Weiler v. PortfolioScope, Inc.
2014 WL 3375145
Mass.2014Background
- Plaintiff Milton C. Weiler, Jr., cofounder of predecessor companies, sold those businesses into PortfolioScope and received stock/options and consulting arrangements; he signed a 2002 amendment (the “five percent amendment”) entitling him to five percent of the net proceeds (net of legal fees) from PortfolioScope's litigation with iFlex.
- PortfolioScope received a $10 million iFlex settlement in October 2008; after legal fees it received about $8.2 million. Over November 12–17, 2008, PortfolioScope (at directions tied to Kevin Kimberlin) wired roughly $6.5 million to a Spencer Trask account and $515,000 to CEO Joseph Whelihan (plus smaller transfers), leaving almost no settlement funds available.
- Weiler repeatedly demanded payment; after delays and partial promises he sued in March 2009 asserting breach of contract, breach of implied covenant, tortious interference, conversion, UFTA fraudulent transfers, G. L. c. 93A violations, and related claims.
- The trial judge (bench trial) found PortfolioScope breached the five percent amendment and consulting agreements, breached the implied covenant, Kimberlin tortiously interfered, defendants committed conversion, violated UFTA, and violated G. L. c. 93A; awarded damages (including double damages under c.93A).
- The Appeals Court reversed most noncontract claims; the Supreme Judicial Court largely affirms the Superior Court judgment except it reverses the conversion count because the contract awarded Weiler the value of five percent, not a proprietary right in particular settlement funds.
Issues
| Issue | Weiler's Argument | Defendants' Argument | Held |
|---|---|---|---|
| Interpretation of five percent amendment / entitlement to specific settlement funds | Amendment gave Weiler five percent of the net proceeds (i.e., a share of the actual settlement funds) | Amendment gave a contractual right to value (five percent of net recovery), not to particular cash; secured creditor priority governs actual funds | Court: Contract entitles Weiler to the value of five percent of net recovery (not a proprietary interest in specific cash). Error in judge’s wording immaterial except for conversion claim. |
| Conversion (taking of funds) | Money can be converted and defendants converted Weiler’s five percent share by diverting settlement proceeds | No conversion because Weiler had no property right in the specific funds; only a contractual claim to value | Held: Reversed — conversion judgment vacated because contract did not grant a property interest in the settlement funds themselves. |
| Breach of implied covenant of good faith and fair dealing (PortfolioScope) | Transfers (including $515,000 to Whelihan) frustrated reasonable expectations and denied Weiler the benefit of the contract | Transfers were made at direction of secured creditor KKP; PortfolioScope compelled to follow KKP | Held: Affirmed — judge’s factual findings (no credit to PortfolioScope, concealment, Kimberlin-directed transfers) support breach; KKP-credit defense lacked support. |
| Tortious interference by Kimberlin; applicability of "actual malice" standard | Kimberlin intentionally induced PortfolioScope to defeat Weiler’s contractual entitlement with improper motive/means | Kimberlin, as controller of Spencer Trask/KKP, is a corporate official of PortfolioScope and thus plaintiff must prove "actual malice"; defendants also claim privilege to protect secured creditor interest | Held: Affirmed against Kimberlin — Kimberlin waived the corporate-official/actual-malice argument by not raising it below; judge’s findings show improper motive/means and support tortious interference. |
| Fraudulent transfers under UFTA (transfers to Whelihan and Spencer Trask) | Transfers were made with actual intent to hinder/delay/defraud Weiler and left PortfolioScope without assets; indicia (insider transfers, concealment, transfer of substantially all assets, lack of equivalent value) present | Transfers were payments to secured creditor KKP (via Spencer Trask) and thus not fraudulent; compliance with secured-transactions law insulated transfers | Held: Affirmed — judge’s factual findings (insider status, concealment, no value to debtor, transfers consuming nearly all assets, failure to perfect security before litigation) support actual intent to defraud; compliance with secured-transactions rules does not foreclose UFTA claim. |
| G. L. c. 93A claim — trade or commerce requirement | Defendants engaged in unfair/deceptive acts in trade or commerce by misusing settlement funds and concealing conduct; thus c.93A applies | This was an intra-corporate/employment dispute outside c.93A’s trade-or-commerce scope; threshold defense should bar recovery | Held: Affirmed for Weiler — defendants waived the intra-corporate defense by failing to raise it in trial/appeal; moreover, factual context (consulting relations, multiple entities, conduct years after agreements) makes c.93A applicability plausible. |
Key Cases Cited
- Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376 (2004) (implied covenant of good faith and fair dealing applies to commercial contracts)
- Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451 (1991) (implied covenant enforces reasonable contractual expectations)
- T.W. Nickerson, Inc. v. Fleet Nat'l Bank, 456 Mass. 562 (2010) (lack of good faith shown from totality of circumstances; manner of performance probative)
- Chokel v. Genzyme Corp., 449 Mass. 272 (2007) (breach occurs when one party violates reasonable expectations)
- Blackstone v. Cashman, 448 Mass. 255 (2007) (actual malice standard applies when corporate official interferes; burden to request applicability at trial)
- Psy-Ed Corp. v. Klein, 459 Mass. 697 (2011) (elements of tortious interference with contract)
- Makrigiannis v. Nintendo of Am., Inc., 442 Mass. 675 (2004) (bench-trial factual findings reviewed for clear error)
- Matter of Hilson, 448 Mass. 603 (2007) (money can be subject of conversion claim)
- Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248 (1st Cir. 1991) (finding actual intent to defraud under fraudulent-transfer standards is a factual determination)