Weiler v. PortfolioScope, Inc.
982 N.E.2d 555
Mass. App. Ct.2013Background
- Weiler sued PortfolioScope, Kimberlin, and Whelihan after a jury-waived trial regarding a stock option sale agreement that paid Weiler five percent of net proceeds from the iFlex litigation.
- PortfolioScope settled the iFlex litigation for about $10 million; legal fees reduced the net to roughly $8.2 million, which was then distributed by Kimberlin-directed transfers to Spencer Trask and to Whelihan.
- Kimberlin, as sole director and Spencer Trask’s chairman, controlled the proceeds flow through KKP, a secured creditor with a prior security interest in PortfolioScope assets.
- Weiler’s agreement with PortfolioScope did not expressly create an ownership claim in the iFlex proceeds; it purported to pay five percent of net proceeds as consideration for stock options.
- The trial judge held that the five percent claim deprived KKP of priority and that PortfolioScope breached the covenant of good faith and fair dealing, and also found various tort and statutory violations.
- The appellate court reversed, holding that Weiler did not have a priority claim over KKP and that the transfers to insiders did not render the actions fraudulent under UFTA or 93A, and that Weiler had no conversion rights.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Contract interpretation of five percent provision | Weiler's five percent payment attached to net proceeds. | Provision does not create a priority right; it is a general unsecured claim. | No priority right; ambiguous; tontains no clear assignment. |
| Priority of Weiler's claim vs. KKP security interest | Weiler’s five percent constitutes an assignment ahead of KKP. | KKP’s prior security interest prevails; Weiler is unsecured. | KKP's security interest prevails; Weiler not superior. |
| Covenant of good faith and fair dealing | PortfolioScope breached by paying Whelihan before Weiler. | Payments to Whelihan were permissible or at KKP's direction. | Portfolioscope’s payments to Whelihan improper; covenant breached. |
| Tortious interference with contract | Kimberlin interfered with Weiler's contractual rights to receive five percent. | Interference with corporate matters and priority creditors is not improper. | Not tortious interference; actions within creditor priorities. |
| Uniform Fraudulent Transfer Act and 93A applicability | Transfers were fraudulent or deceptive to hinder Weiler. | Transfers were authorized by secured creditor; no 93A or UFTA violation. | UFTA claim fails; 93A does not apply; no deception established. |
Key Cases Cited
- Psy-Ed Corp. v. Klein, 459 Mass. 697 (Mass. 2011) (actual malice standard for corporate-officer interference)
- Blackstone v. Cashman, 448 Mass. 255 (Mass. 2007) (actual malice standard for corporate officials)
- Grand Pac. Fin. Corp. v. Brauer, 57 Mass. App. Ct. 407 (Mass. App. Ct. 2003) (93A applicability within private business disputes)
- Lyon v. Wallace, 221 Mass. 351 (Mass. 1915) (secret-benefit transfers require clandestine gain to qualify as fraud)
- Linkage Corp. v. Trustees of Boston Univ., 425 Mass. 1 (Mass. 1997) (dual inquiry for 93A applicability: commerce and business context)
- G. L. c. 106, § 9-322, See text (Not a case) (priority among conflicting security interests is by time of filing or perfection)
- Grise v. White, 355 Mass. 698 (Mass. 1969) (assignment and authority to convey rights)