Title: Calixto v. Coughlin
Citation: N/A
Docket Number: SJC-12515
State: Massachusetts
Issuer: Massachusetts Supreme Court
Date: December 28, 2018

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SJC-12515 
 
JILLIAN CALIXTO1 & another2  vs.  HEATHER COUGHLIN & others.3 
 
 
 
Middlesex.     November 8, 2018. - December 28, 2018. 
 
Present:  Gants, C.J., Gaziano, Lowy, Budd, Cypher, & Kafker, 
JJ. 
 
 
Massachusetts Wage Act.  Damages, Breach of fiduciary duty.  
Practice, Civil, Motion to dismiss. 
 
 
 
 
Civil action commenced in the Superior Court Department on 
October 11, 2016. 
 
 
A motion to dismiss was heard by Maynard M. Kirpalani, J. 
 
 
The Supreme Judicial Court granted an application for 
direct appellate review. 
 
 
 
Nicholas J. Rosenberg for the plaintiffs. 
 
David G. Thomas (Mian R. Wang also present) for the 
defendants. 
                     
 
1 Individually and on behalf of all others similarly 
situated, and derivatively on behalf of ISIS Parenting, Inc. 
 
 
2 Kathryn Reynolds, individually and on behalf of all others 
similarly situated, and derivatively on behalf of ISIS 
Parenting, Inc. 
 
 
3 Heather Coughlin, Peter Delahunt, Gregg Dion, and S. 
Brendan Coughlin. 
2 
 
 
 
The following submitted briefs for amici curiae: 
 
Christopher H. Lindstrom & Matthew P. Ritchie for Greater 
Boston Chamber of Commerce. 
 
Ben Robbins & Martin J. Newhouse for New England Legal 
Foundation. 
 
Arthur P. Murphy & Geoffrey P. Wermuth for Murphy, Hesse, 
Toomey & Lehane, LLP. 
 
 
 
KAFKER, J.  The primary issue presented is the interplay, 
if any, between two employee protection statutes:  G. L. c. 149, 
§ 148 (Wage Act), and the Federal Worker Adjustment and 
Retraining Notification Act, 29 U.S.C. §§ 2101-2109 (2018) (WARN 
Act).  The defendant corporate officers (officers)4 directed ISIS 
Parenting, Inc. (company), where the plaintiff employees 
(employees) worked until it abruptly ceased operations and 
terminated its entire workforce.  Alleging a WARN Act violation 
for failure to provide them with sixty days' advance notice of 
the company's shutdown, the employees brought a class action 
lawsuit against the company in Federal court and received a 
nearly $2 million default judgment.  Subsequently, the employees 
brought a putative class action lawsuit against the officers in 
State court under the Wage Act, claiming that the $2 million 
WARN Act damages constitute wrongfully withheld "earned wages" 
for which the officers are individually liable.  In addition, 
                     
 
4 One defendant did not work at the company, but was named 
only with respect to the fraudulent conveyance claim.  The other 
defendants were the president/chief executive officer, chief 
financial officer, and corporate secretary. 
3 
 
 
the employees argue that the officers committed a breach of 
fiduciary duties that they owed to the company by allowing the 
company to violate the WARN Act.  Because we conclude that WARN 
Act damages are not "earned wages" under the Wage Act, and that 
the employees have not asserted a viable claim for breach of 
fiduciary duties, we affirm the dismissal of the employees' 
case.5 
 
1.  Background.  We review the allowance of a motion to 
dismiss de novo, accepting all well-pleaded facts in the 
complaint as true, and taking into account any attached 
materials.  See Cook v. Patient Edu, LLC, 465 Mass. 548, 549 
(2013).  The employees were among the more than 200 people who 
worked at the company, which operated for more than a decade and 
had several stores in the Boston area.6  At some point the 
company ran into financial difficulties, and its management 
decided to stop operating.  On January 14, 2014, without any 
prior warning, one of the officers informed the company's 
employees that the company was shutting down and their 
employment was terminated immediately. 
                     
 
5 We acknowledge the amicus briefs of the Greater Boston 
Chamber of Commerce; the New England Legal Foundation; and 
Murphy, Hesse, Toomey & Lehane, LLP, in support of the 
defendants. 
 
 
6 The company offered pre- and postnatal classes and 
services and sold related products for children and parents. 
4 
 
 
 
That fall, the employees brought a class action lawsuit 
against the company in the United States District Court for the 
District of Massachusetts, alleging a violation of the WARN Act.  
The WARN Act provides that an employer, defined as a "business 
enterprise" that employs at least one hundred full-time 
employees or at least one hundred full- and part-time employees 
who collectively work at least 4,000 non-overtime hours per 
week, 29 U.S.C. § 2101(a)(1), "shall not order a plant closing 
or mass layoff until the end of a [sixty]-day period after the 
employer serves written notice of such an order" on each 
affected employee or the employees' representative, 29 U.S.C. 
§ 2102(a).  If an employer fails to comply with the sixty-day 
notice requirement, it "shall be liable to each aggrieved 
employee who suffers an employment loss as a result of such 
closing or layoff" for "back pay" and employee benefits covering 
each day of the notice violation.  29 U.S.C. § 2104(a)(1).7  
"Back pay" under the WARN Act is owed for each day of violation 
and is set as the higher of the "average regular rate" received 
during the employee's last three years of employment or the 
                     
 
7 Exceptions to the sixty-day notice period apply when (1) 
the employer, under certain circumstances, was actively seeking 
capital at the time when the notice should have been given; (2) 
business circumstances that were not foreseeable caused the 
plant closing or mass layoff without sixty days' notice; (3) a 
natural disaster caused the plant closing or mass layoff without 
sixty days' notice.  29 U.S.C. § 2102(b) (2018). 
5 
 
 
"final regular rate" received by the employee.  29 U.S.C. 
§ 2104(a)(1)(A).  The WARN Act further provides that these 
remedies "shall be the exclusive remedies for any violation of 
this chapter."  29 U.S.C. § 2104(b).  The WARN Act also states 
that "[t]he rights and remedies provided to employees by this 
chapter are in addition to, and not in lieu of, any other 
contractual or statutory rights and remedies of the employees, 
and are not intended to alter or affect such rights and 
remedies."  29 U.S.C. § 2105. 
 
The company did not defend the lawsuit, and the Federal 
District Court judge eventually awarded a nearly $2 million 
default judgment under the WARN Act to the employees.  After 
failing to collect any of this judgment amount from the company 
due to the company's insolvency, the employees brought this 
putative class action in the Superior Court against the officers 
directly.  The officers moved to dismiss the complaint for 
failure to state a claim.8  The Superior Court judge granted the 
motion, finding that the Federal District Court's WARN Act award 
"does not qualify as 'earned wages' giving rise to a claim under 
the Wage Act."  This appeal followed. 
 
2.  Discussion.  a.  Whether WARN Act damages are earned 
wages under the Wage Act.  The Wage Act provides that "[e]very 
                     
 
8 The employees voluntarily dismissed several counts of 
their original complaint. 
6 
 
 
person having employees in his service shall pay weekly or bi-
weekly each such employee the wages earned by him to within six 
days of the termination of the pay period during which the wages 
were earned if employed for five or six days in a calendar 
week."  G. L. c. 149, § 148, first par.  It also provides that 
outstanding wages shall be paid "in full on the day of [an 
employee's] discharge."  Id.  To combat "unscrupulous employers" 
who violate these requirements by withholding earned wages 
(citation omitted), Segal v. Genitrix, LLC, 478 Mass. 551, 560 
(2017), the Wage Act, with limited exceptions not relevant here, 
provides a private cause of action, imposes personal liability 
on certain corporate officers, and awards mandatory treble 
damages and attorney's fees to a successful plaintiff.  See 
Melia v. Zenhire, Inc., 462 Mass. 164, 170 (2012) (describing 
these provisions of Wage Act).  It may also impose criminal 
liability.  See G. L. c. 149, § 27C. 
 
Although the statute does not specifically define "wages 
earned," we have adopted the "plain and ordinary meaning" of 
those terms.  Awuah v. Coverall N. Am., Inc., 460 Mass. 484, 492 
(2011).  Specifically, we explained there that "[w]here an 
employee has completed the labor, service, or performance 
required of him, therefore, according to common parlance and 
understanding he has 'earned' his wage."  Id.  In  Massachusetts 
State Police Commissioned Officers Ass'n v. Commonwealth, 462 
7 
 
 
Mass. 219, 220, 226 (2012) (State Police), we provided further 
guidance in the context of employees challenging a mandatory 
furlough program that they contended should not have been 
applied to them.  We rejected their argument that the 
deprivation of wages they would or should have earned was the 
deprivation of "earned wages" under the Wage Act.  Id. at 226.  
We agreed with the employer that "the right to payment of 
'earned' wages is secured by virtue of work or service actually 
performed," id. at 225, and thus that "a prospective reduction 
in the number of days to be worked," even if improper, "does not 
deprive the plaintiffs of any wages 'earned'" under the Wage 
Act, id. at 226. 
 
The same is true for the failure to pay the additional 
compensation awarded to workers under the WARN Act if the sixty 
days' notice of plant closure is not provided.  The payment is 
not for work that has actually been performed but for work that 
would have been performed had the sixty days' notice been 
provided.  In fact, the WARN Act provides that the amount of 
compensation "shall be reduced by . . . any wages paid by the 
employer to the employee for the period of violation" (emphasis 
added).  29 U.S.C. § 2104(a)(2)(A).  The extraordinary relief 
the Wage Act provides -- individual liability, treble damages, 
and possible criminal liability -- is directed at particularly 
egregious behavior, i.e., not paying wages for work actually 
8 
 
 
performed, and not at other employment violations.  See Segal, 
478 Mass. at 560 (purpose of Wage Act is to prevent employers' 
unscrupulous, long-term detention of wages). 
 
Furthermore, not only must the employees' work actually 
have been performed, but the wages also must be presently -- not 
just prospectively or potentially -- due to be paid by the 
employer.  See, e.g., State Police, 462 Mass. at 225; Weems v. 
Citigroup Inc., 453 Mass. 147, 153-155 (2009).  For example, we 
recently held that accrued, unused "sick time" was not an 
"earned wage" under the Wage Act where separating employees were 
only entitled to compensation for that accrued sick time under 
certain conditions.  See Mui v. Massachusetts Port Auth., 478 
Mass. 710, 713 (2018).  We also rejected the argument that tax 
deferred compensation was wages under the Wage Act that must be 
paid within seven days of the end of the pay period, holding 
that "[t]he Legislature's remedy for the evil of unreasonable 
detention of wages is not applicable to deferred compensation 
contributions," as "[t]he contributed funds are intended to be 
held, out of the employee's possession, for an extended period."  
Boston Police Patrolmen's Ass'n, Inc. v. Boston, 435 Mass. 718, 
720 (2002).  The work must have been actually performed and wage 
payments must be presently due to trigger the precise 
requirements and severe penalties of the Wage Act. 
9 
 
 
Characterizing WARN Act damages as back pay does not alter 
this analysis.  Earned wages are not the equivalent of back pay.  
Back pay compensates a variety of different types of employment 
law violations under State and Federal law.  In general, it 
compensates employees for amounts that they "normally would have 
earned" had a violation not occurred (emphasis added).  Phelps 
Dodge Corp. v. National Labor Relations Bd., 313 U.S. 177, 197 
(1941).  That can be for wages earned but unfairly compensated, 
as in cases of unequal pay, or for wages not earned, due to the 
failure to hire because of discrimination or the failure to 
provide notice, as under the WARN Act.  See 4 N.P. Lareau, Labor 
and Employment Law §§ 98.06, 109.03, 114.02, 125.03, 174.02 
(2018) (discussing back pay awards for violations of various 
Federal civil rights, antidiscrimination, and employee 
protection statutes).  Regardless, back pay is not the same as 
wages earned but not paid under the Wage Act, which has its own 
particular and precise requirements.9 
                     
 
9 The employees rely on Federal bankruptcy cases classifying 
WARN Act damages as wages for purposes of bankruptcy creditor 
priority.  But these cases have concluded that "back pay under 
WARN constitutes wages for the purposes of the Bankruptcy Code" 
because the Code explicitly includes severance pay in the 
definition of "wages," see 11 U.S.C. § 507(a)(4)(A) (2018), and 
because WARN Act damages may be regarded as "statutory severance 
pay."  In re Hanlin Group, Inc., 176 B.R. 329, 334 (Bankr. 
D.N.J. 1995).  By contrast, severance pay is not mentioned in 
the Wage Act, and it has not been deemed an "earned wage" under 
the act.  See Prozinski v. Northeast Real Estate Servs., LLC, 59 
Mass. App. Ct. 599, 603–605 (2003) (holding that severance pay 
10 
 
 
In sum, an employee who is terminated with inadequate 
notice and entitled to WARN Act damages for the amounts he or 
she would have earned had proper notice been provided has not 
"earned wages" for work actually performed and presently due as 
required by the Wage Act.  We thus hold that WARN Act damages 
are not wrongfully withheld wages for which the officers can be 
held liable under the Wage Act. 
 
b.  Breach of fiduciary duties.  The employees further 
argue that the officers committed a breach of their fiduciary 
duties to the company by causing it to incur WARN Act liability.  
As creditors of the company, the employees argue that they have 
standing to bring this claim derivatively.10 
It is true that, under Delaware law, "the creditors of an 
insolvent corporation have standing to maintain derivative 
claims against directors on behalf of the corporation for 
breaches of fiduciary duties."  North Am. Catholic Educ. 
                     
is not covered by Wage Act in part because it is not expressly 
included in statute).  See also Mui v. Massachusetts Port Auth., 
478 Mass. 710, 713 (2018) (citing Prozinski, supra, for its 
holding that Wage Act does not cover severance pay); Weems v. 
Citigroup Inc., 453 Mass. 147, 151 (2009) (same). 
 
 
10 A derivative suit is "a suit by the corporation, asserted 
by the stockholders on its behalf, against those liable to it. 
. . .  The fundamental purpose of a derivative action is to 
enforce a corporate right that the corporation has refused for 
one reason or another to assert."  R.F. Balotti & J.F. 
Finkelstein, Delaware Law of Corporations and Business 
Organizations § 13.10 (3d ed. 2018 Supp.). 
11 
 
 
Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 101 (Del. 
2007).11  A court applying Delaware law has allowed such a suit 
to be brought by a bankruptcy trustee alleging harm to a company 
arising out of director misconduct that resulted in WARN Act 
violations.  See In re Golden Guernsey Dairy, LLC, 548 B.R. 410, 
413 (Bankr. D. Del. 2015).  But "individual creditors of an 
insolvent corporation have no right to assert direct claims for 
breach of fiduciary duty against corporate directors."  North 
Am. Catholic Educ. Programming Found., Inc., supra at 103.  A 
claim that a corporate officer committed a "breach of a duty 
owed directly to the plaintiff" is a direct suit, not a 
derivative one.  Branch vs. Ernst & Young U.S., No. Civ. A. 93-
10024-RGS (D. Mass. Dec. 22, 1995). 
 
As the Delaware Chancery Court has cautioned, "fiduciary 
duty law" in the creditor context should be applied "quite 
cautiously, to avoid unduly benefiting creditors by enabling 
them to recover in equity when they could not prevail" on other 
legal theories asserted directly against defendants.  Prod. 
Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d 772, 801 
n.88 (Del. Ch. 2004).  Accordingly, we conclude that the 
employees' breach of fiduciary duty claim is improperly brought:  
                     
 
11 Under G. L. c. 156D, § 7.47, we apply the substantive law 
of the jurisdiction where a foreign corporation is incorporated 
-- in this case, Delaware -- to a derivative proceeding. 
12 
 
 
while styled as a derivative claim, it simply repackages the 
employees' primary argument that the officers committed a breach 
of duties owed to them under the WARN Act.  By its express 
terms, the WARN Act is the exclusive remedy for WARN Act 
violations.  See 29 U.S.C. § 2104(b).  We therefore affirm 
dismissal of the claim against the officers for breach of 
fiduciary duty.12 
 
3.  Conclusion.  For the foregoing reasons, we affirm the 
Superior Court judge's grant of the officers' motion to dismiss. 
 
 
 
 
 
 
 
So ordered. 
                     
 
12 Because we affirm the dismissal of the Wage Act and 
breach of fiduciary duty claims, we also affirm the dismissal of 
the fraudulent conveyance claim.