Stanton v. Lighthouse Financial Services, Inc.

• Decision Date: 25 March 2009
• Docket Number: Civil Action No. 06cv10566-NG.
• Citation: 621 F.Supp.2d 5
• Parties: John C. STANTON, Plaintiff, v. LIGHTHOUSE FINANCIAL SERVICES, INC., and Thomas S. Drunsic, Defendants.
• Court: U.S. District Court — District of Massachusetts

621 F.Supp.2d 5

John C. STANTON, Plaintiff, v. LIGHTHOUSE FINANCIAL SERVICES, INC., and Thomas S. Drunsic, Defendants.

Civil Action No. 06cv10566-NG.

United States District Court, D. Massachusetts.

March 25, 2009.

Jonathan J. Margolis, Lori A. Jodoin, Rodgers, Powers & Schwartz LLP, Boston, MA, for Plaintiff.

Michael B. Feinman, Law Offices of Michael B. Feinman, Andover, MA, Stephen P. Shannon, Law Office of Michael B. Feinman, North Andover, MA, for Defendants.

MEMORANDUM AND ORDER RE: MOTIONS FOR RECONSIDERATION AND TO AMEND

GERTNER, District Judge:

I. INTRODUCTION

This case involves a suit for unpaid wages by a company president against the startup he founded and its CEO. The president's contract allowed for the deferral of his wages at the discretion of the board of directors. The plaintiff's allegations sound in breach of contract, breach of fiduciary duty, and violation of the Massachusetts Weekly Wage Act ("Wage Act"). On July 8, 2008, I ruled that the plaintiff was an "employee" under the Act but denied the parties' cross-motions for summary judgment because both the breach of contract and Wage Act claims turned on disputed factual issues: the time during which salary could be deferred, the extent to which payment was contingent on profitability, and whether the board ever voted to defer his salary. Agreeing that the salient fact is that the plaintiff's contract allowed the deferral of wages under certain conditions, whatever they may be, the parties now seek reconsideration of the Wage Act claim. The defendants have also filed a motion to amend their answer, in order to add set-off and in pari delicto defenses.

I now reaffirm my prior ruling that the plaintiff in this case is an "employee" under the Act. An individual may be an employer vis-à-vis subordinates and an employee vis-à-vis superiors. And while the Wage Act was intended to protect those who could not bargain for their salary, like lower wage earners, the language of the Act sweeps broadly. I cannot read textual exceptions that are not there. Because I also hold that the plaintiff's base salary constitutes "wages" under the statute and that an agreement to defer wages is void under the statute, I GRANT the plaintiff's motion for reconsideration and DENY that of the defendants. Further, I DENY the defendants' motion to amend, as neither the set-off defense nor the in pari delicto doctrine apply in this case.

II. FACTS

Lighthouse Financial Services, Inc. ("Lighthouse"), a startup company specializing in payment processing services, incorporated in Massachusetts on September 4, 2002. Compl. ¶ 6 (document # 26). John Stanton, its co-founder, recruited Thomas Drunsic in the fall of 2002 to join the company as an investor. On March 28, 2003, Drunsic purchased 500 shares of Lighthouse stock at $130 per share, for a total investment of $65,000. Stanton also purchased 500 shares by investing between $30,000 and $34,000 and receiving credit for work done for Lighthouse between November 2002 and March 2003.

On April 1, 2003, with corporate counsel present, both Stanton and Drunsic signed employment contracts with Lighthouse. Stanton became the president, and Drunsic became the chief executive officer. The contracts were for a term of one year and fixed each individual's salary at $144,000. Stanton and Drunsic signed one another's contract on behalf of Lighthouse. Both contracts contained the following provision: "Salary for the first year may be deferred at the sole discretion of the Board of Directors and must be paid out before the distribution of any profits of the corporation." Margolis Aff., Exs. G, H (document # 26-3). According to Drunsic, this salary deferral clause was mutually negotiated between Stanton and Drunsic, with the assistance of corporate counsel, "to recognize the fact that the company was in no position to pay those salaries until it was profitable." Drunsic Dep. at 40 (document # 33). Stanton alleges that there was no formal record of the Board of Directors ever electing to defer salaries. Pl.'s Mem. Supp. Mot. Part. Summ. J. (document # 27). He admits, however, that although he signed Drunsic's employment agreement, he felt no responsibility to make a salary payment to Drunsic "because neither the company nor myself had any money." Stanton Dep. at 86-87 (document # 33).

From April through June 2003, Drunsic purchased 410 additional shares of stock and became the majority shareholder, while Stanton purchased only fifty-five more shares.¹ From July 2003 through February 2004, Drunsic continued to infuse capital into Lighthouse, buying another 960 shares of stock. He began taking money out of his 401(k) account to meet the company's basic operating expenses. Stanton bought 100 shares on August 11, 2003, but did not make any subsequent purchases. Because he had not been receiving his salary, Stanton began living on money that he had borrowed.

Also in 2003, Drunsic and Stanton persuaded Steven Monticone to invest in the company. On December 5, 2003, he purchased 800 shares for $104,000.00. With this investment, Monticone supplanted Stanton as the second largest stockholder.

In February 2004, Drunsic informed Monticone and Stanton that the company was in need of more cash to pay bills. Monticone and Drunsic each purchased 200 shares on February 27, 2004. Monticone's recollection is that Stanton was unable to purchase more shares due to his financial situation, and a discussion of his shares being diluted subsequently followed.

Monticone also remembers a meeting with Stanton and Drunsic at which Stanton stated that he needed to receive a salary soon to pay his living expenses. Drunsic likewise recalls Stanton raising this issue, most likely in February 2004. Drunsic told Stanton that the company did not have the resources to pay salaries and refused to withdraw further funds from his 401(k) to pay Stanton's salary.

On May 12, 2004, Stanton sent an e-mail to Drunsic, Monticone, and a third person explaining that he needed several weeks off in order to tend to a family matter. Two days later, Drunsic and Monticone each purchased 100 more shares of stock.

On May 28, 2004, Lighthouse held its quarterly board of directors meeting. Drunsic, the chairman, Monticone, a director, and David Milton, another director, were all present. Stanton had received notice of the meeting but elected not to attend, as he believe he might feel "uncomfortable" there. Stanton Dep. at 174 (document # 33). During the meeting, Drunsic proposed that the company create the position of vice chairman and name Monticone to the seat. The resolution passed.

The directors also discussed salaries for the upcoming year. Drunsic proposed $120,000 for himself, $100,000 for Monticone, and $80,000 for Stanton. This resolution allowed salaries to change subject to the discretion of the board, and that all compensation be deferred subject to subchapter S regulations. According to the meeting minutes, "total deferred compensation would be paid at the rate of 75% of the profits from the income generated 60 days prior, provided that there was a profit from the income generated 90 days prior, and that any deferred compensation accrued under the resolution as of May 31, 2010 be forfeited." Margolis Aff., Ex. M (document # 26-3). The board then decided that Drunsic and Stanton would become at-will employees, since their original one-year contracts had expired on April 1, 2004. Id.

At some point during Stanton's time off, Drunsic sent an e-mail to Stanton saying that he would reissue Stanton's parking pass and cell phone upon his return to the company. Stanton Dep. at 179 (document # 33). According to Stanton, Drunsic also asked for his computer password at one point. Id. Around June 3, Stanton determined that he would not return to Lighthouse, and he informed Drunsic of his decision in a June 14 email.

On July 17, 2004, Stanton filed a complaint for nonpayment of wages with the Attorney General, pursuant to Mass. Gen. Laws ch. 149 § 150, claiming $186,003 in gross unpaid wages earned from April 1, 2003, to June 14, 2004. On January 3, 2005, Lighthouse filed for bankruptcy. On Schedule F of its petition, a form listing creditors holding unsecured nonpriority claims, the corporation stated that it owed $180,256.43 to Stanton, $262,000.00 to Drunsic, and $58,333.24 to Monticone for "deferred compensation." Margolis Aff., Ex. P (document # 26-4). On December 2, 2005, the bankruptcy judge granted the U.S. Trustee's motion to dismiss. Id.²

III. PROCEDURAL HISTORY

Stanton filed this suit on March 30, 2006, raising claims for breach of contract against Lighthouse (Count I), violation of the Wage Act against Lighthouse and Drunsic (Count II), and breach of fiduciary duty against Drunsic (Count III). On April 20, 2006, the defendants answered, raising counterclaims for breach of contract, breach of fiduciary duty, and violation of Mass. Gen. Laws ch. 93A.

On February 5, 2007, I granted the plaintiff's motion on the pleadings as to the defendants' counterclaim for breach of contract, which was based on Stanton's alleged violation of his covenant not to compete. Because the covenant applied only to the time period during which Stanton was employed by Lighthouse, his post-employment activity could not constitute a violation of that covenant.

On January 30, 2008, Stanton moved for partial summary judgment on his Wage Act claim. On February 20, 2008, the defendants filed a cross-motion for partial summary judgment on Stanton's Wage Act and breach of contract claims. In an electronic order dated July 8, 2008, I held that Stanton was an "employee" for the purposes of the Wage Act, but denied summary judgment as to both claims because they turned on disputed factual questions about the deferral clause in Stanton's contract (the amount of time the salary could be deferred, the extent to which payment was contingent on profitability). These issues appeared to require...