Steranko v. Inforex, Inc.

• Decision Date: 29 October 1979
• Citation: 395 N.E.2d 1303,8 Mass.App.Ct. 523
• Parties: James J. STERANKO v. INFOREX, INC. (and two companion cases).
• Court: Appeals Court of Massachusetts

Page 1303

395 N.E.2d 1303

8 Mass.App.Ct. 523

James J. STERANKO v. INFOREX, INC. (and two companion cases).

Appeals Court of Massachusetts, Middlesex and Suffolk.

Argued May 18, 1979.

Decided Oct. 29, 1979.

Evan Y. Semerjian, Boston, for defendant.

Edward R. Lev, Edward Woll, Jr., Boston, for plaintiff.

KEVILLE, Justice.

These cases involve appeals and cross appeals from an award of damages to the plaintiff James J. Steranko (Steranko) by a Superior Court judge acting on remand of the case after this court reviewed the merits of the underlying dispute between the parties. See Steranko v. Inforex, Inc., 5 Mass.App. 253, 362 N.E.2d 222 (1977). The facts pertaining to this dispute are set out in full in our previous opinion; the following is a summary of the facts relevant to this appeal. In 1968 Steranko, a computer process and packaging engineer, entered into an employment agreement which provided inter alia that he was to be employed by Inforex, Inc. (Inforex), in an "executive position" and that he could purchase Inforex stock subject to the restriction that the shares could not be sold, pledged, or transferred for five years following the date of the agreement. ¹ Within this five year period, Inforex had the right, subject to certain exceptions, to repurchase the stock but would lose this right in the event that Steranko should be dismissed without cause. Under both the employment and shareholder's agreements, as well as a subsequent "Employee Stock Restriction Agreement," Steranko's purchase (after stock splits) totaled 34,000 shares. In 1969 Inforex released the restrictions on 8,000 of these, leaving 26,000 restricted shares. Between September 1970 and May 1971 Inforex took several actions which had the effect of altering and diminishing Steranko's responsibilities. These actions culminated on May 19, 1971, when Steranko was not reelected as a vice president of Inforex. On November 22, 1971, Inforex dismissed Steranko for failure to assign to the company a patent which he had developed and informed him of its intention to exercise its right to repurchase the 26,000 shares of stock still under restriction. Steranko refused to resell the stock and, on January 5, 1972, made a written demand upon Inforex and State Street Bank and Trust Company, the transfer agent for Inforex stock, to issue, on January 7, 1972, certificates for 22,200 of his shares without legends restricting their sale. On instructions from Inforex, the bank refused the demand and, on November 21, 1973, Steranko brought an action seeking removal of the restrictive legends and damages for Inforex's refusal to issue unrestricted certificates.

The behavior of Inforex in demoting Steranko and diminishing his responsibilities was found by the trial judge, sitting without a jury, and by this court on appeal to constitute a breach of the agreement to employ Steranko in an "executive position." Steranko v. Inforex, Inc., 5 Mass.App. at 262-265, 362 N.E.2d 222. We also held, contrary to a ruling of the judge, that this breach vitiated the restrictions on 24,000 shares of the Inforex stock owned by Steranko ² and that Steranko was entitled both to specific performance (the removal of the restrictive legends from certificates representing the 24,000 shares) and damages with respect to 22,200 of those shares. As to the latter, we determine that, under New York law, ³ "(t)he measure of damages is the difference between the market price at the time of Inforex's wrongful refusal, (to authorize removal of the restrictive legends) or within such reasonable time thereafter as Steranko might have sold the stock, and the market price at the time of the trial." 5 Mass.App. at 267-268, 362 N.E.2d at 232-233. We left it to the trial judge to determine the damages under that formula. Id. at 268, 362 N.E.2d 222.

After conducting an evidentiary hearing, the judge found that seven working days after January 7, 1972, the date of Inforex's wrongful refusal, was a "reasonable time" in which Steranko could have sold the 22,200 shares and that the "highest interim value" of a share of Inforex stock during this time was $33.25 on January 12, 1972. After a subtraction of damages owed Inforex by Steranko for refusal to resell to Inforex 2,000 shares purchased under the "Employee Stock Restriction Agreement," which was not affected by breach of the employment agreement, net damages for Steranko on the 22,200 shares amounted to $639,424.18. Ruling that Inforex's wrongful refusal was a conversion of the stock, the judge awarded interest running from November 21, 1973, the date Steranko brought his action for Inforex's refusal to remove the restrictions on the stock.

1. "Reasonable Time."

Inforex argues that the judge exceeded the direction of the rescript in our earlier opinion by holding an evidentiary hearing for the purpose of determining what could have been a "reasonable time" in which Steranko might have sold the 22,200 shares but for Inforex's wrongful refusal to remove the restrictions. The judge's action, Inforex contends, was inconsistent with our determination that the matter was a question of law for the judge based upon undisputed facts. See Steranko v. Inforex, 5 Mass.App. at 268, 362 N.E.2d 222. In the circumstances, the judge, in his discretion, could have decided that the factual record was inadequate on the issue of damages and he could reopen the case in order to obtain more evidence before applying the principle of law set forth in our earlier opinion. Long v. George, 296 Mass. 574, 577, 7 N.E.2d 149 (1937). Carilli v. Hersey, 303 Mass. 82, 86, 20 N.E.2d 492 (1939). Nagle's Case, 310 Mass. 193, 197-198, 37 N.E.2d 474 (1941). See Garfield v. White, 326 Mass. 20, 25-26, 92 N.E.2d 575 (1950); Fisher v. MacDonald, 335 Mass. 429, 431, 140 N.E.2d 633 (1957).

Inforex argues that even if the judge were warranted in conducting an evidentiary hearing, his decision was erroneous as matter of law for two reasons. First, Steranko in his pleadings bound himself to the position that he would and could have sold the 22,200 shares on January 7, 1972. See G.L. c. 231, § 87. Thus, the judge was obliged to use the market price on that date, instead of the highest interim value between January 7 and 18, 1972, as the measure of Steranko's damages. Apart from the question whether such a ruling would be consistent with our earlier opinion, we do not think that the pleadings can be fairly construed to confine Steranko to the position that he would and could have sold the 22,200 shares on January 7, 1972. In support of its contention that Steranko is bound to this date, Inforex refers to paragraph 19 of Steranko's declaration and to Exhibits B and D to that declaration. See Mass.R.Civ.P. 10(c), 365 Mass. 752 (1974). Nothing in paragraph 19 or Exhibit B can be construed as averring Steranko's willingness and ability to sell all 22,200 shares on January 7, 1972. In Exhibit D Steranko's counsel, replying to Inforex's refusal to remove the restrictions, stated that Steranko would hold Inforex liable for "any diminution in the value of the shares of Inforex stock which he could have and would have sold on Friday, January 7, 1972" but for Inforex's refusal, and "for the diminution in value, if any, of all 26,000 shares from the value of such shares on January 7, 1972." The judge could have viewed these averments merely as attempts to preserve Steranko's right to damages by establishing that his intent in demanding removal of the restrictions was to sell the stock in the immediate future. There was no allegation that Inforex's refusal cost Steranko an opportunity to sell the stock to a ready and willing buyer or buyers on a certain date. The judge could have concluded that the phrase "could have . . . sold," in light of the pleadings viewed as a whole, referred to Steranko's obtaining an indication (a "no action" letter) from the Securities and Exchange Commission that it would not require that he register his stock under the Securities Act of 1933 before selling it.

Inforex also argues that under New York law Steranko's damages must be measured from the date of the wrongful refusal (or, in the words of Inforex, from "a reasonable time thereafter of one day"). This interpretation of the rule would not only render the words "reasonable time" meaningless, but is not supported, as Inforex claims, by Riskin v. National Computer Analysts, Inc., 62 Misc.2d 605, 308 N.Y.S.2d 985 (Sup.Ct.1970), modified 37 A.D.2d 952, 326 N.Y.S.2d 419 (N.Y.1971). While the Supreme Court of New York, in determining whether Riskin suffered damages, used the price on the date of refusal itself (September 23, 1969) for the purpose of comparison with the price at the time of trial, it noted that "the shares . . . sold since September 23, 1969 . . . for approximately the same price as the price at time of trial." 62 Misc.2d at 609, 308 N.Y.S.2d at 989. Thus, that court did not require that the market price on the date of refusal be used to measure damages rather than a higher price reached during a "reasonable time thereafter." It appears that the stock had no higher value between September 23, 1969, and the time of trial. On appeal in Riskin the judgment was modified by the Appellate Division which held that the date of refusal was July 9, 1969, and not September 23, 1969. While the court used the price on July 9, in the computation of damages, there was again no indication that the stock had a higher value at any time (reasonable or unreasonable) thereafter.

Also, Inforex's position does not comport with several other New York cases which hold that determination of a reasonable time depends on the circumstances of each case (Phillips v. Bank of Athens Trust Co., 202 Misc. 698, 702, 119 N.Y.S.2d 47 (Sup.Ct.1952)) and that "under varying circumstances . . . thirty days or fifteen days or sixty days would be such reasonable period." Mayer v. Monzo, 221 N.Y. 442, 446-447, 117 N.E. 948 (1917). See...