King v. Driscoll

• Decision Date: 11 August 1994
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: , 63 USLW 2200, 130 Lab.Cas. P 57,895, 9 IER Cases 1475 William F. KING v. Robert F. DRISCOLL & others. 1

Page 488

638 N.E.2d 488

418 Mass. 576, 63 USLW 2200, 130

Lab.Cas. P 57,895,

9 IER Cases 1475

William F. KING v. Robert F. DRISCOLL & others. ¹

Supreme Judicial Court of Massachusetts,

Middlesex.

Argued April 4, 1994.

Decided Aug. 11, 1994.

Richard L. Neumeier, Boston, for defendants.

Morris M. Goldings, Boston (John F. Aylmer, Jr., with him) for plaintiff.

Stephen S. Ostrach, Boston, for New England Legal Foundation, amicus curiae, submitted a brief.

LIACOS, Chief Justice.

The defendants, Robert F. Driscoll, Albert Marchant, Michael Martin, and F.S. Payne Co., appeal from that portion of a judgment of the Superior Court entered against them in the plaintiff's wrongful termination suit. The plaintiff filed a cross appeal from another part of that judgment. See p. 491 & note 5, infra. We granted the defendants' application for direct appellate review. The primary issue presented here is whether the public policy exception to the rule that at-will employees may be terminated at any time with or without cause includes termination in retaliation for an employee's participation in a shareholder derivative suit. ²

We recount the facts, many of which are in dispute on appeal, as found by the trial judge sitting without a jury. See Mass.R.Civ.P. 52(a), 365 Mass. 816 (1974). Payne is a closely held Massachusetts corporation which focuses on services to the elevator industry. Until 1988, it manufactured elevators and related parts. From its origin until August, 1990, all the stock of Payne was held by a small number of shareholders and Payne's upper-level management positions were occupied by individuals owning relatively large amounts of the corporation's stock. In August, 1990, Payne's stock was purchased by Northern Elevator of Toronto.

Beginning in 1954, employees of Payne who purchased Payne stock were required to enter into a "buy back" agreement which allowed Payne to repurchase the stock at the end of the employees' respective tenures at Payne. The language of the buy back agreement was ambiguous and thus Payne repurchased stock over time from departing employees at varying rates. The buy back agreement became the subject of the shareholder derivative suit relevant here. See Dynan v. Fritz, 400 Mass. 230, 508 N.E.2d 1371 (1987), S.C., Martin v. F.S. Payne Co., 409 Mass. 753, 569 N.E.2d 808 (1991). The plaintiff here was one of the plaintiffs in that suit.

During the relevant time period, Edward A. Fritz, Jr., was a director, shareholder and, at one time, president of Payne. ³ Driscoll was a director, shareholder, and the president of Payne when the incidents leading to this lawsuit took place. Martin was an assistant to Driscoll, a director of Payne, but not a shareholder. Marchant was a director, shareholder, and an employee of Payne. King began his employment with Payne in 1958 and received various promotions until 1982 when he was elected by the directors to be vice president of Payne's manufacturing division. He remained in that position until his termination in November 1987. King was a shareholder of Payne.

During the 1970's and 1980's, various power struggles transpired within Payne, mainly between Driscoll and Robert G. Dynan, another large shareholder and Payne's lead salesperson. After Fritz's retirement, the corporate infighting culminated with the ascension to the Payne presidency by Driscoll. Dynan had been a director but was not reelected in 1983. Around that time, Driscoll called for Dynan's retirement, but Dynan refused. Later, Dynan's business traveling was restricted by Driscoll and thus Dynan's effectiveness as a salesperson was diminished.

Both Dynan and Driscoll made overtures to King seeking his support in their "war." At one point, Driscoll suggested to King that King should be transferred to another division within Payne so that King could be groomed to succeed Driscoll as president. King, preferring to remain in the manufacturing division, declined. In the spring of 1984, Dynan asked King to join him in filing a derivative suit regarding the stock buy back plan, especially as it related to the buy back of Fritz's stock. King initially declined but later, concluding that the suit was in the best interests of Payne, joined as a party to the derivative action.

During 1980-1984, Payne's manufacturing division was profitable. During the pendency of the derivative action from 1985 through 1987, however, the division sustained increasing losses. The judge found that Driscoll's course of conduct during that time exhibited a purpose to undermine King's ability successfully to manage the manufacturing division and, thus, to make the division unprofitable. Among Driscoll's actions cited by the judge were charging the salaries of certain employees to the overhead of that division, halting a computer project designed to improve manufacturing efficiency, and restricting Dynan's business travel for sales purposes.

In 1986, Driscoll hired Martin as his assistant, and Martin contracted with a consulting firm to evaluate the manufacturing division. The judge found that, for various reasons including Martin's past relationship with members of the consulting firm, the firm's evaluation of the division was compromised. Although Martin resigned his employment with Payne early in 1987, he had been appointed a director and so his involvement with the corporation continued. In March, 1987, Rick Auth was hired by Driscoll as assistant to the treasurer. Auth previously had been affiliated with the accounting firm that performed services for Payne.

In June 1987, a "steering committee" was formed to investigate the performance of Payne's manufacturing division. The committee was chaired by Auth. Its members were Marchant, King, two Payne managers, and Paul Oberg of the consulting firm. The majority of the committee ultimately suggested that new management was needed in the manufacturing division--that is, King should be terminated.

On November 13, 1987, at a meeting of the Payne board of directors attended by Driscoll, Martin, Marchant and Fritz, the directors voted to terminate King. Fritz abstained from this vote. At a meeting on November 30, 1987, Driscoll, in the presence of Martin, terminated King's employment. King contends that, at this meeting, Driscoll suggested that he would not be firing King if it were not for his participation in the derivative suit.

The Driscoll faction proffered several legitimate business reasons for terminating King. The group contended that King was ineffective as vice president of manufacturing and cited King's failure to prepare a five-year plan for manufacturing as requested by Driscoll, ⁴ the $250,000 loss sustained by the manufacturing division in 1986, the steering committee's recommendation, and the consulting firm's recommendation. The judge discussed and rejected each of these reasons. In addition, the judge made findings regarding the motives and conduct of Driscoll, Martin, Marchant, and Fritz which led him to his conclusion that the reasons asserted for King's termination were a pretext.

The judge concluded that, on his review of the totality of the evidence, King's termination did not have a legitimate business purpose. Instead, the judge found, King was terminated in retaliation for his participation in the derivative action. Acknowledging the general rule that, as an at-will employee, King could be terminated at any time with or without cause, the judge ruled that King's termination in retaliation for participating in a derivative suit was covered by the public policy exception to the general rule. Thus, the judge concluded, King's termination was wrongful and actionable at law.

The judge also ruled that Payne, through the actions of Driscoll, Martin, and Marchant, breached the covenant of good faith and fair dealing implied in at-will employment contracts. As to King's claim of intentional interference with contractual relations, the judge concluded that Driscoll and Martin, but not Marchant, were liable for interfering with King's employment contract with Payne. In addition, the judge concluded that Driscoll and Marchant, as shareholders in a close corporation, breached the duty of utmost good faith and loyalty owed to King, another shareholder.

On King's claim that his termination violated an implied contract that he would be terminated only "for cause" and only after notice and a hearing as provided in Payne's by-laws, the judge ruled against King. ⁵ Payne had filed counterclaims against King for allegedly violating an implied covenant of good faith and fair dealing by his alleged failure to prevent and later account for a loss of inventory, his alleged premature installation and invoicing of a particular elevator project, and his alleged failure to rectify a problem with a certain type of elevator button used by Payne. The judge found in favor of King on these counterclaims. ⁶ The judge also awarded King attorney's fees.

1. Wrongful termination claim. The defendants argue that there was insufficient evidence on which the judge could have based his finding of wrongful termination, and that, in any case, there is no public policy which would prevent an employer from terminating an employee who participates in a shareholder derivative action. Because we agree with the defendants' second argument, we need not address the first. See Wright v. Shriners Hosp. for Crippled Children, 412 Mass. 469, 472, 589 N.E.2d 1241 (1992) (whether retaliatory discharge violates public policy question of law for the judge).

As an exception to the general rule that an employer may terminate an at-will employee at any time with or without cause, we have recognized that an at-will employee has a cause of action for wrongful termination only if the termination violates a clearly established public policy. Flesner v. Technical Communications Corp., 410 Mass. 805, 810-811, 575 N.E.2d 1107 (1991) (wrongful termination where employee was terminated for...