135 N.E.3d 226
Mass. App. Ct.2019Background
- Three ophthalmologists (Post, O'Connor, Kadrmas) formed Post, O'Connor & Kadrmas Eye Centers, P.C. (POK) under a stock agreement; Kadrmas paid about $195,000 for a one‑third interest.
- Paragraph V of the stock agreement required shareholders to devote full time to POK and set compensation as a formulaic share of corporate "net collections" (profit distributions based on each shareholder's percentage of gross billings).
- O'Connor negotiated affiliation with Ophthalmic Consultants of Boston (OCB), gave notice to leave, and (while still president/shareholder) assisted steps that coincided with a mass resignation of doctors and staff who joined O'Connor at OCB.
- Kadrmas alleges the conduct constituted fiduciary breaches and a freeze‑out, causing major declines in POK value and his compensation; experts quantified substantial lost income and diminished firm value after the departures.
- Two actions arose: (1) the common law case (O'Connor/OCB v. Kadrmas) where Kadrmas counterclaimed for breach of fiduciary duty and contract; (2) the Wage Act case (O'Connor v. Kadrmas and corporate defendants) where O'Connor sought unpaid distributions under paragraph V(a) and a Wage Act recovery. The trial judge granted summary judgment on several claims; the appeals court reviewed those rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether summary judgment properly entered against Kadrmas on his breach‑of‑fiduciary‑duty counterclaim (common‑law case) | Kadrmas: O'Connor, while president/shareholder, secretly favored OCB, solicited staff/patients, froze out Kadrmas and harmed POK, producing compensable damages | O'Connor: no fiduciary breach; in any event Kadrmas cannot show causation or damages | Reversed as to the theory that O'Connor acted to benefit OCB and harm POK while still president/shareholder; genuine issues of material fact on breach and damages remain for jury; remanded |
| Whether Kadrmas's breach‑of‑contract claim (including implied covenant) survives summary judgment (common‑law case) | Kadrmas: freeze‑out negotiations and conduct violated the implied covenant and contract duties, reducing value and causing loss | O'Connor: arguments waived or lack of facts showing compensable loss from the unsuccessful 2012 scheme | Affirmed dismissal: summary judgment proper because Kadrmas failed to show compensable loss from the 2012 freeze‑out efforts and did not properly present the claim below |
| Whether paragraph V(a) profit distributions are "wages" under G. L. c. 149, § 148 (Wage Act) | O'Connor: withheld December 2013 distribution and subsequent amounts were wages due on termination and thus recoverable under the Wage Act | Kadrmas: the payments are contingent shareholder profit distributions, not employer‑to‑employee wages or commissions | Reversed summary judgment for O'Connor: paragraph V(a) distributions are not "wages" under the Wage Act; judgment should be entered for Kadrmas on the Wage Act claim |
| Whether O'Connor's contract claim for unpaid paragraph V(a) distributions survives summary judgment (Wage Act case) | O'Connor: Kadrmas breached paragraph V(a) by withholding distributions; seeks contractual recovery | Kadrmas: argued only against Wage Act; failed to raise factual/legal defense to contract claim below (waiver) | Affirmed: summary judgment for O'Connor on the contract claim because Kadrmas failed to preserve or present a genuine dispute of material fact |
Key Cases Cited
- Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578 (1975) (establishes the high fiduciary duties among shareholders in a close corporation)
- O'Brien v. Pearson, 449 Mass. 377 (2007) (reiterates fiduciary duty of "utmost good faith and loyalty" among close‑corporation shareholders)
- Godfrey v. Globe Newspaper Co., 457 Mass. 113 (2010) (summary judgment: draw all reasonable inferences for nonmoving party)
- Pointer v. Castellani, 455 Mass. 537 (2009) (freeze‑out and frustration of reasonable expectations can constitute fiduciary breach)
- Brodie v. Jordan, 447 Mass. 866 (2006) (remedy for fiduciary breach is restoration of benefits the shareholder reasonably expected)
- Augat, Inc. v. Aegis, Inc., 417 Mass. 484 (1994) (plaintiff must show portion of losses attributable to defendant's misconduct)
- Ayash v. Dana‑Farber Cancer Inst., 443 Mass. 367 (2005) (breach of implied covenant requires economic loss caused by the breach)
- Mui v. Massachusetts Port Auth., 478 Mass. 710 (2018) (discretionary compensation is not "wages" under the Wage Act)
- Suominen v. Goodman Indus. Equities Mgmt. Grp., LLC, 78 Mass. App. Ct. 723 (2011) (commissions are wages only when definitely determined and due)
- Weems v. Citigroup Inc., 453 Mass. 147 (2009) (discretionary bonuses are not wages under the Wage Act)