Weiler v. Portfolioscope, Inc.

Decision Date01 February 2013
Docket NumberNo. 12–P–261.,12–P–261.
Citation982 N.E.2d 555,83 Mass.App.Ct. 216
PartiesMilton C. WEILER, Jr. v. PORTFOLIOSCOPE, INC., & others.
CourtAppeals Court of Massachusetts


Keith P. Carroll, Boston, for the defendants.

Curtis Clark Pfunder, Boston, for the plaintiff.



This is an appeal by the defendants, PortfolioScope, Inc. (PortfolioScope), Kevin B. Kimberlin, and Joseph T. Whelihan, from a judgment in favor of Milton C. Weiler, Jr., after a jury-waived trial in the Superior Court.2 The principal question in this case arises from the application of a stock option purchase and sale agreement between PortfolioScope and Weiler. The defendants do not challenge the judge's decision that PortfolioScope breached the agreement with the plaintiff to pay five percent of the proceeds from a settlement related to a pending lawsuit between PortfolioScope and iFlex Solutions Limited (the iFlex litigation). The total damages, as found by the judge, were $471,000. 3 The judge determined that the agreement gave Weiler priority of payment over a secured creditor of PortfolioScope, Kevin Kimberlin Partners, L.P. (KKP), an investment company directed by the defendant Kimberlin. The defendants contend that a misinterpretation of the agreement coupled with a misapplication of secured transactions principles resulted in the judge's erroneous conclusions that: (1) PortfolioScope breached the covenant of good faith and fair dealing with Weiler; (2) Kimberlin knowingly and intentionally interfered with PortfolioScope's performance under Weiler's contracts; (3) all defendants converted funds properly belonging to Weiler; (4) all defendants violated G.L. c. 93A, § 11, awarding Weiler double damages and attorney's fees; (5) all defendants violated G.L. c. 109A, the Uniform Fraudulent Transfer Act (UFTA); and (6) all defendants conspired against Weiler. We agree with the defendants and reverse.

1. Background. In the 1980's, Weiler developed certain financial portfolio software, in conjunction with forming two entities known as Computer Aided Decisions (CAD) and CAD Research. In 2000, Spencer Trask & Co. (Spencer Trask), a venture capital firm effectively controlled by Kimberlin, acquired Weiler's entities and thereafter merged them into PortfolioScope, with Weiler receiving consideration in the form of cash and stock options in the new entity.4 Weiler was president and chief operating officer of PortfolioScope from January, 2000, until May, 2002. After he resigned those positions, he was retained as an independent consultant to PortfolioScope through the period in question.

Due to significant financial difficulties, by 2001 PortfolioScope had obtained a series of loans and had executed various financing agreements, the net effect of which rendered KKP a creditor of PortfolioScope. Although the value of PortfolioScope assets continued to decline, PortfolioScope anticipated a sizable recovery in connection with a claim that it maintained against iFlex Solutions, Ltd., for the theft of trade secrets of PortfolioScope's software (the iFlex litigation).

In 2001, Weiler sold his stock options to PortfolioScope in exchange for various percentages of certain expected revenue streams, including proceeds relating to the iFlex litigation, after legal fees were paid. When PortfolioScope settled the iFlex litigation, however, Kimberlin, as the principal of KKP, directed that PortfolioScope wire the entirety of the resulting proceeds to a Spencer Trask brokerage account and to Weiler's successor as a senior executive of PortfolioScope, the defendant Whelihan.

The defendants aver that each transfer of proceeds from the iFlex settlement made by PortfolioScope was lawful and at the direction of a secured creditor in satisfaction of a prior debt. Moreover, they argue that as a debtor, PortfolioScope had no authority to give Weiler a priority claim over that of a secured creditor 5 even if PortfolioScope was thereby unable to otherwise satisfy the legitimate claims of other creditors, such as Weiler. While the defendants' actions exposed PortfolioScope to a breach of its contract with Weiler, their actions did not otherwise subject the defendants to liability. We summarize the facts as found by the judge.

In early 2000, an entity closely affiliated with Spencer Trask acquired both CAD entities and Weiler's software, eventually combining the entities and changing their name to PortfolioScope. Ninety-five percent of the ownership of Spencer Trask is effectively controlled by Kimberlin, through “a very complex web of identities.” 6 At the relevant times, Kimberlin was Spencer Trask's chairman of the board and only director.7 Kimberlin also is the general partner of KKP.8

In 2001, PortfolioScope started to experience financial difficulty;at that time, its only assets were the “Global Portfolio Valuation” software designed by Weiler and certain claims for theft of trade secrets. In July, 2001, PortfolioScope executed a demand note in favor of Wachovia Bank, N.A. (Wachovia), for the amount of $4.01 million, together with a security agreement in all of PortfolioScope's property, including deposit accounts and cash. 9 To further secure the performance of PortfolioScope, this note was guaranteed by KKP, in whose favor PortfolioScope executed a security agreement. This security agreement expressly stated that PortfolioScope, as a debtor, had no authority to further encumber the collateral in which KKP maintained a security interest.10 In July, 2002, having paid PortfolioScope's indebtedness to Wachovia in full, KKP acquired by assignment all of Wachovia's rights and interests in connection with PortfolioScope's obligations under the note and security agreement.11 By the time PortfolioScope settled the iFlex litigation in 2008, PortfolioScope's indebtedness to KKP amounted to between $7 and $8 million.12

In January, 2002, Weiler resigned as PortfolioScope's president, and the defendant Whelihan took over the position. On February 13, 2002, Weiler and PortfolioScope entered into a stock option purchase and sale agreement (agreement), which was amended on October 21, 2002 (amendment). 13 The effect of the agreement is at the heart of this controversy. The agreement requires that PortfolioScope shall pay Weiler, in exchange for Weiler's sale of his options to PortfolioScope, five percent of its net proceeds received in connection with the iFlex litigation. As used in the agreement, the terms “net proceeds” or “net recovery” mean gross proceeds less legal fees due PortfolioScope's counsel.

On October 21, 2008, the iFlex litigation was settled in principle, with PortfolioScope to receive a lump-sum payment of $10 million, which was received by its law firm on November 7, 2008. After deducting legal fees in the approximate amount of $1.8 million, the firm wired the net recovery of approximately $8.2 million to PortfolioScope on November 12, 2008; 14 at Kimberlin's direction, Whelihan then transferred more than $7.7 million of the settlement proceeds to Spencer Trask.15

Furthermore, on November 17, 2008, at the direction of Kimberlin, Whelihan disbursed $500,000 of the iFlex proceeds to himself, through a wire to a money market fund in his wife's name.16 Weiler was not paid, nor was he informed by Kimberlin or Whelihan of their actions; instead, as found by the judge, he was “misled ... for weeks about his payment, preventing him ... from taking other action to secure payment.” However, the judge specifically found that Weiler was not a secured creditor of PortfolioScope.

2. Discussion. The judge concluded that Weiler had a preferred claim on five percent of the actual settlement proceeds from the iFlex litigation, by virtue of the agreement. As a result, the judge ruled that the transfer of the settlement proceeds by the defendants to others without paying Weiler from those funds amounted not only to a breach of contract by PortfolioScope, but also violated its covenant of good faith and fair dealing, UFTA, and c. 93A, and constituted tortious acts, including conversion and improper interference with contractual rights.

The defendants contend that the agreement did not give Weiler a preferred claim on the actual settlement proceeds but rather an unsecured general claim against PortfolioScope; consequently, they argue that Weiler's claim for five percent of the actual settlement proceeds was not superior to the security interest of KKP and that the judge's decision to the contrary was a combination of a misinterpretation of the contract and a misapplication of the law of secured transactions. As it has overarching importance to the resolution of most aspects of this controversy, we begin with the interpretation of the contract.

a. The contract. The interpretation of a contract raises only a question of law. Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146, 439 N.E.2d 234 (1982). The application of contract language to known facts also presents a question of law. Kelleher v. American Mut. Ins. Co., 32 Mass.App.Ct. 501, 503, 590 N.E.2d 1178 (1992). “In interpreting a contract, [t]he objective is to construe the contract as a whole, in a reasonable and practical way, consistent with its language, background, and purpose. The words of a contract must be considered in the context of the entire contract rather than in isolation.” Rubin v. Murray, 79 Mass.App.Ct. 64, 75–76, 943 N.E.2d 949 (2011) (quotations and citations omitted). See MacDonald v. Hawker, 11 Mass.App.Ct. 869, 873, 420 N.E.2d 923 (1981), quoting from Crimmins & Peirce Co. v. Kidder Peabody Acceptance Corp., 282 Mass. 367, 375, 185 N.E. 383 (1933) (“The intent of the parties must be gathered from a fair construction of the contract as a whole and not by special emphasis upon any one part”).

In connection with her interpretation, and as pertinent to the issue, the judge relied on the following language from the...

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4 cases
  • Weiler v. PortfolioScope, Inc.
    • United States
    • United States State Supreme Judicial Court of Massachusetts Supreme Court
    • July 11, 2014
    ...that judgment should enter in favor of the defendants on all other counts in Weiler's amended complaint. Weiler v. PortfolioScope, Inc., 83 Mass.App.Ct. 216, 233, 982 N.E.2d 555 (2013). We affirm the judgment of the Superior Court with the exception of Weiler's claim for conversion.2. Discu......
  • Lubin & Meyer, P.C. v. Manning
    • United States
    • Massachusetts Superior Court
    • December 22, 2017
    ... ... agreement between former employee and his employer); ... Weiler v. Portfolioscope, Inc., 83 ... Mass.App.Ct. 216, 231 (2013). In the instant case, the 93A ... ...
  • Angiodynamics, Inc. v. Biolitec Ag
    • United States
    • U.S. Court of Appeals — First Circuit
    • April 1, 2013
    ...case. This appeal concerns only these defendants and not BI. 3. This case is easily distinguishable from Weiler v. Portfolioscope, Inc., 83 Mass.App.Ct. 216, 982 N.E.2d 555 (2013), which defendants cite in support of their appeal. In Weiler, the court reversed a judgment finding a violation......
  • Weiler v. Portfolioscope, Inc.
    • United States
    • United States State Supreme Judicial Court of Massachusetts Supreme Court
    • June 6, 2013
    ...Mass. 1105989 N.E.2d 898Milton C. Weiler, Jr.v.PortfolioScope, Inc.Supreme Judicial Court of Massachusetts.June 06, 2013 Appeal From: 83 Mass.App.Ct. 216, 982 N.E.2d 555....

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