness of a $250,000 loan.Sipex denied the allegations and counterclaimed for the balance of the loan.On Sipex's motion for summary judgment, the judge held that the undisputed facts established that, as matter of law, DiPietro's employment was not terminated by Sipex nor did DiPietro resign for good reason, and that he was obliged to repay the loan balance.We reverse.

1.Standard of review.Summary judgment is appropriately entered when there is no genuine issue as to any material fact and the moving party is entitled to judgment as matter of law.Mass.R.Civ.P. 56(c), as amended, 436 Mass. 1404(2002).Arcidi v. National Assn. of Govt. Employees, Inc.,447 Mass. 616, 619, 856 N.E.2d 167(2006)."The moving party has the burden of demonstrating affirmatively the absence of a genuine issue of material fact on every relevant issue, regardless of who would have the burden on that issue at trial."Ibid.SeeSullivan v. Liberty Mut. Ins. Co.,444 Mass. 34, 39, 825 N.E.2d 522(2005).On an appeal from a summary judgment, we recount the facts in the summary judgment materials in the light most favorable to the nonmovant, drawing all permissible inferences and resolving any disputes or conflicts in his favor.Jupin v. Kask,447 Mass. 141, 143, 849 N.E.2d 829(2006).SeeCarey v. New Eng. Organ Bank,446 Mass. 270, 273, 843 N.E.2d 1070(2006).Viewed in this manner, the evidence in the summary judgment record is as follows.

2.Factual background. a. DiPietro's employment with Sipex.DiPietro served as Sipex's chief financial officer (CFO) for nineteen years.Throughout his tenure, including the period after Sipex became a public company in 1996, he was the second in command of the company, reporting only to the chief executive officer (CEO) and the board of directors (board).As the CFO he was responsible for managing internal financial reporting to the CEO and the board, and he was also responsible for managing a significant portion of the company's operations, including facilities, purchasing, and information technology.

He regularly interacted with members of the board.In addition to preparing financial reports and presenting financial information at all or nearly all of the quarterly board meetings, DiPietro also answered the board's questions and responded to its requests for information.These interactions were a significant component of his job responsibilities and were the primary way he imparted business judgments regarding the company's finances and contemplated business actions.His effectiveness as the CFO depended on the continued confidence and trust of the board in his ability to provide sound financial data and accurate financial reports.¹

b. DiPietro's employment agreement.The employment agreement (agreement) at issue was executed on May 27, 1999, and guaranteed DiPietro certain severance payments and benefits if Sipex terminated his employment "without cause"² or if he terminated his employment for "good reason."Section 3(B)(3) of the agreement states, in relevant part:

"In the event that the Company exercises its right to terminate the Employee without Cause or the Employee terminates his employment for Good Reason and the Employee signs a comprehensive release in the form, and of a scope, acceptable to the Company, the Company agrees to:

"(i) pay the Employee a lump sum payment equal to eighteen (18) months' base salary at the Employee's then current Base Rate;

"(ii) pay the Employee [certain bonus money];

"(iii) allow the Employee to participate [in certain insurance and other benefits] ..."

(emphasis original).

Section 3(B)(1) of the agreement concerning an employee's departure for "Good Reason" states:

"The Employee may terminate his employment for Good Reason (as defined in Subsection (2) of this Section 3(B)) after giving the Company a written notice of intent to terminate at least thirty (30) days prior to the effective date of such termination."

In turn, Section 3(B)(2) defines "Good Reason" as follows:

"For purposes of this Agreement, termination by the Employee for `Good Reason' shall mean the termination of employment by the Employee: (i) as a result of a material breach of this Agreement by the Company; (ii) as a result of a material reduction in the Employee's title or reporting responsibilities as they exist on the date hereof without the Employee's written consent; ... provided, however, that an event described in this Section shall not constitute Good Reason unless it is communicated by the Employee to the Company in writing and is not corrected by the Company to the Employee's reasonable satisfaction within 30 days of the date of the Employee's delivery of such written notice to the Company."

(emphasis original).

c. Sipex's 2002 internal reorganization.In 2002, during a matter of months, Sipex underwent a major management reorganization.In June, 2002, Jim Donegan, who had served as CEO for nearly 16 years and to whom DiPietro had reported for all of that time, departed over a disagreement with the board.Other executives, including the company's president and chief technology officer, also departed.In August, 2002, the board hired Walid Maghribi to serve as the new CEO.Shortly after his arrival, Maghribi informed DiPietro that members of the board had told Maghribi during the interview process that the board blamed the management team, including DiPietro, for the company's poor financial situation, and that the board wanted to replace all of the company's high-level executives.

As instructed by the board, Maghribi hired a number of individuals from outside Sipex for positions at or above vice-president level.None of the executives Maghribi hired were given employment agreements with severance provisions as generous as those in DiPietro's agreement.Instead, the new hires were provided contracts with severance provisions comparable to the provision in Maghribi's own agreement, which provided for six months of severance, as opposed to the eighteen months of severance in DiPietro's agreement, if the company terminated the employee.

Within a few weeks after he commenced employment at Sipex, Maghribi reviewed the agreements for Sipex's incumbent executives and determined that the contracts provided for the payment of hundreds of thousands of dollars in the event of job termination.Maghribi discussed with the board chairman the fact that Sipex had contractually committed to significant severance obligations for a number of executives.

d. DiPietro and Maghribi discuss stock options.In September, 2002, Sipex commenced a stock repricing program that allowed employees whose stock options were "under water"(i.e., options for which the stock price the holder must pay to exercise the option is higher than the value of the stock), with the sole exception of DiPietro, to obtain newly-priced options.At that time, all of DiPietro's options were priced at approximately twenty dollars per share, while the stock price was two to three dollars per share.Because DiPietro was prohibited from participating in the option exchange, he asked Maghribi about obtaining additional options at a more attractive price.Maghribi initially responded positively, but ultimately informed DiPietro that he could not receive additional options unless he agreed to "give up" his favorable employment agreement.DiPietro elected not to do so, and he therefore did not obtain additional options.

e. Maghribi informs DiPietro that the board does not trust his numbers and wants him to leave Sipex.On November 14, 2002, less than one month after DiPietro refused to give up his agreement, Maghribi had another conversation with DiPietro about stock options, in which Maghribi repeated that DiPietro would only be eligible to receive repriced options if he gave up his existing severance entitlements.When DiPietro questioned why Sipex would require him to cancel his agreement unless it wanted to terminate him, Maghribi informed DiPietro that the board would prefer that he leave Sipex.At that time, Maghribi knew that DiPietro already thought the board did not like him and wanted to replace him.During this conversation, Maghribi informed DiPietro that the board did not trust the numbers he reported and believed that he was withholding information.In the same conversation, Maghribi informed DiPietro that, while he(Maghribi) personally wanted DiPietro to stay, the board would prefer that he leave.

DiPietro explained to Maghribi that he could not do his job if the board did not trust him.Because DiPietro's ability to perform his job depended on the board's continued confidence and trust in his abilities, his performance, and the accuracy of his financial reporting, DiPietro understood Maghribi's statements to mean that he was no longer able to effectively serve as the company's CFO.

DiPietro thereafter notified Maghribi in writing, on November 22, 2002, that he was forced to leave the company because it had breached the agreement and had taken away his ability to perform his job responsibilities.In this letter, DiPietro restated what Maghribi had told him on ...