Steranko v. Inforex, Inc.

• Decision Date: 29 April 1977
• Citation: 5 Mass.App.Ct. 253,362 N.E.2d 222
• Parties: , 22 UCC Rep.Serv. 166 James J. STERANKO v. INFOREX, INC. (and two companion cases 1 ).
• Court: Appeals Court of Massachusetts

Page 222

362 N.E.2d 222

5 Mass.App.Ct. 253, 22 UCC Rep.Serv. 166

James J. STERANKO v. INFOREX, INC. (and two companion cases ¹).

Appeals Court of Massachusetts, Middlesex and Suffolk.

Argued April 16, 1976.

Decided April 29, 1977.

Edward R. Lev, Boston, for James J. Steranko.

Evan Y. Semerjian, Boston, for Inforex, Inc. and others.

Before KEVILLE, GOODMAN and ARMSTRONG, JJ.

KEVILLE, Justice.

These are three cases which come here on appeals and cross appeals from judgments entered in litigation resulting from disputes with respect to written agreements between an employer and one of its employees. The cases were consolidated for trial before a Superior Court judge sitting without jury. We have before us a transcript of the evidence, numerous exhibits and the judge's findings, rulings and order for judgment. The judgments were entered after July 1, 1974. We are to give due weight to the findings of the judge which will not be reversed unless clearly erroneous but we may find facts in addition to those found by him. Taylor v. Lassell, --- Mass.App. ---, ---,^a 353 N.E.2d 677 (1976).

We summarize pertinent facts as follows: On July 15, 1968, James J. Steranko (Steranko), a computer processing and packaging engineer, and Inforex, Inc. (Inforex), a corporation engaged in the design, development, manufacture and marketing of peripheral equipment for computers, entered into an employment and stock purchase agreement (employment agreement) and a stockholders' agreement. The employment agreement provided that Steranko was to be employed by Inforex in an executive capacity throughout the term of his employment under the agreement. The term was to be for eighteen months commencing on July 8, 1968, and 'for such additional periods as may be mutually acceptable.' His starting salary of $26,000 per annum remained unchanged during the course of his employment. The employment agreement also embodied provisions concerning discharge for cause, assignment of patent rights, and participation in company incentive plans.

Pursuant to the employment agreement Steranko purchased 8,000 shares of Inforex common stock at a dollar a share. These shares were subject to the restriction that they were not to be sold, pledged or transferred for five years following the date of the agreement. Furthermore, subject to certain exceptions, the employment agreement gave Inforex an option to repurchase Steranko's shares within the five-year period at a price of a dollar a share. ^{2 3}

Section 12 of the employment agreement, which contained restrictions on Steranko's right to sell his stock and the provisions for repurchase by Inforex, was amended on October 21, 1968, and again on December 22, 1969. These amendments dealt with the right of Inforex to repurchase Steranko's shares. The first amendment made clear that Inforex would not have the right to repurchase Steranko's shares if he were discharged without cause or if Inforex failed to renew the agreement on substantially the same terms. The second amendment deleted the latter provision.

Steranko was first employed in an executive capacity as required by the employment agreement and held the title of vice president of manufacturing until May 19, 1971. At the outset, his duties included responsibility for manufacturing and for the development of a packaging system for Inforex's products. At that time other employees reported to him and he was assigned office space comparable to that of other officers of the company. During his employment at Inforex, Steranko was instrumental in the development of the Infobond process. He invented or participated in the invention of three items designated by Inforex as M--258, M--266 and M--297. ⁴ In 1969 Steranko assigned to Inforex his rights to the inventions, M--258 and M--266. His failure to assign his rights to M--297 will be discussed later in the opinion.

Beginning in the summer of 1970 and continuing into the winter of that year, proposals were made by Inforex to Steranko that he leave Inforex and become an employee of the proposed Infobond corporation (Infobond). It was suggested that he surrender some of his Inforex stock in exchange for Infobond stock. He regarded these proposals as unfair and he rejected them because he believed that the stock to be surrendered was worth much more than the Infobond shares he would receive in return.

On September 22, 1970, Steranko was assigned to work full time on corporate planning for the proposed Infobond corporation which was organized in 1971 to exploit the Infobond process commercially. At that time another employee was placed in charge of manufacturing. As a consequence, after September 22, 1970, Steranko no longer retained his previous manufacturing responsibilities. He thereafter attended no officers' meetings and employees no longer reported to him. In November, 1970, Thomas B. Horgan (Horgan), the president of Inforex, offered Steranko a staff position in 'product assurance.' This position was without executive responsibility and Steranko rejected the offer. Also in November, 1970, certain Inforex employees had some of their shares of stock released from the resale restrictions. Steranko was the only officer whose stock was not released from these restrictions.

On December 17, 1970, Steranko was assigned the position of consultant to the president-designate of Infobond. Steranko was informed that he was no longer authorized to make purchase or employment commitments for Inforex. Nor was he authorized to engage in business negotiations on Infobond's behalf. The position was without executive responsibility and thereafter Steranko was not employed in an executive capacity. He entered upon and performed the duties which were then assigned to him.

Thereafter, his offices were moved twice. The new offices were interior offices and were smaller and less desirable than those assigned to other Inforex officers. These moves were accompanied by decreased secretarial services. On May 19, 1971, Steranko was not reelected as a vice president of Inforex. On June 16, 1971, he brought a bill for declaratory relief in the Superior Court (the first of the cases now before us) alleging that Inforex had breached the employment agreement by demoting him and had constructively discharged him without cause. This bill sought a determination whether the employment agreement continued to be binding upon the parties.

After bringing the bill, Steranko remained in his job until he was discharged in November, 1971. The invention designated M--297 was found by the judge to have been in commercial use by Inforex in the spring of 1970. On January 22, 1971, Steranko and a coinventor had executed a power of attorney authorizing Inforex to prosecute the patent application for that invention in the United States Patent Office. Thereafter, despite requests made to him by Inforex, he did not assign to the company his rights in the patent application. And, on November 5, 1971, he refused to execute the assignment, stating that his obligation to do so depended upon the validity of the employment agreement which was then the subject of pending litigation (his bill for declaratory relief).

On November 22, 1971, the board of directors of Inforex, citing Steranko's refusal to execute the M--297 assignment, voted unanimously to discharge him for cause. ⁵ Inforex then informed Steranko of its intention, pursuant to section 12 of the employment agreement and the stockholders' agreement, to exercise its option on November 29, 1971, to repurchase his 26,000 restricted shares of Inforex stock at cost. When he refused to resell the stock, Inforex brought suit in December, 1971, (the second case now before us) seeking the return of the stock, the assignment of Steranko's patent rights to M--297 and various restraining orders. ⁶

On January 5, 1972, Steranko made a written demand upon Inforex and State Street Bank and Trust Company (bank) to issue certificates for 22,200 of his shares without a section 12 legend restricting their sale. On instructions from Inforex, the bank declined to issue the certificates as requested. On November 21, 1973, Steranko brought an action (the third of the cases now before us) seeking, inter alia, damages for Inforex's and the bank's refusals to issue certificates without restrictions and for damages against Horgan for maliciously causing Inforex to breach the employment agreement and for causing Inforex and the bank to refuse to issue the certificates.

The cases, as stated above, were consolidated for trial; and on January 31, 1975, the judge entered findings, rulings and order for judgment. Thereafter, identical judgments were entered in the three cases. ⁷

Choice of law.

In section 15 of the employment agreement, the parties provided that the agreement should 'be construed under and governed by the laws of the State of New York.' Section 7 of the stockholders' agreement contained a similar provision. Where the parties have expressed a specific intent as to the governing law, Massachusetts courts will uphold the parties' choice as long as the result is not contrary to public policy (compare Dolan v. Mutual Reserve Fund Life Assn., 173 Mass. 197, 53 N.E. 398 (1899)) and as long as the designated State has some substantial relation to the contract. See Mittenthal v. Mascagni, 183 Mass. 19, 22, 66 N.E. 425 (1903); Maxwell Shapiro Woolen Co. Inc. v. Amerotron Corp., 339 Mass. 252, 257--258, 158 N.E.2d 875 (1959); Quintin Vespa Co. Inc. v. Construction Serv. Co., 343 Mass. 547, 552, n. 5, 179 N.E.2d 895 (1962). See Scoles, Goodrich's Conflict of Laws § 107 (4th ed. 1964); Fine, Massachusetts Contract Cases and Problems in the Choice of Law, 43 Mass.L.Q. 46, 47--50, 54, n. 55 (Oct. 1958); Restatement (Second) of Conflict of Laws § 187 (1971). As neither party has argued that application of New York law would violate Massachusetts public policy or that New York lacks substantial relation to the contract we...