Segal v. Johnson

33 Mass. L. Rptr. 457
CourtMassachusetts Superior Court
DecidedJune 23, 2016
DocketNo. SUCV2009776G
StatusPublished

This text of 33 Mass. L. Rptr. 457 (Segal v. Johnson) is published on Counsel Stack Legal Research, covering Massachusetts Superior Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Segal v. Johnson, 33 Mass. L. Rptr. 457 (Mass. Ct. App. 2016).

Opinion

Wilson, Paul D., J.

In this lawsuit, Plaintiff Andrew Segal, M.D. sued his former employer Genitrix, LLC, as well as several persons associated with Genitrix. When the case reached trial, after years of litigation in Delaware and in Massachusetts (which included trips to the appellate courts of both states), Segal’s only remaining claims were his Wage Act claims against Defendants H. Fisk Johnson, III and Stephen Rose. In those claims, Segal contended that Johnson and Rose were “officers or agents having the management” of Genitrix, and therefore were personally liable to him for his unpaid wages under M.G.L.c. 149, §148.

I presided over an eight-day jury trial on these claims in November 2015. The jury returned a verdict in favor of Plaintiff in the total amount of $398,892. Because the legislature amended the Wage Act as of July 12, 2008 to make treble damages mandatory, and the period of unpaid damages began before that date, the jury verdict slip asked the jury to break the damages down into amounts attributable to the period before July 12, 2008, as to which the jury awarded $231,250, and the period July 12, 2008 and thereafter, as to which the jury awarded $167,642.

Prior to the amendment making treble damages mandatory, Wage Act damages were trebled if the defendant’s conduct was “outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others. ” Wiedman v. The Bradford Group, Inc., 444 Mass. 698, 710 (2005), quoting Dartt v. Browning-Ferris Industries, Inc. (Mass.), 427 Mass. 1, 17a (1998). Evidence of “outrageous” behavior relating to “evil motive or... reckless indifference” was relevant only to the trebling question, and such evidence might have unfairly prejudiced Johnson and Rose as the jury decided their liability. Therefore I bifurcated the trial, reserving to myself the obligation to decide, if necessary, whether the evidence justified trebling of pre-July 12, 2008 Wage Act damages under the Wiedman standard.

On December 22,2015, without ajury, I presided over the second phase of the trial, concerning this question. The only live witness during the second phase was Segal, but the parties also introduced deposition testimony of Johnson, Rose, and David Ford, the accountant who liquidated Genitrix after being appointed for that purpose by the Delaware Chancery Court.

At the conclusion of the evidence, I established a schedule for post-trial briefing, which contemplated that such briefing would be concluded in late January. However, the parties continued to file additional motions and briefs, most recently a sur-reply memorandum filed on June 1, 2016.

I base my Findings of Fact and Rulings of Law on the live testimony and deposition testimony presented during both phases of the trial, as well as the 80 exhibits introduced during the two phases of the trial.

Findings of Fact

Based on all the credible evidence, and the reasonable inferences drawn from that evidence, I find the following facts.

In the late 1990s, Segal, a physician-scientist, was doing cancer research. He was attempting to develop a molecule that would teach the immune system to attack cancer cells. He developed some intellectual properly, including patents, in this area, and he now began seeking investors to fund further development of his research. As result of a program at the Massachusetts Institute of Technology that connected scientists with investors and entrepreneurs, Segal made contact with representatives of Johnson, who was the Chief Executive Officer of a very large family company. Johnson was using some of his own money to invest as venture capital. Rose, an employee of the “family office” of the Johnson family, oversaw those investments for Johnson.

A long negotiation ensued, in which both Segal and Johnson were represented by competent counsel. The result was the formation of Genitrix, a Delaware limited liability corporation formed by Segal and Johnson on September 11, 1997. Genitrix had other members, brought to the entity by both Segal and Johnson, but their ownership interests were small compared to the interests of Johnson and Segal. Segal contributed intellectual properly to Genitrix which the parties valued at $500,000, but no cash. Johnson contributed most or all of the initial cash capital.

The governing body of Genitrix was the Board of Member Representatives (the “Board”). Segal and Johnson each had the right to appoint two members of the Board. Segal appointed himself as one of his representatives on the Board, and served in that role until Genitrix was dissolved. Johnson appointed himself as one of his two representatives on the Board, a position he gave up about two years later. Throughout most or all of the history of Genitrix, Rose served on the Board as one of J ohnson’s representatives. All parties to this lawsuit understood that Rose, who was much [459]*459more active at Genitrix than Johnson, spoke for Johnson in dealing with Segal and Genitrix. In fact, Johnson so informed Segal in writing as to at least one issue.

On the day Genitrix was formed, Segal signed an employment agreement with Genitrix, which made him the Chief Executive Officer, at an annual salary of $75,000. (In July 2003, the Genitrix Board increased Segal’s salary to $150,000.) The agreement provided that Segal could be terminated for cause by a vote of 50 percent of the Board (that is, by the Johnson Board members alone), or without cause by a vote of 75 percent of the Board. Johnson was expressly deemed to be a third-party beneficiary of the employment agreement, and the agreement granted him the authority personally to enforce the rights of Genitrix under the agreement

For Genitrix, Segal worked on furthering his research program, with the assistance of a small scientific staff. There is no evidence that Segal actually worked in the laboratory, but I infer that he directed the work of others. Based on undisputed testimony, I find that Segal was in charge of filing additional patent applications, and in dealing with the United States Patent & Trademark Office to respond to issues raised there so as to have new Genitrix patents issued, and in keeping existing patents alive through regular filings and payment of fees. Segal was successful in expanding the patent holdings of Genitrix.

In 2003, Johnson invested additional funds in Genitrix through an entity he controlled called Fisk Ventures, LLC. Fisk Ventures made its investment through a Note Purchase Agreement with Genitrix. When Genitrix failed to achieve financing milestones required by that agreement, the convertible debt held by Fisk Ventures became an equity interest in Genitrix in early 2007, entitling Fisk Ventures to its own Board representative. As result, Johnson gained the ability to control the appointment of three members of a five-member Genitrix Board, giving him effective control of many corporate actions. However, the most dramatic corporate actions required a supermajority greater than Johnson’s 60% control of the Board.

By 2006, the parties were unhappy with one another. They began to discuss restructuring their relationship. One possibility was that Segal might buy out the Johnson interests. In the course of these negotiations, Bill Freund, one of the Board members appointed by Johnson, stated in writing that “we believe that the company is worth more than $15 million.” Exhibit 69. Freund’s “we” referred to Johnson and Rose as well as Freund. These negotiations did not bear fruit.

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Related

Dartt v. Browning-Ferris Industries, Inc.
691 N.E.2d 526 (Massachusetts Supreme Judicial Court, 1998)
Wiedmann v. Bradford Group, Inc.
831 N.E.2d 304 (Massachusetts Supreme Judicial Court, 2005)
Cook v. Patient Edu, LLC
989 N.E.2d 847 (Massachusetts Supreme Judicial Court, 2013)
Keefe v. Enterprise Associates, LLC
30 Mass. L. Rptr. 394 (Massachusetts Superior Court, 2012)

Cite This Page — Counsel Stack

Bluebook (online)
33 Mass. L. Rptr. 457, Counsel Stack Legal Research, https://law.counselstack.com/opinion/segal-v-johnson-masssuperct-2016.