Leness v. Chang

• Decision Date: 17 December 2021
• Docket Number: 20-P-1326
• Citation: 179 N.E.3d 1134 (Table)
• Parties: Anthony H. LENESS v. Sheldon CHANG.
• Court: Appeals Court of Massachusetts

179 N.E.3d 1134 (Table)

Anthony H. LENESS

v.Sheldon CHANG.

20-P-1326

Appeals Court of Massachusetts.

December 17, 2021

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

This appeal arises out of a prior action between the plaintiff, Anthony H. Leness, and his former employer, EventMonitor, Inc. (EventMonitor), which resulted in a judgment in favor of Leness. EventMonitor did not pay the judgment and had maintained that it lacked the financial ability to do so.² In this action, Leness claimed that money that flowed in and out of EventMonitor during the course of the prior action was unlawfully converted and fraudulently transferred, and Leness sought to hold the founder and president of EventMonitor, defendant Sheldon Chang, individually liable on those claims on a veil piercing theory. A jury found in favor of Leness on his conversion claim, but not his fraudulent conveyance claim. Chang appeals, arguing that the evidence was insufficient to support the conversion claim and that his motion for a directed verdict on that claim should have been allowed.³ We agree.

The facts pertaining to the prior action between Leness and EventMonitor are set forth in detail in EventMonitor, Inc. v. Leness, 473 Mass. 540 (2016). For purposes of our review, we note that Chang established EventMonitor in 2000 to "develop[ ] and market[ ] software for the financial industry." Id. at. 541. Leness was hired in 2001 to serve as EventMonitor's vice-president for business affairs. See id. Leness was then let go in 2007 when tensions arose between Leness and Chang over the direction of the company. See id. at 544.

A lawsuit followed in which Leness and EventMonitor asserted a variety of claims against the other,⁴ and a judgment entered in favor of Leness in 2012. See EventMonitor, Inc., 473 Mass. at 542. In 2016, the Supreme Judicial Court affirmed the judgment of liability but concluded that there had been a mathematical error in the calculation of damages, and the matter was remanded for entry of an amended award of damages. See id. at 552. On April 3, 2017, an execution issued on the judgment in the amount of $426,509.29, which EventMonitor did not pay.

In this action, the jury could have found the following facts.⁵ EventMonitor began to struggle financially in 2008 or 2009, to the point where Chang was the sole remaining employee in 2014 or 2015. Meanwhile, in 2009, Chang formed another company named Volatility Research LLC (Volatility Research). Chang used Volatility Research as a "lifeline to help [EventMonitor] survive during a very difficult time period," because EventMonitor was having a difficult time raising money and so Volatility Research was used as a "clean sheet ... [to] raise some money." Between 2011 and 2017, Volatility Research obtained at least 1.7 million dollars from third parties and then provided approximately $782,000 of that money to EventMonitor.⁶ Of the approximately $782,000 that EventMonitor received from Volatility Research, approximately $426,000 was paid to Chang.⁷ Chang testified that the other sums of money that EventMonitor received from Volatility Research were used to pay things such as employee salaries and rent.

Leness, in addition to being a judgment creditor of EventMonitor, was also a preferred shareholder of EventMonitor.

We agree with Chang that these facts are insufficient to support the conversion claim. "To state a plausible claim of conversion, a plaintiff must allege that the defendant wrongfully exercised dominion or control over the personal property of the plaintiff." Hornibrook v. Richard, 488 Mass. 74, 83 (2021). While it is true that "conversion may lie if an individual wrongly exercises dominion or control over the money of another," Weiler v. PortfolioScope, Inc., 469 Mass. 75, 87 (2014), it is also true that "[c]onversion occurs only when a defendant exercises wrongful control over specific personal property, not a debt," Gossels v. Fleet Nat'l Bank, 453 Mass. 366, 372 (2009). In other words, for purposes of conversion, there is a distinction between being entitled to an amount of money and being entitled to particular funds; between the two, only the latter may serve as the basis of a conversion claim. See Weiler, supra at 87-88. Applying these principles, examples of successful claims for the conversion of money have involved situations in which defendants misappropriated identifiable funds given to them to hold for others. See, e.g., Matter of Hilson, 448 Mass. 603, 604-606, 611-612 (2007) ; Grand Pac. Fin. Corp. v. Brauer, 57 Mass. App. Ct. 407, 408, 412-413 (2003).

There was no evidence that Leness was entitled to any particular funds. Instead, Leness claimed that he was owed an amount of money, which EventMonitor could have satisfied from any source. While Leness's claim was eventually reduced to a judgment, the judgment was still a debt that entitled Leness to an amount of money, not any particular funds. There was no evidence, for example, that any of the money that flowed in and out of EventMonitor was given to EventMonitor to hold for Leness. The evidence was that EventMonitor obtained loans from various sources...