Segal v. Genitrix, LLC ( 2017 )

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SJC-12291
ANDREW SEGAL vs. GENITRIX, LLC, & others.1
Suffolk. September 5, 2017. - December 28, 2017.
Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher,
& Kafker, JJ.
Massachusetts Wage Act. Limited Liability Company. Agency,
What constitutes. Practice, Civil, Instructions to jury.
Civil action commenced in the Superior Court Department on
February 23, 2009.
The case was tried before Paul D. Wilson, J., and a motion
for a new trial was heard by him.
The Supreme Judicial Court granted an application for
direct appellate review.
Thomas H. Dupree, Jr. (Matthew S. Rozen, of the District of
Columbia, Peter M. Durney, & Julianne C. Fitzpatrick also
present) for H. Fisk Johnson, III, & another.
Timothy J. Wilton (Kathy Jo Cook also present) for the
plaintiff.
Jonathan A. Karon, Thomas R. Murphy, Matthew J. Fogelman, &
Danielle Jurema Lederman, for Massachusetts Academy of Trial
Attorneys, amicus curiae, submitted a brief.
1 H. Fisk Johnson, III; Stephen Rose; William Freund; Fisk
Ventures, LLC (Fisk); Jeffrey D. Pellegrom; Metalox, LLC; and
Johnson Keland Management, Inc., The Family Office.
2
Ben Robbins & Martin J. Newhouse, for New England Legal
Foundation, amicus curiae, submitted a brief.
KAFKER, J. A jury found the defendants, H. Fisk
Johnson, III, and Stephen Rose, two former board members and
investors in Genitrix, LLC (Genitrix or company), personally
liable under G. L. c. 149, § 148 (Wage Act), for failing to pay
wages owed to the former president of Genitrix, Andrew Segal.
The defendants moved for judgment notwithstanding the verdict
and a new trial. Both motions were denied, and the defendants
appealed. We granted the defendants' application for direct
appellate review and conclude that the Wage Act does not impose
personal liability on board members, acting only in their
capacity as board members, or investors engaged in ordinary
investment activity. Rather, to impose such liability, the
statute requires that the defendants be "officers or agents
having the management" of a company. G. L. c. 149, § 148. The
defendants were not designated as company officers and had
limited agency authority. Indeed, the only officer having the
management of the company was the plaintiff, not the defendants.
We therefore conclude that there was insufficient evidence to
satisfy the statutory requirements and reverse the denial of the
motion for judgment notwithstanding the verdict.2
2 We acknowledge the amicus brief submitted by the
Massachusetts Academy of Trial Attorneys, in support of the
3
1. Background. Because the defendants contend that the
trial judge erred in denying their motion for judgment
notwithstanding the verdict, we construe the facts in the light
most favorable to the plaintiff. See O'Brien v. Pearson, 449
Mass. 377, 383 (2007). In 1997, representatives for Johnson
contacted Segal about investing in Segal's cancer research.
Segal and Johnson agreed to form a biotechnology startup company
with Segal serving as president and chief executive officer
(CEO) and Johnson providing initial funding. Stephen Rose was a
representative for Johnson, and spoke to Segal on Johnson's
behalf during their negotiations over the formation of the
company. The company, Genitrix, was established as a Delaware
limited liability company (LLC) headquartered in Boston.
Segal transferred his intellectual property rights to the
company in exchange for a substantial equity interest. Johnson
also received a substantial equity interest in return for his
initial investment in the company. Segal and Johnson each had
authority to appoint two board members to Genitrix's four-member
board of representatives, and both could remove and replace
their representatives with or without cause. Most board
decisions required a seventy-five per cent majority to pass.
Johnson served on the board for only the first year of the
plaintiff, and the amicus brief submitted by the New England
Legal Foundation, in support of the defendants.
4
company. Rose was appointed as one of Johnson's board
representatives in 1999 and remained a Johnson board member
until the company's dissolution. Johnson indicated to Segal
that Segal should contact Rose about any financing issues,
stating that Rose "speaks for" Johnson.
As a condition of Johnson's investment in the company, he
insisted Segal sign an employment agreement with Genitrix. The
agreement provided that Segal would serve as the president and
CEO of the company, with the "duties, responsibilities and
authority" commensurate with those positions, such as
"conducting the [c]ompany's business, research and development,"
and managing its "finances and other administrative matters,
subject to the overall direction and authority of [its]
[b]oard." The agreement further provided that "[a]t any time
after the second anniversary . . . , the [c]ompany, with the
approval of at least [fifty per cent] of the [board], may
replace [Segal] as chief executive officer." If no suitable
replacement CEO could be found within fifteen months who
seventy-five per cent of the board could agree upon, the Johnson
board members were authorized to appoint a new CEO.3
The employment agreement contained terms for Segal's
3 In 2003, upon Fisk becoming a shareholder of Genitrix, LLC
(Genitrix), board members designated by Johnson and Fisk were
those authorized to appoint a new chief executive officer (CEO)
pursuant to this provision.
5
removal as an employee that were different from the terms for
his removal as CEO. Under the employment agreement, Segal's
"[e]mployment [p]eriod" could be terminated in one of three
ways: (1) resignation; (2) removal for cause approved by fifty
per cent of the board; or (3) removal without cause approved by
seventy-five per cent of the board. The agreement stated, "Upon
termination of the [e]mployment [p]eriod, [Segal] shall not be
entitled to receive his [b]ase [s]alary or any fringe benefits
for periods after the termination of the [e]mployment [p]eriod."
The agreement also specified Segal's salary for the first two
years of his employment. Afterward, his salary was to be
determined by a vote of seventy-five per cent of the board, and
was "payable in regular installments in accordance with
[Genitrix]'s general payroll practices."4 The employment
agreement identified Johnson as a third-party beneficiary, and
authorized him to "enforce the [c]ompany's rights under the
terms of this [a]greement." Any amendment or waiver of a
provision in the employment agreement required written consent
from Genitrix, Segal, and Johnson. At no point did Johnson
exercise his rights, including termination rights, pursuant to
this agreement.
4 Andrew Segal's base salary was $75,000 per year until
July, 2003. At that time, the board members of Genitrix
approved a resolution to increase his salary to $150,000 per
year.
6
In 2003, Johnson began funding Genitrix through Fisk
Ventures, LLC (Fisk), an entity owned entirely by Johnson and
Rose.5 Fisk became the largest shareholder of Genitrix, and
gained the authority to appoint a fifth member to the board.
Thereafter, Johnson and Fisk's combined equity in Genitrix
exceeded fifty per cent. Fisk and Johnson's board
representatives, taken together, constituted sixty per cent of
the board. Although their representatives comprised a majority
on Genitrix's board, they were still short of the seventy-five
per cent threshold required to pass most board resolutions.
Genitrix never employed more than five full-time employees.
As the president and sole officer, Segal was responsible for all
day-to-day operations. He supervised the laboratory and
directly managed human resources. He was in charge of
fundraising and generating new capital. Segal also handled the
company's payroll. As the only individual with authority to
"physically sign checks on the Genitrix bank accounts," he wrote
checks for employee wages. When Genitrix began using a company
called Paychex to handle its payroll, Segal still had to order
each payroll individually, including for himself. However,
Segal did need board approval for numerous actions, including
"material personnel practices or policies," hiring and firing of
5 Johnson owned over ninety per cent of Fisk, and Rose owned
the remainder.
7
employees earning $45,000 or more, setting compensation for
officers and employees other than Segal, and acquiring debt or
equity in the company.
On March 23, 2006, Segal informed the board that the
company was running out of funds to pay its employees. He told
the board they would need to lay off at-will employees the
company could not afford to pay, so as to avoid liability under
the Wage Act. A few days later, Rose told Segal that Fisk would
not invest more money in Genitrix if Segal continued to control
the management of the company.6 Fisk did subsequently invest
additional money in Genitrix on April 6, 2006, but unlike prior
investments, Rose earmarked that investment for specific
purposes: payroll, expenses necessary to comply with covenants
in the LLC agreement, and the repair or replacement of a
centrifuge. All subsequent Fisk investments were also earmarked
for specific purposes, such as patent fees and other employees'
salaries. Segal voted in favor of each board resolution
authorizing Genitrix to accept these investments.
At the start of 2007, Genitrix was still short on money and
struggling to make payroll. Segal stopped taking his salary in
January, 2007. He testified that he did so to help the company
6 Segal was no longer CEO of the company after 2006.
Segal's testimony does not provide an explanation for this
change. Rose testified that Segal resigned to prevent the board
from reducing his board seats.
8
afford to pay Elihu Young, its last remaining employee other
than Segal. Segal explained he "was put in a position where
[he] felt [he] had to not pay [him]self." When pressed about
who made that decision, Segal testified, "Given the box I was
in, I did." Segal later suggested to the board that he was no
longer paying himself. On February 23, 2007, he stated, "Even
without disbursing my salary, it is unlikely that we will be
able to pay . . . Young for more than [two] more pay periods,"
and proposed that the company sell its laboratory equipment and
lay off Young to cut costs. Rose believed Young was
"extraordinarily valuable to the company," as the only one who
knew "how to make the [company's cancer-fighting] molecule."
Rose responded that "given [Young's] importance to the company,
he should not be let go without giving the board a full
opportunity to meet and discuss this issue in detail.
Liquidating assets is an important issue as well." The Johnson
board members did not agree to either proposal. Instead, Rose
directed Fisk to invest enough money in Genitrix to pay Young's
salary for another month.
Despite Segal opting to not pay himself, by mid-2007
Genitrix was again unable to afford to pay even Young. On May
17, 2017, Johnson's board members finally agreed to lay off
Young, voting in favor of a board resolution to terminate
Young's employment. A week later Fisk invested additional money
9
in Genitrix for the purpose of paying Young's remaining salary.
When Young left, Young closed the company's laboratory.
At this point the company was out of money and apparently
deadlocked on even how to conduct board business. Rose and the
Johnson board members wanted to hold board meetings, but Segal
wanted to conduct board business using electronic mail (e-mail)
messages so that everything would be in writing. As a result of
the deadlock and the financial condition of the company, Rose
filed a petition for the judicial dissolution of Genitrix on
behalf of Fisk in June, 2007. The petition was filed in
Delaware, where Genitrix was incorporated. Segal was a named
party to the Delaware dissolution proceeding because he was
still the president of the company.
For the next two years Segal actively opposed the
dissolution. In July, 2007, he brought counterclaims in that
proceeding against the defendants for breach of the LLC
agreement, breach of the implied covenant of good faith and fair
dealing, breach of fiduciary duties, and tortious interference
with his employment agreement. Segal did not bring a
Massachusetts Wage Act claim in those proceedings.7
As the dissolution proceedings continued, Segal did some
other work as president, including paying patent annuity fees
7 Given the result we reach here, we need not address the
issue of claim preclusion.
10
and protecting the work associated with those patents, securing
directors' and officers' insurance, and making necessary tax
filings. Segal testified that he continued to work for the
company during this time, despite no longer taking a salary,
because he thought he "would eventually get paid." He believed
that when the company sold its patents, "that money would go, at
least in part, to pay [him]."
Both Young and Segal raised the issue of unpaid wages with
the board. A few months after Segal stopped paying himself, he
informed the board that he was no longer taking a salary. In
late 2007, months after he left Genitrix, Young threatened to
bring a Wage Act claim against the company for outstanding
unpaid wages. In March, 2008, Rose directed Fisk to invest
enough money in Genitrix to compensate Young for his unpaid
wages, and in return Young signed an agreement releasing
Genitrix, its board members, and its agents from liability.
Rose did not, however, direct Fisk to invest money in Genitrix
toward Segal's salary.
Segal and Rose continued to argue over whether Segal was
owed wages, and whether those wages should take priority over
other company expenses, such as patent fees. On February 19,
2009, Segal sent an e-mail message to Rose stating, "The
[c]ompany owes me wages and benefit expenses. I cannot agree to
any arrangement that does not respect that claim." Rose
11
responded, "It is not appropriate to subordinate new funds to
whatever claims that you may believe you have. . . . So, if you
can't have first priority, you think that the company's
intellectual property rights should simply expire?"
In early 2009, Segal filed suit against Rose and Johnson in
Massachusetts under the Wage Act for unpaid wages from 2007 to
2009. Around the same time, the Delaware Court of Chancery
ordered Genitrix's dissolution and appointed a liquidator to
conduct the dissolution and winding up of the company's affairs.
As part of the dissolution, the liquidator auctioned off
Genitrix's intellectual property. Fisk submitted the winning
bid of $300,000 even though Johnson's board representatives had
said Genitrix was worth over $15 million three years earlier.
Segal submitted a proof of claim to the liquidator for back
pay in June, 2009, but that claim was denied. Segal appealed
from the denial to the chancellor, who dismissed the claim as
moot in October, 2010, because the company did not have enough
money to satisfy Segal's claims.
The defendants moved for summary judgment in the
Massachusetts Wage Act suit, and a Superior Court judge granted
the motion in 2013, finding that the defendants did not "have
the management" of the company under the Wage Act. The Appeals
Court, in a memorandum and order pursuant to its rule 1:28,
reversed and remanded the grant of summary judgment on the Wage
12
Act claim, holding that our decision in Cook v. Patient Edu,
LLC, 465 Mass. 548, 556 (2013), which found the manager of an
LLC liable under the Wage Act, raised a genuine issue of
material fact as to whether the defendants could be held liable
under the Wage Act. See Segal v. Genitrix, LLC, 86 Mass. App.
Ct. 1103 (2014).
At trial the jury were instructed that the "duty to pay
wages extends to the president and treasurer of a corporation
and any officers or agents having the management of such
corporation, which includes an LLC, such as Genitrix." More
specifically, the jury were instructed that a "person qualifies
as an agent having the management of such corporation if he
. . . 'controls, directs, and participates to a substantial
degree in formulating and determining policy of the corporation
or LLC.'" The jury went on to find both defendants individually
liable under the Wage Act. Segal filed a timely notice of
appeal, and we granted Johnson and Rose's application for direct
appellate review. On appeal, the defendants argue, inter alia,
that there was insufficient evidence to find Wage Act liability
and, alternatively, that the judge erred in his instructions to
the jury about the Wage Act.
2. Discussion. a. The statutory language and legislative
history of the Wage Act. The Wage Act requires employers to
compensate their employees for earned wages as set out in G. L.
13
c. 149, § 148. An employer who violates § 148 may be sued by
the aggrieved employees. G. L. c. 149, § 150. Section 148
defines "employer" as a "person having employees in his [or her]
service." G. L. c. 149, § 148. For corporations, such persons
are the "president and treasurer of [the] corporation and any
officers or agents having the management of such corporation,"
in addition to the corporation itself. Id. The statute does
not include board directors or investors in its definition of
"employer." See id. As explained below, we consider the
omission of directors and investors to be significant. If
personal liability is to be imposed on these defendants, who
served as directors and investors, it must be because they meet
one of the express categories of corporate actors identified by
the Legislature: the president, treasurer, or officers or
agents having the management of the company. Such officers or
agents have assumed and accepted individual responsibility for
the management of the corporation, justifying the imposition of
personal liability for Wage Act violations.
Both parties agree that neither defendant was ever
president or treasurer of Genitrix. Indeed, the plaintiff in
this case was president of Genitrix. The defendants were also
not officers of Genitrix. Accordingly, they could only be found
liable if they were "agents having the management" of Genitrix
under the statute.
14
In determining the meaning of "agents having the
management" of the company, we examine the statutory language
and legislative history, as well as our case law. DiFiore v.
American Airlines, Inc., 454 Mass. 486, 490-491 (2009), quoting
Industrial Fin. Corp. v. State Tax Comm'n, 367 Mass. 360, 364
(1975) ("We look to the intent of the Legislature 'ascertained
from all its words construed by the ordinary and approved usage
of the language, considered in connection with the cause of its
enactment, the mischief or imperfection to be remedied and the
main object to be accomplished, to the end that the purpose of
its framers may be effectuated.' . . . In addition, our respect
for the Legislature's considered judgment dictates that we
interpret the statute to be sensible, rejecting unreasonable
interpretations unless the clear meaning of the language
requires such an interpretation"). The plain language of the
provision indicates two important requirements: the defendant
must both be an agent and have the management of the company.
See G. L. c. 149, § 148; Milford v. Boyd, 434 Mass. 754, 757
(2001) ("In interpreting a statute, . . . none of its words is
to be regarded as superfluous").
The language, "agents having the management of such
corporation," should also be read in the context of the language
it follows. DiFiore, 454 Mass. at 491 ("Where possible, we
construe the various provisions of a statute in harmony with one
15
another, recognizing that the Legislature did not intend
internal contradiction"). The statute begins with express
reference to the president and treasurer, two high level
officers in the corporation with individual responsibility for
its over-all management, particularly its financial affairs.
See Lydia E. Pinkham Med. Co. v. Gove, 303 Mass. 1, 9 (1939) (as
treasurer and assistant treasurer of company, defendants had
duty to protect company's finances and disburse them as directed
by president or directors). After expressly including these two
positions, it refers to officers or agents having the management
of the corporation. Not all officers or agents are included,
just those, like the president or treasurer, having the
management of the corporation. Some management responsibility
is not the same as "the" management of the corporation.
Wiedmann v. The Bradford Group, Inc., 444 Mass. 698, 712 (2005)
("Merely holding a managerial position over some branch,
division, or office of a corporation does not, by itself, mean
that that manager has the 'management' of the 'corporation' as a
whole"). We therefore understand the Legislature to impose
personal liability for Wage Act violations on the president and
treasurer of the corporation and on other officers or agents who
may not hold these titles, but who have assumed and accepted as
individuals significant management responsibilities over the
corporation similar to those performed by a corporate president
16
or treasurer, particularly in regard to the control of finances
or payment of wages.
This interpretation is also supported by the legislative
history. As we discussed in Cook, 465 Mass. at 552, the Wage
Act was passed in 1879, and originally applied only to
municipalities employing "laborers." See St. 1879, c. 128.
Over time, the Wage Act expanded to include specific industries,
until it was eventually amended to cover all private employers.
See id.; St. 1935, c. 350.
In 1932, a provision was added to the Wage Act to address
corporate violations of the statute, imposing personal liability
on "any officer thereof responsible for such violation." St.
1932, c. 101. At this point the statute was confined to a
select group of company officers responsible for the Wage Act
violation. Neither board members, investors, nor other
corporate actors were referenced. In 1935, the statutory
language was replaced with the modern wording, which imposes
liability on the "president and treasurer of a corporation and
any officers or agents having the management of such
corporation." See St. 1935, c. 350.
The primary change to the wording of the corporate
liability provision in 1935 was the addition of per se
individual liability for a company's president and treasurer,
two of the corporation's highest-level officers who had assumed
17
and accepted individual responsibility for the company's over-
all financial management. In addition to expressly including
these two positions, the 1935 amended language refers to
officers or agents of the corporation, but, as explained above,
not all officers or agents were included, only those, like the
president or treasurer, having "the management" of the
corporation. The reference to "officers or agents having the
management" harkens back to the original wording from 1932,
which imposed personal liability on the officers who were
"responsible for such violation" of the Wage Act. The
particular statutory focus on the payment of wages is also
evident from the purpose of the Wage Act.8 The Wage Act was
enacted to "protect wage earners from the long-term detention of
wages by unscrupulous employers." Cook, 465 Mass. at 552,
quoting Melia v. Zenhire, Inc., 462 Mass. 164, 170 (2012).
b. The novel questions presented here. We begin with the
recognition that this case is quite unusual and removed from the
8 The focus on the payment of wages is particularly clear in
the language governing G. L. c. 149, § 148, violations in the
public sector:
"Every public officer whose duty it is to pay money,
approve, audit or verify pay rolls, or perform any other
official act relative to payment of any public employees,
shall be deemed to be an employer of such employees, and
shall be responsible under this section for any failure to
perform his official duty relative to the payment of their
wages or salaries, unless he is prevented from performing
the same through no fault on his part."
18
core concerns of the Wage Act. An employee may always sue the
president and treasurer of a company for unpaid wages. The Wage
Act imposes categorical liability on a company's president and
treasurer, and under Massachusetts law, corporations are
required to elect a president and treasurer. G. L. c. 149,
§ 148. G. L. c. 156D, § 2.05. The plaintiff here, however, is
the president and sole officer of the corporation and thus the
only person expressly identified by virtue of his title as
responsible for Wage Act violations. He was also specifically
and exclusively charged with the management of the finances and
the payroll function in his employment agreement. He also made
the decision not to pay himself. As we consider whether the
defendants were agents having the management of the company for
the purposes of imposing personal liability under the Wage Act,
we must carefully separate Segal's officer and agency powers,
and his actions, from those of the defendants.
We must also for the first time apply the definition of
"agents having the management of the corporation" to board
members or investors. None of our previous cases involved
attempts to impose liability on board members or investors. Nor
did any of those cases require us to define the term "agent."
In Wiedmann, 444 Mass. at 711, liability was imposed on the
president of the company and another individual who the
defendants "admit[ted] ran the company." However, with regard
19
to a third individual who was a manager in the company, we held
that he lacked "the" management of the corporation as a whole,
as he was not a higher-level executive, that is "someone who
controls, directs, and participates to a substantial degree in
formulating and determining policy of a corporation." Id. at
711-712. Thus, in Wiedmann we only had to focus on the
management part of the test of "agents having the management of
such company." In Cook, 465 Mass. at 554, we had an even
narrower question to answer, which was whether LLCs should be
treated the same as other corporations for Wage Act purposes.
We concluded they should, and reversed the allowance of a motion
to dismiss based on the corporate structure of the LLC. Id. at
556.
How the statutory definition of "agents having the
management of such corporation" would apply to board members and
investors is by no means obvious. A board generally acts
collectively, not individually. Estate of Moulton v. Puopolo,
467 Mass. 478, 487-488 (2014). Also a board ordinarily sets
policy and oversees management but does not perform the
management function itself. See Boston Athletic Ass'n v.
International Marathons, Inc., 392 Mass. 356, 365 (1984). See
also Harhen v. Brown, 431 Mass. 838, 844 (2000). Investors may
exercise significant financial control over a company through
their power over their investments, but they are generally
20
acting as outsiders, not managers or agents of the corporation.
With these overarching considerations in mind, we turn to the
application of the phrase "agents having the management" of the
company to board members and investors in general and, more
specifically, Johnson and Rose.
c. Requirement that the defendants be agents. Section 148
does not define "agent," but we assume the Legislature intended
to give the term its ordinary common and corporate law meaning.
See Goodrow v. Lane Bryant, Inc., 432 Mass. 165, 170 (2000). At
common law, an agency relationship exists where "there is mutual
consent, express or implied, that the agent is to act on behalf
and for the benefit of the principal, and subject to the
principal's control." Theos & Sons, Inc. v. Mack Trucks, Inc.,
431 Mass. 736, 742 (2000). See Fergus v. Ross, 477 Mass. 563,
566 (2017); Restatement (Second) of Agency § 15 (1958). In the
context of corporate law, an executive officer is generally
considered an agent of the company, because he or she acts on
the corporation's behalf, subject to the corporation's control,
as exercised through the board of directors. See Restatement
(Second) of Agency § 14C comments a, b (1958). By contrast,
"[n]either the board of directors nor an individual director
. . . is, as such, an agent of the corporation." Id. at § 14C.
This is because the board of directors, acting as a whole, is
generally not subject to another's control. Id. at § 14C
21
comment a. "An individual director, as such, has still less
resemblance to an agent than has the board as a body. He [or
she] has no power of his [or her] own to act on the
corporation's behalf, but only as one of the body of directors
acting as a board. Even when he [or she] acts as a member of
the board, he [or she] does not act as an agent, but as one of
the group which supervises the activities of the corporation."
Id. at § 14C comment b.9 See Estate of Moulton, 467 Mass. at
487.
Likewise, investors in a company are ordinarily not
considered agents of the company. Much like board members,
investors invariably exercise some control over the businesses
they invest in. See United States v. Bestfoods, 524 U.S. 51, 72
(1998). However, exercising one's rights as an outside investor
is separate and distinct from being an agent of the corporation.
1 W.M. Fletcher, Fletcher Cyclopedia of the Law of Corporations
§ 30, at 100 (rev. ed. 2015) ("The mere fact that one is a
shareholder or a majority or principal shareholder gives the
individual no authority to represent the corporation as its
agent in dealing with third persons" [footnote omitted]).
The Restatement (Second) of Agency § 14C (1958) is more on
9
point in these circumstances than Restatement (Third) of Agency
§ 1.01 comment f(2) (2006). This court has also recently relied
on the Restatement (Second) of Agency in Estate of Moulton v.
Puopolo, 467 Mass. 478, 487 (2014).
22
Investors are acting on their own behalf, not that of the
company. Neither the common understanding of the word "agent,"
nor its use in the Wage Act, encompasses ordinary investors or
investment activity. This court accordingly will not attribute
to the Legislature an intent to "alter the normal rules of
corporate law . . . in the absence of plain or necessarily
implied intent to change the pre-existing law." Leonard v.
McMorris, 63 P.3d 323, 327 (Colo. 2003). See Scott v. NG US 1,
Inc., 450 Mass. 760, 769 n.16 (2008) (reading legislative intent
in G. L. c. 21E to avoid "doing violence to bedrock principles
of corporate law"). If the Legislature intended for the Wage
Act to reach investors and investment activity, it would have
done so explicitly. See Seagram Distillers Co. v. Alcoholic
Beverages Control Comm'n, 401 Mass. 713, 720 & n.11 (1988)
(declining to disregard corporate form where statute did not
clearly mandate it).
This is not to say that an individual director or investor
can never be personally liable as an agent of the company.
Rather, individual directors or investors may still be
considered agents of the corporation if they are empowered to
act as such, but any agency relationship stems from their
appointment as an agent, not from their position as a director
or investor. Restatement (Second) of Agency at § 14C comment b.
For example, an individual director or investor could be
23
appointed as an agent if the board exercised "its express or
implied power to confer authority upon [the individual] to act
for the corporation," or if the individual was appointed as an
executive officer. Id. This does not mean that an individual
director is immune from any Wage Act liability unless the board
has passed an official board resolution appointing that director
as an agent of the company. An agency relationship can arise
from either express or implied consent. Theos & Sons, Inc., 431
Mass. at 742. If, for example, a particular board member had
been empowered to act individually as the functional equivalent
of the president or treasurer of the corporation, that board
member would be liable for Wage Act violations. Cf. Estate of
Moulton, 467 Mass. at 489 ("There is no allegation that the
directors undertook any action without a formal board meeting or
vote, nor is there any allegation that any individual director
attempted to usurp the power of the board . . .").
In the instant case, neither defendant was appointed as an
executive officer. The LLC agreement provided that "[u]nless
delegated by the [b]oard, all management powers over the
business and affairs of the [c]ompany shall be exclusively
vested in the [b]oard." Those management powers, particularly
over the payment of wages, were in turn expressly delegated to
Segal, not individual board members. The agreement also
expressly stated that investors did not have agency authority.
24
The agreement specified that "[n]o [m]ember in his or her
capacity as a [m]ember shall have any power to represent, act
for, sign for or bind the [c]ompany or make any expenditures on
behalf of the [c]ompany."10
There was, however, one express delegation of power to the
defendants. The employment agreement between Segal and Genitrix
named Johnson, as the investor, as a third-party beneficiary.
It expressly stated that Johnson "may enforce the [c]ompany's
rights under the terms of this [a]greement." Thus, Johnson was
empowered to act as Genitrix's agent to enforce Segal's
employment agreement, including the termination provision which
allowed the "[b]oard with the approval of at least [fifty per
cent] of the [r]epresentatives" to terminate Segal's employment
for cause. Additionally, Johnson's e-mail message to Segal
stating that Rose "speaks for" Johnson, and Segal's testimony
that Johnson was referring to financial matters, allows for a
reasonable inference that Rose was Johnson's agent. Whatever
agency powers Johnson had, Rose essentially shared.
In sum, Segal, the president and the only officer of the
10The limited liability company (LLC) agreement defined
"[m]embers" as "Segal, [i]nvestor [Johnson], the [o]ther
[i]nvestors and any [p]erson who becomes a substituted or
additional [m]ember as herein provided and who is listed as a
member of the [c]ompany in the books and records of the
[c]ompany, in such [p]erson's capacity as a member of the
[c]ompany."
25
company, had significant officer and agency authority. In
contrast, the defendants had limited express agency authority,
all of which related to the power to terminate Segal.
d. Requirement that the defendants have the management of
the company. The question then becomes whether the defendants'
limited agency powers, analyzed in the context of the over-all
corporate structure, made either or both defendants agents
having the management of the company. We conclude that the
agency authority here was insufficient to make the defendants
individually or collectively "agents having the management of
such corporation."
i. Johnson's authority to enforce the employment
agreement. As the sole officer of Genitrix, specifically
charged with "management of the [c]ompany's . . . finances and
other administrative matters," including the human resources and
payroll functions, Segal, not the defendants, had all of the
express officer and agent authority over the management of
Genitrix.
During most of this time period, Segal was not only the
sole executive but also the only employee; he was also the only
individual with authority to sign checks on behalf of the
company, and he was exclusively in charge of payroll. The
defendants had no agency authority in this area. Segal
testified that he affirmatively decided to stop paying himself
26
due to lack of funds. When asked at trial who instructed the
payroll company, Paychex, to stop paying him, Segal testified,
"Well, I didn't tell them not to pay me. I just didn't tell
them to pay me." The decision was not made by Johnson or Rose,
as they were not empowered to do so.
In contrast to Segal's wide-ranging powers over management
as the sole officer of the company and its designated authority
for payroll, Johnson's management powers as an agent derived
only from his authority to "enforce the [c]ompany's rights under
the terms" of Segal's employment agreement. The right to fire
Segal for cause, and select his successor if no suitable person
satisfactory to seventy-five per cent of the board could be
identified in fifteen months, does not, by itself, render
Johnson an agent having the management of the corporation. This
right gave Johnson some leverage over Segal, but not the over-
all management of the financial and payroll function of the
company as required by the Wage Act.
The other significant powers the defendants had as board
members and investors were distinct from the agency powers
provided in the agreement. As explained above, the board's
powers are neither agency powers nor powers entrusted to
individual board members. Collective board oversight and
control over management, finances, and policy is not oversight
and control by individual board members. See Estate of Moulton,
27
467 Mass. at 487 ("Adoption of corporate policies is achieved by
a vote of the board of directors as whole, acting as the
corporation . . . and cannot be accomplished in the ordinary
course by any individual director"). The individual board
members are not acting as the board's agents in the exercise of
this board function. The statute specifically imposes personal
liability on those who have assumed individual responsibility as
officers or agents. It does not impose individual liability on
board members, acting as board members, or outside investors
overseeing their investments. This distinction reflects the
Legislature's intention to exclude the ordinary performance of
board or investor responsibilities, including board or investor
oversight of management and the policymaking and financial
controls associated therewith, from personal liability under the
Wage Act. Personal liability, particularly for board members,
in corporate law is the exception, not the rule. See G. L.
c. 156D, § 8.30 (c) ("A director is not liable for any action
taken as a director, or any failure to take any action, if [the
director] performed the duties of his [or her] office in
compliance with this section"). See also Sagalyn v. Meekins,
Packard & Wheat Inc., 290 Mass. 434, 438 (1935) ("The management
of the corporation is vested commonly in the board of directors.
Their action taken in good faith, even though wanting in sound
judgment, does not involve them in personal liability"). The
28
individuals targeted by the Wage Act reflect this careful
consideration by the Legislature, particularly given that
violations of its provisions may give rise to criminal as well
as civil liability. G. L. c. 149, § 150 (authorizing
"indictment against any person for a violation of [§] 148").
Finally, our corporate statutes as a matter of course
impose management oversight responsibility on boards. See,
e.g., G. L. c. 156D, § 8.01 (b): "All corporate power shall be
exercised by or under the authority of, and the business and
affairs of the corporation shall be managed under the direction
of, its board of directors, subject to any limitation set forth
in the articles of organization . . . ." Therefore, if board
members, acting as board members, were to be considered agents
of the company and their normal oversight responsibility were
deemed to be "the management of the company," then they would
always be agents having the management of the company. If that
were the case, the Legislature would not have omitted board
members and directors from the definition of corporate
employers, as they would essentially have per se liability for
every Wage Act violation.
ii. Rose and Johnson's particular board activities. At
trial, Segal pointed to the behavior of Rose and Johnson's other
board representatives, as well as Rose's communications on
behalf of Johnson's representatives, as evidence of the
29
defendants acting as agents having the management of the
company. In particular, he emphasized that Rose and the other
Johnson board representatives refused to authorize Segal's cost-
cutting proposal to terminate the last employee other than Segal
and to sell the company's laboratory equipment. This decision,
according to Segal, limited Genitrix's ability to pay Segal.
As evidenced by Rose's response to Segal, the termination
of the only employee who knew how to make the company's molecule
and the sale of the company's laboratory equipment were not the
type of ordinary personnel or financial decisions left to
individual managers. They obviously rose to the level of board
consideration. That being said, corporate boards are regularly
required to make difficult decisions that have an impact on the
company's finances; indeed, that is an important part of their
responsibility as a board. Such decisions, however, are not the
acts of individual board members as agents and do not impose
personal Wage Act liability.11 We discern nothing exceptional in
these board activities that would render Rose or Johnson
individually liable under the Wage Act as agents having the
11We note that even within the regular confines of board
activity, Rose could not control the board. To the contrary,
the board was deadlocked. The Johnson board representatives
constituted sixty per cent of the board, short of the seventy-
five per cent majority required to pass most board resolutions.
Segal and his other representative constituted the remaining
forty per cent.
30
management of the corporation. See Estate of Moulton, 467 Mass.
at 489.
iii. Rose's investment activities. To prove that Rose
acted as an agent having the management of Genitrix, Segal
relied heavily on the conditions Rose imposed on new infusions
of capital by Fisk. In 2006, as Genitrix was running out of
funds, Segal sought more money from Fisk. Rose informed Segal
that Fisk would not invest more money in Genitrix if Segal
remained in control. Thereafter, Rose restricted Fisk's new
investments to fund specific expenses, as decided by Rose. By
2007, Genitrix was so financially strapped that it needed more
outside investment to fund its existing operations, including
payroll. It was during this time period that Segal worked
without pay.
As explained above, investors invariably exercise some
control over the businesses in which they invest, particularly
when that business is failing and seeking new funds from these
investors. See Bestfoods, 524 U.S. at 72 (activities consistent
with investor status include monitoring corporation's
performance and supervising corporation's finance and capital
budget decisions). But exercising one's rights and leverage as
an investor over infusions of new money are separate and
distinct from being an agent having the management of the
corporation that is seeking the additional financing.
31
Investment restrictions limited to the use of new monies are not
management direction and control over existing resources. See
generally Scott, 450 Mass. at 766.
Fisk was a separate company from Genitrix. Fisk was not
responsible for Genitrix's payroll; Genitrix was. Fisk had no
contractual or other obligations to make these payments. As
Fisk's representative, Rose undoubtedly had significant power
over new investments in Genitrix, and how that money was spent,
but his exercise of that power was not as an agent having the
management of Genitrix. In fact, the LLC Agreement expressly
prohibited the defendants from exercising agency authority on
behalf of the company in their role as investors. It was Segal,
not Rose, acting as the agent of Genitrix in these negotiations
for infusions of new money from Fisk. Segal, as a board member,
also voted in favor of each board resolution to accept capital
from Fisk, including the conditions imposed on those monies.
Finally, Rose imposing terms and conditions on new outside
investment is not the same as Rose managing the company. We
therefore conclude that Rose's actions conditioning Fisk's
infusions of new capital into Genitrix do not prove he was an
agent having the management of Genitrix.12
12No arguments have been made on appeal raising questions
whether Rose's twin roles as a Fisk investor and Genitrix board
member presented issues regarding his exercise of his fiduciary
duty of loyalty or care to Genitrix. Furthermore, at least
32
In sum, neither board members nor investors are officers or
agents having the management of the company for Wage Act
purposes unless they are so empowered by the corporation. Here,
the person expressly designated as an officer or agent of
Genitrix, particularly in regard to the payment of wages, was
the plaintiff, Segal, not the defendants Rose or Johnson. In
this context, neither Rose's ordinary board activities on behalf
of Genitrix, his investment activities on behalf of Fisk, nor
his actions as Johnson's agent, alone or in combination,
rendered either him or Johnson personally liable for any Wage
Act violations as agents having the management of Genitrix.
Accordingly, we conclude that the evidence at trial was
insufficient to establish the defendants as liable under the
Wage Act, and the trial judge erroneously denied the defendants'
under Delaware law, LLCs may limit fiduciary duties. Del. Code
Ann. tit. 6, § 18–1101(c) ("To the extent that . . . a member or
manager or other person has duties [including fiduciary duties]
to a limited liability company or to another member or manager
or to another person that is a party to or is otherwise bound by
a limited liability company agreement, the member's or manager's
or other person's duties may be expanded or restricted or
eliminated by provisions in the limited liability company
agreement . . ."). As the Delaware Court of Chancery judge
explained, "the Genitrix LLC [a]greement eliminates fiduciary
duties to the maximum extent permitted by law by flatly stating
that members have no duties other than those expressly
articulated in the [a]greement. Because the [a]greement does
not expressly articulate fiduciary obligations, they are
eliminated." We also note that it is not at all uncommon for
investors to have seats on the boards of the companies in which
they invest. Indeed, they often insist on it.
33
motion for judgment notwithstanding the verdict.
e. Jury instructions. The defendants also advance a
number of other arguments relating to the trial judge's denial
of their motion for a new trial. We need not address these
arguments in light of our conclusion that the judge erred in
denying the defendants' motion for judgment notwithstanding the
verdict.13 However, given our analysis above, and the need for
clarity in future cases, we address whether the jury
instructions were appropriate as to the meaning of "agents
having the management of such corporation" under the Wage Act.
We conclude that they were not.
At trial, the jury were not instructed on agency, except
insofar as it related to the question whether Rose acted as
Johnson's agent. Instead, jurors were instructed that "a person
qualifies as an agent having the management of such corporation
if he . . . 'controls, directs, and participates to a
substantial degree in formulating and determining policy of the
corporation or LLC.'" The trial judge erred in giving this
instruction, as the language was taken out of context from our
prior cases and causes confusion, particularly when the
defendants are board members and investors. See Cook, 465 Mass.
at 556; Wiedmann, 444 Mass. at 711.
13We note in particular that the briefing and record are
incomplete on the complicated issue of claim preclusion.
34
In Wiedmann, supra, as explained above, the defendants were
a company's president and treasurer, another individual who
admitted to running the company, and the general manager of an
office. The language quoted from the Wage Act was used to
determine whether an office manager satisfied the requirement of
"having the management" of the company. Id. We were not tasked
with differentiating the authority of board members or
investors, or defining the contours of agency. Indeed the
agency status of the manager in Wiedmann was not at issue, just
the extent of his management powers. The issue of agency was
also not raised in Cook, supra; the only pertinent question
there was whether the Wage Act could impose personal liability
in the context of an LLC. The agency issues and the potential
liability of board members and investors were, however,
presented in the instant case and required more complete jury
instructions.
The defendants made a motion in limine requesting three
instructions on agency, all of which were denied. First, they
sought an instruction that "agents having the management of such
corporation" referred to agents who do not hold the formal title
of president or treasurer, but whose actual responsibilities are
functionally equivalent to those of a corporate president or
treasurer. Second, they requested an instruction defining how
an agency relationship is created. Third, they asked for an
35
instruction that outside board directors who are not officers or
employees of the company are not agents unless specifically
appointed as such.
We believe instructions clarifying these distinctions were
required in the instant case to avoid confusion about the
difference between the powers and responsibilities of board
members, investors, and "agents having the management of such
corporation." The jury should have been instructed that there
are two important requirements to being an officer or agent
having the management of the company. The defendant must be an
agent or officer, and must have the management of the company.
To further define the meaning of "officers or agents having the
management" of the company, the jury should have been instructed
that the Wage Act imposes liability on the president and
treasurer of the corporation and on other officers or agents who
may not hold these titles but whose significant management
responsibilities over the corporation are similar to those
performed by a corporate president or treasurer, particularly in
regard to the control of finances or the payment of wages. This
instruction, and not the language from Wiedmann, 444 Mass. at
711, should be given, as it properly defines the meaning of
"officers or agents having the management" of the company and
avoids confusing a manager's responsibilities with management
oversight by a board or financial control over investments by an
36
outside investor.
In cases involving Wage Act claims against board members,
the jury should also be instructed that "[n]either the board of
directors nor an individual director . . . is, as such, an agent
of the corporation." Restatement (Second) of Agency § 14C. An
individual director may become an agent if he or she is also
appointed as an agent, but no agency relationship arises from
his or her position as a director, in and of itself. Id. at
§ 14C comment b. For example, an individual director could be
appointed as an agent if the board exercised "its express or
implied power to confer authority upon [the individual] to act
for the corporation," or if the individual was appointed as an
executive officer. Id. Additionally, the jury should be
instructed that the collective powers of the board to control
management or set policy are separate and distinct from the
powers of individual board members. See Estate of Moulton, 467
Mass. at 487.
In cases involving Wage Act claims against investors, the
jury should be instructed that an outside investor, acting in
his or her capacity as an investor, is not an agent of the
company. See 1 W.M. Fletcher, Fletcher Cyclopedia of the Law of
Corporations § 30, at 100. An outside investor may become an
agent, if the board, exercising its express or implied powers,
confers authority upon the investor to act for the corporation,
37
or if the investor is appointed as an executive officer. Cf.
Restatement (Second) of Agency at § 14C comment b. The jury
should be further instructed that the exercise of ordinary
financial control over an investment does not give an investor
the management of the company in which he or she invests. An
investor may, for example, impose conditions on the use of the
money invested, such as targeting it for particular
expenditures, without having the management of the company. See
generally Scott, 450 Mass. at 766.
3. Conclusion. For the foregoing reasons, we reverse the
denial of the defendants' motion for judgment notwithstanding
the verdict, and remand to the Superior Court for entry of
judgment for the defendants.
So ordered.