Weiler v. PortfolioScope, Inc.

Decision Date11 July 2014
Docket NumberSJC–11476.
PartiesMilton C. WEILER, Jr. v. PORTFOLIOSCOPE, INC., & others.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

Curtis C. Pfunder, Boston, for the plaintiff.

Andrew N. Nathanson (Keith P. Carroll with him), Boston, for the defendants.




, J.

The disputes in this case arise from a complex web of relationships between various individual and corporate entities. The plaintiff, Milton C. Weiler, Jr., the former president and chief operating officer of the defendant corporation, PortfolioScope, Inc. (PortfolioScope), brought suit against the defendants raising various claims, including breach of contract, violation of G.L. c. 93A, and fraudulent transfers pursuant to the Uniform Fraudulent Transfer Act (UFTA). After a jury-waived trial, Weiler prevailed, and a judgment entered in his favor. The Appeals Court reversed the judgment in part, and we granted Weiler's application for further appellate review. For the reasons discussed hereafter, we affirm the judgment of the Superior Court in almost all respects.

1. Background. We summarize the pertinent facts as found by the trial judge; additional facts are discussed in connection with

the issues raised. In 1981 and 1998, respectively, Weiler cofounded Computer Aided Decisions and CAD Research, Inc. (CAD entities), companies that developed and marketed software to help manage investment portfolios. In early 2000, Spencer Trask & Co. (Spencer Trask), a venture capital firm effectively controlled by the defendant Kevin Kimberlin,2 acquired the CAD entities from Weiler and the cofounder. After the purchase, the CAD entities were merged into a new company that became the defendant PortfolioScope. Weiler received cash as well as stock and stock options in the new company at the time of the sale and served at that time as its president and chief operating officer.

In 2001, PortfolioScope began experiencing financial difficulty, and it received a series of loans from Wachovia Bank, N.A. (Wachovia), beginning on February 20, 2001.3 Kevin Kimberlin Partners, L.P. (KKP), guaranteed these Wachovia loans, and in that connection, on February 20, 2001, PortfolioScope executed a security agreement granting KKP a security interest in all of PortfolioScope's property, including its deposit accounts and cash. On July 25, 2001, PortfolioScope executed a demand note in favor of Wachovia in the amount of $4.01 million.4 On July 10, 2002, KKP paid off PortfolioScope's debt to Wachovia, and thereafter received an assignment of all of Wachovia's rights and interests in PortfolioScope. The assignment agreement incorporated the security agreement that PortfolioScope previously had executed in favor of KKP. Between 2003 and 2008, PortfolioScope received additional loans from KKP directly.5

Weiler served as PortfolioScope's president and chief operating officer from January, 2000, to May, 2002. Kimberlin hired the defendant Joseph T. Whelihan in January, 2002, to become PortfolioScope's chief executive officer. On February 13, 2002, Weiler entered into a stock option purchase and sale agreement

with PortfolioScope (five per cent agreement), in which Weiler agreed to sell back to PortfolioScope 666,667 vested and unvested stock options in the company, and in exchange would be paid a contingent purchase price. On October 21, 2002, the parties amended the five per cent agreement (five per cent amendment) to include a provision that PortfolioScope would pay Weiler five per cent of the net proceeds received in connection with a pending lawsuit between PortfolioScope and iFlex Solutions Limited (iFlex litigation).6 Whelihan, as PortfolioScope's chief executive officer, signed both the five per cent agreement and the five per cent amendment on behalf of the company; the five per cent agreement also was initialed by Kimberlin.

Between May, 2002, and October 21, 2008, Weiler consulted with PortfolioScope, principally in connection with the then-pending iFlex litigation.7 On October 21, 2008, the iFlex litigation settled for $10 million. The law firm serving as PortfolioScope's counsel in that litigation received the $10 million settlement funds on November 7, and, after deducting the amount claimed by the firm as legal fees, transferred approximately $8.2 million to PortfolioScope on November 12. That same day, Kimberlin directed Whelihan to wire $5.2 million of the proceeds to a Spencer Trask brokerage account because he wanted to gain immediate access to the settlement proceeds. On November 17, again at Kimberlin's direction, Whelihan wired another $1.296 million to the Spencer Trask account and, separately, another $1,231,186.13, also to Spencer Trask.8 Also on November 17, at

Kimberlin's direction, Whelihan wired $500,000 to an account in Whelihan's wife's name. Finally, on November 25, Whelihan paid himself $15,000 from the iFlex litigation settlement proceeds, a transaction authorized by Kimberlin.9 Taken together, these transfers accounted for almost all of the iFlex litigation settlement proceeds.10

After the iFlex litigation settled, beginning on November 10, 2008, Weiler initiated a series of “increasingly frustrated” inquiries directed at Whelihan, Kimberlin, and others connected to PortfolioScope and Spencer Trask as to when he was to be paid his entitlement under the five per cent amendment. On December 2, 2008—after the iFlex litigation proceeds were essentially depleted—Whelihan sent a message via electronic mail (e-mail) to Weiler, with a copy to Kimberlin, asking whether Weiler would settle for an amount less than that he was otherwise entitled to under the five per cent amendment. On December 4, Weiler responded that he would accept $406,000 as payment in full. When no transfer of funds was made, Weiler sent an e-mail to Whelihan on December 8, asking when he should expect payment; Whelihan asked Weiler to “hold on a little longer.” Weiler made a subsequent inquiry on December 17, to which Whelihan indicated that Weiler was [his] first priority tomorrow. Promise.”11 Weiler never received payment from PortfolioScope.

On March 23, 2009, Whelihan sent an e-mail to Weiler informing him that he was sending Weiler a $20,000 check as part of an instalment plan as an incentive to help with the pending litigation between PortfolioScope and Charles Hunt.12 See note 8, supra. Shortly thereafter, Weiler served his complaint in this action, alleging various claims against PortfolioScope, Whelihan, and Kimberlin (collectively, defendants).13 Only after the lawsuit was

filed did Weiler learn that (1) Whelihan had transferred $515,000 to himself; and (2) the defendants were asserting that Weiler was not being paid because KKP was a secured creditor of PortfolioScope and had a priority interest in the settlement proceeds that trumped Weiler's contractual rights.

After a bench trial, the judge issued a written decision in which she made detailed findings and concluded that (1) PortfolioScope committed a breach of the five per cent amendment and the consulting agreements with Weiler as well as the covenant of good faith and fair dealing;14 (2) Kimberlin tortiously interfered with Weiler's contractual rights vis-à-vis PortfolioScope; (3) the defendants converted funds belonging to Weiler; (4) the defendants knowingly and wilfully engaged in unfair or deceptive acts or practices in violation of G.L. c. 93A, § 11

; (5) the defendants violated the UFTA; and (6) the defendants conspired against Weiler.15 The defendants appealed to the Appeals Court, which affirmed the judgment against PortfolioScope for breach of contract, but otherwise reversed, concluding 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. Discussion. The defendants argue that the judge erred in certain fundamental respects in her interpretation of the five per cent agreement and five per cent amendment, as well as in her analysis of secured transaction principles as applied to this case; in the defendants' view, these errors infected almost every part of

the disposition of the case. As to the five per cent agreement and amendment, the defendants contend that the judge misinterpreted the five per cent amendment as giving Weiler a right to five per cent of the actual settlement proceeds of the iFlex litigation (less legal fees), rather than a right to five per cent of the value of the settlement (less legal fees). With respect to secured transaction principles, the defendants contend that the judge failed to accord proper legal significance to the fact that the $515,000 in transfers from the iFlex litigation settlement proceeds to Whelihan and the approximately $6.5 million in transfers from the proceeds to Spencer Trask in substance and legal effect were transfers to PortfolioScope's secured creditor, KKP, an entity that as a matter of law had priority over Weiler.16 The Appeals Court agreed with the defendants. See Weiler, 83 Mass.App.Ct. at 218, 223–226, 982 N.E.2d 555

. We also agree that the five per cent amendment did not give Weiler a right to recover from the actual settlement proceeds, but in the factual circumstances of this case, conclude that any error in the judge's interpretation of the five per cent amendment affects only Weiler's claim for conversion. On the law of secured transactions, the judge's factual findings in this case persuade us that no legal error infected the judge's consideration of KKP's security interest in the iFlex litigation settlement proceeds.

a. Standard of review. We accept the judge's findings of fact in a bench trial unless they are clearly erroneous,” Makrigiannis v. Nintendo of Am., Inc., 442 Mass. 675, 677...

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