MacDonald v. Jenzabar, Inc.

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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.