Shepherd Kaplan Krochuk, LLC v. John R. Borzilleri. ( 2023 )

NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule
23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule
1:28, as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to
the parties and, therefore, may not fully address the facts of the case or the
panel's decisional rationale. Moreover, such decisions are not circulated to
the entire court and, therefore, represent only the views of the panel that
decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued
after February 25, 2008, may be cited for its persuasive value but, because of
the limitations noted above, not as binding precedent. See Chace v. Curran, 71
Mass. App. Ct. 258, 260 n.4 (2008).
COMMONWEALTH OF MASSACHUSETTS
APPEALS COURT
22-P-312
SHEPHERD KAPLAN KROCHUK, LLC
vs.
JOHN R. BORZILLERI.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The defendant and plaintiff in counterclaim in this case,
John R. Borzilleri, was employed by the plaintiff and defendant
in counterclaim, Shepherd Kaplan Krochuck, LLC (SKK), a
registered investment adviser, as a portfolio manager for a
private fund affiliated with SKK. In 2014 and 2015, Borzilleri
filed two lawsuits under the False Claims Act against nearly
twenty major pharmaceutical companies (qui tam lawsuits or qui
tam actions). These lawsuits alleged among other things that
these pharmaceutical companies conspired to defraud Medicare by
colluding to inflate prescription drug prices, causing losses of
approximately $200 billion.
After the United States Department of Justice decided not
to intervene in the qui tam lawsuits, and with knowledge about
when the lawsuits would be unsealed, see 31 U.S.C. § 3730,
Borzilleri, who had long been selling short the stock of these
pharmaceutical companies, escalated that selling. He also
crafted a press release that included information that the qui
tam lawsuits had been unsealed and sent it to recipients in the
financial and media industries. The complete factual details
are well known to the parties and will not be repeated here, but
it suffices to say that shortly thereafter he was fired by SKK.
Litigation ensued. SKK filed suit against Borzilleri,
seeking a declaration that its termination decision was lawful
and the recovery of damages stemming from Borzilleri's alleged
breach of contract and breach of the duty of loyalty.
Borzilleri asserted ten counterclaims in response. Five were
dismissed for failure to state a claim. Two of Borzilleri's
remaining counterclaims alleged that SKK had breached various
contractual obligations (Counts VI and VII). The other three
alleged that his firing was in retaliation for his filing of the
qui tam actions (Counts I, III, and IV). Such a retaliatory
firing would be unlawful. See 31 U.S.C. § 3730(h)(1). SKK
argues strenuously that Borzilleri engaged in unlawful insider
trading, and that that was why he was fired. Borzilleri argues
equally strongly that his views about the behavior of the
pharmaceutical companies, and the factual information that
underlay the qui tam actions were well known, that he had
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publicized them extensively prior to the press release and the
unsealing of the qui tam actions, and that he did not engage in
insider trading, which is to say trading stock "on the basis of
material, nonpublic information." United States v. O'Hagan, 521
U.S. 642, 651-652 (1997).
SKK moved for summary judgment on Borzilleri's five
remaining counterclaims and that motion was allowed as to
Borzilleri's retaliation-based claims due to a failure to show
pretext and retaliatory animus on the part of SKK but denied as
to Borzilleri's contract-based claims. The parties subsequently
stipulated and agreed to the voluntary dismissal of Borzilleri's
counterclaims except the retaliation-based claims (Counts I,
III, and IV), and all of SKK's claims. The judge "approved and
so ordered" the stipulation, which included the provision that
the "Stipulation shall constitute the final judgment of the
Court."
In this appeal, Borzilleri challenges the order allowing
summary judgment on his retaliation-based claims. The only
question properly before us is whether there is a genuine issue
of material fact as to whether the assertion by SKK that
Borzilleri was fired for alleged insider trading was a pretext
designed to cover up Borzilleri's firing in retaliation for his
filing of the qui tam actions. We view the summary judgment
record in the light most favorable to the nonmoving party,
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Borzilleri, drawing every reasonable inference in his favor.
See Bulwer v. Mount Auburn Hosp., 473 Mass. 672, 680 (2016).
Before us Borzilleri points to evidence he says raises a
genuine issue of material fact with respect to pretext: the
weakness of the allegation of insider trading, which, he
asserts, shows that SKK could not have thought he had engaged in
insider trading; SKK's shifting explanations of its concerns and
the reasons for the firing; SKK's unwillingness to put the
reason for the termination in writing; and contemporaneous notes
he made regarding his phone call on April 20, 2018, with Tim
Krochuck, the managing member of SKK.
Those contemporaneous notes were memorialized in an e-mail
that Borzilleri sent to himself (e-mail or notes). The summary
judgment record contains that e-mail, which was attached to
Borzilleri's affidavit in support of his opposition to SKK's
motion for summary judgment. Borzilleri's notes indicate that
during the April 20 phone call, in which Krochuck first
indicated that SKK desired "to sever its relationship with"
Borzilleri, Krochuck stated "that SKK was 'no longer concerned
about insider trading, after reviewing the Qui Tam documents,'"
but that SKK's "major concern was some kind of 'defamation' suit
by the Qui Tam defendants against SKK, myself [i.e., Borzilleri]
and my fund investors." There is also evidence in the summary
judgment record of a refusal by SKK to put any reason for
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dismissal in writing and evidence that could support a finding
that the contents of the press release were not and could not
have been considered by SKK to be material nonpublic
information, including evidence that the press release went out
after the qui tam lawsuits were unsealed, and that the
information in the press release was consistent with monthly
reports that Borzilleri had been issuing to the public for
years.
We think that the evidence pointed to by Borzilleri is
sufficient to raise a genuine issue of material fact with
respect to whether the claim of firing for insider trading was
merely a pretext and whether his firing was in fact in
retaliation for filing the qui tam actions.1
SKK argues that some of the evidence on which Borzilleri
now relies was not pointed to by Borzilleri in his pro se
1 SKK argues that the description of the phone call in
Borzilleri's affidavit in support of his opposition to SKK's
motion for summary judgment, is inconsistent with his sworn
statements in his deposition that he was never told the reason
he was terminated. Borzilleri's contemporaneous notes say only
that Krochuck spoke to him about severing the relationship
between SKK and Borzilleri during the April 20, 2018 phone call.
Since, as Borzilleri asserts in the joint statement of
undisputed material facts, that Borzilleri might not have
understood this to refer to termination, there is no necessary
contradiction between these two pieces of evidence. Cf. Ng
Bros. Constr., Inc. v. Cranney, 436 Mass. 638, 648 (2002) ("the
nonmoving party cannot create a material issue of fact and
defeat summary judgment simply by submitting affidavits that
contradict its previously sworn statements").
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opposition to the motion for summary judgment. The failure to
provide a written explanation, and the evidence that SKK could
not have thought the press release contained material nonpublic
information, were explicitly addressed in Borzilleri's
opposition. The e-mail and SKK's shifting explanations,
however, were not. Nonetheless, Borzilleri's responses in the
joint statement of undisputed material facts include a citation
to the e-mail in a response in which Borzilleri states that he
disputes whether the April 20 phone call informed him that he
was terminated as a result of "short-trading in the securities
of the qui tam defendants while potentially in possession of
material nonpublic information about them." He asserts that
"Mr. Krochuck made no mention of Dr. Borzilleri having violated
any corporate policies or trading laws. Dr. Borzilleri knew
immediately that the true reason for the separation was SKK'[s]
desire to quickly dissociate from Dr. Borzilleri's qui tam
activities." We think that this evidence was sufficiently put
before the judge to preserve the argument that a genuine issue
of material fact existed, and that the summary judgment motion
should not have been allowed as to counts I, III, and IV of the
counterclaim.
Accordingly, so much of the judgment that relates to counts
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I, III, and IV of the counterclaim is reversed. In all other
respects, the judgment is affirmed.
So ordered.
By the Court (Meade, Rubin &
Blake, JJ.2),
Clerk
Entered: May 3, 2023.
2 The panelists are listed in order of seniority.
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