In a recent blog post, I discussed how all-encompassing a fiduciary duty can be and how in-house counsel in closely held businesses might want to advise insiders about measures that could curb or even eliminate some of those duties. A new case from the Massachusetts Superior Court, Christensen v. Cox, highlights some other need-to-know aspects of fiduciary duties.

Clayton Christensen is a leader in the field of “disruptive innovation,” and he and his brother, Mathew, are involved in at least two companies working in that area, Disruptive Innovation GP, LLC and Rose Park Advisors, LLC. In 2010, Shawn Cox was hired as an employee at will of Rose Park, although he ended up providing various services to both companies. In April of 2013, Cox notified the Christensens that he would be taking a new job, and his last day of employment with Rose Park was at the end of May.

Shortly after Cox left, he asserted that he had been given equity in Disruptive Innovation and demanded a distribution based on that equity. While the Christensens disputed that Cox had been given any equity in Disruptive Innovation, Cox pointed to an April 2013 memo (signed by … Keep reading

Longstanding Massachusetts law holds that officers, directors, partners, and even equity holders in closely held corporations owe their respective entities and related equity holders a fiduciary duty to act with the utmost good faith and loyalty and “the punctilio of an honor ….” While that might sound eminently reasonable, if one has a fiduciary duty, she can risk personal liability by engaging in a variety of conduct that might seem to make sound business sense and/or appear to be completely benign.

For instance, if an officer of one company causes it to enter into a contract with another, and the officer has an equity interest in the second entity, he is exposed to a claim for self-dealing – even if it appears that the transaction will benefit both businesses. Likewise, a partner who invests in a business similar to her partnership could be sued for a “diverting a business opportunity” if she did not offer her partners an opportunity to participate equally in the investment.

Plainly, therefore, imposing fiduciary duties can have a chilling effect on conduct and transactions that might be good for business or, at least, would not be unfair. Fortunately, however, cases like the recently decided … Keep reading

As I have counseled many clients, a non-compete provision is different than most other contractual terms, because simply having mutual consent and consideration will not automatically render it enforceable for reasons of public policy. Thus, even in states like Massachusetts that are known to enforce non-competes, such restrictions will be deemed invalid unless they are reasonable in time and scope and also are necessary to protect against unfair competition – which occurs when the employee uses the company’s confidential information, trade secrets or goodwill to compete against it. As oxymoronic as it may sound, a non-compete that merely prevents “ordinary competition” will be deemed unreasonable and unenforceable.

While some businesses try to make an end-run around this law by requiring an employee to forfeit some benefit or pay liquidated damages if he/she competes against his/her company, any such requirement will be viewed through the same public policy lens used to scrutinize a formal non-compete provision. Indeed, as the Supreme Judicial Court of Massachusetts noted long ago in Cheney v. Automatic Sprinkler Corp.:

If forfeiture for competition provisions were enforced without regard to the reasonableness of their terms while covenants not to compete were subjected to such a

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As most attorneys know, a privileged communication only can be waived by the client, and when the client is an individual, it is obvious who controls that ability to waive. Things become murkier, however, when the client is a company. While controlling the privilege generally resides with the board of directors and/or those controlling the business entity, who can access privileged communications when a former senior manager becomes adverse to the company is far less clear.

Until the end of 2016, John Mooney was the CEO of Pri-Med LLC, and John Wheelock was its senior vice president in charge of sales. Mooney and Wheelock also each owned 5% equity in Pri-Med and were entitled to have that equity repurchased at the appraised value of the company as of December 31, 2016. When the buy-out time arrived, however, Mooney and Wheelock claimed that the company and various individuals took steps to depress Pri-Med’s value so as to decrease the amount they would be paid.

Litigation ensued, and one of the items requested during discovery was communications amongst the defendants concerning Pri-Med’s 2015 and 2016 valuation. The defendants refused to produce those communications, however, claiming that they were protected from disclosure … Keep reading

While Rules 4.1(a) and 8.4(c) of the Massachusetts Rules of Professional Conduct prohibit attorneys from making false statements to third parties and/or engaging in conduct that is dishonest, fraudulent or involves misrepresentations, attorneys (and/or their agents) can use deception to act as “testers” to determine, for instance, if people are engaging in discriminatory or other illegal conduct. Nevertheless, as the plaintiff’s attorneys in Leysock v. Forest Laboratories, Inc. recently found out, getting creative in seeking to dupe people into providing information to bolster a claim can come back to bite you – hard.

In Leysock, the plaintiff’s attorneys at Milberg LLP “engaged in an elaborate scheme of deceptive conduct in order to obtain information from physicians about their prescribing practices.” They did this to garner evidence for a qui tam action they wanted to pursue. More specifically, the attorneys hired a doctor to pretend that he was conducting research through online surveys submitted to other physicians, without disclosing that the information gathered would be used to bolster the allegations in a complaint.

After the defendants learned about this, they moved for sanctions and sought dismissal because the allegations in the Complaint hinged on information that had been culled … Keep reading

In a recent decision, the Massachusetts Supreme Judicial Court has made it clear that employers cannot take action against employees who lawfully use medical marijuana, as doing so is tantamount to denying a request for a reasonable accommodation under the Commonwealth’s disability discrimination laws.

In Barbuto v. Advantage Sales and Marketing, LLC, the SJC reversed the dismissal of an employee’s handicap discrimination claim, alleging that her employer terminated her because of her lawful medical use of marijuana, and failed to engage in an interactive process to discuss a reasonable accommodation of her handicap. The employee had failed her employer’s drug test because of her use of marijuana, which was prescribed to treat her Crohn’s disease.

Interestingly, the SJC rejected the employer’s defense that the use of medical marijuana in the workplace is not a facially unreasonable accommodation simply because such use still is a crime under federal law. To the contrary, the SJC ruled that, under Massachusetts law, no person shall be denied “any right or privilege” on the basis of her medical marijuana use, even if such use may constitute a federal crime.

Thus, for an employee who has a qualified handicap under the disability discrimination laws, … Keep reading

When two parties reside and/or conduct business in different states, any agreement between them almost always has a choice of law provision. Typically, such a clause is as simple as: “The Parties agree that this Contract shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts.” As the Superior Court held earlier this month in Oxford Global Resources, LLC v. Hernandez, however, such simple and straight-forward language is no guaranty that a court will abide by it.

Oxford is a Delaware corporation and claims to have its principal place of business in Beverly, Massachusetts. Jeremy Hernandez is a California resident and was hired by Oxford to work in the company’s California office. As part of the hiring process, Hernandez was required to sign Oxford’s Protective Covenants Agreement, which included (i) non-compete and non-solicitation covenants; and (ii) a provision stating that the Agreement was governed by Massachusetts law.

Oxford later brought suit against Hernandez, alleging that he breached the Agreement by using information regarding Oxford’s customers to solicit them on behalf of a competitor. Hernandez countered by moving to dismiss, and, in that connection, he argued that the Court should construe the Agreement in … Keep reading

In this installment of The In-House Advisor, we interview Mark Bowers, Division Counsel and Senior Director at Samsung Pay, Inc., Samsung Pay is a mobile payment and digital wallet service that enables users to make payments using Samsung phones and other mobile devices. Mark’s role involves overseeing all of Samsung Pay’s legal needs, including contracts, compliance, litigation, HR support, real estate, management of the IP portfolio, marketing, product development, among other things.

The In-House Advisor: The role of in-house counsel has changed a lot over the years. How do you see that role changing going forward and how can today’s in-house counsel prepare for those changes?

Mark Bowers: The more things change; the more things stay the same.  While underlying technology and methods of communication have changed, the role of in-house counsel has largely remained the same. We are here to provide cost-effective and timely legal support while mitigating the overall risk profile for the company.

IHA: While in-house counsel routinely save their companies money, Legal Departments generally are viewed as cost centers that add nothing to the bottom line. How can in-house counsel get across to the business people the value that in-house lawyers add … Keep reading

No doubt, having a properly drafted agreement is critical if you wish to prevent a former employee from competing against you or soliciting your customers. But, simply having a clear and straight-forward agreement may not be enough to persuade a court to enjoin someone from violating the terms of it. Rather, a plaintiff must show that a post-employment restrictive covenant is necessary to protect “legitimate business interests” before any injunctive relief will issue. Further, and as the Superior Court reconfirmed earlier this month in ABM Industry Groups, LLC v. Palmarozzo, making such a showing is not always easy to do.

Joseph Palmarozzo was a branch manager for ABM Industry Group, a large, public company that provides janitorial and maintenance services to large facilities. In connection with his job, Palmarozzo entered into an employment agreement that included non-competition, non-solicitation and non-disclosure obligations.

In December of 2016, Palmarozzo left ABM to become the General Manager of Compass Facility Services (“CFS”), a much smaller company than ABM, but one that also provided janitorial services. Shortly thereafter, ABM filed suit and moved for a preliminary injunction to prevent Palmarozzo from competing against ABM and soliciting its customers.

As a prelude to its

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It is standard practice in M&A transactions for the acquired business to assign all if its contractual rights to the purchaser. While that may sound good in theory, depending upon how the underlying contracts are drafted, they could have little or no value to the purchaser. Indeed, as the Massachusetts Superior Court’s decision in NetScout, Inc. v. Hohenstein confirms, this warning can be particularly important when the underlying contract involves an employee non-compete.

Carl Hohenstein was employed by a subsidiary of Danaher Corporation, and in 2011 he and Danaher entered into a contract that included a non-compete agreement. Four years later, NetScout acquired Danaher and its subsidiaries, and as part of that transaction (i) Hohenstein became a NetScout employee; and (ii) Danaher assigned its rights under the 2011 contract with Hohenstein to NetScout. Six years after that, Hohenstein left NetScout and began working for one of its competitors.

NetScout sued Hohenstein and moved for a preliminary injunction, asking the Court to bar him from competing against the company. While the Superior Court found that the non-compete agreement in the 2011 contract between Hohenstein and Danaher was enforceable, and that NetScout was entitled to enforce that contract as Danaher’s assignee, … Keep reading