Court Opinion

ID: 4236320
Source: CourtListenerOpinion
Date Created: 2018-01-12 13:10:53.255161+00
Date Added: 2024-06-11T07:48:02.254339
License: Public Domain

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17-P-45                                                 Appeals Court

           ALAN MACDONALD     vs.   JENZABAR, INC., & others.1

                               No. 17-P-45.

          Suffolk.       October 10, 2017. - January 11, 2018.

                 Present:   Vuono, Meade, & Kinder, JJ.

Employment, Termination, Severance agreement. Contract,
     Employment, Severance agreement, Release from liability,
     Performance and breach, Construction of contract. Release.
     Corporation, Stock.

     Civil action commenced in the Superior Court Department on
August 17, 2012.

     The case was tried before Janet L. Sanders, J., and entry
of judgment was ordered by her.

     Colin R. Hagan for the plaintiff.
     Michael D. Blanchard for the defendants.

     MEADE, J.       Alan MacDonald initiated this action in the

Superior Court against his former employer, Jenzabar, Inc.

(Jenzabar), and four of its directors (directors) after a

dispute arose over his rights to certain Jenzabar preferred

     1
       Robert A. Maginn, Jr.; Ling Chai; Daniel Quinn Mills; and
Joseph San Miguel.
                                                                   2

shares and stock options granted during the course of his

employment.   Central to that dispute is the interpretation of a

severance agreement MacDonald executed as he departed from

Jenzabar (severance agreement).   According to Jenzabar and the

directors, all of MacDonald's claims should be dismissed because

the severance agreement, which contains a general release, is

unambiguous and extinguished his rights to the preferred shares

and stock options.   MacDonald, in turn, maintains that the

severance agreement is ambiguous and that extrinsic evidence,

which Jenzabar chose not to dispute, establishes that the

parties did not intend to so terminate his rights.   After four

years of litigation, both sides prevailed in part.

     Most of MacDonald's claims, including all of those against

the directors, were dismissed at various stages of the

litigation for reasons unrelated to the interpretation of the

severance agreement.2   As to that central issue, a judge

concluded, in rulings issued both prior to and after trial, that

     2
       Two judges, acting on separate dispositive motions,
combined to dismiss MacDonald's claims for interference with
contractual and prospective economic relations, conversion,
civil conspiracy, violations of both G. L. c. 149, § 148 (Wage
Act), and G. L. c. 110A (Massachusetts Uniform Securities Act
[MUSA]), and the advancement of attorney's fees by Jenzabar.
One of those judges also rejected, on grounds of futility,
MacDonald's request to amend the complaint to add a claim for
violation of G. L. c. 93A. Of these rulings, MacDonald raises
on appeal only the dismissal of the Wage Act and MUSA claims and
the denial of the motion to add the c. 93A claim. As none of
those claims survives our interpretation of the severance
agreement, however, we need not reach those issues.
                                                                       3

the severance agreement is unambiguous insofar as it

extinguished MacDonald's rights to the preferred shares, but is

ambiguous regarding the stock options.3   After Jenzabar preserved

its appeal with respect to the interpretation of the contract

and waived the right to argue that any ambiguities should be

resolved in its favor, the same judge presided over a jury trial

on the limited issue of liability for the stock options.      At the

conclusion of that trial, the jury returned a verdict finding

Jenzabar liable for refusing to honor MacDonald's initial

exercise of 1,000 stock options, but not liable for failing to

honor his second exercise of the remaining 1,515,000 options.4

Following trial, therefore, the judge, at MacDonald's request,

issued an order of specific performance as to the 1,000 stock

options.   The verdict and various dispositive rulings were

summarized in an "Order and Judgment" entered on August 11, 2016

(judgment).   The present cross appeals followed, with the

parties alleging error with respect to a number of the rulings

issued throughout the litigation.

     3
       MacDonald and Jenzabar both asserted claims for
declaratory judgment with respect to the status of MacDonald's
rights to the preferred shares and stock options. The rulings
on those competing claims and counterclaims are before us on
appeal.
     4
       The trial involved MacDonald's claims against Jenzabar for
breach of contract and breach of the implied covenant of good
faith and fair dealing.
                                                                             4

    We need reach only one of those issues.     Upon de novo

review, we conclude, as a matter of law, that the severance

agreement is unambiguous insofar as it extinguished MacDonald's

rights to both the preferred shares and stock options.       We

therefore affirm in part and reverse in part.

    1.     Background.   The following facts are undisputed.      On

June 30, 2004, several years into the first of his two terms of

employment with Jenzabar, MacDonald, who was then the chief

financial officer, executed a written employment agreement

(employment agreement).    The employment agreement provided,

among other things, for the Jenzabar's issuance of shares of

preferred stock (preferred shares) and options to acquire common

stock (stock options) to MacDonald.    As to the latter, MacDonald

and Jenzabar entered into two additional written agreements,

also dated June 30, 2004, wherein Jenzabar issued him options to

purchase a total of 1,516,000 shares of its common stock (option

agreements).   The stock options vested in equal allotments over

a three-year period and, to the extent not exercised, expired in

ten years.   Subsequently, in 2007, MacDonald left Jenzabar to

pursue other interests.    As of that time, he had neither

received the preferred shares nor exercised any of the stock

options.

    In the latter part of 2008, MacDonald returned to Jenzabar

and took a position as mergers and acquisitions researcher.            Six
                                                                    5

months later, however, he again left Jenzabar.   At that time, he

was offered a package, documented in the severance agreement,

whereby Jenzabar agreed, in return for certain consideration, to

continue to pay his salary, as well as a portion of his health

insurance costs, for six months.   MacDonald accepted and

executed the severance agreement on May 26, 2009.   As of that

time, he had still not received the preferred shares or

exercised any of his stock options.

    Three provisions in the severance agreement are of

particular significance in this action.   The first is the

general release in section 2, which provided, in pertinent part:

    "General Release of Claims. As a material inducement to
    the Company to enter into this Agreement, you agree to
    fully, irrevocably and unconditionally release, acquit and
    forever discharge the Company, its predecessors,
    successors, affiliates, parents, subsidiaries, divisions
    and any other related entities, including, without
    limitation, . . . all of their current and former agents,
    officers, employees, directors, representatives, and
    attorneys, and all persons acting by, through, under, or in
    concert with any of them (the 'Released Parties') from any
    and all claims, liabilities, obligations, promises,
    agreements, damages, causes of action, suits, demands,
    losses, debts, and expenses (including, without limitation,
    attorneys' fees and costs) of any nature whatsoever, known
    or unknown, suspected or unsuspected, arising on or before
    the date of this Agreement and/or relating to or arising
    from your employment and your separation from employment
    with the Company and/or any of the Released Parties,
    including, without limitation, . . . any and all claims
    under the Employment Agreement dated as of June 30, 2004 by
    and between you and Jenzabar . . . . Without limiting the
    generality of the foregoing, you agree that the income and
    benefits provided in this Agreement include and are made in
    lieu of, and shall be considered as fulfilling, all
    financial obligations to you, including without limitation,
                                                                  6

    salary, payroll benefits, bonuses, insurance coverages,
    fringe benefits, and any amounts payable under any
    employment separation or severance plan or policy and any
    other agreement or contract previously entered into by you
    with any of the Released Parties." (Emphasis added.)

    The second is section 6, which concerns the survival of a

confidentiality agreement MacDonald executed upon his return to

Jenzabar in 2008 (confidentiality agreement):

    "You hereby acknowledge and affirm the enforceability of
    the Agreement to Protect Company Assets dated as of October
    1, 2008 . . . (the 'Confidentiality Agreement'), which you
    agreed to as a condition of your employment with the
    Company. You agree that such agreement shall remain in
    full force and effect notwithstanding your termination of
    employment and also agree that, as an essential term of
    this agreement, such Confidentiality Agreement shall be
    amended so that the Noncompete Period of twenty-four (24)
    months after your termination date and the Nonsolicit
    Period of twenty-four (24) months after your termination
    date are amended so that such periods are increased to
    periods of five (5) years from your termination date. You
    affirm that this 5-year extension is reasonable in light of
    (i) your senior role and position with the Company
    previously as its Chief Financial Officer and as a M&A
    Research Developer and (ii) the Company's grant to you of a
    considerable number of options to purchase common stock"
    (emphasis added).

    Finally, the severance agreement contained, in section 7, a

merger and integration clause:   "This Agreement constitutes a

single, integrated contract expressing the entire agreement

between you and the Company and terminates and supersedes all

other oral and written agreements or arrangements; provided,

however, that you understand and agree that the terms and

provisions of the Confidentiality Agreement are specifically
                                                                       7

incorporated into this Agreement, and you remain bound by them"

(emphasis added).

     Following the execution of the severance agreement,

MacDonald continued to communicate with individuals at Jenzabar

regarding possible ways to convert his preferred shares and

stock options into cash to fund a new business venture.5      On two

occasions, he also attempted to exercise his stock options,

first seeking to exercise 1,000 options, and then the remaining

1,515,000.6    Ultimately, however, Jenzabar refused, claiming that

MacDonald released all rights to the preferred shares and stock

options in the severance agreement.

     2.   Discussion.   The interpretation of the severance

agreement, including the determination of ambiguity, is a

question of law for the court, subject on appeal to de novo

review.   See, e.g., Balles v. Babcock Power, Inc., 476 Mass.
565, 571 (2017).    The rules of interpretation are well-

established.    "[A] court generally will accord no deference to a

party's interpretation of a contract but, rather, will focus on

the language of the instrument to effectuate its terms."      Id. at

571 n.12.

     5
       It is these communications that, in large part, make up
the extrinsic evidence MacDonald would rely on if the severance
agreement were held to be ambiguous.
     6
       MacDonald's attempt to exercise the 1,515,000 options
occurred several months after he commenced this action.
                                                                   8

    "The words of contract must be considered in the context of
    the entire contract rather than in isolation. When the
    words of a contract are clear, they must be construed in
    their usual and ordinary sense, and we do not admit parol
    evidence to create an ambiguity when the plain language is
    unambiguous. . . . [E]xtrinsic evidence may be admitted
    when a contract is ambiguous on its face or as applied to
    the subject matter. The initial ambiguity must exist,
    however. Furthermore, extrinsic evidence cannot be used to
    contradict or change the written terms, but only to remove
    or to explain the existing uncertainty or ambiguity."

General Convention of the New Jerusalem in the United States of

America, Inc. v. MacKenzie, 449 Mass. 832, 835-836 (2007)

(citations omitted).   See Bank v. Thermo Elemental Inc., 451
Mass. 638, 648 (2008) ("To answer the ambiguity question, the

court must first examine the language of the contract by itself,

independent of extrinsic evidence concerning the drafting

history or intention of the parties").   "[A]n ambiguity is not

created simply because a controversy exists between the parties,

each favoring an interpretation contrary to the other."     Boazova

v. Safety Ins. Co., 462 Mass. 346, 351 (2012), quoting from

Citation Ins. Co. v. Gomez, 426 Mass. 379, 381 (1998).

"Language is ambiguous where the phraseology can support a

reasonable difference of opinion as to the meaning of the words

employed and the obligations undertaken."   Ferri v. Powell-

Ferri, 476 Mass. 651, 654 (2017) (quotation omitted).

    We start by considering the language of the general release

in section 2 of the severance agreement, which as previously

noted provides, in pertinent part, that MacDonald released
                                                                    9

Jenzabar "from any and all claims, liabilities, obligations,

promises, agreements, damages, causes of action, suits, demands,

losses, debts, and expenses . . . of any nature whatsoever,

known or unknown, suspected or unsuspected, arising on or before

the date of this Agreement."    MacDonald's rights to the

preferred shares and stock options arise from the prior

employment and option agreements.    In that regard, the language

of the general release is clear and broad.    It not only

generally extinguishes any and all agreements, of any nature

whatsoever, predating the severance agreement, but also

expressly extinguishes the employment agreement.    Simply put,

the plain language of the release is only susceptible of one

reasonable interpretation:     barring something to the contrary

elsewhere in the severance agreement, MacDonald released all

rights to the preferred shares and stock options.

    According to MacDonald, there is something to the contrary

elsewhere in the severance agreement.    Specifically, he points

to the language in the last sentence of section 6, where he

affirmed that the extension of the noncompete and

nonsolicitation periods under the confidentiality agreement was

"reasonable in light of . . . the Company's grant to you of a

considerable number of options to purchase common stock."     As

MacDonald would have it, this raises an ambiguity regarding
                                                                   10

whether his rights to the preferred shares and stock options

survived the general release.   For several reasons, we disagree.

    First, section 6 of the severance agreement makes reference

only to the stock options, not to the preferred shares.   By no

means, therefore, is there any ambiguity regarding MacDonald's

rights to the preferred shares; those rights were extinguished

by the general release.

    Second, the language at the end of section 6 does not

provide anything to the effect that MacDonald either would

continue to retain rights to the stock options or was somehow

retaining those rights as consideration for the extension of the

noncompete and nonsolicitation periods.   To understand the

meaning of the last sentence of section 6, it must be read in

its entirety.   The sentence refers not only to MacDonald's stock

options, but also to the "senior" roles and positions he held at

Jenzabar, as chief financial officer and mergers and

acquisitions researcher.   When read as a whole, therefore, the

sentence affirms the historical justification for the five-year

noncompete and nonsolicitation periods:   namely, that MacDonald

had held both high-level positions at, and vested stock option

rights in, Jenzabar.

    We have a policy in our Commonwealth of giving effect to

general releases, even if the parties did not have in mind at

the time all of the matters that might be covered.   See Leblanc
                                                                   11

v. Friedman, 438 Mass. 592, 598 (2003), quoting from Schuster v.

Baskin, 354 Mass. 137, 140 (1968) ("General releases dispose 'of

all claims and demands arising out of any transactions between

the parties'"); Eck v. Godbout, 444 Mass. 724, 732 (2005)

("[T]he mere fact that a release as worded extends to matters

that the parties did not specifically have in mind at the time

of execution does not operate to exclude those matters from the

scope of the release").   With that in mind, our courts have

counselled that any exceptions to, or reservation of rights in,

a general release should be stated in clear terms.   See Tupper

v. Hancock, 319 Mass. 105, 108 (1946) (any intended exception

should have been "expressly" stated); Naukeag Inn, Inc. v.

Rideout, 351 Mass. 353, 357 (1966) (same); Schuster v. Baskin,

supra at 140-141 (any exceptions should have been "specified").

See also Atlas Tack Corp. v. DiMasi, 37 Mass. App. Ct. 66, 71

(1994) (reservation of rights in release was effective because

it was expressed in "very specific language").   If the language

in section 6 was intended to create an exception for MacDonald's

rights to the preferred shares and stock options, it fell well

short of achieving the required level of clarity.

    Finally, in section 7, the merger and integration clause,

MacDonald and Jenzabar clearly provided that the severance

agreement terminated and superseded all other oral and written

agreements or arrangements, but for the confidentiality
                                                                     12

agreement.    In so doing, they showed that, when they intended

to, they knew how to properly craft an exception.     In so doing,

they also revealed, by way of omission, that they did not intend

to create an exception for the preferred shares and stock

options.7    The omission is notable given that, as evidenced by

section 6, they were cognizant at the time of the stock options.

     The severance agreement is unambiguous and extinguished

MacDonald's rights to the preferred shares and stock options.

Accordingly, none of MacDonald's claims against Jenzabar and the

directors can be sustained.

     3.     Conclusion.   The judgment is affirmed in part and

reversed in part.    The numbered paragraphs of the judgment are

amended as follows:

     a. The portion of the judgment set forth in paragraph 1 is
     reversed;

     b. The substance of paragraph 2 is stricken and replaced
     with the following: "On Count Nine of the Third Amended
     Complaint (declaratory judgment that MacDonald owns
     1,516,000 stock options and 250 shares of Series B
     preferred stock), judgment is entered in favor of Jenzabar
     in that MacDonald does not own 250 shares of Series B
     preferred stock and 1,516,000 stock options";

     7
       MacDonald claims, in the alternative, that the termination
of his rights to the preferred shares and stock options was the
product of mutual mistake, thereby warranting reformation of the
release provision of the severance agreement. However, the
claim is without merit as he has not presented "full, clear, and
decisive proof" that the mistake was either mutual or made by
him and known to Jenzabar. Polaroid Corp. v. Travelers Indem.
Co., 414 Mass. 747, 756 (1993). See Caron v. Horace Mann Ins.
Co., 46 Mass. 218, 224-225 (2013).
                                                                  13

    c. The substance of paragraph 3 is stricken and replaced
    with the following: "Judgment is entered in favor of
    Jenzabar on all Counts of the Second and Third Amended
    Complaints asserted against it";

    d. The substance of paragraph 9 is stricken and replaced
    with the following: "On Count One of Jenzabar's
    Counterclaims (declaratory judgment that MacDonald released
    1,516,000 stock options and 250 shares of Series B
    preferred stock), judgment is entered in favor of Jenzabar
    in that MacDonald released all rights that he had to 250
    shares of Series B preferred stock and 1,516,000 stock
    options when he executed the severance agreement."

The judgment is otherwise affirmed.     Given that the award in

favor of MacDonald for specific performance as to the 1,000

options for Jenzabar common stock contained in paragraph 1 of

the judgment has been reversed, the matter is remanded to the

extent that any further orders are necessary to effectuate the

unwinding of that award.

                                      So ordered.