ANDREW SEGAL vs. GENITRIX, LLC, & others.
SJC-12291
Supreme Judicial Court of Massachusetts
September 5, 2017. - December 28, 2017.
Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.
Suffolk. Massachusetts Wage Act. Limited Liability Company. Agency, What constitutes. Practice, Civil, Instructions to jury.
NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us
Civil action commenced in the Superior Court Department on February 23, 2009.
The case was tried before Paul D. Wilson, J., and a motion for a new trial was heard by him.
The Supreme Judicial Court granted an application for direct appellate review.
Thomas H. Dupree, Jr. (Matthew S. Rozen, of the District of Columbia, Peter M. Durney, & Julianne C. Fitzpatrick also present) for H. Fisk Johnson, III, & another.
Timothy J. Wilton (Kathy Jo Cook also present) for the plaintiff.
Jonathan A. Karon, Thomas R. Murphy, Matthew J. Fogelman, & Danielle Jurema Lederman, for Massachusetts Academy of Trial Attorneys, amicus curiae, submitted a brief.
KAFKER, J. A jury found the defendants, H. Fisk Johnson, III, and Stephen Rose, two former board members and investors in Genitrix, LLC (Genitrix or company), personally liable under
1. Background.
Because the defendants contend that the trial judge erred in denying their motion for judgment notwithstanding the verdict, we construe the facts in the light most favorable to the plaintiff. See O‘Brien v. Pearson, 449 Mass. 377, 383 (2007). In 1997, representatives for Johnson contacted Segal about investing in Segal‘s cancer research. Segal and Johnson agreed to form a biotechnology startup company with Segal serving as president and chief executive officer (CEO) and Johnson providing initial funding. Stephen Rose was a representative for Johnson, and spoke to Segal on Johnson‘s behalf during their negotiations over the formation of the company. The company, Genitrix, was established as a Delaware limited liability company (LLC) headquartered in Boston.
Segal transferred his intellectual property rights to the company in exchange for a substantial equity interest. Johnson also received a substantial equity interest in return for his initial investment in the company. Segal and Johnson each had authority to appoint two board members to Genitrix‘s four-member board of
As a condition of Johnson‘s investment in the company, he insisted Segal sign an employment agreement with Genitrix. The agreement provided that Segal would serve as the president and CEO of the company, with the “duties, responsibilities and authority” commensurate with those positions, such as “conducting the [c]ompany‘s business, research and development,” and managing its “finances and other administrative matters, subject to the overall direction and authority of [its] [b]oard.” The agreement further provided that “[a]t any time after the second anniversary . . . , the [c]ompany, with the approval of at least [fifty per cent] of the [board], may replace [Segal] as chief executive officer.” If no suitable replacement CEO could be found within fifteen months who seventy-five per cent of the board could agree upon, the Johnson board members were authorized to appoint a new CEO.3
The employment agreement contained terms for Segal‘s removal as an employee that were different from the terms for his removal as CEO. Under the employment agreement, Segal‘s “[e]mployment [p]eriod” could be terminated in one of three ways: (1) resignation; (2) removal for cause approved by fifty per cent of the board; or (3) removal without cause approved by seventy-five per cent of the board. The agreement stated, “Upon termination of the [e]mployment [p]eriod, [Segal] shall not be entitled to receive his [b]ase [s]alary or any fringe benefits for periods after the termination of the [e]mployment [p]eriod.” The agreement also specified Segal‘s salary for the first two years of his employment. Afterward, his salary was to be determined by a vote of seventy-five per cent of the board, and was “payable in regular installments in accordance with [Genitrix]‘s general payroll
In 2003, Johnson began funding Genitrix through Fisk Ventures, LLC (Fisk), an entity owned entirely by Johnson and Rose.5 Fisk became the largest shareholder of Genitrix, and gained the authority to appoint a fifth member to the board. Thereafter, Johnson and Fisk‘s combined equity in Genitrix exceeded fifty per cent. Fisk and Johnson‘s board representatives, taken together, constituted sixty per cent of the board. Although their representatives comprised a majority on Genitrix‘s board, they were still short of the seventy-five per cent threshold required to pass most board resolutions.
Genitrix never employed more than five full-time employees. As the president and sole officer, Segal was responsible for all day-to-day operations. He supervised the laboratory and directly managed human resources. He was in charge of fundraising and generating new capital. Segal also handled the company‘s payroll. As the only individual with authority to “physically sign checks on the Genitrix bank accounts,” he wrote checks for employee wages. When Genitrix began using a company called Paychex to handle its payroll, Segal still had to order each payroll individually, including for himself. However, Segal did need board approval for numerous actions, including “material personnel practices or policies,” hiring and firing of employees earning $45,000 or more, setting compensation for officers and employees other than Segal, and acquiring debt or equity in the company.
On March 23, 2006, Segal informed the board that the company was running out of funds to pay its employees. He told the board they would need to lay off at-will employees the company could not afford to pay, so as to avoid liability under the Wage Act. A few days later, Rose told Segal that Fisk would not invest more money in Genitrix if Segal continued to control the management of the
At the start of 2007, Genitrix was still short on money and struggling to make payroll. Segal stopped taking his salary in January, 2007. He testified that he did so to help the company afford to pay Elihu Young, its last remaining employee other than Segal. Segal explained he “was put in a position where [he] felt [he] had to not pay [him]self.” When pressed about who made that decision, Segal testified, “Given the box I was in, I did.” Segal later suggested to the board that he was no longer paying himself. On February 23, 2007, he stated, “Even without disbursing my salary, it is unlikely that we will be able to pay . . . Young for more than [two] more pay periods,” and proposed that the company sell its laboratory equipment and lay off Young to cut costs. Rose believed Young was “extraordinarily valuable to the company,” as the only one who knew “how to make the [company‘s cancer-fighting] molecule.” Rose responded that “given [Young‘s] importance to the company, he should not be let go without giving the board a full opportunity to meet and discuss this issue in detail. Liquidating assets is an important issue as well.” The Johnson board members did not agree to either proposal. Instead, Rose directed Fisk to invest enough money in Genitrix to pay Young‘s salary for another month.
Despite Segal opting to not pay himself, by mid-2007 Genitrix was again unable to afford to pay even Young. On May 17, 2017, Johnson‘s board members finally agreed to lay off Young, voting in favor of a board resolution to terminate Young‘s employment. A week later Fisk invested additional money in Genitrix for the purpose of paying Young‘s remaining salary. When Young left, Young closed the company‘s laboratory.
At this point the company was out of money and apparently deadlocked on even how to conduct board business. Rose and the
For the next two years Segal actively opposed the dissolution. In July, 2007, he brought counterclaims in that proceeding against the defendants for breach of the LLC agreement, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duties, and tortious interference with his employment agreement. Segal did not bring a Massachusetts Wage Act claim in those proceedings.7
As the dissolution proceedings continued, Segal did some other work as president, including paying patent annuity fees and protecting the work associated with those patents, securing directors’ and officers’ insurance, and making necessary tax filings. Segal testified that he continued to work for the company during this time, despite no longer taking a salary, because he thought he “would eventually get paid.” He believed that when the company sold its patents, “that money would go, at least in part, to pay [him].”
Both Young and Segal raised the issue of unpaid wages with the board. A few months after Segal stopped paying himself, he informed the board that he was no longer taking a salary. In late 2007, months after he left Genitrix, Young threatened to bring a Wage Act claim against the company for outstanding unpaid wages. In March, 2008, Rose directed Fisk to invest enough money in Genitrix to compensate Young for his unpaid wages, and in return Young signed an agreement releasing Genitrix, its board members, and its agents from liability. Rose did not, however, direct Fisk to invest money in Genitrix toward Segal‘s salary.
Segal and Rose continued to argue over whether Segal was owed wages, and whether those wages should take priority over other company expenses, such as patent fees. On February 19,
In early 2009, Segal filed suit against Rose and Johnson in Massachusetts under the Wage Act for unpaid wages from 2007 to 2009. Around the same time, the Delaware Court of Chancery ordered Genitrix‘s dissolution and appointed a liquidator to conduct the dissolution and winding up of the company‘s affairs. As part of the dissolution, the liquidator auctioned off Genitrix‘s intellectual property. Fisk submitted the winning bid of $300,000 even though Johnson‘s board representatives had said Genitrix was worth over $15 million three years earlier.
Segal submitted a proof of claim to the liquidator for back pay in June, 2009, but that claim was denied. Segal appealed from the denial to the chancellor, who dismissed the claim as moot in October, 2010, because the company did not have enough money to satisfy Segal‘s claims.
The defendants moved for summary judgment in the Massachusetts Wage Act suit, and a Superior Court judge granted the motion in 2013, finding that the defendants did not “have the management” of the company under the Wage Act. The Appeals Court, in a memorandum and order pursuant to its rule 1:28, reversed and remanded the grant of summary judgment on the Wage Act claim, holding that our decision in Cook v. Patient Edu, LLC, 465 Mass. 548, 556 (2013), which found the manager of an LLC liable under the Wage Act, raised a genuine issue of material fact as to whether the defendants could be held liable under the Wage Act. See Segal v. Genitrix, LLC, 86 Mass. App. Ct. 1103 (2014).
At trial the jury were instructed that the “duty to pay wages extends to the president and treasurer of a corporation and any officers or agents having the management of such corporation, which includes an LLC, such as Genitrix.” More specifically, the jury were instructed that a “person qualifies as an agent having the management of such corporation if he . . . ‘controls, directs, and participates to a substantial degree in formulating and determining policy of the corporation or LLC.‘” The jury went on to find both defendants individually liable under the Wage Act.
2. Discussion.
a. The statutory language and legislative history of the Wage Act.
The Wage Act requires employers to compensate their employees for earned wages as set out in
Both parties agree that neither defendant was ever president or treasurer of Genitrix. Indeed, the plaintiff in this case was president of Genitrix. The defendants were also not officers of Genitrix. Accordingly, they could only be found liable if they were “agents having the management” of Genitrix under the statute.
In determining the meaning of “agents having the management” of the company, we examine the statutory language and legislative history, as well as our case law. DiFiore v. American Airlines, Inc., 454 Mass. 486, 490-491 (2009), quoting Industrial Fin. Corp. v. State Tax Comm‘n, 367 Mass. 360, 364 (1975) (“We look to the intent of the Legislature ‘ascertained from all its words construed by the ordinary and approved usage of the language, considered in connection with the cause of its enactment, the mischief or imperfection to be remedied and the main object to be accomplished, to the end that the purpose of its framers may be effectuated.’ . . . In addition, our respect for the Legislature‘s
The language, “agents having the management of such corporation,” should also be read in the context of the language it follows. DiFiore, 454 Mass. at 491 (“Where possible, we construe the various provisions of a statute in harmony with one another, recognizing that the Legislature did not intend internal contradiction“). The statute begins with express reference to the president and treasurer, two high level officers in the corporation with individual responsibility for its over-all management, particularly its financial affairs. See Lydia E. Pinkham Med. Co. v. Gove, 303 Mass. 1, 9 (1939) (as treasurer and assistant treasurer of company, defendants had duty to protect company‘s finances and disburse them as directed by president or directors). After expressly including these two positions, it refers to officers or agents having the management of the corporation. Not all officers or agents are included, just those, like the president or treasurer, having the management of the corporation. Some management responsibility is not the same as “the” management of the corporation. Wiedmann v. The Bradford Group, Inc., 444 Mass. 698, 712 (2005) (“Merely holding a managerial position over some branch, division, or office of a corporation does not, by itself, mean that that manager has the ‘management’ of the ‘corporation’ as a whole“). We therefore understand the Legislature to impose personal liability for Wage Act violations on the president and treasurer of the corporation and on other officers or agents who may not hold these titles, but who have assumed and accepted as individuals significant management responsibilities over the corporation similar to those performed by a corporate president or treasurer, particularly in regard to the control of finances or payment of wages.
This interpretation is also supported by the legislative history. As we discussed in Cook, 465 Mass. at 552, the Wage Act was passed in 1879, and originally applied only to municipalities employing “laborers.” See St. 1879, c. 128. Over time, the Wage Act expanded to include specific industries, until it was eventually
In 1932, a provision was added to the Wage Act to address corporate violations of the statute, imposing personal liability on “any officer thereof responsible for such violation.” St. 1932, c. 101. At this point the statute was confined to a select group of company officers responsible for the Wage Act violation. Neither board members, investors, nor other corporate actors were referenced. In 1935, the statutory language was replaced with the modern wording, which imposes liability on the “president and treasurer of a corporation and any officers or agents having the management of such corporation.” See St. 1935, c. 350.
The primary change to the wording of the corporate liability provision in 1935 was the addition of per se individual liability for a company‘s president and treasurer, two of the corporation‘s highest-level officers who had assumed and accepted individual responsibility for the company‘s over-all financial management. In addition to expressly including these two positions, the 1935 amended language refers to officers or agents of the corporation, but, as explained above, not all officers or agents were included, only those, like the president or treasurer, having “the management” of the corporation. The reference to “officers or agents having the management” harkens back to the original wording from 1932, which imposed personal liability on the officers who were “responsible for such violation” of the Wage Act. The particular statutory focus on the payment of wages is also evident from the purpose of the Wage Act.8 The Wage Act was enacted to “protect wage earners from the long-term detention of wages by unscrupulous employers.” Cook, 465 Mass. at 552, quoting Melia v. Zenhire, Inc., 462 Mass. 164, 170 (2012).
b. The novel questions presented here.
We begin with the recognition that this case is quite unusual and removed from the core concerns of the Wage Act. An employee may always sue the president and treasurer of a company for unpaid wages. The Wage
We must also for the first time apply the definition of “agents having the management of the corporation” to board members or investors. None of our previous cases involved attempts to impose liability on board members or investors. Nor did any of those cases require us to define the term “agent.” In Wiedmann, 444 Mass. at 711, liability was imposed on the president of the company and another individual who the defendants “admit[ted] ran the company.” However, with regard to a third individual who was a manager in the company, we held that he lacked “the” management of the corporation as a whole, as he was not a higher-level executive, that is “someone who controls, directs, and participates to a substantial degree in formulating and determining policy of a corporation.”
How the statutory definition of “agents having the management of such corporation” would apply to board members and investors is by no means obvious. A board generally acts collectively, not individually. Estate of Moulton v. Puopolo, 467 Mass. 478, 487-488 (2014). Also a board ordinarily sets policy and oversees management but does not perform the management function itself. See Boston Athletic Ass‘n v. International Marathons, Inc., 392 Mass. 356, 365 (1984). See also Harhen v. Brown, 431 Mass. 838, 844 (2000). Investors may exercise significant financial
c. Requirement that the defendants be agents.
Section 148 does not define “agent,” but we assume the Legislature intended to give the term its ordinary common and corporate law meaning. See Goodrow v. Lane Bryant, Inc., 432 Mass. 165, 170 (2000). At common law, an agency relationship exists where “there is mutual consent, express or implied, that the agent is to act on behalf and for the benefit of the principal, and subject to the principal‘s control.” Theos & Sons, Inc. v. Mack Trucks, Inc., 431 Mass. 736, 742 (2000). See Fergus v. Ross, 477 Mass. 563, 566 (2017); Restatement (Second) of Agency § 15 (1958). In the context of corporate law, an executive officer is generally considered an agent of the company, because he or she acts on the corporation‘s behalf, subject to the corporation‘s control, as exercised through the board of directors. See Restatement (Second) of Agency § 14C comments a, b (1958). By contrast, “[n]either the board of directors nor an individual director . . . is, as such, an agent of the corporation.”
comment a. “An individual director, as such, has still less resemblance to an agent than has the board as a body. He [or she] has no power of his [or her] own to act on the corporation‘s behalf, but only as one of the body of directors acting as a board. Even when he [or she] acts as a member of the board, he [or she] does not act as an agent, but as one of the group which supervises the activities of the corporation.” Id. at § 14C comment b.9 See Estate of Moulton, 467 Mass. at 487.
Likewise, investors in a company are ordinarily not considered agents of the company. Much like board members, investors invariably exercise some control over the businesses they invest in. See United States v. Bestfoods, 524 U.S. 51, 72 (1998). However, exercising one‘s rights as an outside investor is separate and distinct from being an agent of the corporation. 1 W.M.
Investors are acting on their own behalf, not that of the company. Neither the common understanding of the word “agent,” nor its use in the Wage Act, encompasses ordinary investors or investment activity. This court accordingly will not attribute to the Legislature an intent to “alter the normal rules of corporate law . . . in the absence of plain or necessarily implied intent to change the pre-existing law.” Leonard v. McMorris, 63 P.3d 323, 327 (Colo. 2003). See Scott v. NG US 1, Inc., 450 Mass. 760, 769 n.16 (2008) (reading legislative intent in
This is not to say that an individual director or investor can never be personally liable as an agent of the company. Rather, individual directors or investors may still be considered agents of the corporation if they are empowered to act as such, but any agency relationship stems from their appointment as an agent, not from their position as a director or investor. Restatement (Second) of Agency at § 14C comment b. For example, an individual director or investor could be appointed as an agent if the board exercised “its express or implied power to confer authority upon [the individual] to act for the corporation,” or if the individual was appointed as an executive officer. Id. This does not mean that an individual director is immune from any Wage Act liability unless the board has passed an official board resolution appointing that director as an agent of the company. An agency relationship can arise from either express or implied consent. Theos & Sons, Inc., 431 Mass. at 742. If, for example, a particular board member had been empowered to act individually as the functional equivalent of the president or treasurer of the corporation, that board member would be liable for Wage Act violations. Cf. Estate of Moulton, 467 Mass. at 489 (“There is no allegation that the directors undertook any action without a formal board meeting or vote, nor is there any allegation that any individual director attempted to usurp the power of the board . . .“).
There was, however, one express delegation of power to the defendants. The employment agreement between Segal and Genitrix named Johnson, as the investor, as a third-party beneficiary. It expressly stated that Johnson “may enforce the [c]ompany‘s rights under the terms of this [a]greement.” Thus, Johnson was empowered to act as Genitrix‘s agent to enforce Segal‘s employment agreement, including the termination provision which allowed the “[b]oard with the approval of at least [fifty per cent] of the [r]epresentatives” to terminate Segal‘s employment for cause. Additionally, Johnson‘s e-mail message to Segal stating that Rose “speaks for” Johnson, and Segal‘s testimony that Johnson was referring to financial matters, allows for a reasonable inference that Rose was Johnson‘s agent. Whatever agency powers Johnson had, Rose essentially shared.
In sum, Segal, the president and the only officer of the company, had significant officer and agency authority. In contrast, the defendants had limited express agency authority, all of which related to the power to terminate Segal.
d. Requirement that the defendants have the management of the company.
The question then becomes whether the defendants’ limited agency powers, analyzed in the context of the over-all corporate structure, made either or both defendants agents having the management of the company. We conclude that the agency authority here was insufficient to make the defendants individually or collectively “agents having the management of such corporation.”
As the sole officer of Genitrix, specifically charged with “management of the [c]ompany‘s . . . finances and other administrative matters,” including the human resources and payroll functions, Segal, not the defendants, had all of the express officer and agent authority over the management of Genitrix.
During most of this time period, Segal was not only the sole executive but also the only employee; he was also the only individual with authority to sign checks on behalf of the company, and he was exclusively in charge of payroll. The defendants had no agency authority in this area. Segal testified that he affirmatively decided to stop paying himself due to lack of funds. When asked at trial who instructed the payroll company, Paychex, to stop paying him, Segal testified, “Well, I didn‘t tell them not to pay me. I just didn‘t tell them to pay me.” The decision was not made by Johnson or Rose, as they were not empowered to do so.
In contrast to Segal‘s wide-ranging powers over management as the sole officer of the company and its designated authority for payroll, Johnson‘s management powers as an agent derived only from his authority to “enforce the [c]ompany‘s rights under the terms” of Segal‘s employment agreement. The right to fire Segal for cause, and select his successor if no suitable person satisfactory to seventy-five per cent of the board could be identified in fifteen months, does not, by itself, render Johnson an agent having the management of the corporation. This right gave Johnson some leverage over Segal, but not the over-all management of the financial and payroll function of the company as required by the Wage Act.
The other significant powers the defendants had as board members and investors were distinct from the agency powers provided in the agreement. As explained above, the board‘s powers are neither agency powers nor powers entrusted to individual board members. Collective board oversight and control over management, finances, and policy is not oversight and control by individual board members. See Estate of Moulton, 467 Mass. at 487 (“Adoption of corporate policies is achieved by a vote of the board of directors as whole, acting as the corporation . . . and cannot be accomplished in the ordinary course by any individual director“). The individual board members are not acting as the board‘s agents in the exercise of this board function. The statute specifically imposes personal liability on those who
Finally, our corporate statutes as a matter of course impose management oversight responsibility on boards. See, e.g.,
ii. Rose and Johnson‘s particular board activities.
At trial, Segal pointed to the behavior of Rose and Johnson‘s other board representatives, as well as Rose‘s communications on behalf of Johnson‘s representatives, as evidence of the defendants acting as agents having the management of the company. In particular, he emphasized that Rose and the other Johnson board representatives
As evidenced by Rose‘s response to Segal, the termination of the only employee who knew how to make the company‘s molecule and the sale of the company‘s laboratory equipment were not the type of ordinary personnel or financial decisions left to individual managers. They obviously rose to the level of board consideration. That being said, corporate boards are regularly required to make difficult decisions that have an impact on the company‘s finances; indeed, that is an important part of their responsibility as a board. Such decisions, however, are not the acts of individual board members as agents and do not impose personal Wage Act liability.11 We discern nothing exceptional in these board activities that would render Rose or Johnson individually liable under the Wage Act as agents having the management of the corporation. See Estate of Moulton, 467 Mass. at 489.
iii. Rose‘s investment activities.
To prove that Rose acted as an agent having the management of Genitrix, Segal relied heavily on the conditions Rose imposed on new infusions of capital by Fisk. In 2006, as Genitrix was running out of funds, Segal sought more money from Fisk. Rose informed Segal that Fisk would not invest more money in Genitrix if Segal remained in control. Thereafter, Rose restricted Fisk‘s new investments to fund specific expenses, as decided by Rose. By 2007, Genitrix was so financially strapped that it needed more outside investment to fund its existing operations, including payroll. It was during this time period that Segal worked without pay.
As explained above, investors invariably exercise some control over the businesses in which they invest, particularly when that business is failing and seeking new funds from these investors. See Bestfoods, 524 U.S. at 72 (activities consistent with investor status include monitoring corporation‘s performance and supervising corporation‘s finance and capital budget decisions). But exercising one‘s rights and leverage as an investor over infusions of new money are separate and distinct from being an agent
Fisk was a separate company from Genitrix. Fisk was not responsible for Genitrix‘s payroll; Genitrix was. Fisk had no contractual or other obligations to make these payments. As Fisk‘s representative, Rose undoubtedly had significant power over new investments in Genitrix, and how that money was spent, but his exercise of that power was not as an agent having the management of Genitrix. In fact, the LLC Agreement expressly prohibited the defendants from exercising agency authority on behalf of the company in their role as investors. It was Segal, not Rose, acting as the agent of Genitrix in these negotiations for infusions of new money from Fisk. Segal, as a board member, also voted in favor of each board resolution to accept capital from Fisk, including the conditions imposed on those monies. Finally, Rose imposing terms and conditions on new outside investment is not the same as Rose managing the company. We therefore conclude that Rose‘s actions conditioning Fisk‘s infusions of new capital into Genitrix do not prove he was an agent having the management of Genitrix.12
In sum, neither board members nor investors are officers or agents having the management of the company for Wage Act purposes unless they are so empowered by the corporation. Here, the person expressly designated as an officer or agent of Genitrix, particularly in regard to the payment of wages, was the plaintiff,
e. Jury instructions.
The defendants also advance a number of other arguments relating to the trial judge‘s denial of their motion for a new trial. We need not address these arguments in light of our conclusion that the judge erred in denying the defendants’ motion for judgment notwithstanding the verdict.13 However, given our analysis above, and the need for clarity in future cases, we address whether the jury instructions were appropriate as to the meaning of “agents having the management of such corporation” under the Wage Act. We conclude that they were not.
At trial, the jury were not instructed on agency, except insofar as it related to the question whether Rose acted as Johnson‘s agent. Instead, jurors were instructed that “a person qualifies as an agent having the management of such corporation if he . . . ‘controls, directs, and participates to a substantial degree in formulating and determining policy of the corporation or LLC.‘” The trial judge erred in giving this instruction, as the language was taken out of context from our prior cases and causes confusion, particularly when the defendants are board members and investors. See Cook, 465 Mass. at 556; Wiedmann, 444 Mass. at 711.
In Wiedmann, supra, as explained above, the defendants were a company‘s president and treasurer, another individual who admitted to running the company, and the general manager of an office. The language quoted from the Wage Act was used to determine whether an office manager satisfied the requirement of “having the management” of the company. Id. We were not tasked with differentiating the authority of board members or investors, or defining the contours of agency. Indeed the agency status of the manager in Wiedmann was not at issue, just the extent of his management powers. The issue of agency was also
The defendants made a motion in limine requesting three instructions on agency, all of which were denied. First, they sought an instruction that “agents having the management of such corporation” referred to agents who do not hold the formal title of president or treasurer, but whose actual responsibilities are functionally equivalent to those of a corporate president or treasurer. Second, they requested an instruction defining how an agency relationship is created. Third, they asked for an instruction that outside board directors who are not officers or employees of the company are not agents unless specifically appointed as such.
We believe instructions clarifying these distinctions were required in the instant case to avoid confusion about the difference between the powers and responsibilities of board members, investors, and “agents having the management of such corporation.” The jury should have been instructed that there are two important requirements to being an officer or agent having the management of the company. The defendant must be an agent or officer, and must have the management of the company. To further define the meaning of “officers or agents having the management” of the company, the jury should have been instructed that the Wage Act imposes liability on the president and treasurer of the corporation and on other officers or agents who may not hold these titles but whose significant management responsibilities over the corporation are similar to those performed by a corporate president or treasurer, particularly in regard to the control of finances or the payment of wages. This instruction, and not the language from Wiedmann, 444 Mass. at 711, should be given, as it properly defines the meaning of “officers or agents having the management” of the company and avoids confusing a manager‘s responsibilities with management oversight by a board or financial control over investments by an outside investor.
In cases involving Wage Act claims against board members, the jury should also be instructed that “[n]either the board of directors nor an individual director . . . is, as such, an agent of the corporation.” Restatement (Second) of Agency § 14C. An individual director may become an agent if he or she is also appointed
In cases involving Wage Act claims against investors, the jury should be instructed that an outside investor, acting in his or her capacity as an investor, is not an agent of the company. See 1 W.M. Fletcher, Fletcher Cyclopedia of the Law of Corporations § 30, at 100. An outside investor may become an agent, if the board, exercising its express or implied powers, confers authority upon the investor to act for the corporation, or if the investor is appointed as an executive officer. Cf. Restatement (Second) of Agency at § 14C comment b. The jury should be further instructed that the exercise of ordinary financial control over an investment does not give an investor the management of the company in which he or she invests. An investor may, for example, impose conditions on the use of the money invested, such as targeting it for particular expenditures, without having the management of the company. See generally Scott, 450 Mass. at 766.
3. Conclusion.
For the foregoing reasons, we reverse the denial of the defendants’ motion for judgment notwithstanding the verdict, and remand to the Superior Court for entry of judgment for the defendants.
So ordered.
Notes
“Every public officer whose duty it is to pay money, approve, audit or verify pay rolls, or perform any other official act relative to payment of any public employees, shall be deemed to be an employer of such employees, and shall be responsible under this section for any failure to perform his official duty relative to the payment of their wages or salaries, unless he is prevented from performing the same through no fault on his part.”