33 Mass. L. Rptr. 617
Mass. Super. Ct.2016Background
- In 2008 KLR acquired Sullivan’s accounting firm SSF under a Purchase Agreement; Sullivan became a KLR employee under a separate Employment Agreement.
- Sullivan left KLR in February 2014; the Purchase Agreement required KLR to pay Sullivan $1,000,000 plus interest over ten years for SSF goodwill, which KLR withheld.
- Sullivan sued KLR for breach of the Purchase Agreement seeking the withheld payments; KLR counterclaimed that Sullivan breached his Employment Agreement by assisting employees to leave and form a competing firm, violating a two-year non-solicitation covenant (Section 5.4).
- Section 5.10 of the Employment Agreement ("Other Remedies") contains a clause allowing KLR to recover payments made to the employee during any period the court finds a breach existed; Sullivan moved to preclude KLR from recovering actual damages beyond that clause, arguing it is a liquidated damages provision.
- The court previously granted Sullivan summary judgment on his breach claim and left KLR’s counterclaim for trial; the present motion asks the court to rule that Section 5.10’s second clause bars KLR from recovering actual damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 5.10’s second clause is a liquidated damages provision that bars recovery of actual damages | Sullivan: the clause is a liquidated damages provision and thus limits KLR to recoupment only (no separate actual damages) | KLR: the clause is not a liquidated damages provision but an additional remedy (equitable disgorgement) and does not preclude actual damages | The clause is ambiguous; court denied Sullivan’s motion and ruled the issue must be decided based on extrinsic evidence of parties’ intent |
Key Cases Cited
- Cady v. Marcella, 49 Mass. App. Ct. 334 (contract interpretation is a question of law)
- Eigerman v. Putnam Invest., 450 Mass. 281 (court determines contract ambiguity as a question of law)
- Freelander v. G.&K Realty Corp., 357 Mass. 512 (enforce clear contractual language as written)
- Trafton v. Custeau, 338 Mass. 305 (ambiguous contract language creates factual issue for factfinder)
- Suffolk Constr. Co., Inc. v. Lonco Scaffolding Co., Inc., 47 Mass. App. Ct. 726 (definition of contractual ambiguity)
- Morrison v. Richardson, 194 Mass. 370 (function of liquidated damages clauses)
- NPS, LLC v. Minihane, 451 Mass. 417 (liquidated damages as exclusive remedy when damages are difficult to calculate)
- TAL Fin. Corp. v. CSC Consulting, Inc., 446 Mass. 422 (party can argue liquidated damages clause is unenforceable)